Expect States To Enact Laws Regulating Unlicensed Money Lenders Charging Exorbitant Interest Contrary To 'Damdupat': Supreme Court

"Shylockian attitude of such money lenders cannot be permitted to continue unabated," Supreme Court, in an order dated February 16, 2026, closed its suo motu proceedings concerning the menace of unlawful money lenders after the Union of India assured that a draft bill to regulate the sector is in circulation among the States. A bench comprising Justice Pankaj Mithal and Justice S.V.N. Bhatti expressed hope that all States and Union Territories will soon enact strict legislation to check the unauthorized business of money lending that exploits borrowers through exorbitant interest rates.

The broader issue of unregulated money lending caught the apex court's attention during the hearing of a special leave petition arising from a cheque dishonour complaint under Section 138 of the Negotiable Instruments Act, 1881. While the primary dispute between the parties was disposed of following an amicable settlement, the Court had taken suo motu cognizance on July 23, 2024. This separate action was initiated specifically to address the societal hazard posed by predatory private financiers.

The primary question before the court was whether immediate legislative or regulatory measures are required to curb the widespread operation of unlicensed money lenders. The court was also called upon to consider how to combat the imposition of extortionate interest rates that violate the ancient Indian jurisprudential principle of 'Damdupat'.

"Shylockian Attitude" Must Be Curbed

While examining the underlying financial transactions that frequently lead to cheque bounce litigations, the Court highlighted the exploitative practices of private lenders. The bench stressed that unscrupulous financiers taking advantage of desperate borrowers requires strict and immediate intervention. Deprecating the aggressive recovery and interest-charging tactics, the Court made a strong observation regarding the conduct of these lenders.

"The Court observed that Shylockian attitude of such money lenders cannot be permitted to continue unabated."

Union Of India Proposes Legislative Measures

To address the Court's concerns, the Union of India and the NCT of Delhi were impleaded as party respondents to the proceedings. The Additional Solicitor General informed the bench that the government recognizes the gravity of the situation and is actively contemplating statutory intervention. The Union noted that the practice of charging extortionate interest is fundamentally opposed to traditional Indian legal and moral principles.

"...exorbitant rate of interest which is completely unethetical to our ancient principle of ‘Damdupat’."

Exorbitant Interest Violates Ancient 'Damdupat' Principle

The Additional Solicitor General submitted that the government intends to introduce legislation specifically targeting unlicensed money lending. The Union's stand emphasized that levying unconscionable interest rates is not just a regulatory violation but an unethical practice. The Court recorded the Union's submission that such lending happens at an "exorbitant rate of interest which is completely unethetical [sic] to our ancient principle of ‘Damdupat’."

States Tasked With Enacting Strict Laws

The Court was apprised that while no comprehensive guidelines have been notified yet, a draft bill has been prepared to tackle the regulatory vacuum. Since money lending is a subject that requires legislative action at the provincial level, the draft is currently in circulation with the respective States and Union Territories. Relying on this solemn assurance, the Supreme Court decided not to keep the suo motu proceedings pending indefinitely.

Disposing of the proceedings, the Supreme Court closed the suo motu action while firmly placing the onus on regional governments to combat predatory lending. The bench recorded its expectation for "a fair and proper legislation by all States/Union Territories to strictly check the unauthorised business of money lending." The original cheque bounce complaint was also formally closed in terms of the parties' settlement.

Date of Decision: 16 February 2026