AP HC refuses to quash Ordinance on microfinance

The Andhra Pradesh High Court today declined a prayer by microfinance industry to quash an Ordinance that they claimed curbed their freedom, and asked them to carry on with business in compliance with the new rules.

Rejecting the petitions filed by Microfinance Institutions Network, SKS Microfinance and Spandana Microfinance, the court directed the institutions to within a week, register themselves with the government as mandated in the Ordinance.

A division bench comprising Chief Justice Nisar Ahmad Kakru and Justice Vilas V Afzalpurka said that the companies can carry out day-to-day activities, and the government could book cases in the event of violation of Section 9 and 16 of the Andhra Pradesh Microfinance Institutions (Regulation of Money Lending) Ordinance-2010, issued last week.

Section 9 of the Ordinance bars MFIs from charging interest in excess of the principal amount, irrespective of the fact whether the loan was given out before or after commencement of this Ordinance.

Section 16 says all persons who are connected with and responsible for the day-to-day control, business and management of a MFI including the Partners, Directors and the employees, who resort to any type of coercive measures against the SHGs or its members of their family members shall be liable for punishment of imprisonment which may extend up to a period of three years or with fine which may extend to one lakh rupees or with both.

P Niroop Reddy, Counsel for Microfinance Institutions Network (MFIN) said the court directed the government not to arrest loan recovery officials of the company when they go for collections.

Last night, police arrested three employees of SKS Microfinance and Spandana on a complaing of harassment by a borrower.

"After investigation, we came to know that the recovery officials were acting under the instructions of their company management. So under the new Ordinance, (SKS Microfinance head) Vikram Akula and (Spandana's promoter) Padmaja Reddy may also come into the case," CH Srikanth, Superintendent of Police (Kurnool) told PTI today.

SKS Microfinance, Spandana Microfinance and MFIN contended that the state was encroaching into an area regulated by the RBI Act and other central laws.