Anxious time for debtors till ordinance is promulgated

The interim period till the ordinance on debt relief is promulgated poses a risk to debtors as moneylenders and pawnbrokers are bound to leave no stone unturned to recover their loans.

The state Cabinet on Friday decided to come out with “Karnataka Debt Relief Ordinance, 2018” to provide total relief from indebtedness to small farmers, landless agricultural labourers and those from the economically weaker section.

The ordinance proposes that any loans taken from non-institutional sources excluding non-banking finance corporations will stand null and void and pledged items such as gold and land documents will have to be returned. While there is no official figure on total such loans availed, Karnataka has 8,274 pawnbrokers and 10,692 moneylenders registered in the state.

Sources in the state secretariat said it will take at least 15 days for the ordinance to come into force. The ordinance will have to be sent to Rashtrapati Bhavan as it has to be promulgated by the President of India.

There have been several cases in the past of moneylenders humiliating, harassing and resorting to intimidation to recover loans from their borrowers. The interest rates are usually 20% and above. In local parlance this kind of interest rate is called “meter baddi.” Their clients usually are landless labourers, daily wagers, footpath vendors who have no dependable collateral to approach banks.

While the ordinance has provisions to penalise moneylenders if they try to coerce their debtors to repay loans, there is no mechanism in place to prevent this till the ordinance comes into force. When contacted, finance department officials said nothing much can be done about it.

However, if there is harassment, the debtors can file a complaint with the police as charging high rate of interest is an offence under the Karnataka Moneylenders’ Act, 1961 and Karnataka Pawnbrokers’ Act, 1961. Things will be different once the ordinance is in place. Jurisdictional assistant commissioners will function as debt relief officers. As per Section 5 of the ordinance, every creditor will have to furnish all details on loans extended and movable property pledged as sought by the officer. A debtor will have to make an application in a prescribed form to the officer for an order on return of the movable properties pledged by him as surety. A similar ordinance was promulgated by the D Devaraj Urs government in 1976.