Thursday, July 13, 2023

Usury Ordinance lacks Efficacy

Usury victims from 24 districts of Nepal are still camped at Shanti Vatika in Kathmandu and demanding justice. They had commenced their agitation from early April this year. GoN has not even attempted to reach any understanding with them. In the meantime, based on an understanding with the first group that reached Kathmandu in late March, GoN had constituted a Commission to report to GoN on the usury practices after investigating and also promulgated an Ordinance in May this year to control usury practices. A tragicomic situation came to exist with not only the victims rejecting the Ordinance but even a group of perpetrators came to agitate against the Ordinance in Kathmandu. In effect both victims and perpetrators are demanding repeal of the Ordinance. Whereas GoN, ignoring demands of both these groups, had tabled a Bill in the parliament in June to replace the Ordinance, as the Ordinance ceases to exist after 7th July (60 days from the beginning of session of Parliament). The Bill was duly passed by the National Assembly on 1st July. However, the House of Representatives failed to pass it within the constitutionally stipulated time limit and the Ordinance ceased to exist. However, GoN seems to be determined to have the parliament pass a Bill based on the contentious Ordinance. Therefore, it is high time to examine the Ordinance with regard to its efficacy. Usury declared criminal offence The Ordinance added Section 249A in the Criminal Code declaring the usury to be a criminal activity. Under Section 249A sub section (4) the perpetrator could be liable for up to 7 year prison sentence and Rs 70,000 fine. Moreover, if the perpetrator has extracted current assets and/or fixed assets from the victims in contravention of aforesaid provision, both current assets and/or fixed assets are to be returned to the victim under section 249A sub section (5) and (6) respectively. Although activities mentioned in section 249A sub section (2) were committed by the perpetrators, the victims do not possess any documentary evidence of such crimes. In such a scenario, it would be well neigh impossible to provide relief to the usury victims and prosecute the perpetrators and, hence, the Ordinance lacks efficacy from this perspective. Crimes committed in the past The victims that are agitating against the above-mentioned crimes that were committed by the perpetrators for a long time in the past. However, according to section 1 sub section (2) of the Ordinance, it comes into effect immediately, i.e. from the date the Ordinance was published in Nepal Gazette. Meaning although certain activities that fall under the definition of sub section 2 of section 249A, but any such activity that were committed before the Ordinance came into force cannot be held to be criminal. In other words, the Ordinance does not come into effect retroactively. In this scenario, the Ordinance does not cover the crimes committed by the perpetrators before it was promulgated and will not address the problems of thousands of victims currently agitating. To illustrate the point, an example of an aggrieved husband's right to murder his wife-snatcher can be taken. Before Civil Code was promulgated in August 1963, aggrieved husbands in Nepal had the right to murder his wife’s snatcher. But the Civil Code made any and all kinds of murder a criminal offence. In this backdrop, if a person had murdered his wife-snatcher, before August 17, 1963, he could not be prosecuted for murder. But any such action afterwards is a criminal offence. From the above discussion it is clear that perpetrators have been committing the crimes mentioned in sub section (2) of section 249A since a long time in the past. However, in the backdrop of the legal principle described above, any crime described in section sub section (2) of 249A committed prior to promulgation of the Ordinance is not punishable. In this background also, the Ordinance lacks efficacy. Money laundering Section 5 of the Ordinance added section 30A in Criminal Procedure Code under which anyone lending money (investing), by executing loan deeds at home, disproportionate to his/her authoritative source of income are subject to be prosecuted for money laundering. But loan sharks not only have lent money to victims by executing loan deeds at home, they have also lent money taking fixed assets of the victims as collateral, formally registered at Land Revenue Office. Later the loan sharks did get the mortgaged fixed assets auctioned off saying that money lent was not repaid, although the victims did service and repay the loan without receiving any formal receipt from the loan shark. Further, some loan sharks even get ownership of fixed assets of the victims transferred formally at the time of lending money promising to return the ownership upon repayment of the loan. But even after victims repay the loan, the ownership of fixed assets of the victims were not transferred back to the victims. In this backdrop, section 30A should have been made wider to cover not only loan deeds executed at home but also money lent by taking fixed assets as collateral and money lent against transfer of ownership of fixed assets of the victims. All total of such investments needs to be assessed to examine if the investment is disproportionate to the authoritative source of income of the loan sharks. Tallying only loan deeds executed at home to assess if investment is disproportionate to the authoritative source of income of the loan sharks will not be able to depict the correct picture. Activities of the Commission The Commission issued a press communique late last month saying that it had received more than 22,000 applications from the victims of which 564 cases were settled amicably. Although the terms of reference of the Commission is just to submit a report to GoN after conducting investigation in the matter, settling disputes amicably is always welcome as long as such settlements are fair and just and have been reached with free will on the part of both parties. Two examples cited by the Commission are worth a close look. One victim had borrowed Rs 32,000 but the lender was demanding repayment of Rs 1.2 million to settle the loan. At the initiation of the Commission this dispute was settled for Rs 450,000. Similarly, another victim had borrowed Rs 150,000 but the lender was demanding Rs 1 million as repayment. In this case also the Commission got the parties to settle amicably for Rs 450,000. Both of these amicable settlements warrant a close look in the light of Civil Code as well as this Ordinance. Sub section (1) of section 480 of Civil Code stipulates that no interest can be charged on interest. In other words, outstanding interest cannot be clubbed together with the principal and interest charged on the total amount. Basically, this provision prohibits compound interest. Similarly, section 481 says that no interest can be charged more than equal to principal. Moreover, even section 249A subsection (2) clause (e) inserted by this Ordinance prohibits recovering interest more than equal to principal. Therefore, both section 480 (1) and section 481 of original Civil Code and section 249A (2) (e) inserted by this Ordinance prohibits a lender from recovering interest more than principal amount. Hence, in the examples cited by the Commission, the respective lenders were entitled to maximum Rs 64,000 and Rs 300,000 respectively for having lent Rs 32,000 and Rs 150,000. Therefore, in the name of amicable settlement making both these borrowers pay Rs 450,000 each contravenes section 480 (1) and section 481 as well as section 249A (2) (e) of Civil Code. If these borrowers were to challenge the amicable settlements in court of law, the amicable settlements are subject to being declared invalid. Conclusion As discussed above neither the victims have documentary evidence against the loan sharks nor did the GoN render the Ordinance retroactive. Due to these twin reasons, victims are not in a position to receive justice. The victims can be afforded justice if money laundering provision is widened not only to cover (1) loan deeds executed at home but also (2) money lent with fixed assets as collateral and (3) ownership of the properties transferred in the name of loan shark against money borrowed by the victims. Therefore, GoN should formulate new Bill with provision for prosecuting under money laundering law for investment by loan sharks, if the total investment under loan deed executed at home, loan deed with fixed assets as collateral and transfer of ownership of the properties in the name of loan shark against money borrowed by the victims. Ratna Sansar Shrestha. FCA Published in People's Review of July 13, 2024

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