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MFIs can carry on with their biz activities: HC

Press Trust of India  |  Hyderabad 

In a temporary relief to micro finance companies, the Andhra Pradesh High Court today allowed them to carry on with their activities which have come to a grinding halt following an Ordinance brought out by the state government to regulate the micro finance business.

The court also directed micro finance institutions (MFIs) to register within a week their activities with the district authorities as mandated by an Ordinance issued by the state government last week.

A division Bench comprising Chief Justice Nisar Ahmad Kakru and Justice Vilas V Afzalpurka said the companies can carry out their day-to-day activities and the Government can book cases if they violate Section 9 and 16 of the AP Microfinance Institutions Ordinance, 2010.

Section 16 of the Ordinance says if any person who is connected with and responsible for the day-to-day control, business and management of an MFI shall be liable for three years imprisonment or a fine of up to Rs 1 lakh or both.

Section 9 says no MFI shall recover from the borrower towards interest in respect of any loans advanced by it, whether before or after commencement of this Ordinance, an amount in excess of the principal amount.

The court was hearing a petition by Microfinance Institutions Network (MFIN), a body of MFIs, challenging the Ordinance. Country's largest MFI SKS Microfinance has separately challenged the Ordinance.

The bench directed the state government to file its reply within two weeks.

Meanwhile, the Andhra Pradesh Police today said they have arrested three people working with SKS and another MFI Spandana on a complaint of harassment by a borrower.

They further said companies' respective promoters Vikram Akula and Padmaja Reddy respectively may be booked under the provisions of the Ordinance which aims at checking coercive methods to recover loans.

The counsels for the petitioners argued that their weekly collections, which run into hundreds of crores of rupee, have been stopped after the government issued the Ordinance. They said it would affect payments to their lenders affecting the financial structure itself.

The petitioners contended that the  the state with encroaching into an area covered by the RBI Act and other central laws.

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First Published: Fri, October 22 2010. 21:06 IST