The Usurious Loans Act, 1918

(1) This Act may be called Usurious Loans Act, 1918. (2) It extends to the whole of India except 1[the territories which, immediately before the 1stNovember, 1956, were comprised in Part B States] 2***. (3) The State Government may, by notification in the Official Gazette, direct that it shall not apply toany area, class of persons, or class of transactions which it may specify in its notification.

In this Act, unless there is anything repugnant in the subject or context,-- (1) "Interest" means rate of interest and includes the return to be made over and above what wasactually lent, whether the same is charged or sought to be recovered specifically by way of interest orotherwise. (2) "Loan" means a loan whether of money or in kind and includes any transaction which is, inthe opinion of the Court, in substance a loan. (3) "Suit to which this Act applies" means any suit-- (a) for the recovery of a loan made after the commencement of this Act; or (b) for the enforcement of any security taken or any agreement, whether by way of settlementof account or otherwise, made, after the commencement of this Act, in respect of any loan madeeither before or after the commencement of this Act; 1[or (c) for the redemption of any security given after the commencement of this Act in respect ofany loan made either before or after the commencement of this Act.]

(1) Notwithstanding anything in the Usury Laws Repeal Act, 1855(28 of 1855), where, in any suit to which this Act applies, whether heard ex parte or otherwise, the Courthas reason to believe, -- (a) that the interest is excessive; and (b) that the transaction was, as between the parties thereto, substantially unfair, the Court mayexercise all or any of the following powers, namely, may,-- (i) re-open the transaction, take an account between the parties, and relieve the debtor of allliability in respect of any excessive interest; (ii) notwithstanding any agreement, purporting to close previous dealings and to create a newobligation, re-open any account already taken between them and relieve the debtor of all liabilityin respect of any excessive interest, and if anything has been paid or allowed in account in respectof such liability, order the creditor to repay any sum which it considers to be repayable in respectthereof; (iii) set aside either wholly or in part or revise or alter any security given or agreement madein respect of any loan, and if the creditor has parted with the security, order him to indemnify thedebtor in such manner and to such extent as it may deem just: Provided that, in the exercise of these powers, the Court shall not-- (i) re-open any agreement purporting to close previous dealings and to create a newobligation which has been entered into by the parties or any persons from whom they claim ata date more than 1[twelve] years from the date of the transaction; (ii) do anything which affects any decree of a Court. Explanation.--In the case of a suit brought on a series of transactions the expression "the transaction"means, for the purposes of proviso (i), the first of such transactions. (2) (a) In this section "excessive" means in excess of that which the Court deems to be reasonablehaving regard to the risk incurred as it appeared, or must be taken to have appeared, to the creditor at thedate of the loan. (b) In considering whether interest is excessive under this section, the Court shall take into accountany amounts charged or paid, whether in money or in kind, for expenses, inquiries, fines, bonuses,premia, renewals or any other charges, and if compound interest is charged, the periods at which it iscalculated, and the total advantage which may reasonably be taken to have been expected from thetransaction. (c) In considering the question of risk, the Court shall take into account the presence or absence ofsecurity and the value thereof, the financial condition of the debtor and the result of any previoustransactions of the debtor, by way of loan, so far as the same were known, or must be taken to have beenknown, to the creditor. (d) In considering whether a transaction was substantially unfair, the Court shall take into account allcircumstances materially affecting the relations of the parties at the time of the loan or tending to showthat the transaction was unfair, including the necessities or supposed necessities of the debtor at the timeof the loan so far as the same were known, or must be taken to have been known, to the creditor. Explanation.--Interest may of itself be sufficient evidence that the transaction was substantiallyunfair. (3) This section shall apply to any suit, whatever its form may be, if such suit is substantially one forthe recovery of a loan or for the enforcement of any agreement or security in respect of a loan 2[or for theredemption of any such security]. (4) Nothing in this section shall affect the rights of any transferee for value who satisfies the Courtthat the transfer to him was bona fide, and that he had at the time of such transfer no notice of any factwhich would have entitled the debtor as against the lender to relief under this section. For the purposes ofthis sub-section, the word "notice" shall have the same meaning as is ascribed to it in section 4 of theTransfer of Property Act, 1882 (4 of 1882). (5) Nothing in this section shall be construed as derogating from the existing powers or jurisdiction ofany Court.

On any application relating to the admission or amount of a proof of aloan in any insolvency proceedings, the Court may exercise the like powers as may be exercised undersection 3 by a Court in a suit to which this Act applies.