THE USURIOUS LOANS ACT, 1918

(ACT No. 10 OF 1918)

Contents

 

SN

Subject

1.       

Short title and extent

2.       

Definitions

3.       

Re-opening of transactions

4.       

Insolvency Proceedings

 

 

An Act to give additional powers to Court to deal in certain cases with usurious loans of money or in kind.

                                                                                    [22nd March, 1918]

 

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Year

No.

Short title

Whether affected by letter legislation

1918

10

The Usurious Loans Act, 1918

Amended in part by Act, 28 of 1926 Amended in its application to Punjab by east Punjab Act 4 of 1948.

Amended in part by the Indian Independence (Adaptation of Central Act and Ordinance) Order 1948.

Amended Part by the Adaptation of Laws No. 3) Order, 1956.

Extended to the territories which immediately before the 1st November 1956 were comprised in the Patiala and East Punjab State Union and shall be deemed to have been extended to and enforced in the transferred territories from the 30the December, 1960 by Punjab Act No. 18 of 1962.2   

 

Whereas it is expedient to give additional powers to Courts to deal in certain cases with usurious loans of money or in kind ; it is hereby enacted as follows :-

 

1.      Short title and extent - (1)  This Act may be called the Usurious Loans Act, 1918.

(2)               It extends to the whole of India except 3[the territories which immediately before the 1st November, 1956, were comprised in Part B States]4*  *

(3)               The State Government may by notification in the Official Gazette direct that it shall not apply to any area class of persons or class of transactions which it may specify in its notification.

 

1For Statement of Objects and Reasons see Punjab Government Gazette (Extraordinary); 1948 page 143.

2For Statement of Objects and Reasons see Punjab Government Gazette (Extraodinary)1962 page 568.

3Substituted by the Adaptation of laws (No. 3) Order 1955 for “Part B States”.

4The words “including British Baluchistan” omitted by the Indian Independence (Adaptation of Central Acts and ordinances) Order, 1948.

 

2.      Definitions - In this Act unless there is anything repugnant in the subject or context,-

(1)     “Interest” means rate of interest and includes the return to be made over and above what was actually lent whether the same is charged or sought to be recovered specifically by way or interest or otherwise.

(2)     “Loan” means a loan whether of money or in kind and  includes any transaction which is in the opinion of the Court in substance a loan;

(3)     “Suit to which this Act applies” means any suit –

(a)     for the recovery of a loan made 1[whether before or] after the commencement of this Act; or

(b)    for the enforcement of any security taken or any agreement whether by way of settlement of account or otherwise made after the commencement of this Act in respect of any loan made either before or after the commencement of this Act; 2[or

(c)     for the redemption of any security given after the commencement of this Act in respect of any loan made either before or after the commencement of this Act.]

 

3.                  Re-opening of transactions - (1) Notwithstanding anything in the Usury Laws Repeal Act 1855 where in any suit to which this Act applies whether heard exparte or otherwise the Court has reason to believe -


 


(a)     that the interest is excessive; and

(b)    that the transaction was as between the parties thereto substantially unfair,

 

1Inserted by East Punjab Act 4of 1948. For Statement of Objects and Reasons see East Punjab Gazette (Extraordinary ) dated the 3rd March, 1946.

2Ins. by Act 28 of 1926, S. 2.

 

the Court may exercise all or any of the following powers, namely, may,-

           

(i)                  re-open the transaction take an account between the parties and relieve the debtor of all liability in respect of any excessive interest;

(ii)                notwithstanding any agreement purporting to close previous dealings and to create a new obligation re-open any account already taken between them and relive the debtor of all liability in respect of any excessive interest and if anything  has been paid or allowed in account in respect of such liability order the creditor to repay any sum which it considers to be repayable in respect thereof;

(iii)               set aside either wholly or in part or revise or alter any security given or agreement made in respect of any loan and if the creditor has parted with the security order him to indemnify the debtor in such manner and to such extent as it may deem just;

Provided that in the exercise of these powers the Court shall  not-

(i)                  re-open any agreement purporting to close previous dealings and to create a new obligation which has been entered into by the parties or any persons from whom, they claim at a date more that 1[twelve] year from the date of the transaction;


 


            1Sub-section (3) omitted by Act 1 of 1970.

                       

(ii)                do anything which effects any decree of a Court.

 

Explanation   -In the case of a suit brought on a series of transactions the expression “the transaction” means for the purposes of proviso (I) the first of such transactions.

 

(2)               (a) In this section “excessive” means in excess of that which the Court deems to be reasonable having regard to the risk incurred as it appeared or must be taken to have appeared to the creditor at the date of the loan.

(b)   In considering whether interest is excessive under this section the Court shall take into account any amounts charged or paid whether in money or in kind for expenses inquiries fines, bounses, premia, renewals or any other charges and if compound interest is charged the periods at which it is calculated and the total advantage which may reasonably be taken to have been expected from the transaction.

(c)    In considering the question of risk the Court shall take into account the presence or absence of security and the value thereof the financial condition of the debtor and the result of any previous transaction of the debtor by way of loan so far as the same were known or must be taken to have been known to the creditor.

(d)   In considering whether a transaction was substantially unfair the Court shall take into account all circumstances materially affecting the relations of the parties at the time of the loan or tending to show that the transaction was unfair, including the necessities or supposed necessities of the debtor at the time of the loan so far as the same were known or must be taken to have been known to the creditor.

 


Explanation - Interest may of itself be sufficient evidence that the transaction was substantially unfair.

(3)               This section shall apply to any suit whatever its form may be if such suit is substantially one for the recovery of a loan or for the enforcement of any agreement  or security in respect of a loan 1[or for the redemption of any such security.].

(4)               Nothing in this section shall affect the rights of any transferee for value who satisfies the Court that the transfer to him was bona fide and that he had at the time of such transfer no notice of any fact which would have entitled the debtor as against the lender to relief under this section.   

            For the purposes of this sub-section, the word “notice” shall have the same meaning as is ascribed to it in section 4 of the Transfer of Property Act, 1882.

 

(5)               Nothing in this section shall be construed derogating from the existing powers or jurisdiction of any Court.

 

4.                  Insolvency Proceedings On any application relating to the admission or amount f a proof of a loan in any insolvency proceedings the Court may exercise the like powers as may be exercised under section 3 by a Court in a suit to which this Act applies.


 


1Ins. by Act 38 of 1926, S. 3.