Whether accused can be prosecuted for an offence U/S138 NI Act if he has given a cheque as Security for a Loan From an Unlicensed Money Lender?

 The learned Sessions Judge

while allowing the revision application preferred by

respondent Nos. 1 and 2 has observed that the contract

which is forbidden by law is void contract. In cases of

money lending business without license, the provisions

under Section 138 of Negotiable Instruments Act are not

attracted. According to the complainant huge amount of Rs.

4,50,000/- was parted to the accused. There was a

Memorandum Of Understanding (for short “MOU”) dated

22.02.2014 between M/s. Monika Sumit Ujjain as the lender

and M/s. Saga Infra as the borrowers. As per MOU it can be

gathered that the transactions was without license. Post

dated cheques were given by way of security. I have

perused the MOU and the other documents on record

considering the factual matrix of this case I do not find any

reason to interfere with the impugned order.

IN THE HIGH COURT OF JUDICATURE AT BOMBAY

CRIMINAL APPELLATE JURISDICTION

CRIMINAL REVISION APPLICATION NO. 394 OF 2015

Mrs. Monica Sunit Ujjain  Vs Sanchu M. Menon

CORAM : PRAKASH D. NAIK, J.

DATE : 2nd AUGUST, 2022

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Whether Advocates can do money lending business with their client?

Admittedly, the respondent is a practicing Advocate and he appeared on behalf of the petitioner in S.T.C.No.1293 of 2016 on the file of the learned Judicial Magistrate No.4, Salem and also in S.T.C.No.106 of 2018 on the file of the learned Judicial Magistrate No.1, Salem. While being so, he is barred from having any business transactions or loan transactions with his client viz., the petitioner herein.

8. In this regard, the learned counsel appearing for the petitioner relied upon the judgement reported in (2018) 1 SCC 638 in the case of B.Sunitha Vs. State of Telengana, in which the Hon'ble Supreme Court of India held as follows :-

"12. One of the issues was dealt with by a single Bench Judgment of the Madras High Court in C. Manohar versus B.R. Poornima. R. Banumathi, J (as her Lordship then was) held that no presumption could arise merely by issuance of a cheque that amount stipulated in the cheque was payable towards fee. In absence of independent proof, issuance of cheque could not furnish cause of action under Section 138 of the Act in the context 4 J.S. Vasu versus State of Punjab (1994) 1 SCC 184, para 20 5 (2004) Crl.L.J 443 of an advocate or client. The observations relevant in the context are as follows :

13. The Bombay High Court in Re: KL Gauba6 held that fees conditional on the success of a case and which gives the lawyer 6 AIR 1954 Bom 478 an interest in the subject matter tends to undermine the status of the profession. The same has always been condemned as unworthy of the legal profession. If an advocate has interest in success of litigation, he may tend to depart from ethics.

14. In the matter of G.Senior Advocate of the Supreme Court, this Court held that the claim of an advocate based on a share in the subject matter is a professional misconduct. In VC Rangadurai versus D. Gopalan, it was observed that relation between a lawyer and his client is highly fiduciary in nature. The advocate is in the position of trust.

15. Rule 20 of Part VI, Chapter II, Section II of the Standard of Professional Conduct and Etiquette reads as follows :

“An advocate shall not stipulate for a fee contingent on the results of litigation or agree to share the proceeds thereof.”

16. Thus, mere issuance of cheque by the client may not debar him from contesting the liability. If liability is disputed, the advocate has to independently prove the contract. Claim based on percentage of subject matter in litigation cannot be the basis of a complaint under Section 138 of the Act.

17. In view of the above, the claim of the respondent advocate being against public policy and being an act of professional misconduct, proceedings in the complaint filed by him have to be held to be abuse of the process of law and have to be quashed."

In the above judgment the Hon'ble Supreme Court of India held that the action of the Advocate is against public policy and an act of professional misconduct.

The proceedings under his complaint is felt to be abuse of process of law and have to be quashed. In the case on hand, when there is a specific bar for doing money lending business that too with his own client, the act of the respondent is amount to professional misconduct. Therefore, the entire proceedings initiated as against the petitioner is nothing but clear abuse of process of law and the complaint itself is liable to be quashed.

