"Taken Birth From Womb Of Social Justice": Karnataka HC Upholds Validity Of Micro Loan & Small Loan (Prevention Of Coercive Actions) Ordinance

The Karnataka High Court on Monday dismissed a petition filed seeking to declare the Karnataka Micro Loan and Small Loan (Prevention of Coercive Actions) Ordinance, 2025 as unconstitutional, arbitrary and beyond the legislative competence of the state government.Justice M Nagaprasanna upheld the ordinance saying “The Ordinance, conceived in response to the anguished cries of the vulnerable – farmers, women, workers, marginalized groups inter alia seeks to rescue them from usurious money lenders and micro finance entities who as public knowledge and legislative record bear testament, have wielded unconscionable recovery methods, often driving the debtors from buoyancy of hope, to the abyss of despair and death.”Following this it held “Therefore, the Ordinance has taken birth from the womb of social justice, it nowhere depicts arbitrariness. The grievance of the petitioner is, on the face of it, imaginary and unacceptable. The issue is thus answered against the petitioner.” The Karnataka Hire Purchase Association had challenged the Ordinance contending that definitions in the Ordinance are so ambiguous that they would take away anybody's right under different statutes, as all hypothecations 5 or mortgages are to be released from the date of promulgation of the Ordinance.Further, it was argued that the Ordinance by commanding immediate release of security and prohibiting future collateralization imperils the very lifeblood of their business.The government opposed the plea saying “Ordinance is restricted to microfinance rendered to vulnerable groups. The petitioner is doing its business of hypothecation, mortgage and lease. Microfinance is the one which is granted without any security. Therefore, the petitioner cannot project that it is aggrieved and it cannot plead for someone else's grievances.” Moreover, there is nothing arbitrary in the Ordinance nor anything is ambiguous. Findings: On going through the provisions in the ordinance the court said “The Ordinance aims at protecting the borrowers from excessive interest and harsh recovery measures employed by Micro Finance Institutions and organizations. The Ordinance stemmed from suicides attributed to exploitative lending and aggressive loan recovery methods which sparked outrage. Precious lives were lost due to coercive actions and recovery measures. Therefore, there is nothing that can be called manifestly arbitrary in the promulgation of the Ordinance.” It noted that a provision would be struck down on the score that it is manifestly arbitrary only if the thread of reasonableness does not run through the entire Ordinance or runs counter to the fundamental rights chapter. It added “Deployment of the concept of manifest arbitrariness should be on sound principles. The test of manifest arbitrariness would be to apply to invalidate the Ordinance only if the legislature capriciously, irrationally 31 or without adequate determining principle has promulgated the said Ordinance. None of these traits, as held by the Apex Court, are found in the case at hand, to declare the Ordinance to be suffering from manifest arbitrariness. It is an imaginary plea of the petitioner which does not inspire a semblance of confidence.” Court further stated that the petitioner does not come within the ambit of the Ordinance. It is still permitted to run its business in terms of other legislation. It said, “There is no impediment, in the subject Ordinance, for the petitioner to make a hue and cry that all securities would stand released in favour of the borrower. “ Further it said “The borrower is defined; microfinance is defined and vulnerable sections are defined. Therefore, it is unequivocal that it is applicable only to microfinance lending institutions for protection of borrowers who are from the vulnerable sections of the society, inter alia.” Dismissing the petition it said “The unmistakable inference is that the thread of reasonableness runs through the object of the law. Thus being the case, the Courts must always be loathe to strike down a measure of this kind, unless compelled by an egregious violation of constitutional mandates, I find none.” Appearance: Senior Advocate Uday Holla for Advocate Sanjay H Sethiya for Petitioner.Advocate General K.SHASHIKIRAN SHETTY, a/w Advocate Anishka Vaishnav, Shamanth Naik for Respondents. Citation No: 2025 LiveLaw (Kar) 106Case Title: Karnataka Hire Purchase Association AND State of Karnataka Case No: WP 6962 of 2025.Click Here To Read/Download Order

"Taken Birth From Womb Of Social Justice": Karnataka HC Upholds Validity Of Micro Loan & Small Loan (Prevention Of Coercive Actions) Ordinance

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