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TMI Blog1991 (3) TMI 395X X X X Extracts X X X X X X X X Extracts X X X X ..... ersons who are doing business as Money Lenders having taken licences under the Karnataka Money Lenders Act, 1961 have questioned the constitutional validity of the Karnataka Pawn Brokers (Amendment) Act, 1985 and the Karnataka Money Lenders (Amendment) Act, 1985 on the ground that the provisions of the said Acts are violative of Articles 14 and 19 of the Constitution of India and they have also questioned the Constitutional validity of Section 4(2)(c) and Section 23(2) of the Karnataka Pawn Brokers Act, 1961 as volatile of Articles 14 and 19 of the Constitution. 2. The material facts necessary for the disposal of these cases are these:- With the object of making better provisions for the regulation and control of transactions of money lending in the State, the Legislature enacted the Karnataka Money Lenders Act, 1961 ('Money Lenders Act' for short). Section 2(10) of the Act defines the expression 'Money Lender'. It reads:- 2(10) Money Lender means (i) an individual; or (ii) an undivided Hindu family; or (iii) a company or (iv) an unincorporated body of individuals; who or which, (a) carries on business of money lending in the State ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ving taken the licences, the petitioners have been carrying on the business for the last nearly two decades. 3. In the year 1985 the State Legislature made Amendments to the two enactments, by which Section 7A and 7B were introduced into the Money Lenders Act and Section 4A and Section 4B were introduced into the Pawn Brokers Act. The two provisions are similar. Therefore, it is sufficient to set out the provisions of Section 7A and 7B of the Money Lenders Act. They read:- A. CONDITION OF LICENCE - (1) Every applicant who has been granted a licence under Section 7, whether before or after the commencement of the Karnataka Money Lenders (Amendment) Act, 1985 shall within thirty days from the date of such commencement, and thereafter before the last day of October of every year pay security deposit as provided in Sub-section (2). (2) Every licensee specified in column (2) of the table below shall in the prescribed manner deposit in the Government treasury the amount specified in the corresponding entry in column (3) of the said table by way of security for the due observance of the conditions of the licence. TABLE 1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the amount forfeited, direct payment of such, amounts and at such rates as may be prescribed to the borrower, affected by the acts of the licensee. By the above previsions for the first time, the requirement to make a deposit to the extent indicated in the table in Section 7A of the Money Lenders Act and Section 4A of the Pawn Brokers Act was prescribed as a condition for securing licence. In view of the incorporation of Section 7A and 7B into the Money Lenders Act by the Karnataka Money Lenders (Amendment) Act, 1985 and the incorporation of Sections 4A and 4B into the Karnataka Pawn Brokers (Amendment) Act, 1985, the petitioners are challenging the Constitutional validity of the said provisions on the ground they are violative of Articles 14 and 19(1)(g) of the Constitution. Petitioners, who are pawn brokers have also challenged Section 4(2)(c) and Section 23(2) of the Pawn Brokers Act on the ground that by these provisions a pawn broker is also required to take licence under the Money Lenders Act and there was no justification for compelling a pawn broker to take two licences, one under the Pawn Brokers Act and another under the Money Lenders Act and such insistence was vio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... doing business as pawn brokers or money lenders. The irrelevant consideration, namely, the collection of resources alone is the object of the Act is reflected in the Budget Speech of the Chief Minister. The relevant portion of the Speech reads:- 119. Measures for raising additional resources to reduce this deficit have already been indicated and are listed in Annex VII. I expect that with the full benefit of ₹ 87 crores from those measures, the overall deficit at the end of 1984-85 would be ₹ 182,61 Crores. ANNEX VII Net Additional Resource Mobilisation Measures. (Rs. in Crores) 1. Rural Development Cess on (a) Sales Tax 42.00 (b) Motor Vehicles-Tax 8.00 2. Rationalisation of Sales Tax 3.00 3. Security deposits from pawn brokers and money lenders 9.00 4. Tax on Mineral Rights 15.00 5. Levy of conversion fine 9.00 6. Urban water suppl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... te of the amount advanced by him as loan had exceeded ₹ 1 lakh. Similar would be the position in respect of each of the categories and this would constitute a very heavy burden as by this a person who has invested only a sum of ₹ 25,000/- to make a deposit of ₹ 10,000/- in order to do the business and so on. The learned Counsel submitted that even pawn brokers and money lenders themselves take money on loan on payment of interest and if they are required to deposit such substantial amount with the Government, their business would be crippled and thereby they will be completely prevented from doing their business. V) When the Legislature had made provision for taking deposits from pawn brokers and money lenders, there should have been a provision for making payment of interest on the amount deposited and failure to make a provision