The Usurious Loans Act, 1918
# THE USURIOUS LOANS ACT, 1918

**(Modified as on 3rd December 2018)**

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# ARRANGEMENT OF SECTIONS

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SECTIONS

1. Short title and extent.

2. Definitions.

3. Re-opening of transactions.

4. Insolvency proceedings.


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# THE USURIOUS LOANS ACT, 1918

 ACT NO. 10 OF 1918[1]

[22nd _March, 1918.]_

# An Act to give additional powers to Courts to deal in certain cases with usurious loans of money
 or in kind.

WHEREAS it is expedient to give additional powers to Courts to deal in certain cases with usurious

loans of money or in kind; It is hereby enacted as follows:—

**1. Short title and extent.—(1) This Act may be called Usurious Loans Act, 1918.**

(2) It extends to the whole of India except [2] [the territories which, immediately before the 1st

November, 1956, were comprised in Part B States] [3]***.

(3) The State Government may, by notification in the Official Gazette, direct that it shall not apply to

any area, class of persons, or class of transactions which it may specify in its notification.

**2. Definitions.—In this Act, unless there is anything repugnant in the subject or context,—**

(1) “Interest” means rate of interest and includes the return to be made over and above what was

actually lent, whether the same is charged or sought to be recovered specifically by way of interest or
otherwise.

(2) “Loan” means a loan whether of money or in kind and includes any transaction which is, in

the opinion of the Court, in substance a loan.

(3) “Suit to which this Act applies” means any suit—

(a) for the recovery of a loan made after the commencement of this Act; or

(b) for the enforcement of any security taken or any agreement, whether by way of settlement

of account or otherwise, made, after the commencement of this Act, in respect of any loan made
either before or after the commencement of this Act; [4][or

(c) for the redemption of any security given after the commencement of this Act in respect of

any loan made either before or after the commencement of this Act.]

**3. Re-opening of transactions.—(1) Notwithstanding anything in the Usury Laws Repeal Act, 1855**

(28 of 1855), where, in any suit to which this Act applies, whether heard ex parte or otherwise, the Court
has reason to believe, —

(a) that the interest is excessive; and

(b) that the transaction was, as between the parties thereto, substantially unfair, the Court may

exercise all or any of the following powers, namely, may,—

(i) re-open the transaction, take an account between the parties, and relieve the debtor of all

liability in respect of any excessive interest;

1. It has been amended in the U.P. by U.P. Act 23 of 1934 and by Act 29 of 1976 in the C.P. by C.P. Act 11 of 1934, in Madras

by Mad. Act 8 of 1937, in East Punjab by E.P. Act 4 of 1948, in Andhra Pradesh by A.P. Act 24 of 1961, and in Himachal
Pradesh by H.P. Act 3 of 1970.
The Act has been extended to the whole of Madhya Pradesh by N1.P. Act 23 of 1958 (when notified) and to the Union
territory of Pondicherry by Act 26 of 1968, s. 3 and Sch.

The Act has been repealed in its application to Bellary District by Mysore Act 14 of 1955.
2. Subs. by the A.O. (No. 3) 1956, for “Part B States”.
3. The words “including British Baluchistan” omitted by the A.O. 1948.
4. Ins. by Act 28 of 1926, s. 2.

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(ii) notwithstanding any agreement, purporting to close previous dealings and to create a new

obligation, re-open any account already taken between them and relieve the debtor of all liability
in respect of any excessive interest, and if anything has been paid or allowed in account in respect
of such liability, order the creditor to repay any sum which it considers to be repayable in respect
thereof;

(iii) set aside either wholly or in part or revise or alter any security given or agreement made

in respect of any loan, and if the creditor has parted with the security, order him to indemnify the
debtor in such manner and to such extent as it may deem just:

Provided that, in the exercise of these powers, the Court shall not—

(i) re-open any agreement purporting to close previous dealings and to create a new

obligation which has been entered into by the parties or any persons from whom they claim at
a date more than [1][twelve] years from the date of the transaction;

(ii) do anything which affects any decree of a Court.

_Explanation.—In the case of a suit brought on a series of transactions the expression “the transaction”_

means, for the purposes of proviso (i), the first of such transactions.

(2) (a) In this section “excessive” means in excess of that which the Court deems to be reasonable

having regard to the risk incurred as it appeared, or must be taken to have appeared, to the creditor at the
date of the loan.

(b) In considering whether interest is excessive under this section, the Court shall take into account

any amounts charged or paid, whether in money or in kind, for expenses, inquiries, fines, bonuses,
premia, renewals or any other charges, and if compound interest is charged, the periods at which it is
calculated, and the total advantage which may reasonably be taken to have been expected from the
transaction.

(c) In considering the question of risk, the Court shall take into account the presence or absence of

security and the value thereof, the financial condition of the debtor and the result of any previous
transactions of the debtor, by way of loan, so far as the same were known, or must be taken to have been
known, to the creditor.

(d) In considering whether a transaction was substantially unfair, the Court shall take into account all

circumstances materially affecting the relations of the parties at the time of the loan or tending to show
that the transaction was unfair, including the necessities or supposed necessities of the debtor at the time
of the loan so far as the same were known, or must be taken to have been known, to the creditor.

_Explanation.—Interest may of itself be sufficient evidence that the transaction was substantially_

unfair.

(3) This section shall apply to any suit, whatever its form may be, if such suit is substantially one for

the recovery of a loan or for the enforcement of any agreement or security in respect of a loan [2][or for the
redemption of any such security].

(4) Nothing in this section shall affect the rights of any transferee for value who satisfies the Court

that the transfer to him was bona fide, and that he had at the time of such transfer no notice of any fact
which would have entitled the debtor as against the lender to relief under this section. For the purposes of
this sub-section, the word “notice” shall have the same meaning as is ascribed to it in section 4 of the
Transfer of Property Act, 1882 (4 of 1882).

(5) Nothing in this section shall be construed as derogating from the existing powers or jurisdiction of

any Court.

**4. Insolvency proceedings.—On any application relating to the admission or amount of a proof of a**

loan in any insolvency proceedings, the Court may exercise the like powers as may be exercised under
section 3 by a Court in a suit to which this Act applies.

**—————**

1. Subs. by Act 28 of 1926, s. 3, for “six”.
2. Ins. by s. 3, ibid.

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