Holding

A commission agent advancing money to secure regular supply of goods, even if interest is charged, is not a "money‑lender" within the meaning of the Karnataka Money Lenders Act, 1961.

Summary

The appellant, a commission agent dealing in areca nuts, regularly advanced money to the respondent, a supplier, to ensure a steady supply of nuts, charging interest at 18% per annum. When the respondent failed to repay, the appellant sued for recovery. The respondent contended that the appellant was a money‑lender under the Karnataka Money Lenders Act, 1961 and therefore required a licence, rendering the suit non‑maintainable. The trial court decreed in favour of the appellant, but the High Court set aside the decree. On appeal, the Supreme Court applied a purposive construction to the definition of "money‑lender" in the Act, emphasizing that the Act’s purpose is to curb exploitation of the poor and that a money‑lender’s primary object is to earn interest. Since the appellant’s main aim was to secure regular supply of areca nuts, not to earn interest, he was not a money‑lender within the statutory meaning. Consequently, the appeal was allowed and the trial court’s decree restored.

Issues considered

Whether a commission agent who advances money to a supplier, charging interest, falls within the definition of "money‑lender" under Section 2(10) of the Karnataka Money Lenders Act, 1961.
Whether the suit for recovery of the advanced amount is maintainable in the absence of a licence under the Act.

Legislation cited

Karnataka Money Lenders Act, 1961s. 2(10), s. 2(2)

Subjects

Money lender definitionPurposive constructionStatutory interpretationKarnataka Money Lenders ActCommission agentInterest on loanBusiness practice

Judgment

I
f
"'f
MIS. P. VAIKUNTA SHENOY & CO. A
v.
P. HARI SHARMA

OCTOBER 31, 2007
B
[A.K. MATHUR AND MARKANDEY KAT JU, JJ.]
~
/ Karnataka Money Lenders Act, 1961; S. 2(10):
Business/market practices-A commission agent advancing
money to supplier ofareca nut, however, charging interest-Supplier
c
allegedly did not repay the amount-Suitfor recovery-Decreed by trial
Court-Reversed by High Court-On appeal, Held: Though the
commission agent charging interest on loan advanced by him to
supplier but his principal aim ofsuch advancing ofloan was to ensure
D
regular supply ofgoods, areca nuts and not money lending-Such a
practice prevalent and wide-spread in such business-Applying
principle ofpurposive construction to the definition ofmoney-lenders,
appellant could not be said to be a money lender as he was not doing
the business of money lending in a strict sense-Hence, impugned
judgment set aside and judgment of trial Court restored- E
Interpretation ofStatutes-Purposive construction.
Appellant was a commission agent of areca nut and the
respondent was a supplier. The respondent used to receive advance
money from the appellant off and on to secure regular supply of the F
~ areca nuts. Appellant alleged that the respondent had borrowed
certain amount from him but did not repay the same. Therefore, he
filed a suit for recovery of the amount with interest. Before the trial
Court, the respondent contended that the appellant was a money-
lender and he did not have a licence as required by the Karnataka G
Money Lenders Act, 1961. Therefore, the suit was not maintainable.
} The tria! Court decreed the suit. On appeal, the decree was set aside
by the High Court. Hence the present appeal.
Appellant contended that he was not a money lender as defined
725 H
-t
726 SUPRf;ME COURT REPORTS (2007] 11 S.C.R.

A in Section 200) of the Karnataka Money Lenders Act.
Respondent submitted that in view of the definitions as given
u/s. 2(10) gf the Karnataka Money Lenders Act, the appellant was
clearly a money..Jend~r.
B Allowing the appeal, the Court
HELD: 1.1. The purpose of the Money Lenders Act is to
prevent the malpractice of oppression by money-lenders to take
advantage of peoples' poverty. [Para 7] [728-C]
C 1.2. In the money lending business the object of the money-
lend~r is to earn interest on the loan he has advanced. In the present
case the object of advancing the loan by the appellant was not to
earn interest thereon but to ensure the regular supply of areca nuts.
Though, no doubt, interest at the rate of 18 per cent per annum was
D charged on these loans yet that was not the principal object of
advancing the loan. [Para 8) [728-D, E]
1.3. In business various methods are adopted by a businessman
for ensuring the smooth running of his business. Very often, one of
the methods is that the businessman advances money to his supplier
E of goods to ensure that the supplies are regular and are made to him
rather than being diverted to other parties. There is nothing illegal
in this practice and it is widespread. [Para 9] [728-E, FJ
2.1. When the provisions of the Karnataka Money Lenders Act
p are construed, the object for which it was made must be seen, and
for this purpose principle of purposive construction has to be
ad~pted. [728-F, G]

New India Sugar Mills v. Commissioner of Sales Tax, AIR
(1963) SC 1207: [1963) Supp 2 SCR 459 and UP. Bhoodan Yagna
G Samiti v. Braj Kishore, AIR (1988) SC 2239: [1988) 4 SCC 274,
relied on.
2.2. A purposive interpretation has to be given to the definition
of money-lenders. From this angle the appellant could not be said
H to be a money-lender as he was not really doing the business of
I

