Telangana High Court: In a case wherein the constitutional validity of the Andhra Pradesh Micro Finance Institutions (Regulation of Money Lending) Act, 2011 was challenged on the ground that it was beyond the legislative competence of the Andhra Pradesh Legislature, the Division Bench of *Ujjal Bhuyan, C.J. and C.V. Bhaskar Reddy, J. refused to declare the Andhra Pradesh Micro Finance Institutions (Regulation of Money Lending) Act, 2011 and the Telangana Micro Finance Institutions (Regulation of Money Lending) Act, 2011 as unconstitutional and held that the NBFCs operating in the States of Telangana and Andhra Pradesh registered with the RBI would be excluded from the purview of the Andhra Pradesh Micro Finance Institutions (Regulation of Money Lending) Act, 2011 and the Telangana Micro Finance Institutions (Regulation of Money Lending) Act, 2011.
Background
In the present case, the writ petitions were filed questioning the constitutional validity of the Andhra Pradesh Micro Finance Institutions (Regulation of Money Lending) Act, 2011 on the ground that it was beyond the legislative competence of the Andhra Pradesh Legislature. The petitioners were Non-Banking Financial Corporations (“NBFCs”) registered under the Reserve Bank of India Act, 1934 (“RBI Act”) and regulated by the RBI. These writ petitions were disposed of by this Court in the judgment and order dated 11-2-2013 as on the same subject matter, a Central Bill of 2012 was pending before the Union Parliament. Thereafter, the NBFCs filed a Special Leave Petition (“SLP”) before the Supreme Court against the earlier judgment and order of this Court.
Later, the Andhra Pradesh Reorganization Act, 2014 came into effect from 2014 which bifurcated the composite State of Andhra Pradesh into the States of Telangana and Andhra Pradesh and as a result of which, the Andhra Pradesh Micro Finance Institutions (Regulation and Money Lending) Act, 2011 was adopted by the State of Telangana after which a new enactment being Telangana Micro Finance Institutions (Regulation of Money Lending) Act, 2011 was enacted.
The Supreme Court in the above-mentioned SLP, passed on order holding that the High Court could not have abdicated its responsibility of deciding on the legislative competence of the Andhra Pradesh Micro Finance Institutions (Regulation of Money Lending) Act, 2011 merely on the footing that a Central Bill of 2012, on the same subject matter, was pending before the Union Parliament. Therefore, the Supreme Court set aside the judgment and order dated 11-2-2013 of this Court and restored the writ petitions to file. The Telangana High Court was directed to dispose of the writ petitions as early as possible and therefore, the writ petitions were again before this Court.
Analysis, Law, and Decision
The Court noted that though the initial challenge to the Andhra Pradesh Micro Finance Institutions (Regulation of Money Lending) Act, 2011 was on the ground of lack of legislative competence, but during the pendency of the writ petitions, the Supreme Court in Nedumpalli Finance Company Limited v. State of Kerala, 2022 SCC OnLine SC 588 (Nedumpalli) had upheld the Gujarat High Court judgment declaring the Gujarat Money Lenders Act, 2011 as unconstitutional for legislative incompetence to the extent that it sought to have control over NBFCs registered under the RBI Act. The question for consideration before the Supreme Court was “whether NBFCs regulated by the RBI in terms of the provisions of Chapter III-B of the RBI Act could also be regulated by State enactments, such as the Kerala Money Lenders Act, 1958 and the Gujarat Money Lenders Act, 2011?”.
The Supreme Court in Nedumpalli made it clear that the legislatures of the States of Kerala and Gujarat had the competence to enact a law for regulation of the business of money lending, which was traceable to Entry 30, List II of the Seventh Schedule to the Constitution of India. The Supreme Court held that “the aspect relating to protecting the interest of the borrowers which was sought to be achieved by the State enactments gets subsumed in the provisions of Chapter III-B of the RBI Act”. Further, the Supreme Court held that “provisions of Chapter III-B would eclipse the provisions of the State enactments insofar NBFCs were concerned”. Lastly, the Supreme Court held that “the Kerala Money Lenders Act, 1958 and the Gujarat Money Lenders Act, 2011 would have no application to NBFCs registered under the RBI Act and regulated by the RBI Act”.
This Court after examining the scheme and provisions of the Andhra Pradesh Micro Finance Institutions (Regulation of Money Lending) Act, 2011 and the Telangana Micro Finance Institutions (Regulation of Money Lending) Act, 2011 opined that both these enactments were pari materia to the Kerala Money Lenders Act, 1958 and the Gujarat Money Lenders Act, 2011.
Therefore, this Court refused to declare the Andhra Pradesh Micro Finance Institutions (Regulation of Money Lending) Act, 2011 and the Telangana Micro Finance Institutions (Regulation of Money Lending) Act, 2011 as unconstitutional, however, after following the decision of the Supreme Court in Nedumpalli, this Court held that “the NBFCs operating in the States of Telangana and Andhra Pradesh registered with the RBI would be excluded from the purview of the Andhra Pradesh Micro Finance Institutions (Regulation of Money Lending) Act, 2011 and the Telangana Micro Finance Institutions (Regulation of Money Lending) Act, 2011, that means, these two enactments would have no application to NBFCs operating in the States of Telangana and Andhra Pradesh, which were registered under the RBI Act and regulated by RBI”.
The Court disposed of the petitions.
[SKS Micro Finance Ltd. v. State of Andhra Pradesh, W.P. (C) 25891 of 2010, decided on 14-2-2023]
Advocates who appeared in this case:
For the Petitioner: Senior Counsel D. Prakash Reddy;
Senior Counsel L. Ravi Chander;
Counsel Saurabh Bindal;
For the Respondents: Special Government Pleader A. Sanjeev Kumar;
Special Counsel Govind Reddy;
Counsel B. Nalin Kumar.
*Order by: Chief Justice Ujjal Bhuyan.
*Simranjeet Kaur, Editorial Assistant has reported this brief.