NBFCs, hire purchase firms move Madras High Court challenging TN law curbing coercive loan recovery | https://www.barandbench.com/news/litigation/nbfcs-hire-purchase-firms-move-madras-high-court-challenging-tn-law-curbing-coercive-loan-recovery [21/05, 10:09] sekarreporter1: 👍 [21/05, 10:10] sekarreporter1: NBFCs & Hire Purchase Firms Challenge TN Anti-Coercive Recovery Law in Madras HC _Based on your link: Bar & Bench report, 21 May 2026_ 1. What is the TN Law they’re challenging?

by Sekar Reporter · May 21, 2026

[21/05, 10:10] sekarreporter1: [21/05, 10:09] sekarreporter1: NBFCs, hire purchase firms move Madras High Court challenging TN law curbing coercive loan recovery | https://www.barandbench.com/news/litigation/nbfcs-hire-purchase-firms-move-madras-high-court-challenging-tn-law-curbing-coercive-loan-recovery
[21/05, 10:09] sekarreporter1: 👍
[21/05, 10:10] sekarreporter1: *NBFCs & Hire Purchase Firms Challenge TN Anti-Coercive Recovery Law in Madras HC*
_Based on your link: Bar & Bench report, 21 May 2026_

*1. What is the TN Law they’re challenging?*
*Bill tabled by Deputy CM Udhayanidhi Stalin, Apr 2025*: _“Tamil Nadu Money Lending Entities (Prevention of Coercive Actions) Bill”_

*Key provisions*:
1. *3-year jail + fine* for recovery agents using coercive methods.
2. Applies to NBFCs, MFIs, hire-purchase firms, banks.
3. TN is 2nd largest microfinance market – ₹50,583 crore GLP as of Dec 2024. 2635

*2. Who filed the case?*
*Petitioners*: Association of NBFCs + hire purchase finance companies. They argue the law overlaps with existing RBI regulations.

*3. NBFCs’ main arguments*
1. *Already regulated by RBI*: RBI-mandated code of conduct already bans coercive collection, use of muscle power, calls outside business hours.
2. *No stakeholder consultation*: _“Govt should at least have consulted stakeholders before tabling Bill”_ – SFB executive.
3. *Political timing*: Move looks political ahead of 2026 TN elections.
4. *Impact*: _“If this becomes law, organised lenders like us may pull back, and poor borrowers will return to unorganised money lenders”_. 57b62635

*4. Background – Why TN brought this law*
1. *High MFI exposure*: TN = 2nd largest MFI market after Bihar. ESAF SFB: 22% advances from TN. Equitas SFB: 47% advances from TN.
2. *Complaints*: RBI itself warned banks about coercive recovery agents in 2023. Madras HC in 2023 PIL said _“Banks cannot use muscle power to recover loan amount”_. 263557b6

*5. Legal issues before Madras HC*
1. *Constitutional validity*: Does TN law encroach on RBI/Banking Regulation Act – a Union subject?
2. *Reasonableness*: Is 3-year jail for coercive recovery proportionate when RBI guidelines already exist?
3. *Res extra commercium*: Like liquor trade, can State restrict “money lending” citing public interest? Madras HC used this principle for TASMAC closures.

*6. What RBI guidelines already say*
– Police verification + training for recovery agents.
– No high incentives that tempt unethical means.
– Borrower must be informed of recovery agency details.
– Agents must carry ID + authorization letter with phone number. 57b6

*Status*: Case just filed. HC to decide if TN can add criminal penalties over RBI framework. Hearing dates not yet listed in the report.

*Context*: Similar to 2023 Madras HC PIL where court recorded RBI guidelines and said they _“would take care of grievance”_ of coercive recovery. 57b6

Want me to track when the case gets listed and what interim orders the HC passes?