Security deposits for money lenders upheld, with deposit computation linked to actual capital and interest required on the amount retained.

Amended provisions requiring licensed money lenders and pawn brokers to furnish security deposits, with forfeiture safeguards, were treated as constitutionally valid because the regulated class formed a distinct category and the measures bore a rational nexus to protecting borrowers and compensating affected borrowers. The security deposit was construed by reference to the actual capital invested and used for lending, not the aggregate of repeated loans advanced from the same capital. The absence of an express interest clause did not invalidate the scheme; interest on the deposit was read in as part of implementation at the scheduled bank fixed-deposit rate. Requiring a pawn broker to obtain a money-lender's licence was also upheld as non-arbitrary.

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Issues: (i) Whether the amended provisions requiring licensed money lenders and pawn brokers to furnish security deposits and providing for forfeiture were unconstitutional as violating Articles 14 and 19(1)(g) of the Constitution of India. (ii) Whether the quantum of security deposit had to be computed on the basis of the actual amount invested in the business or on the aggregate amount of loans advanced during the year. (iii) Whether the absence of an express provision for payment of interest on the security deposit rendered the provisions invalid. (iv) Whether insisting that a pawn broker also obtain a money-lender's licence was arbitrary.

Issue (i): Whether the amended provisions requiring licensed money lenders and pawn brokers to furnish security deposits and providing for forfeiture were unconstitutional as violating Articles 14 and 19(1)(g) of the Constitution of India.

Analysis: The class of persons regulated by the enactments was confined to money lenders and pawn brokers, whose business is money lending and which forms a distinct class under the legislative field. The object of the amendments, as reflected in the objects and reasons and the State's pleadings, was to protect borrowers, especially weaker sections, and to provide a mechanism for compensating affected borrowers. On that basis, the classification had a rational nexus with the legislative object. The forfeiture provisions were also supported by safeguards and the provision enabling payment to affected borrowers.

Conclusion: The challenge to the constitutional validity of Sections 7A, 7B, 4A, 4B, 4(2)(c) and 23(2) failed; those provisions were upheld.

Issue (ii): Whether the quantum of security deposit had to be computed on the basis of the actual amount invested in the business or on the aggregate amount of loans advanced during the year.

Analysis: The Court applied a construction that avoided unreasonableness and constitutional invalidity. It held that the phrase relating to the amount lent must be understood with reference to the actual capital invested and utilised for lending, not repeated recycling of the same capital by multiple short-term advances. A turnover-like computation was held inapposite to money-lending business.

Conclusion: The deposit has to be calculated on the basis of the actual amount invested in the business, not the aggregate of repeated loans advanced from the same capital.

Issue (iii): Whether the absence of an express provision for payment of interest on the security deposit rendered the provisions invalid.

Analysis: The deposit was in the nature of security and a substantial amount remained with the Government. The Court treated interest as a necessary concomitant of such a security arrangement and held that the rules must provide for payment of interest at the prevailing fixed-deposit rate of a scheduled bank. The absence of an express prohibition against interest saved the provision from invalidity, while the authorities were directed to grant interest as part of implementation.

Conclusion: The provisions were not struck down on this ground, and the State was directed to pay interest on the security deposit at the scheduled bank fixed-deposit rate for one year.

Issue (iv): Whether insisting that a pawn broker also obtain a money-lender's licence was arbitrary.

Analysis: The Court noted that every pawn broker is also a money lender, though every money lender is not a pawn broker. Since the Legislature had created two separate regulatory regimes and fixed different licence fees, requiring both licences was not treated as discriminatory or unreasonable.

Conclusion: The requirement that a pawn broker also obtain a money-lender's licence was upheld.

Final Conclusion: The constitutional challenge failed in substance, but the impugned provisions were construed so that the security deposit is linked to actual capital employed, interest must be paid on the deposit, and administrative adjustments and refunds must be given effect accordingly.

Ratio Decidendi: Where a regulatory security deposit is imposed to protect borrowers and regulate a distinct class of money-lending businesses, the provision is valid if it bears a rational nexus to that object; and if two constructions are possible, the one that preserves constitutionality must be preferred, including construing the deposit basis by reference to actual funds employed rather than repeated turnover of the same capital.

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