Calcutta HC Refuses To Reject Suit, Says Lender Licence Question Under Bengal Money Lenders Act Is Triable

The Calcutta High Court has held that whether a lender company possessed the requisite licence under the Bengal Money Lenders Act, 1940 at the time of advancing loans is a triable issue and cannot be decided at the threshold to reject a recovery suit.

Justice Aniruddha Roy observed:

“Thus, on a harmonious and meaningful reading of the provisions laid down under Section 13 of BML Act, this Court is of the firm and considered view that, the instant application claiming rejection of plaint is not maintainable.”

Dutta Vinimay Private Limited claimed to have lent substantial sums to Dinesh Singh under three separate agreements. According to the plaint, Singh issued post-dated cheques as security for the loans. The company alleged default in repayment and sought recovery of Rs 3.44 crore along with interest through a commercial suit.

Singh sought rejection of the plaint, contending that the transactions disclosed in the plaint amounted to money lending and that the company did not possess the requisite licence under the Bengal Money Lenders Act. He argued that since the plaint did not disclose any licence, the suit was barred by law.

He further argued that while considering an application for rejection of plaint, the Court must determine whether the averments in the plaint and the documents relied upon would entitle the plaintiff to a decree.

Opposing the plea, Dutta Vinimay Private Limited argued that at the stage of considering rejection of plaint, the Court must accept the averments in the plaint as true. It contended that unless the plaint itself conclusively showed a legal bar, rejection was impermissible and that the issue of licence required evidence and trial.

Justice Roy reiterated that while deciding an application for rejection of plaint, the Court cannot consider the defence or written statement and must confine itself to the plaint averments.

The Court observed that the Bengal Money Lenders Act bars a decree in favour of a money lender unless the Court is satisfied that the lender held an effective licence when the loan was advanced. However, the plaint did not specifically disclose whether the company possessed such a licence at the relevant time.

The Court held that the question of licence was a triable issue which could not be decided without trial. It further observed that the statute does not create an absolute bar against maintaining a suit and that before dismissing a suit, the Court must give the lender an opportunity to cure the defect by paying the prescribed penalty.

It further held that issues relating to compliance with the Bengal Money Lenders Act, the Reserve Bank of India Act and the Companies Act involved mixed questions of law and fact unsuitable for summary adjudication.

Accordingly, the Court dismissed Singh's application for rejection of the plaint and directed that the issue relating to licence under the Bengal Money Lenders Act be tried as a preliminary issue.

The Court also clarified that if the company is ultimately found not to have possessed the requisite licence, it may cure the defect by paying the statutory penalty within three months.