Karnataka Prohibition of Charging Exorbitant Interest Act, 2004
The Karnataka Prohibition of Charging Exorbitant Interest Act, 2004 targets money-lending and loan transactions where interest is exorbitant.
Core
- The Act prohibits charging interest above the ceiling prescribed by the State Government.
- Exorbitant interest is defined by reference to that maximum rate.
- It applies to loans and advances, including those by unlicensed money-lenders.
- A competent authority examines complaints and determines the permissible amount.
- Offences carry penalties; recovery of excess interest can be ordered.
- It supplements general contract and usury rules.
- The Act also regulates the manner of recovery; coercive recovery outside legal process can itself be an offence.
Worked example
A lender advances Rs 1,00,000 at 10% per month. The borrower complains. Reasoning: annualised, the rate far exceeds the notified ceiling. The competent authority can restrict the lender to the permissible rate and direct refund or adjustment of excess interest. The borrower remains liable for the principal and permissible interest.
Traps
- Thinking any high interest is automatically void.
- Ignoring the notified ceiling.
- Failing to separate principal from interest.
- Missing limitation.