In RSA-2844-2015 (O&M)-PUNJ HC- Suit by money lender for loan recovery based on pronote after commencement of Punjab Registration of Money Lenders Act, 1938 can’t be entertained & is liable to be dismissed unless money lender is registered & holds valid license as required u/s 4: P&H HC
Justice Harkesh Manuja [02-12-2022]

Read Order: Balwant Singh v. Mukhtiar Singh 

Monika Rahar

Chandigarh, December 13, 2022: While dealing with a regular second appeal filed by a borrower against the lower court decrees whereby the suit filed by the money lender for the recovery of loan was decreed, the High Court of Punjab and Haryana has held that Section 3 of the Punjab Registration of Money Lenders Act, 1938 makes it clear that a suit by money lender for recovery of loan based on a pronote after the commencement of the 1938 Act can’t be entertained and is liable to be dismissed unless the money lender, at the time of institution of the suit or at the time of decreeing the same or deciding the execution application, is registered and holds a valid license as required under Section 4.

The Bench of Justice Harkesh Manuja held, “Admittedly, in the present case respondent/plaintiff though running the business of money lending neither got himself registered under Section 4 of the 1938 Act nor even possesses any license under the said Act. Accordingly, the suit for recovery filed at his instance being based on pronote and a receipt itself was liable to be dismissed being not maintainable, in the facts and circumstances of the present case.”

By way of present appeal, challenge was made to the Judgments and Decrees of the Courts below whereby, the suit for recovery in favour of respondent-plaintiff was decreed. 

Brief facts of the case are that based on a pro-note and a receipt, a suit for recovery of sum of Rs.1,52,000/- was filed by plaintiff against defendant with the averment that via this pronote and receipt, the defendant took a loan of Rs. 1 Lakh from the plaintiff with the promise to return the same along with interest @ 12% per annum. However, the plaintiff was aggrieved by the failure of the defendant to return the afore-mentioned and thus, filed the suit for recovery. 

In response, the defendant submitted that the loan amount was already paid to the real brother of plaintiff, who was jointly running the business of money lending with the plaintiff. 

The trial Court, while upholding the execution and proof of the receipt, decreed the suit by holding that the receipt was executed under the signature of Balkar Singh (petitioner’s brother) and thus, it had no effect upon the rights of respondent/plaintiff. 

Aggrieved by the above, an appeal was filed. However, the same was also dismissed by the Court of District Judge, Ferozepur while holding that the receipt had no effect upon the rights of respondent as regards the recovery of amount. 

It was the case of the appellant’s counsel that once the Courts below were fully satisfied as regards the execution of receipt via which the amount obtained from the respondent/plaintiff was returned to his brother, the same could not have been discarded simpliciter on the ground that it was not signed by the respondent-plaintiff and was not binding on his rights particularly in view of the deposition made by respondent/plaintiff while appearing as PW-1 wherein, he categorically stated that all the calculations with regard to the principal amount as well as interest were being done by his brother-Balkar Singh. 

The appellant’s counsel further submitted that the respondent/plaintiff in his cross-examination categorically admitted that he was doing the business of money lending and he was not having any license issued by any of the Government Agency in this regard and accordingly, in view of Section 3 of the Act of 1938 suit itself was not being maintainable. 

After hearing the parties and from a conjoint reading the receipt and the relevant portion of cross-examination of PW-1 (respondent/plaintiff), the Court observed that both the brothers were doing the work of business of money lending together and it was Balkar Singh who was carrying out all the calculations with regard to principal amount as well as the interest and the calculations were even done jointly between the two brothers and perhaps this was the only reason why the amount of loan taken from the respondent/plaintiff was returned against the receipt which was issued under the signatures of his brother Balkar Singh. 

“Thus, in view of the deposition made by the respondent, it can easily be traced out that the amount of loan taken by the appellant-defendant was duly returned against the receipt Ex.D-1 which even binds the respondent/plaintiff as well”, the Bench observed. 

As regards the second submission made on behalf of the appellant regarding maintainability of the suit, the Bench observed that in view of the specific bar as prescribed under Section 3 of the Act, the suit for recovery filed at the instance of respondent/plaintiff was not even maintainable as admittedly he was not having any authority/license for the purpose of running the business of money lending. 

Further, while referring to the Section 3 and 4 of the Act of 1938 in this regard, the Bench observed that a suit by money lender for recovery of loan based on a pronote after the commencement of the 1938 Act can’t be entertained and is thus liable to be dismissed unless the money lender, at the time of institution of the suit or at the time of decreeing the same or deciding the execution application, is registered and holds a valid license as required under Section 4 of the 1938 Act. 

In the present case, the Court held that the plaintiff was regularly and consistently lending money on interest and thus, was not merely a casual or occasional lender. 

“Admittedly, in the present case respondent/plaintiff though running the business of money lending neither got himself registered under Section 4 of the 1938 Act nor even possesses any license under the said Act. Accordingly, the suit for recovery filed at his instance being based on pronote and a receipt itself was liable to be dismissed being not maintainable, in the facts and circumstances of the present case”, the Court held. 

The present appeal was allowed.