The Karnataka government on Monday resubmitted the Karnataka Micro Loan and Small Loan (Prevention of Coercive Actions) Ordinance, 2025, to Governor Thaawarchand Gehlot, with clarifications addressing the concerns raised earlier. The ordinance, which was presented without any amendments, includes responses to the governor’s queries and emphasizes that it does not violate basic rights, harm lenders’ interests, or obstruct the recovery of loans.
The governor had returned the ordinance on Friday, seeking further clarification on several aspects, particularly the punishment and penalties for violations of the law. He pointed out that the proposed fine of Rs 5 lakh and a punishment term extending up to 10 years for contravention of Section 8 of the ordinance appeared disproportionate, especially given that the maximum loan amount under the ordinance is Rs 3 lakh. He also remarked that such penalties seemed to infringe upon principles of natural justice and fairness, suggesting that the ordinance primarily benefitted borrowers while negatively affecting lenders. He proposed that the bill be discussed during the upcoming budget session in the legislature.
Law Minister HK Patil responded by defending the ordinance’s provisions, stating that it does not infringe on anyone’s basic rights. He clarified that the law specifically targets unregistered or unlicensed lenders who engage in illegal practices like charging compound interest or imposing penalty interest. These lenders, he explained, cannot offer loans under the law, and any such cases would not be accepted in courts. He further explained that the Rs 5 lakh penalty was intended not for the loan amount but for the harassment and undue pressure these unregistered lenders exert on borrowers. This defense has been included as part of the clarification provided to the governor.