Mannapuram Finance Limtied vs State Of Karnataka
2025 Latest Caselaw 4389 Kant

Karnataka High Court

Mannapuram Finance Limtied vs State Of Karnataka on 25 February, 2025

Author: S.R.Krishna Kumar

Bench: S.R.Krishna Kumar

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                                                      CRL.P No. 1178 of 2025




                  IN THE HIGH COURT OF KARNATAKA AT BENGALURU

                      DATED THIS THE 25TH DAY OF FEBRUARY, 2025

                                         BEFORE
                     THE HON'BLE MR JUSTICE S.R.KRISHNA KUMAR
                           CRIMINAL PETITION NO. 1178 OF 2025
             BETWEEN:

                    MANNAPURAM FINANCE LIMTIED
                    NO.442/2, CH-1, RAMASWAMY CIRCLE
                    DOUBLE ROAD MYSURU CITY,
                    REPRESENTED BY ITS AUTHORISED SIGNATORY
                    MR SALIM P.M.
                                                                ...PETITIONER
             (BY SRI. SIJI MALAYIL, ADVOCATE)

             AND:

             1.     STATE OF KARNATAKA
                    BY LAXMIPURAM POLICE STATION
                    REPRESENTED BY THE SPP
                    HIGH COURT BUILDING
                    BENGALURU-560 001

             2.     SANJAY J.,
Digitally           AGED MAJOR
signed by           AT SENIOR INSPECTOR CO OPERATIVE DEPT,
MEGHA               KADA OFFICE,
MOHAN               MYSURU CITY
                                                              ...RESPONDENTS
Location:
             (BY SMT.RASHMI JADHAV, ADDL. SPP FOR R1)
HIGH COURT
OF                THIS CRL.P FILED U/S 482 CR.PC (FILED U/S 528 BNSS) PRAYING
KARNATAKA    TO QUASH THE FIR IN CRIME NO.0056/2012 AGAINST THE PETITIONERS
             HEREIN, FOR THE ALLEGED OFFENCES P/U/S 3 AND 4 OF KARNATAKA
             MONEY LENDERS ACT, 1961 AND SECTION 28 OF KARNATKA
             PROHIBITION OF CHARGING EXORBITANT INTEREST ACT, 2004,
             PENDING IN THE FILE OF CIVIL JUDGE (Jr.Dn) AND JMFC-2 COURT, JLB
             ROAD, MYSORE CITY.

                  THIS PETITION, COMING ON FOR ORDERS, THIS DAY, ORDER
             WAS MADE THEREIN AS UNDER:

             CORAM:      HON'BLE MR JUSTICE S.R.KRISHNA KUMAR
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                                                      NC: 2025:KHC:8454
                                               CRL.P No. 1178 of 2025




                             ORAL ORDER

In this petition, the petitioner has sought the following

reliefs :-

"WHEREFORE, the Petitioner above named humbly prays that this Hon'ble Court be pleased to quash the FIR in Crime No.0056/2012 against the Petitioners herein, for the alleged offences punishable under sections 3 & 4 of Karnataka Money Lenders Act, 1961 and section 28 of Karnataka Prohibition of Charging Exorbitant Interest Act, 2004; pending in the file of Civil Judge (Jr.Dn) & JMFC-2 Court, JLB Road, Mysore City, in the interest of justice."

2. Heard learned counsel for the petitioner and learned

additional SPP for respondent No.1 and perused the material on

record.

3. A perusal of the material on record will indicate that the

petitioner is charged with the offences punishable under Sections 3

and 4 of the Karnataka Money Lenders Act, 1961 as well as

Section 28 of the Karnataka Prohibition of Charging Exorbitant

Interest Act, 2004.

4. In identical circumstances, in the case of the petitioner

herein in Writ Petition No.18597 of 2012 and connected petitions,

the co-ordinate Bench of this Court has held as under:

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"COMMON ORDER

Heard Sri Jayakumar S. Patil and Sri Shashi Kiran Shetty, learned Senior Counsels along with Sri B. Ravishankar, Sri Deviprasad Shetty, Sri Dayanand S. Patil, Sri S.R. Hegde, Sri C.K. Nandakumar, Sri M.S. Varadarajan, Sri Jai M. Patil, Sri Shivarudrappa Shetkar, learned counsels for the petitioners, Sri M. Vinod Kumar, learned Additional Government Advocate for respondents 1 to 6, Smt Rashmi Subramanya, learned counsel for the 7th respondent. Perused the writ petitions papers.

