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Regulating online lending platforms: Delhi High Court defers hearing on plea till August 27

The Bench comprising Chief Justice D.N. Patel and Justice Jyoti Singh granted time to the RBI to file a detailed counter affidavit in compliance with the report of the said Committee.

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The Delhi High Court on Tuesday deferred till August 27 hearing on a plea seeking regulation of online lending platforms as the report of the committee constituted by the Reserve Bank of India (RBI), to look into the menace of exorbitant rates being charged by these platforms, is awaited.

The bench comprising Chief Justice D.N. Patel and Justice Jyoti Singh granted time to the RBI to file a detailed counter-affidavit in compliance with the report of the said committee.

Advocate Prashant Bhushan, appearing for the petitioner, alleged that a huge menace is being carried out by these online lending platforms charging exorbitant interests on loans extended by them to the borrowers. “Virtually, it’s an extortion racket that is going on in the name of online lending,” he stated.

He further alleged that these platforms are, in addition, charging a processing fee, which is sometimes about 30% of the total amount. He submitted that RBI has ample powers under S.45 of the RBI Act to regulate all these activities as online lenders fall within the ambit of Non-Banking Financial Companies (NBFCs). RBI recognized this menace and issued a notice on December 23’ 2020 cautioning the general public about these platforms. 

Furthermore, he contended that the RBI, in its response filed in the matter, has stated that in January this year, a Committee has been constituted to suggest ways and means regulate these platforms. The committee was to submit its report within a period of three months, but no report has been filed to date. Meanwhile, this menace has been going on unchecked.

“It’s primarily the responsibility of the Government of India and the Reserve Bank.. why are they not bothered about this menace?” he added.

On the other hand, Advocate Ramesh Babu M R, appearing for RBI, submitted that it is the Centre that has to come out with regulation as far as these online lending platforms are concerned and that the RBI has no power in this regard. 

On being queried by the Bench as to whether there is any provision within RBI dealing with control on the lending rate of interest, Babu submitted that the lending rate of interest could be charged by the banks and NBFCs is deregulated. 

The Bench termed the PIL to be one of the ‘finest’ PILs, which involves the interest of the general public at large and opined that the Committee constituted by RBI should think about these types of eventualities. 

The Bench orally remarked that the Centre and the RBI should work out to issue a circular fixing rate of interest that could be charged so as to curb this practice of charging exorbitant rates of interest. “You are a custodian of interest of a small man also,” the Bench said.

A Public Interest Litigation has been filed by Dharanidhar Karimojji, alleging that un-regulated platforms are offering and providing loans to the needy through online apps. The plea claims that these platforms deduct almost about 30% to 45% of loan money as platform fees, processing fees, etc., and only transfer the remaining money to the borrower’s bank accounts. The plea further claimed that these platforms charge exorbitant interest rates of 1% or more per day on the quick loans advanced by them to the borrowers. 

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The plea seeks regulation and control on the working of online digital lenders doing business through mobile apps or any other platform; and a direction for stopping the practice of charging exorbitant interest on the loan from borrowers.

In addition, the plea seeks a curb on harassment of borrowers at the hands of recovery agents of online digital lenders; and a fixation of the maximum rate of interest that could be charged by online digital lenders.

The plea also prays for setting up a grievance redressal mechanism for borrowers to resolve the issues faced by online digital lending app operators or their agents within a specific time.

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