,, r
M/S.P.VAIKUNTASHENOY &CO. V. P.HARISHARMA 727
[MARKANDEY KA TJU, J .]
~
money lending in the strict sense but was only advancing loans to A
secure the regular supply of areca nuts. [Para 13) [729-D, E]
CIVIL APPELLATE JURISDICTION: Civil Appeal No. 5540 of
2001.
From the final Judgment and Order dated 25.3.2000 of the High B
Court of Karnataka at Bangalore in R.F.A. No. 531 of 1997.
~
).
V.B. Joshi and Kailash Pandey for the Appellant.
G.V. Chandrashekhar, Anjana Chandrashekhar and P.P. Singh for
the Respondent. c
The Judgment of the Court was delivered by
MARKANDEY KATJU, J. 1. This appeal has been filed against
the impugned judgment of the Karnataka High Court dated 25.03.2000
in R.F .A No. 531 of 1997. We have heard learned counsel for the parties D
..,.. and perused the record .
2. The plaintiff-appella,nt has alleged that he was carrying the business
of commis;iio.n cigep.t·. ·The defendant was having an areca nut (supari)
g~ge.n Md he used to supply the areca nutsto the plaintiff. The defendant
used to receive money from the plaintiff off and on, which the plaintiff E
used to advance him to secure regular supply of the areca nuts. It was
alleged by the plaintiff that defendant had borrowed Rs.72,044.43 paise
as per the ledger account regql<lfly maintained by the plaintiff. Hence the
plaintiff filed a suit for recovery of this amount with interest at the rate of
18 per cent per annum. F
1'
3. The defendant denied the plaintiffs' case and advanced the plea
that plaintiff was a money-lender ang he did not have a licence as required
by the Karnataka Money Lenders Act, 1961. Consequently, the
defendant ~lleged that the suit was not maintainable as the plaintiff had G
J10t tMen a licence under the aforesaid Act.
>- 4. The Trial Court decreed the suit of the plaintiff but the said decree
was set aside by the High Court. Hence this appeal.
5. Learned counsel for the plaintiff-appellant has submitted that the H
728 SUPREME COURT REPORTS [2007] 11 S.C.R.

A plaintiff was not a money-lender as defined in Section 2(10) of the
Karnataka Money Lenders Act. The aforesaid Section 2(10) states that
a money-lender is one who "carries on the business of money lending in
the State".
Section 2 (2) defines the business of money lending as follows:-
B
' Business of money lending means business of advancing loan
whether or not in connection with or in addition to any other A_
business'. ...
6. Learned counsel for the respondent submits that in view of the
C aforesaid definitions the appellant was clearly a money-lender. We do not
agree.
7. It may be mentioned that the purpose of the Act was to prevent
the malpractice of oppression by money-lenders to take advantage of
D peoples' poverty.
8. In the money lending business the object of the money-lender is
to earn interest on the loan he has advanced. In the present case the object
of advancing the loan by the appellant wa~ not to earn interest thereon
but to ensure the regular supply of areca nuts. Though, no doubt, interest
E at the rate of 18 per cent per annum was charged on these loans yet that
was not the principal object of advancing the loan.
9. In business various methods are adopted by a businessman for
ensuring the smooth running of his business. Very often, one of the methods
p is that the businessman advances money to his supplier of goods to ensure
that the supplies are regular and are made to him rather than being diverted
to other parties. There is nothing illegal in this practice and it is widespread.
I 0. When we construe the provisions of the Karnataka Money
Lenders Act we must see the object for which it was made a:nd we have
G to adopt the purposive construction.
11. As observed by this Court in New India Sugar Mills v. -{.
Commissioner of Sales Tax, AIR (1963) SC 1207, p. 1213 : [1963]
Supp 2 SCR 459] :-
H
I
J-
M/S.P.VAIKUNTASHENOY &CO.v. P.HARISHARMA 729
[MARKANDEY KATJU, J.]
"It is a recognized rule of interpretation of statutes that A
expressions used therein should ordinarily be understood in a sense
in which they best harmonize with t~e object of the statute, and
which effectuate the object of the legislature". (See also the
decisions mentioned in G.P. Singh's ''Principles of Statutory
Interpretation: 9th Edition 2004 at Page 110). B

12. To give an example, under the U.P. Bhoodan YagnaAct, 1953
the lands which were donated by large landholders could be allotted to
'landless persons'. It was held by this Court in UP. Bhoodan Yagna
Samiti v. Braj Kishore, AIR (1988) SC 2239: [1988] 4 SCC 274 that
the expression 'landless persons' should be interpreted to mean landless C
peasants and not landless businessman. If a literal meaning was given to
the expression 'landless persons' then even a very rich businessman who
possessed hundreds of crores of rupees can claim allotment of a piece of
land on the ground that he was a landless person as he owns no land.
That could not possibly be the object of the Act. The object of the Act D
was to give land to landless peasants only.
13. In view of the above discussion we are of the opinion that a
purposive interpretation has to be given to the definition of money-lenders.
From this angle the appellant could not be said to be a money-lender as E
he was not really doing the business of money lending in the strict sense
but was only advancing loans to secure the regular supply of areca nuts.
14. Ir. view of the above this appeal is allowed, impugned judgment
of the High Court is set aside and the judgment of the trial court is
restored. No order as to costs F
S.K.S. Appeal allowed.