The Supreme Court has clarified its earlier order on unauthorised money lending. It said that order does not mean that no law currently governs the issue. The Court also said authorities need not wait for fresh legislation from States or Union Territories before taking action.
The Court made clear that authorities can proceed against unlicensed money lenders under existing State money lending statutes. They can also invoke the Bharatiya Nyaya Sanhita, 2023.
The Court observed:
“It is pertinent to note that for unlicensed money lending against the promissory notes, whether accompanying with any other security such as cheque, title deeds or not, there already exists a Statutory Bar in State Money Lending Law. There is also a bar of ‘Dam Dupat’ even under a moneylending licence i.e. against charging interest more than the principal amount actually disbursed. There is a further statutory disability against the enforceability of such loan amount by unlicensed money lender. Moreover, such money lending is a punishable offence under the State Money Lending Law.”
In view of this position, the Court said courts should “nip in the bud” proceedings filed by unlicensed private money lenders. It added that courts need not wait for new legislation from States or Union Territories.
A Bench of Justices Pankaj Mithal and Vipul M Pancholi stated:
“Therefore, the Courts should ensure that the proceedings instituted by such private money lender are nipped in bud, whether Civil or Criminal, unless the money lender at the threshold produces license for money lending or shows that money was not advanced by him at interest.”
The Bench further added:
“…commencement of investigation of any offence punishable under State Money-lending law by any unlicensed money lender and under Indian Penal Code, 1860/Bharatiya Nyaya Sanhita, 2023 shall also not await the legislation by the respective States/Union Territories.”
The clarification came through an order on a miscellaneous application. The application arose in a special leave petition seeking quashing of summons in a cheque dishonour case.
In July 2024, the Supreme Court took suo motu cognisance in the main matter. It did so to examine the problem of unlawful money lending in society. At that stage, the Court noted the growing menace of unlicensed money lending. It also referred to its severe effect on borrowers, including financial ruin and even suicide.
The Court had then observed that some people lend money on interest without the required licence. They also take cheques or title deeds as security. The Court said such activity is, in substance, a money lending business.
However, the Court also noted the position under the Punjab Registration of Money Lenders Act, 1938. Under that law, such conduct would not amount to the business of money lending unless it involved continuous transactions of a similar nature. According to the Court, such persons often advance loans only intermittently. The Court said they do so to evade the law.
In that earlier order, the Court compared such lenders to Shylock in Shakespeare’s Merchant of Venice. It noted that the character advanced a loan to the protagonist with “a pound of flesh” as security. The Court said such Shylockian lenders could not be allowed to operate unchecked.
The Court therefore suo motu impleaded the Union of India and the Government of the National Capital Territory of Delhi as parties to the proceedings.
Later, the Union of India informed the Court of its intention to bring fresh legislation. The proposed law would regulate unlicensed money lending carried out at exorbitantly high rates of interest.
In February 2026, the Court closed the suo motu proceedings. It recorded that a draft Bill was in circulation among the States and Union Territories. Those States and Union Territories had to bring about the legislation.
While closing the proceedings, the Court had observed:
“In view of the stand taken by the Union of India before us, we direct for the closure of the suo moto action taken by this Court and expect for a fair and proper legislation by all States/Union Territories to strictly check the unauthorised business of money lending”.
Thereafter, the applicant filed the present miscellaneous application. The applicant sought clarification of the February order. According to the applicant, people were reading that order to mean that no law currently exists against unlicensed money lending. They were also treating it as requiring all enforcement action to wait for a new enactment by the States and Union Territories.
Against this backdrop, the Supreme Court in the present order highlighted the statutory prohibitions already contained in State money lending laws.
Case Title: RAJ KUMAR SANTOSHI VERSUS PRASHANT MALIK, Miscellaneous Application No. 1176/2026 in SLP(Crl) No. 5485/2024
Citation: 2026 INSC 342
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