1. The Act shall be applicable on the date on which the State Government will notify (2 May 2011 vide Notification No. GHKH-19-2011-GML-10-2011-153-CHH).
2. Money lending is the business of advancing loans. – Sec. 2(3)
Definition of the term “loan” is of wide import and inclusive:
Sec. 2(9) – “loan” means – an advance whether of money or in kind at an interest with or without security.
Further, every agreement under any law for the time-being in force (whatever its terms or form may be) which is in substance or effect a loan of money is included.
An agreement of Hire Purchase (which essentially is a Finance Lease) is in substance a loan of money and is included in the definition of the term “loan”
3. Obligations and Duties of Moneylenders
a. Registration (Form no. 1)
b. Renewal of Registration after every 5 years (Form no. 2)
c. i. Maintain Accounts – Cash Book (Form no. 7), Ledger (Form no. 8 & 9), Register of Debtors / Register of Securities (Form no. 10), etc in the prescribed form
ii. On the day of advance of loan – Deliver to the debtor
a. A Statement showing the Name and Address of Money lender and of the debtor, date & amount of loan, date of maturity, nature of security and rate of interest. (Form no. 11)
b. A Pass Book containing an up-to date and true account of all transactions relating to the loan. (Form no. 14)
iii. Issue Receipt – On receipt of a payment from a debtor (Form no. 12) – or On Receipt of any security from the debtor (Form no. 13)
iv. Every year within 30 days of the end of the year, – Issue Statement of Yearly accounts to the Debtors, every year.(Form no. 15)
All documents referred to in para C. are to be issued in local language (or if the debtor, so demands, in Hindi or English).
d. Audit of Accounts (Form no. 15) by a Chartered Accountant. and furnishing thereof within 180 days of the end of the financial year. (Rule 16)
e. Not to dispose of any security from a debtor – before a period of two years from the date stipulated for the final repayment of the loan.
i.e, If date of loan is 1 April 2011 for 24 installments – last repayment is due on 1 April 2013 – two years after i.e., 1 April 2015 – you cannot dispose of the security.
f. Charge Simple Interest. Interest on Interest cannot be charged.
g. Cannot charges Expenses such as file charges, etc. Only expenses for investigating the title of the property, mortgage, stamp duty, etc. can be charged.
4. State Government will fix the Maximum rates of interest.
5. In Suits
a. Stay of suits of money lender not holding a valid registration.
b. If money-lender has not complied with the requirement of account and audit, then,
i. Interest recovery, wholly or partly, disallowed.
ii. Cancellation or suspension of registration.
c. Interest cannot be recovered in a Suit. (No court shall order/ decree recovery of sum greater than the principal of the loan due on the date of decree.)
6. Penalties & Prosecution provided for under the act for various non-compliance.
7. The State Government has the power to Exempt by General or Special Order – a class of Money lenders from all or any of the provisions of the Act – subject to such conditions & for such period as may be specified in the Order.
8. Gujarat Moneylenders Rules, 2013 have been notified dated 10-7-2013. Forms referred in this article referred to Forms annexed to the said Rules.
9. NBFCs registered with RBI are required to File a Memorandum in Form no. 6.
However, the Gujarat High Court in the matter of Sundaram Finance Ltd v State of Gujarat & Ors (Special Civil Application No. 6223 of 2011 & 12009 of 2011) Held that : “Gujarat Money Lenders Act 2011 is ultra vires the Constitution of India for legislative incompetence of the State Legislature only to the extent it seeks to have control over the NBFCs registered under the RBI Act in the matter of carrying on their business under Chapter IIIB of the RBI Act.”
Update Dated : 17 May 2022
In the matter of *NEDUMPILLI FINANCE COMPANY LIMITED Versus STATE OF KERALA & ORS.* 2022 LiveLaw (SC) 464, the Hon’ble Supreme Court of India has HELD ::
1. The Court approvingly followed the precedent laid by it in the matter of *Integrated Finance Company Limited vs. Reserve Bank of India and Others (2015) 13 SCC 772* that “Chapter III-B of the RBI Act is a complete code in itself”.
2. Section 45-Q of the RBI Act confers overriding effect upon Chapter III-B, over other laws. Therefore, the States of Gujarat and Kerala cannot contend that the laws made by them are in addition to the provisions of Chapter III-B.
3. That the Kerala Money-lenders Act, 1958 and the Gujarat Money-lenders Act, 2011 will have no application to NBFCs registered under the RBI Act and regulated by RBI.