HC cautions against coercive action on pawnbrokers for now

Interim order passed on petitions filed by Karnataka Pawnbrokers’ Association

The Karnataka High Court on Thursday directed the State government not to take any coercive action until further orders against the pawnbrokers under Section 5 of the Karnataka Debt Relief (KDR) Act, 2018, which was enacted recently to provide a one-time waiver for all loans taken by poor persons from moneylenders and pawnbrokers.

Justice Alok Aradhe passed the interim order on the petitions filed by the Karnataka Pawnbrokers’ Association and more than 300 individual pawnbrokers, who have challenged the constitutional validity of the KDR Act.

Section 5 of the KDR Act empowers debt relief officers to enter the premises of pawnbrokers and seize the pledged documents and movable properties, and deliver them to the debtors if the pawnbrokers submit statements on debts within the prescribed period. It has contended in the petitions that the Act is arbitrary and discriminatory as it is made applicable only to pawnbrokers, while contending there is no rationale or nexus in excluding banks, NBFCs, micro finance institutions, trusts, and companies from the application of the Act.

The business of NBFCs, micro finance institutions, trusts and companies that are in the business of lending money is wholly unregulated, unlike the business of pawnbroking, which is regulated under the Karnataka Pawn Brokers Act, 1961, and the above said institutions are known to charge exorbitant rates of interest higher than the rates by pawnbrokers, whose interest rate is regulated, the petitioners claimed.

Pointing out that similar laws enacted in 1976 and 1980 did not exempt NBFCs, micro finance institutions, trusts, companies, banking companies, etc., the petitioners contended that the 2018 Act is “ex facie harsh, draconian, and unconstitutional” as it has targeted only the community of pawnbrokers.

The petitioners also contended the new Act “has the effect of destroying their business or trade” and their “vested right in the monies owed to them” contrary to the right guaranteed under the Constitution to practise any profession, or to carry on any occupation, trade or business.

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