Karnataka High Court
Karnataka Hire Purchase Association vs The State Of Karnataka on 17 March, 2025
Author: M.Nagaprasanna
Bench: M.Nagaprasanna
1
Reserved on : 11.03.2025
Pronounced on : 17.03.2025 R
IN THE HIGH COURT OF KARNATAKA AT BENGALURU
DATED THIS THE 17TH DAY OF MARCH, 2025
BEFORE
THE HON'BLE MR. JUSTICE M. NAGAPRASANNA
WRIT PETITION No.6962 OF 2025 (GM - RES)
BETWEEN:
KARNATAKA HIRE PURCHASE ASSOCIATION
A SOCIETY REGISTERED UNDER
THE PROVISIONS OF THE KARNATAKA
SOCIETY REGISTRATION ACT, 1960,
HAVING ITS REGISTERED OFFICE AT:NO.5/1,
SOUTH STREET, YG PALYA, AUSTIN TOWN,
BENGAURU - 560 047.
REPRESENTED BY ITS SECRETARY
VIJAYRAJ CHHAJED.
... PETITIONER
(BY SRI UDAY HOLLA, SR.ADVOCATE FOR
SRI SANJAY H.SETHIYA, ADVOCATE)
AND:
1. THE STATE OF KARNATAKA
THROUGH ITS CHIEF SECRETARY,
VIDHANA SOUDHA,
BENGALURU - 560 001.
2. THE DEPARTMENT OF
2
PARLIAMENTARY AFFAIRS AND LEGISLATION
GOVERNMENT OF KARNATAKA,
VIDHANA SOUDHA,
BENGALURU - 560 001
REPRESENTED BY SECRETARY.
3. THE DEPARTMENT OF FINANCE
GOVERNMENT OF KARNATAKA,
VIDHANA SOUDHA,
BENGALURU - 560 001.
REPRESENTED BY MANAGER.
... RESPONDENTS
(BY SRI K.SHASHIKIRAN SHETTY, AG A/W
SMT.ANISHKA VAISHNAV, ADVOCATE AND
SRI SHAMANTH NAIK, HCGP)
THIS WRIT PETITION IS FILED UNDER ARTICLE 226 OF THE
CONSTITUTION OF INDIA PRAYING TO DIRECT DECLARING THE
KARNATAKA MICRO LOAN AND SMALL LOAN (PREVENTION OF
COERCIVE ACTIONS) ORDINANCE, 2025 AS UNCONSTITUTIONAL,
ARBITRARY AND BEYOND THE LEGISLATIVE COMPETENCE OF THE
STATE GOVERNMENT PRODUCED AT ANNEXURE - A BEARING
NO.DPAL 03 SHASANA 2025, BENGALURU DATED 12.02.2025;
DIRECT THE RESPONDENTS TO CLARIFY THAT MOTOR VEHICLE /
ASSET FINANCING BUSINESSES ARE OUTSIDE THE PURVIEW OF
THE ORDINANCE.
THIS WRIT PETITION HAVING BEEN HEARD AND RESERVED
FOR ORDERS ON 11.03.2025, COMING ON FOR PRONOUNCEMENT
THIS DAY, THE COURT MADE THE FOLLOWING:-
3
CORAM: THE HON'BLE MR JUSTICE M.NAGAPRASANNA
CAV ORDER
The petitioner, an Association of hire purchasers in the State
of Karnataka is before the doors of this Court calling in question
constitutional validity of an Ordinance viz., the Karnataka Micro
Loan and Small Loan (Prevention of Coercive Actions)
Ordinance, 2025 ('the Ordinance' for short) as being
shrouded with ambiguity and steeped in arbitrariness and
beyond the legislative competence of the State Government.
As a consequence, thereof, it also seeks a writ in the nature of
mandamus to clarify that motor vehicle/Asset Financing businesses
are outside the purview of the Ordinance.
2. Facts, in brief, germane are as follows:-
The petitioner claims to be an Association registered under
the Karnataka Societies Registration Act, 1960. It is an Association
of Motor Vehicle/Asset Financiers who are said to be engaged in the
business through hypothecation, hire purchase and leasing models
in the State of Karnataka. It is the averment in the petition, that
4
the petitioner/Association provides financial assistance to individual
business under hypothecation, hire purchase or leasing
agreements. Several other activities of the Members of the
Association are pleaded in the case at hand. The State promulgates
the Ordinance to protect economically vulnerable groups from
facing coercive means of recovery by microfinance institutions. The
constitutional validity of the Ordinance is called in question on the
score that it takes away the right of the petitioner under the
contract Act and other modes of business that its members are
doing and, on that score raised the challenge to the Ordinance
terming it to be an incompetent Ordinance.