 Madras High Court

Ilakkia Raja vs T.Umamaheswaran on 29 July, 2020

                                                                          CORAM: MR.JUSTICE G.K.ILANTHIRAIYAN

   

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Leading judgment on money lending law

I shall first take up the point whether the suit itself is barred under Section 4 of the Bihar Money-Lenders (Regulation of Transactions) Act, 1939 (Bihar Act VII of 1939). The relevant portion of that section reads as follows:--

"4. Suit for recovery of loan only maintainable by registered money-lenders --No Court shall entertain a suit by a money-lender for the recovery of a loan advanced by him after the commencement of this Act unless such moneylender was registered under the Bihar Money-Lenders Act, 1938 (Bihar Act 3 of 1938) at the tune when such loan was advanced ........."

Two important things are to be considered for the application of this section. The first thing is whether it is a suit for a money-lender; and secondly, whether it is for recovery of a loan. In the present case, no money was actually advanced by the plaintiff. He had to take a salami of Rs. 18,000.00 from the defendants, and the defendants had no ready money to pay the same. They, therefore, executed the mortgage bond in respect of this salami money. It is not argued on behalf of the appellant that the plain-tiff is a professional money-lender. It has been held in several cases that where money-lending is casual, then the provisions regarding registration as a moneylender do not apply, vide MANU/BH/0144/1947 : AIR 1949 Pat 400, Bhutnath Kumar v. Nilkantha, Narain Singh.

The business of money-lending imports a notion of system, repetition and continuity, and that is a test of determining whether the plaintiff is a professional money-lender. Occasional loans to relatives, friends or acquaintances do not make the lender a professional moneylender. There must be more than occasional and disconnected loans to justify a finding that the plaintiff is a professional money-lender so as to apply the bar of Section 4 of Bihar Act VII of 1939: Vide Dwarkadas Marwari v. Kalipada Dey. 1959 BLJR 145 and Lakhi Narayan Sao v. Sm. Bhagwati Kuer. MANU/BH/0103/1963 : AIR 1963 Pat. 350.

Equivalent Citation: AIR1970Pat167, 1969(17)BLJR950

IN THE HIGH COURT OF PATNA

A.F.O.D. No. 459 of 1963

Decided On: 19.05.1969

Sanwarmal Agarwalla Vs. Benoy Krishna Mukherjee and Anr.

Hon'ble Judges/Coram:
Anwar Ahmad and M.P. Varma , JJ.

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Whether money advanced by company comes within scope of money lenders Act?

The fourth ground raised by the learned counsel for the
petitioners is with regard to lending loan without having any
licence to do business under the Andhra Pradesh (Telangana Area) 
Money Lenders Act, 1349 F.  Placing reliance on a judgment of this
Court reported in Mrs. K.Sudersanam V. S.Venkata Rao  and as  
there was no licence to do money lending business, he submits that
a complaint under Section 138 of the Act is not maintainable. Since
the complainant is a company established for a business other than
money lending, he submits that the second respondent could not 
have lent money without obtaining licence under the provisions of
the Act.  He thus contends that any default in payment of money is
not enforceable under law and the present complaint under
Section 138 of the Act is not maintainable.  As stated above, the
petitioners are strangers to the second respondent and they came
into contact with the complainant only through one T.Sateesh
Kumar, who is the friend of accused No.2.
           Keeping in view the facts in issue, the said argument of the
learned counsel for the petitioners needs to be tested with the
judgment relied upon by him.
                  A reading of the judgment of this Court referred to above
(K.Sudersanam (10 Supra) would disclose that in order to fall
within the definition of money lender it is not enough merely to
show that a man had on several occasions lent money at 
remunerative rates of interest but that there must be a certain
degree of system and continuity about the transactions and that
the definition of money lender in the Act does not include those
who advanced money casually.   In case on hand, there is no
material to show that there was a certain degree of system and
continuity in doing money lending business.  On the other hand,
the complaint refers to only one transaction.
          Apart from that the word money lender is defined in
Section 2 (7) of the Andhra Pradesh (Telangana Area) Money 
Lenders Act, 1349 F which reads as under. 
 Money lender means a person including a pawn broker, 
who, within the meaning of this Act, only advances loan in
the ordinary course of his business or does so along with
other business, and shall also include the legal
representative of such person, and the person claiming to
be his representative on the ground of succession or
assignment or otherwise.
         The word loan mentioned in Section 2 (7) of the Andhra
Pradesh (Telangana Area) Money Lenders Act, 1349 F is defined in 
Section 2 (4)  of the Act which is as under: -
 loan means a loan secured or unsecured, advanced on interest in
cash or in kind, and shall include every transaction which is in
substance a loan, but shall not include the following.
Section 2 (4) (d) of the Act reads as under:
a loan advanced by a bank, a co-operative society or a company
         A conjoint reading  of Section 2 (4) (d) and 2 (7) of the
Andhra Pradesh (Telangana Area) Money Lenders Act, 1349 F would   
clearly indicate that the money advanced by a company in the
form of loan is excluded from the purview of the Andhra Pradesh
(Telangana Area) Money Lenders Act, 1349 F.   Viewed from any 
angle, the argument of the learned counsel for the petitioners does
not stand to merit.
ANDHRA PRADESH HIGH COURT
THE HONBLE SRI JUSTICE C. PRAVEEN KUMAR          

