Usurious Loans Act cannot defeat Section 7 insolvency proceedings where debt and default are otherwise established

Sections 3 and 4 of the Usurious Loans Act, 1918 do not apply to applications under Section 7 of the Insolvency and Bankruptcy Code, 2016, because insolvency proceedings are not recovery suits and the Adjudicating Authority exercises a limited jurisdiction confined to debt and default. The authority cannot reopen the loan transaction or test the claim for excessive or extortionate interest under the Usurious Loans Act. If the Section 7 application is otherwise complete and debt and default are established, it must be admitted unless another statutory defect exists.

---

---

Issues: Whether Sections 3 and 4 of the Usurious Loans Act, 1918 apply to proceedings under Section 7 of the Insolvency and Bankruptcy Code, 2016, and whether an application for initiation of corporate insolvency resolution process can be entertained or rejected on the ground of usurious or extortionate penal interest.

Analysis: The statutory scheme of the Usurious Loans Act, 1918 is confined to suits and insolvency proceedings before a court exercising powers akin to those under that Act. Proceedings under Sections 7 and 9 of the Insolvency and Bankruptcy Code, 2016 are not recovery suits and are not adjudicated by a civil court deciding money claims; the Adjudicating Authority acts in a limited insolvency jurisdiction focused on resolution. Since the Code contains a bar of civil court jurisdiction and the default inquiry under Section 7 is confined to the existence of debt and default, the Adjudicating Authority cannot invoke Sections 3 and 4 of the Usurious Loans Act, 1918 to reopen or test the loan transaction for excessive interest. Where the application is complete and debt and default are shown, the application must be admitted unless some other statutory infirmity exists.

Conclusion: The Usurious Loans Act, 1918 does not apply to Section 7 proceedings under the Insolvency and Bankruptcy Code, 2016, and an insolvency application cannot be rejected merely because the interest claimed is alleged to be usurious or extortionate.

---