for payment of interest on the substantial amount taken as deposit is not only arbitrary but also unreasonable restriction on the fundamental right of the petitioners to carry on business guaranteed under Article 19(1)(g) of the Constitution. VI) The provisions of Section 7B of the Money Lenders Act and Section 4B of the Pawn Broke ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... permissible category must be on the State and this burden the State may discharge either by producing socio-economic data before the Court or on consideration of the provisions in the impugned law read in the light of the constitutional goals set out in the Directive Principles of State Policy. The test to be applied for the purpose of determining whether the restrictions imposed by the impugned law are reasonable or not cannot be cast in a rigid formula of universal application, for, as pointed out by Patanjali Shastri, J. in State of Madras v. V.J. Row, 1952CriLJ966 no abstract standard or general pattern of reasonableness can be laid down as applicable to all cases . The nature of the right alleged to have been infringed, the underlying purpose of the restrictions imposed, the extent and urgency of the evil sought to be remedied, the value of human life the disproportion of the imposition, the social philosophy of the Constitution and the prevailing conditions at the time would all enter into the judicial verdict. And we would do well to bear in mind that in evaluating such elusive factors and forming his own conception of what is reasonable in all the circumstances of a given ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tution enact a code dealing exclusively with matters dealt with therein, and the protection which an aggrieved person may claim is circumscribed by the object of the State action. A. Protection of the right to property or personal freedom is most needed when there is an actual threat. To argue that State action which deprives a person permanently or temporarily of his right to property or personal freedom, operates to extinguish the right or the remedy is to reduce the guarantee to an empty platitude. Again to hold that the extent of, and the circumstances in which, the guarantee of protection is available depends upon the object of the State action, is to seriously erode its effectiveness. Examining the problem not merely in semantics but in the broader and more appropriate context of the constitutional scheme which aims at affording the individual the fullest protection of his basic rights and on that foundation to erect a structure of a truly democratic polity, the conclusion, in our Judgment, is inevitable that the validity of the State action must be adjudged in the light of its operation upon the rights of the individual and groups of individuals in all their dimensions. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y read:- STATEMENT OF OBJECTS AND REASONS The persons who borrow money from the licensed money lenders pledge costly gold ornaments and other articles with them. To safeguard the interests of these borrowers it is proposed to insist on a security deposit in a Government Treasury from such licensed money lenders, and to make a security deposit a condition precedent for granting licence in future. In view of the Voluminous work in the Administration of the Act, it is also proposed to increase the license fee. As the matter was very urgent, the Karnataka Money Lenders (Amendment) Ordinance, 1985 (Karnataka Ordinance No. 11 of 1985) was issued. This Bill seeks to replace the said ordinance. He also referred to paragraphs-8 and 10 of the Statement of Objections. They read:- 8. The Respondents-State has been pleased to impose the security deposit as a measure to impose discipline in the business of Money Lending and Pawn Brokerage by promulgating ordinances. The business of Money Lending/Pawn Brokerage, is being regulated with the sole object of regulating the business for the maximum benefit of the general public. The total aggregate amount lent during the year ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e may be. In support of his submission he also produced a copy of Administrative Report relating to the implementation of the two enactments for the year 1989. Relevant portion on which he relied reads: - During the year under report the money lending squad has inspected 818 Money Lending, Pawn Brokers and Finance Corporations in the State. And the Registrar of Money Lenders in the State have inspected 1420 Money Lenders, Pawn Brokers and Finance Corporations. Apart from this, they have detected 25 cases of un-authorized Money Lending and contraventions of law. In these cases the concerned Registrar of Money Lenders in the State have initiated, Prosecution proceedings in these 25 cases. During the year under report 7 cases have been decided by the Court and the accused in these 7 cases have been convicted. At the end of the year 52 cases have been pending in the various Courts for trial. He submitted that though this was a report for the period subsequent to the impugned Amendments, it indicates the mal-practices in the business which required to be checked. 