No interest on security deposit for money lenders, pawn brokers: SC

In an interesting verdict, the Supreme Court has held that money lenders and pawnbrokers will not be entitled to interest on security deposit made by them to carry out their businesses.

A Bench headed by Justice Madan Lokur observed that the profession of money lending may be a trade, but onerous restrictions may be placed on such trade which is definitely usurious.

These onerous restrictions would be reasonable keeping in view the nature of the trade. The legislature in its wisdom can decide whether it should make it more difficult for people to engage in the business of money lending and pawnbroking, the Bench also said.

The court also held constitutional, the 1988 amendments to the Karnataka Money Lenders Act of 1961 and Karnataka Pawn Brokers Act, 1961. The amendment had stated that security deposit furnished by money lenders and pawnbrokers shall not carry any interest.

The court said the businesses of money lending and pawnbroking are usurious businesses and the government may rightly restrict or even discourage people from entering into such businesses.

"A money lender or a pawn broker applies for licence to do this business knowing fully well that the security that he shall deposit shall not earn any interest. He with open eyes accepts the condition which is part of the Acts. Nobody forces a person to engage in the trade of money lending or pawnbroking," the Bench also added.

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