BENGALURU: Governor Thaawarchand Gehlot on Friday returned the draft Karnataka Microfinance (Prevention of Coercive Actions) Ordinance 2025 to the state government. In his observation, the governor said the Ordinance may have a negative impact on the business prospects of the state.
It may affect the self-help groups (SHGs), which play a big role in improving the economic status of the poor.
It may lead to violation of fundamental rights, he said and asked the state government to re-submit it along with clarifications.
“The budget session will commence next month. Instead of bringing in an Ordinance in a hurry, I advise the state government to hold a detailed discussion on it and bring in an effective law to protect the interests of the affected people,’’ he said.
Meanwhile, Law Minister HK Patil said the government has not neglected the interests of lenders. He, however, said that the Ordinance will be introduced in the Assembly and Council. After considering the views of the legislators, a stringent law will be formulated.
In view of the increasing number of suicide cases involving borrowers and their alleged harassment by microfinance companies, the government decided to bring in a stringent law through an Ordinance. It sent the draft Ordinance to Raj Bhavan earlier this week.
The governor pointed out that the proposed Ordinance stated that no civil court shall entertain any proceedings against the borrower for recovery of his loan with interest.
‘Remedies available in existing laws’
“It is the duty of the state to protect the vulnerable sections of society. At the same time, it is necessary to protect the lawful and genuine rights of those who have offered loans to the needy as per existing laws,’’ the governor said.
If such loans are written off, the genuine lenders may face trouble. They have no proper mechanisms to recover their pending loans, which may lead to legal battles, he said. On penal actions, he said the terms of punishment proposed are disproportionate to the provisions in existing laws for similar offenses.
They are also against the principles of natural justice. The government has proposed a penalty of up to Rs 5 lakh and 10 years of imprisonment. “When the maximum amount of loan can be given is Rs 3 lakh, the proposed fine of Rs 5 lakh is against the principles of natural justice,’’ he said. The governor said the proposed Ordinance will not apply to any banking or non-banking finance companies registered with RBI.
Therefore, most of the lending agencies will be left out. The police and other departments have powers to initiate action under the Karnataka Money Lenders Act, Negotiable Instruments Act, Karnataka Debt Relief Act and the Karnataka Police Act.
Lack of implementation of existing laws and the vacuum in policing led to the current problems. In view of remedies available in existing laws, it is better to enforce them to protect the borrowers from errant lenders, he added.
