KARNATAKA PROHIBITION OF CHARGING EXORBITANT INTEREST ACT, 2004

Act No. 14 of 2004

06th March, 2004

An Act to prohibit the charging of exorbitant interest by any person and matters incidental thereto. Whereas, in order to obviate the difficulties experienced by the public at large who are falling prey to persons charging exorbitant interest, it is considered necessary to prohibit lending money for such exorbitant interest and to provide for stringent punishment thereof and for the purposes hereinafter appearing; Be it enacted by the Karnataka State Legislature in the Fifty fifth year of the Republic of India as follows;-

Read full Act

S.1 Short title, extent and commencement

• (1) This Act may be called the Karnataka Prohibition of Charging Exorbitant Interest Act, 2004.
• (2) It extends to the whole of the State of Karnataka.
• (3) It shall be deemed to have come into force on the fifth day of September, 2003.

S.2 Definitions

(1) In this Act, unless the context otherwise requires,-

• (a) debtor means a person who receives loan for exorbitant interest;
• (b) exorbitant interest means and includes charging of interest on hourly basis, daily basis, installment basis, monthly basis or in any other form which works out to be an interest at rate more than that fixed by the State Government under section 28 of the Karnataka Money Lenders Act, 1961;
• (c) "Karnataka Money Lenders Act, 1961" means the Karnataka Money Lenders Act, 1961 (Karnataka Act 12 of 1961);
• (d) loan means an advance of money given to a debtor for exorbitant interest.

(2) Words and expressions used but not defined in this Act shall have the meanings assigned to them in the Karnataka Money Lenders Act, 1961.

S.3 Prohibition of charging exorbitant interest and using coercive action

1[ 3. Prohibition of charging exorbitant interest and using coercive action.--

(1) No person shall charge exorbitant interest on any loan advanced by him.

(2) Money Lender shall not use any coercive action either by himself or by his agents or by his family members for recovery of money from the debtor and any form of coercive recovery shall be liable for punishment under the provisions of this Act and empower the Registering Authority to suspend or cancel the Registration of such Money Lender as provided under the provisions of this Act.

Explanation: For the purposes of this section, "coercive Action" by a Money Lender against the debtors include the following, namely:-

• (i) exerting pressure or obstructing or using violence to or insulting or intimidating the debtor or his/her family members, or
• (ii) persistently following the debtor, his/her family member from place to place or interfering with any property owned or used by hi
  

S.4 Penalty

Notwithstanding anything contained in the Karnataka Money-Lenders Act, 1961, whoever contravenes the provision of section 3 or molests or abets the molestation of any debtor for recovery of any loan shall be punishable with imprisonment for a term which may extend to 1[ten years] and also with fine which may extend to 2[five lakh rupees].

1. Substituted by Karnataka Prohibition of Charging Exorbitant Interest (Amendment) Act, 2025, for the following:- "three years"

2. Substituted by Karnataka Prohibition of Charging Exorbitant Interest (Amendment) Act, 2025, for the following:- "thirty thousand rupees"

S.4-A Power to cancel or suspend Registration

1[ 4A. Power to cancel or suspend Registration.--

(1) The Registering Authority may, at any time, either suo-motu or upon receipt of complaint by a debtor cancel or recommend to cancel the registration of a Money Lender after hearing and after assigning sufficient reasons in writing for such cancellation and no order of cancellation of the registration shall be passed without issuing notice to the Money Lender intimating the facts upon which the prima-facie decision to cancel the registration has been taken and Money Lender shall be afforded a reasonable opportunity of being heard against such notice.

Explanation: For the purposes of sub-section (1), conviction of a Money Lender for an offence of violation of any of the provisions of this Act shall be sufficient cause for cancellation or recommend to cancellation of his registration.

(2) Pending enquiry under sub-section (1), the Registering Authority may, for sufficient reasons to be recorded, suspe

S.4-B Lending Norms

1[ 4B. Lending Norms.--

The Government may, by notification, specify the lending norms, collection and recovery practices.]

1. Inserted by Karnataka Prohibition of Charging Exorbitant Interest (Amendment) Act, 2025.

S.5 Deposit of money and presentation of petition to court and the procedure thereof

(1) A debtor may deposit the money due in respect of a loan received by him from any person together with interest at the rate fixed by the State Government under section 28 of the Karnataka Money Lenders Act, 1961 into the Court having jurisdiction, along with a petition to record that the amount deposited is in full or part, satisfaction of the loan including the interest therefor, as the case may be.

(2) The Court shall, on receipt of a petition under sub-section (1), refer a copy of the petition to the person mentioned in the petition, directing him to give his replies within a period of fifteen days as may be granted by the Court. The Court may, after due inquiry and after considering the versions of both the parties, pass orders recording the satisfaction of the loan and interest therefor in full or in part, as the case may be.

S.6 Restoration of possession of property

The Court may, on filing a petition by the debtor, order the restoration of possession of property whether movable or immovable, if any, forcibly taken by any person towards repayment of the loan advanced or interest therefor.

S.7 Voluntary disclosure

Any person who charges exorbitant interest may, within one month from the date of publication of this Act, file a petition before the Court disclosing his intention to charge only the rate fixed by the State Government under section 28 of the Karnataka Money Lenders Act, 1961, on the loan advanced by him and on such disclosure the interest in respect of such loan shall be as fixed by the State Government under Section 28 of the Karnataka Money Lenders Act, 1961, and no prosecution for the offenses under this Act shall be instituted in respect of such loan.

S.8 Adjustment of Interest

The Court may, on a petition filed by the debtor for settlement of loan including the interest therefor, pass an order for the adjustment of the interest, if any, paid by the debtor, over and above the rate of interest fixed by the State Government under section 28 of the Karnataka Money Lenders Act, 1961, towards the loan.

S.9 Abetment of suicide

Where a debtor or any member of his family commits suicide and if it is shown that immediately prior to such suicide the debtor or any member of his family was subjected to molestation by any person, the person who has advanced loan shall, unless the contrary is proved, be deemed to have abetted the commission of such suicide,

Explanation: For the purpose of this section, Member of family means the spouse, unmarried daughter or unmarried son.

S.10 Court fees

Notwithstanding anything contained in any other law for the time being in force, the Court fee payable in respect of a petition under this Act shall be rupees fifty.

S.11 Act not to be in derogation to other laws

The provisions of sub-section (3) of section 28 and sections 38 to 40 of the Karnataka Money Lenders Act, 1961 shall not apply in respect of offences under this Act. The provisions of this Act shall be in addition to and not in derogation to the provisions of any other law for the time being in force.

S.12 Application of provisions of the Karnataka Money Lenders Act, 1961

Subject to the provisions of this Act, the provisions of the Karnataka Money Lenders Act, 1961, in so far as they are applicable to money lenders shall mutatis mutandis apply to a person referred to in section 3 of this Act.

Explanation: Where an act of a person constitutes an offence under this Act and under the Karnataka Money Lenders Act, 1961, prosecution shall be launched under this Act.

S.13 Deferment of repayment of loan

Notwithstanding anything contained in the Karnataka Money Lenders Act, 1961, no action to recover a loan against a debtor who is a farmer or agricultural labourer shall be taken for a period of one year from the date of commencement of this Act.

S.14 Repeal and Savings

• (1) The Karnataka Prohibition of Charging Exorbitant Interest Ordinance, 2003 (Karnataka Ordinance No. 6 of 2003) is hereby repealed.
• (2) Notwithstanding such repeal, anything done or any action taken under the said Ordinance, shall be deemed to have been done or taken under this Act.