8. As regards the submission made by the learned Counsel for the petitioners that even assuming that there was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s satisfied, that the provision can be faulted as discriminatory but not otherwise. Unless such a defect can be found the further question of construing the provision in such a manner as to include all employees and not merely employees of public sector companies, does not arise. XXX XXX XXX 16. There is thus a clear distinction between the two. While the purpose or object of the legislation is to provide a remedy for the malady, the legislative intention relates to the meaning or exposition of the remedy as enacted. While dealing with the validity of a classification, the rational nexus of the differentia on which the classification is based has to exist with the purpose or object of the legislation, so determined. The question next is of the manner in which the purpose or object of the enactment has to be determined and the material which can be used for this exercise. xxx xxx xxx 18. Not only this, to sustain the presumption of constitutionality, consideration may be had even to matters of common knowledge; the history of the times; and every conceivable state of facts existing at the time of legislation w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that a particular money lender or a pawn broker had advanced money as short term loans and immediately after repayment he had advanced money again and again, there was no justification for taking the aggregate amount advanced at different times i.e., the total turnover as the basis for insisting the deposit, the learned Government Advocate submitted that the basis prescribed in the Section namely, the total amount advanced, cannot be regarded as discriminatory or unreasonable. The learned Government Advocate also submitted that there was no substance in the contention of the petitioners that want of provision for payment of interest makes the provision violative of Articles 14 and 19 of the Constitution. The learned Government Advocate submitted that the Government was not taking loan of any amount from the money lenders or pawn brokers but it was only a deposit taken as security for carrying on the business as money lenders or as pawn brokers in accordance with the terms and conditions of the licence and therefore there was no substance in the contention of the learned Counsel that the provision should have been made for payment of interest. 11. As regards the forfeiture clause ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Entry 30 in List II is money lending and money-lenders, relief of agricultural indebtedness'. If commonsense and common English are components of constitutional construction, relief against loans by scaling down, discharging, reducing interest and principal, and staying the realisation of debts will, among other things, fall squarely within the topic. And that, in a country of hereditary indebtedness on a colossal scale. It is common place to state that legislative heads must receive large and liberal meanings and the sweep of the sense of the rubrics must embrace the widest range.. Even incidental and cognate matters come within their purview. The whole gamut of money-lending and debt-liquidation is thus within the State's legislative competence. Therefore it is clear, the classification of Money Lenders and Pawn Brokers for purpose of regulating their money lending activity is reasonable. Further, regarding the impugned Amendments as can be seen from the Statement of Objects and Reasons annexed to the Bill and paragraphs 8 and 10 of the Statement of Objections extracted earlier, the provisions were intended to safeguard the interests of the borrowers, who mostl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... slab basis is formulated for fixing the quantum of deposit to be made. Thus it has a rational basis. It may be, that it was open to the Legislature to fix the amount of deposit on percentage basis. Just because the Legislature could have adopted another basis, that by itself, is no ground to hold that the basis adopted by the Legislature is violative of Articles 14 and 19(1)(g) of the Constitution, so long as the basis adopted is a rational one, and is reasonable. 14. Now, we proceed to ascertain the real meaning of Section 7A of the Money Lenders Act and Section 4A of the Pawn Brokers Act The learned Counsel for the petitioners submitted that insisting on the deposit on the basis of the aggregate of the loan advanced during a particular year i.e., on the basis of total turnover and not on the basis of the actual amount invested in the business by a money lender or by a pawn broker, as the case may be, would be an unreasonable restriction and also arbitrary. We are of the view that the basis of the challenge is in view of the wrong interpretation of the provision by the State. The stand taken by the State regarding the meaning of the two provisions is set out in paragraph-8 of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... en the receipt of repayment of a short term loan and advancing another short term loan. Therefore the deposit has to be computed on the basis of the money invested and not on the basis of the aggregate of loan advanced. This is how the Kerala High Court in the case of Monarch Investment has interpreted similar provision. The relevant portion of the Judgment is in para-14, which reads:- 14. The third aspect to be noticed is that the security under Section 4 is on the amount lent in the previous year, the higher the amount, the greater the security subject to the maximum ceiling of two lakhs under the 1987 Amendment. Section 4(2B) however, states that for the purposes of Sub-section (2A), the amount lent by a licencee for the year for