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Pavani Bayyana (Employee)     24 December 2012

Money lending to friends at excessive rates

 

Esteemed members, 

I am an individual and I had lent some money to one of my friend at a rate of 3% per month recently. The high rate has been opted because, he was in need of money on a emergency basis and to serve his need I have borrowed from another person at a rate of 2.5% from one of my friend, keeping 0.5% as my margin.

I would like to know whether charging an abnormal interest rate of 3% per month(i.e. 36% per annum) would amount to any violations of any of the money lending acts or any other acts or constitution etc.

I hope Money lending act is not applicable to me as I am not a money lender and also I am not lending money on a regular basis and this was only one of a rare lending transaction by me.

Appreciate if you quote relevant provisions of law for better understanding.



Learning

 2 Replies

V R SHROFF (Sr. ADVOCATE Bombay High Court Mob: 9892432152)     24 December 2012

OCCASIONAL FINANCIAL HELP TO FRIEND DOES NOT MEAN MONEY LENDING BUSINESS. 

As you are running the risk of recovery in case ur frd do not return the money for any reason whatsoever, [Death, bank-rupt, , suicide due to financial  prbl] what u did of 0.5% is also reasonable. 

Though the transaction is illegal, u r taking risk for helping ur frd. U had not mentioned what precaution/ surety/ safety/ pro note chq u took for recovery?? 

Pavani Bayyana (Employee)     24 December 2012

Thanks for ur response shroffji, I have taken a undated cheque from the friend for the principal and an estimated amount for three months of interest. I would also like to know why the transaction is illegal. Also, will there be any change in the answer if the amount lent is out of my own money ? If I got a problem when I deposit the cheque, will I be able to file a case under NI act for the cheque bounce or does the aspect of excessive interest rate will create any problem ?

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