2. It is submitted that in all these writ petitions, petitioners/Non-Banking Financial Companies (for short 'the NBFCs') registered under the Reserve Bank of India Act, 1934, (for short 'the RBI Act') and regulated by RBI are before this Court praying for a declaration to declare that the State Enactments i.e., the Karnataka Prohibition of Charging Exorbitant Interest Act, 2004 (for short 'the 2004 Act'), and the Karnataka Money-Lenders Act, 1961 (for short 'the 1961 Act'), are not applicable to the petitioners and also to quash the consequential orders.

3. Learned Senior Counsels Sri.Jayakumar S. Patil and Sri. Shashi Kiran Shetty on behalf of the petitioners contend that both the State enactments under challenge in these petitions are against the legislative competence of the State Government. Since the petitioners' NBFCs are registered and functioning under the RBI Act, falls under the ambit of 1956 Act. Further, it is submitted that Reserve Bank of India is the regulatory body for the petitioners' NBFCs and the State Acts such as Karnataka Money-

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Lenders Act, 1961 and Karnataka Prohibition of Charging Exorbitant Interest Act, 2004 are State enactments under Entry 30 of List-II of Schedule VII of the Constitution of India, are not applicable to petitioners. The petitioners are covered by the 1956 Act enacted by the Parliament under Entry 43 of List-I of Schedule VII. Provisions of 1956 Act has made it clear that it would have overriding effect in respect of any inconsistencies therewith contained in any other law.

4. Learned Senior Counsel would submit that the question of law raised in these writ petitions were the subject matter of Civil Appeal No.5233/2012 [Nedumpilli Finance Company Limited V/s. State of Kerala and Others] before the Hon'ble Apex Court. The Hon'ble Apex Court was examining the question as to whether Non- Banking Financial Companies regulated by Reserve Bank of India in terms of the provisions of Chapter III-B of RBI Act, can also be regulated by the State Governments such as Kerala Money Lenders Act, 1958 and Gujarat Money Lenders Act, 2011. While answering the said question, the Hon'ble Apex Court has made it clear that the State Enactments would have no application to NBFCs, which are registered under the 1934 Act. It is further submitted that both the above State Acts, which are under challenge are enacted by the State Government in exercise of their powers under Entry 30 of List-II of Schedule VII of Constitution of India. It is submitted that State has no power to regulate the functions of NBFCs which are registered under the Reserve Bank of India Act. Therefore,

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they pray to declare both the Acts under challenge as not applicable to the petitioners' NBFCs.

5. On hearing the learned Senior Counsel for the petitioners as well as learned counsel for the respondents, I am of the view, that question raised in the present writ petitions is covered by the principles and decision of the Hon'ble Apex Court in the above stated C.A.No.5233/2012. As stated above, the question before the Hon'ble Apex Court was whether NBFCs regulated by the Reserve Bank of India can also be regulated by State enactments. While answering the above said question, the Hon'ble Apex Court at paragraphs 6.11, 8, 8.4 and 11, has held as follows:

"6.11. The above scheme of Chapter III-B of the RBI Act shows that the power of intervention available for the RBI over NBFCs, is from the cradle to the grave. In other words, no NBFC can carry on business without being registered under the Act and a NBFC which takes birth with the registration under the Act is liable to be wound up at the instance of the RBI. The entire life of a NBFC from the womb to the tomb is also regulated and monitored by RBI.

8. As indicated by the Constitution Bench in Deep Chand (supra), a law may be valid when made, but a shadow may be cast on it by supervening constitutional inconsistency or supervening existing statutory inconsistency. Assuming that the Kerala Act was valid in its application to NBFCs when it was made, on the ground that the business of money lending is traceable to Entry 30 of List II, it has to give way for the parliamentary enactment. The moment the Parliament stepped in to codify the law

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relating to registration and regulation of NBFCs, by inserting certain provisions in Chapter III-B of the RBI Act, the same would cast a shadow on the applicability (even assuming it is applicable) of the provisions of the Kerala Act to NBFCs registered under the RBI Act and regulated by RBI.