which the security is to be paid shall be deemed to be the aggregate amount lent by him during the previous year. It is based on this provision that the contention is advanced that the recycling of the same amount as loan to different persons in the same year can take the aggregate amount lent by him exceed even the capital utilised for lending. This Sub-section (2B) speaks of the amount lent by the licencee for the year for which the security i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y the learned Government Advocate, the provision would lead to violation of Articles 14 and 19(1)(g) of the Constitution. For instance, as stated earlier, if a person who has invested only ₹ 25,000/- in his business and had advanced the amount five times as short term loans he would be required to pay a deposit of ₹ 10,000/- which on the face of it would be not only arbitrary but also unreasonable restriction on the fundamental right guaranteed to carry on the business. It is also settled position of Rules of Construction that if there are two plausible constructions of a provision, one leading to unconstitutionally and the other not, the latter should be preferred (See: K.P. VERGHESE v. I.T.O., [1981]131ITR597(SC) ). Therefore, we hold that on a correct interpretation of the two provisions, the criteria for deciding the amount to be deposited by a licensee is the amount invested by him in the business and not the aggregate of the loans advanced more than once utilising the same amount invested in the business. 15. Now coming to the submission made by the learned Counsel for the petitioners that not making a provision for the payment of interest is invalid, the learn ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... average charges. Another Division Bench Judgment of this Court on which the petitioners relied is KARNATAKA ELECTRICITY. BOARD v. GADAG MINING CO., AIR1986Kant252 the ratio of which is similar to the one in Ramakrishna Aithal's case. The learned Counsel submitted that the ratio of the above Decisions applies to these cases also. They pointed out that when the Water Board and the Electricity Board called upon the consumers to make the deposit as security for payment of the bills, this Court relying on the Judgment of the Supreme Court held that it is their duty to pay interest on the amount so deposited. 16. The learned Government Advocate submitted that the ratio of the Judgment which requires that the Electricity Board and the Water Board to pay interest on the amount of security deposited, collected from the consumers has no application to the cases, for the reason, in the said case it was held that when the Water Board and the Electricity Board were charging interest on the amount of bills which were not paid in time, they should also pay interest on the amount of deposit. We are not impressed by the distinction sought to be made out by the learned Government Advocat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 000/-. But for the deposit these amounts would have been utilised by the petitioners for their business and earning profits and they have been doing so for the last more than two decades, and the petitioners are now compelled to part it in the form of cash security deposit with the Government. It is true that the Sections do not make a provision for giving interest but at the same time the Sections do not prohibit the payment of interest. If the Sections prohibited the payment of interest, such a provision would be arbitrary and therefore there would have been force in the contention of the petitioners that the provisions were violative of Article 14 on the ground that it is arbitrary, for, Article 14 strikes at arbitrariness in State action. (See: E.P. ROYAPPA v. STATE OF TAMIL NADU, (1974)ILLJ172SC and MANEKA GANDHI v. UNION OF INDIA, [1978]2SCR621 ). Further, there would have been also force in the contention of the petitioners that such a provision which compelled them to deposit considerable amount in cash with the Government without any provision for payment of interest was an unreasonable restriction on their fundamental right to carry on business guaranteed under Article 19 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ulating pawn brokers. It is true that every money lender is not a pawn broker, but it is not disputed that every pawn broker is a money lender. It is obviously for this reason every pawn broker is also required to take licence under the Money Lenders Act. The learned Government Advocate pointed out that while the licence fee fixed for money lenders is ₹ 100/- the licence fee fixed for pawn broker is only ₹ 50/-. He submitted that one single licence combining both the money lenders licence and the pawn brokers licence levying a licence fee of ₹ 150/- could have been provided for. However, in view of the existence of two enactments, two separate licences are insisted and as the taking of money lenders' licence is made a condition for securing eligibility to the pawn brokers licence, having fixed the licence fee of ₹ 100/- for money lenders' licence and only ₹ 50/- is fixed as licence fee for pawn brokers. In our opinion, the mere fact that the pawn broker is also required to take money lenders licence, in the circumstances, cannot be regarded as violative of either Article 14 or Article 19(1)(g) of the Constitution. 18. The learned Counsel for ..... X X X X Extracts X X X X X X X X Extracts X X X X
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