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A division bench comprising Chief Justice Pinaki Chandra Ghose and Justice Vilas V Afzalpurkar, however, refused to intervene in the matter of government's authority in enacting the law.
Delivering its final judgement on a batch of writ petitions filed by SKS and other microfinance companies challenging the MFI Act and subsequent intervention by the state authorities in the loan recovery process, the division bench said it was up to the government to consider if this piece of legislation was still necessary.
The RBI had issued guidelines in December 2012 providing adequate protection for the borrowers, the core concern behind the enactment of the Act. Besides, a national Bill for regulating MFI operations in the country was also awaiting Parliament's nod, the court pointed out and advised the government to review if the Act was still relevant.
The bench ruled that the interim orders issued earlier, which restrained the government from taking coercive steps against the companies, will be in force for the next six weeks.
“The high court has dismissed all the writ petitions pertaining to the case, which essentially challenged the legislative competence of the state government in bringing out this law. Going by today's judgement, the state microfinace Act stands good,” B Rajasekhar, chief executive officer, Society for Elimination of Rural Poverty (Serp), said. Serp is a government body that overseas the women self-help group operations in the state.
Rajasekhar, however, added that the state government would examine the observations made by the high court. On the other hand, a representative of a microfinance company said he respond only after seeing the judgement copy.
The close to Rs 7,000-crore microfinance operations in Andhra Pradesh had come to a standstill after the state government issued an ordinance on October 15, 2010, restricting their lending operations. The move came amid widespread resentment over the coercive practices adopted by the field staff of these companies resulting in a spate of suicides by the borrowers.
In the following year, the government replaced the ordinance with a legislation making the restrictions on MFIs a permanent feature. The companies had to make huge write offs as they failed to recover their loans in the face of adverse response from borrowers and the authorities.
Dozens of cases have been filed against MFIs in various police stations across the state for abetting people to commit suicide. "Due process is being followed, including court trials, in all these cases. However, arrests may not take place in the light of the court's observations," a senior government official told Business Standard.