8.4. In UCO Bank and Another vs. Dipak Debbarma and Others8, a sale Notification issued under the Securitisation Act was challenged on the ground that it constituted an infraction of Tripura Land Revenue and Land Reforms Act, 1960. This Court found that the Securitisation Act is traceable to Entry-45 of List-I and the Tripura Act is traceable to Entries 18 and 45 of the State List. After referring to the Constitution Bench decision in State of West Bengal and Others vs. Committee for Protection of Democratic Rights, West Bengal and Others9 and other decisions, this Court held that the Securitisation Act, being a Parliamentary legislation is the dominant legislation. To come to the said conclusion, this Court referred to the non-obstante clause in Article 246(1).

11. In view of the above, we are of the considered opinion that the Kerala Act and Gujarat Act will have no application to NBFCs registered under the RBI Act and regulated by RBI. Therefore, all the appeals filed by NBFCs against the judgment of the Kerala High Court are allowed. Likewise the appeals filed by the State of Gujarat against the judgment of the Gujarat High Court are dismissed."

6. Following the dictum of the Hon'ble Apex Court in NEDUMPILLI FINANCE COMPANY LIMITED (supra), writ petitions are allowed and it is declared that State Enactments i.e., Karnataka Money-Lenders Act, 1961 and the Karnataka Prohibition of Charging Exorbitant Interest

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Act, 2004, are not applicable to the petitioners/NBFCs registered under the 1934 Act and regulated by Reserve Bank of India. Accordingly,

(i) In W.P.No.18597/2012 - Annexure-G bearing No.DRBC/ML/DOORU/44/2011-12 dated 08.05.2012 and Annexure-H letter bearing No.NML/YMC/258/2011-12 dated 11.05.2012;

(ii) In W.P.No.47108/2011 - Annexure-F bearing No.DRB-C/ML/DOORU/20/2011-12 dated 29.09.2011 and the entire proceedings in Crime No.0272/2011 including the FIR Annexure-G dated 28.11.2011;

(iii) In W.P.No.3208/2012 - Order Annexure-G bearing No.AR-32/LEVADEVI/CR.94/2011-12 dated 21.01.2012 and Annexure-H letter bearing No.NML/YMC/ /2011-12 dated 21.01.2012;

(iv) In W.P.No.7508/2012 - Order Annexure-L bearing No.NML/YMC/128/2011-12 dated 29.10.2011 and Annexure-H letter bearing No.NML/YMC/109/2011-12 dated 29.09.2011;

(v) In W.P.No.11891/2012 - Order Annexure-A bearing No.C0 10 CML 2010 dated 05.01.2012 and letter Annexure-B bearing No.DRT:LEVADEV/SKSMICRO:CR178/201-12 dated 30.03.2012;

(vi) In W.P.No.15215/2012 - Order Annexure-J bearing No.ARB-45(C)/ML/PB/ITARE/ 682/ 2011-12 dated 17.04.2012;

(vii) IN W.P.No.11658/2015 - Order Annexure-F bearing No.DRB-S/NML/P.N./04/2014-15 dated 17.11.2014, are quashed."

5. A perusal of material on record will indicate that the

petitioner herein is identically and similarly situated to the

petitioners in the aforesaid petitions in which, the Co-ordinate

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Bench of this Court, quashed the impugned proceedings, and

consequently by applying / invoking the doctrine of parity, I am of

the considered opinion that the impugned proceedings against the

petitioner herein deserves to be quashed.

6. In the result, I pass the following:

ORDER

i) The petition is hereby allowed.

ii) The impugned F.I.R. in Crime No.0056/2012 against the petitioner for the offences punishable under Sections 3 and 4 of the Karnataka Money Lenders Act, 1961 as well as Section 28 of the Karnataka Prohibition of Charging Exorbitant Interest Act, 2004, pending on the file of the Civil Judge (Jr.Dn) & JMFC-2 Court, JLB Road, Mysore City, is hereby quashed.

SD/-

(S.R.KRISHNA KUMAR) JUDGE

MEG