2016 (12) TMI 1565 - HC - Companies Law

Money lending - loans advanced at a rate of interest beyond the prescribed limit - Held that - Loan cum Hypothecation Agreement, Letter of Continuity, Promissory Note, Registration Book of each of such customers have been relied upon by the Inspector to support his case and to show that the amount of money advances is a loan and therefore the company, a company registered under the Companies Act,1956 is a company advancing loans for vehicles and operating without a license. Application for a license was made on 4/7/2007 and subsequently withdrawn on 27/8/2007. The complaint therefore states that no fresh license has therefore been issued to the Company. Nothing has been stated in the application to dispute this fact in the complaint. All these transactions are, therefore, loans advanced at a rate of interest beyond the prescribed limit under the Act making the Company responsible for the breach of the provisions of the Money Lending Act. Accordingly the application seeking a prayer to quash the Criminal Complaint being Criminal Case filed before the Court of the Metropolitan Magistrate, Court No. 20, Ahmedabad is not entertained and the prayer to seek quashing of the same is rejected. Application accordingly stands rejected. Rule is discharged.

Issues Involved:
1. Applicability of the Bombay Money Lenders Act, 1946 to the accused company.
2. Definition of "loan" under Section 2(9) of the Act.
3. Classification of the beneficiaries of the loan as "traders."
4. Exemption of Non-Banking Financial Companies (NBFCs) from the Act.
5. Validity of the complaint under Section 200 of the Cr.P.C.
6. Nature of the loan agreement as a "hire purchase agreement."

Detailed Analysis:

1. Applicability of the Bombay Money Lenders Act, 1946 to the accused company:
The accused company, Manba Finance Ltd., was charged with breaching Sections 5, 18, 19, 25, and 32(1) of the Bombay Money Lenders Act, 1946. The complaint alleged that the company advanced loans without a valid license, making it liable for prosecution under Sections 32(2) and 34(a) and 34(b) of the Act. The company had applied for a license on 4/7/2007 but withdrew the application on 27/08/2007, and no fresh license was issued.

2. Definition of "loan" under Section 2(9) of the Act:
The accused argued that the loans advanced were to "traders" and thus did not fall under the definition of "loan" as per Section 2(9)(g) of the Act. However, the court found that the loans were for personal use and self-sustainment, not for trade or business purposes. Therefore, the transactions were classified as loans under the Act, making the company subject to its provisions.

3. Classification of the beneficiaries of the loan as "traders":
The court examined instances where loans were advanced for purchasing vehicles like auto-rickshaws and motorcycles for personal use and self-employment. The court concluded that these beneficiaries did not qualify as "traders" under Section 2(18) of the Act, as they were not engaged in buying and selling goods or property in the regular course of business.

4. Exemption of Non-Banking Financial Companies (NBFCs) from the Act:
The accused claimed exemption as an NBFC, citing cases like Shriram Transport Finance Company Ltd. vs. State of Gujarat. However, the court noted that no evidence was provided to show that the accused held a license under the Reserve Bank of India Act as an NBFC. The court emphasized that the accused had applied for and then withdrawn a license under the Money Lenders Act, which did not support their claim for exemption.

5. Validity of the complaint under Section 200 of the Cr.P.C.:
The accused contended that the complaint was invalid due to non-compliance with Section 200 of the Cr.P.C., as the complainant was not examined on oath. The court rejected this argument, stating that the complainant was a public servant acting in the discharge of official duties, and thus, the requirement for examination under Section 200 was not applicable.

6. Nature of the loan agreement as a "hire purchase agreement":
The court addressed the contention that the loan agreement was a hire purchase agreement and not a loan agreement. Citing the Supreme Court's decision in Sundaram Finance Ltd., the court held that a hire purchase agreement could be considered a loan agreement. The agreements in question involved recovery of loan amounts with interest in installments, fitting the definition of a loan under the Act.

Conclusion:
The court concluded that the accused company had advanced loans without a valid license, violating the provisions of the Bombay Money Lenders Act, 1946. The application to quash the criminal complaint was rejected, and the interim relief, if any, was vacated. The court found that the transactions were indeed loans and that the accused did not qualify for any exemptions under the Act.

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