GMLA not applicable to NBFCs under RBI Act: HC

The Gujarat High Court has held that Gujarat Money Lenders Act (GMLA) , 2011, was not applicable to those Non Banking Financial Companies (NBFCs), operating in the state, registered under the section III(B) of the Reserve Bank of India (RBI) Act.

The ruling was given by Chief Justice Bhaskar Bhattacharya and Justice J B Pardiwala while hearing a petition by one of the NBFCs Sundaram Finace Ltd challenging the provisions of GML Act.

According to section 5(2) of the GMLA all NBFCs registered under RBI Act and operating in Gujarat come under purview of the GMLA They will have to report to the Registrar General of Money Lenders.

 

The Court held that this was in direct interference with the institutions which are registered under the RBI Act. The state law was encroaching upon the RBI Act which is a central act.

The section 5(2) of the GMLA is against the Constitution of India as it seek to have control over all NBFCs already registered under the RBI Act. "The GMLA will not be applicable to all NBFCs registered under RBI Act," the court held.

The counsel for the petitioner company Percy Kavina said that the court had on Thursday held that the stat act was devoid of legislative competence.

The Act came into existence after the Gujarat Assembly passed the bill in March 2011. The Act seeks to regulate money lending transactions, registration of money lenders mandatory in the state. It empowers the government to fix interest rates for the sector.

As per the provisions of the GMLA on default in repayment by debtors neither direct recovery by the lenders will be permissible nor they will be able to seize assets like vehicles, jewellery, property, in the wake of cash borrowings. In the event of default in repayment the lenders will have to approach the government for a settlement.