Usurious loan charges and excessive borrowing cost led to rejection of recovery on unfair insolvency terms.

Excessive interest and lending charges were treated as usurious where advance interest, default interest, minimum interest, pre-closure charges and future interest produced an effective borrowing cost far above the sanctioned loan amount. The note says the debt and default were admitted, but the charging structure was found to be fleecing and unreasonable on the admitted figures. Applying the Usurious Loans Act, 1918, the Tribunal treated the transaction as substantially unfair and declined to permit recovery on those terms in insolvency proceedings, dismissing the petition with liberty to approach the appropriate forum.

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Issues: Whether the interest and charges claimed on the loan were usurious and, if so, whether the petition for initiation of corporate insolvency resolution process could be dismissed on that basis.

Analysis: The debt and default were not in dispute, but the claim included advance interest, additional interest at 1% per day on defaulted instalments, minimum interest, pre-closure charges and future interest. On the admitted figures, the actual disbursement was substantially lower than the sanctioned amount after deduction of advance interest, and the overall cost of borrowing worked out to an excessive annualised rate. The Tribunal applied the powers under the Usurious Loans Act, 1918, which permit reopening or relief where interest is excessive and the transaction is substantially unfair, and found the charging structure to be fleecing and unreasonable. In that view, the Tribunal declined to permit recovery on such terms in insolvency proceedings.

Conclusion: The interest claimed over the principal was held to be usurious, and the petition was dismissed with liberty to the petitioner to approach the appropriate forum.

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