CRIMINAL PETITION No.6355 OF 2013     

dATED:28-01-2014 

M/s. Vasundhara Projects Pvt. Ltd.,
Vs    
                
The State of A.P. 
         
CRIMINAL PETITION No.6355 OF 2013   
Citation: 2014(2)ALD(Cri)883, 2015ALLMR(Cri)100, 2014 (3) ALT (Crl.) 193 (A.P.)  

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How to prove that loan transaction was money lending transaction in case of dishonour of cheque?

The fourth ground raised by the learned counsel for the petitioners is with regard to lending loan without having any licence to do business under the Andhra Pradesh (Telangana Area) Money Lenders Act, 1349 F. Placing reliance on a judgment of this Court reported in Mrs. K.Sudersanam V. S.Venkata Rao and as there was no licence to do money lending business, he submits that a complaint under Section 138 of the Act is not maintainable. Since the complainant is a company established for a business other than money lending, he submits that the second respondent could not have lent money without obtaining licence under the provisions of the Act. He thus contends that any default in payment of money is not enforceable under law and the present complaint under Section 138 of the Act is not maintainable. As stated above, the petitioners are strangers to the second respondent and they came into contact with the complainant only through one T.Sateesh Kumar, who is the friend of accused No.2.

Keeping in view the facts in issue, the said argument of the learned counsel for the petitioners needs to be tested with the judgment relied upon by him.

A reading of the judgment of this Court referred to above (K.Sudersanam (10 Supra) would disclose that in order to fall within the definition of money lender it is not enough merely to show that a man had on several occasions lent money at remunerative rates of interest but that there must be a certain degree of system and continuity about the transactions and that the definition of money lender in the Act does not include those who advanced money casually. In case on hand, there is no material to show that there was a certain degree of system and continuity in doing money lending business. On the other hand, the complaint refers to only one transaction.

Apart from that the word money lender is defined in Section 2 (7) of the Andhra Pradesh (Telangana Area) Money Lenders Act, 1349 F which reads as under.

Money lender means a person including a pawn broker, who, within the meaning of this Act, only advances loan in the ordinary course of his business or does so along with other business, and shall also include the legal representative of such person, and the person claiming to be his representative on the ground of succession or assignment or otherwise.

The word loan mentioned in Section 2 (7) of the Andhra Pradesh (Telangana Area) Money Lenders Act, 1349 F is defined in Section 2 (4) of the Act which is as under: -

loan means a loan secured or unsecured, advanced on interest in cash or in kind, and shall include every transaction which is in substance a loan, but shall not include the following. Section 2 (4) (d) of the Act reads as under:

a loan advanced by a bank, a co-operative society or a company A conjoint reading of Section 2 (4) (d) and 2 (7) of the Andhra Pradesh (Telangana Area) Money Lenders Act, 1349 F would clearly indicate that the money advanced by a company in the form of loan is excluded from the purview of the Andhra Pradesh (Telangana Area) Money Lenders Act, 1349 F. Viewed from any angle, the argument of the learned counsel for the petitioners does not stand to merit.

Andhra High Court

M/S. Vasundhara Projects Pvt.  vs State of andhra pradesh on 28 January, 2014

Citation; 2015 ALLMR(cri)Journal 100

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