Calcutta High Court Quashes Money Recovery Decree for Want of Licence Under Bengal Money Lenders Act, 1940

Background of the Dispute

A money recovery decree passed by a trial court in CS 162 of 2020 came under scrutiny before the Calcutta High Court in Smt. Sudha Kankaria Vs Smt. Bhavya Bothra.

The original suit was instituted by the respondent seeking recovery of money allegedly lent and advanced to the appellant together with interest. The trial court decreed the claim. Aggrieved, the defendant preferred an appeal challenging both the maintainability of the suit and the legality of the decree on the ground that the plaintiff was an unlicensed money lender under the Bengal Money Lenders Act, 1940 (“Act of 1940”).

The High Court ultimately set aside the decree and dismissed the suit, holding that:

  • The plaintiff was engaged in money‑lending business within the meaning of the Act of 1940,
  • The plaintiff had no effective money‑lending licence, and
  • Section 13 of the Act of 1940 barred passing of any decree in her favour.

Core Controversy: Was the Plaintiff a Money Lender Requiring Licence?

The central issue was whether the plaintiff fell within the statutory definition of “money lender” under the Act of 1940 and was therefore obliged to hold a valid licence at the time of advancing the loan.

Two competing positions were canvassed:

  • Appellant’s stand:

    • The plaintiff was carrying on money‑lending as a business.
    • She had herself admitted applying for a money‑lending licence under the Act of 1940.
    • Her income tax returns showed multiple loans and advances to different persons, not merely an isolated, friendly advance.
    • In absence of production of a valid licence, the suit was hit by Section 13 and had to be dismissed.

  • Respondent’s stand:

    • She claimed not to be a “money lender” within the statutory meaning.
    • The transaction was projected as a single loan to an acquaintance, not part of systematic business activity.
    • Reliance was placed on 2011 (2) CHN 969 (Sitaram Poddar vs. Bhagirath Chouchary) to contend that only continuous, diversified lending would attract the provisions of the Act of 1940.

Order dated 16.11.2023 in IA GA 1 of 2021

During the pendency of the suit, the plaintiff moved an application under Order XII Rule 6 of the Code of Civil Procedure seeking a decree on admission. This interlocutory application, numbered IA GA 1 of 2021, led to an important finding:

  • In her affidavit‑in‑reply, the plaintiff stated that she had applied for a licence under the Act of 1940 and was awaiting its issuance.
  • Based on this admission, the trial court refused to grant a decree on admission on 16.11.2023, noting that the plaintiff herself acknowledged the need for a money‑lending licence.

No appeal was filed against this order.

Order dated 07.05.2024 in the Suit

Later, on 07.05.2024, another significant order was passed during trial. The learned Single Judge recorded the submissions of the plaintiff’s counsel to the effect that:

“Counsel for the plaintiff has admitted that he had applied for grant of licence but till date the same has not been granted. Counsel for the plaintiff also submits that the application filed by the plaintiff is still pending before the concerned authority and if this Court will pass an order directing the plaintiff to pay the penalty, the plaintiff is ready to pay the penalty…”

Consequently, the trial court directed the competent authority under the Act of 1940 to dispose of the plaintiff’s licence application by imposing appropriate penalty under Section 10, within four weeks.

Again, neither side challenged this order on appeal.

Res Judicata Within the Same Proceeding

The Calcutta High Court invoked the principles laid down in 2005 (1) SCC 787 (Bhanu Kumar Jain vs. Archana Kumar & Anr.) to hold that: