Can I lend money without a license and take security?
Can a loan be given to a non-relative or non-friend, and can such a loan be considered a friendly loan? If not, can an individual provide a business loan without possessing a lending license? Can an unlicensed individual lender charge interest, royalty, or fixed compensation on a friendly or business loan? Does an individual lender have the right to secure the loan by mortgaging any movable or immovable assets of the borrower? In another instance: Can the money given be shown as: 1. An advance for purchasing business-related services, or 2. An advance or payment towards the purchase of any movable or immovable asset? Regarding loan security: If an individual without a lending license provides a loan for business purposes, can the loan be secured? If yes, by what means? • By mortgaging movable or immovable properties? • By taking post-dated cheques? If cheques are taken, can they be considered under Section 138 of the Negotiable Instruments Act (cheque bounce cases)?
In India, lending money to non-relatives, especially with interest or for business, is typically considered "money-lending," not a "friendly loan." Carrying on a lending business without a license, as mandated by state laws like the Bombay MoneyLenders Act, makes loans unenforceable. Unlicensed lenders cannot legally charge interest; doing so is punishable. While an individual can lend interest-free, any attempt to charge fees transforms it into illegal moneylending. Documenting the transaction as an advance for goods/services is an alternative, provided it's a genuine contract. Though security can be taken, its enforcement, including Section 138 NI Act for bounced cheques, is problematic if the underlying loan is unlicensed.
Yes, a loan can be given to a non-relative as a friendly or business loan. Charging interest regularly without a license may violate lending laws. The amount can also be shown as an advance for services or asset purchase if documented. Security like cheques or property can be taken, and cheque bounce cases may apply if records are proper. It is advised to consult an expert lawyer who will assist you with the best course of action. For further legal assistance contact us on our helpline number.
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