Bengaluru: Governor Thaawarchand Gehlot on Friday rejected Karnataka Micro Finance (Prevention of Coercive Actions) Ordinance 2025. The Ordinance was proposed by the Siddaramaiah-led Congress government to regulate microfinance.
While rejecting the Ordinance, the Karnatak Governor Gehlot opined that the punishment of 10 years and fine of Rs 5 lakh proposal is excessive and the ordinance could have a negative impact on microfinance and this will ultimately affect the poor.
Governor Gehlot’s Key Objections to the Ordinance
1. Relief to Borrowers: Section 14 proposes complete discharge of all loans and interest from unregistered lenders, prohibits civil proceedings for loan recovery, and abates ongoing cases. This may violate the fundamental rights of genuine lenders under Articles 19 and 32 of the Constitution.
2. Disproportionate Penalty: The proposed punishment—up to 10 years imprisonment and a fine of Rs 5 lakh—is excessive, given the maximum loan amount of Rs 3 lakh. This is inconsistent with existing laws and natural justice principles.
3. No Security Provision: The ordinance prevents lenders from seeking security and mandates releasing existing securities, which contradicts standard banking practices. This could harm small borrowers and deter genuine lending in remote areas.
4. Limited Scope: The ordinance only applies to unregistered lenders, excluding *banks and NBFCs registered with RBI, which may lead to regulatory gaps.
5. Existing Laws Already Address the Issue: The Governor emphasized that existing laws, such as the Karnataka Money Lenders Act, Negotiable Instruments Act, Karnataka Debt Relief Act, and Indian Penal Code, along with RBI guidelines, already provide sufficient legal remedies. The issue lies in enforcement, not in the absence of legal provisions.
6. Lack of Data and Legal Justification: The ordinance lacks supporting statistics and legal advice to justify its necessity or effectiveness in addressing harassment cases.
7. Legislative Deliberation Needed: The Governor advised discussing the matter in the State Legislature during the upcoming budget session rather than rushing through an ordinance.
The ordinance has been returned with a directive for the State Government to provide clarifications, deliberate the matter thoroughly in the legislature, and resubmit an improved proposal.
Karnataka Governor Thaawarchand Gehlot rejected the state’s Microfinance Ordinance, citing excessive penalties (10 years imprisonment and a Rs 5 lakh fine), insufficient legal justification, and the potential harm to genuine lenders and borrowers. Biz News Business News – Personal Finance News, Share Market News, BSE/NSE News, Stock Exchange News Today