3. Heard Sri Udaya Holla, leaned senior counsel appearing for
the petitioner and Sri K.Shashikiran Shetty, learned Advocate
General appearing for the respondents.
4. The learned senior counsel Sri Udaya Holla appearing for
the petitioner/Association would vehemently contend that
definitions in the Ordinance are so ambiguous that they would take
away anybody's right under different statutes, as all hypothecations
5
or mortgages are to be released from the date of promulgation of
the Ordinance. The learned senior counsel would restrict to place
reliance upon a Division Bench judgment of the High Court of
Bombay to contend that vulnerable section would be anybody
unless appropriately defined. Therefore, even the women group
which was a part of the lis before the Division Bench in Bombay
were held that they would not come within the definition of
vulnerable section, as no income criteria was indicated. The
learned senior counsel would submit that the Ordinance by
commanding immediate release of security and prohibiting
future collaterization imperils the very life blood of their
business. He would seek to place reliance upon plethora of
judgments to buttress his submission that, an ordinance which
bears no application of mind becomes manifestly arbitrary and,
therefore, it is to be struck down.
5. Per contra, the learned Advocate General,
Sri K.Shashikiran Shetty, states in defence of the Ordinance and
would seek to contend that the petitioner is an Association of
members of Hire Purchasers. It cannot claim to be aggrieved by this
6
Ordinance at all. It does not concern the Association. It has no
locus to challenge the Ordinance even. Ordinance is restricted to
microfinance rendered to vulnerable groups. The petitioner is doing
its business of hypothecation, mortgage and lease. Microfinance is
the one which is granted without any security. Therefore, the
petitioner cannot project that it is aggrieved and it cannot plead for
someone else's grievances. He would, on the Ordinance, also
submit that there is nothing arbitrary in the Ordinance nor anything
is ambiguous. The Microfinance is defined by the Reserve Bank of
India in terms of its circular. It would mean a loan granted to the
needy who have their annual income of ₹3 lakhs or less. When the
Reserve Bank of India has clear definition, that would always be
imported to the Ordinance. He would contend that the Ordinance
became imperative, as gross coercive steps were taken against low
income group people which has led to several deaths. He would
submit that the petition be dismissed with exemplary costs.
6. The learned senior counsel Sri Udaya Holla would join issue
in taking this Court to the Ordinance, with particular reference to
Section 6, which directs that security obtained from a borrower
7
before the date of commencement of the Ordinance would forthwith
stand released. It is his submission that every borrower is covered
under this and it can affect any person. Therefore, the ordinance
does not bear application of mind.
7. I have given my anxious consideration to the submissions
made by the learned senior counsel and the learned Advocate
General and have perused the material on record. In furtherance
whereof, the issues that fall for my consideration are:
(i) Whether judicial review of an Ordinance is a
permissible exercise?
(ii) Does the impugned Ordinance suffer from
arbitrariness/manifest arbitrariness and
non-application of mind, for it to be held
unconstitutional?
Issue No.1:
(i) Whether judicial review of an Ordinance is a
permissible exercise?
8. The issue with regard to judicial review of Ordinance need
not detain this Court for long or delve deep into the matter, if a
8
reference is made to the judgments rendered from time to time.
The Apex Court in the case of A.K. ROY v. UNION OF INDIA1 has
held as follows:
".... .... ....
26. We see the force of the contention that the question
whether the pre-conditions of the exercise of the power
conferred by Article 123 are satisfied cannot be regarded as a
purely political question. The doctrine of the political question
was evolved in the United States of America on the basis of its
Constitution which has adopted the system of a rigid separation
of powers, unlike ours. In fact, that is one of the principal
reasons why the U.S. Supreme Court had refused to give
advisory opinions [ See Seervai on Constitutional LAW OF
INDIA, Vol. III, foot, notes 64-65. (The CONSTITUTION OF THE
UNITED STATES, Congressional Edn., 4th Edn., pp. 649-50]
In Baker v. Carr [7 L Ed 2d, pp. 663, 685-86] Brennan, J. said
that the doctrine of political question was "essentially a function
of the separation of powers". There is also a sharp difference in
the position and powers of the American President on one hand
and the President of India on the other. The President of the
United States exercises executive power in his own right and is
responsible not to the Congress but to the people who elect him.
In India, the executive power of the Union is vested in the
President of India, but he is obliged to exercise it on the aid and
advice of his Council of Ministers. The President's 'satisfaction" is
therefore nothing but the satisfaction of his Council of Ministers
in whom the real executive power resides. It must also be
mentioned that in the United States itself, the doctrine of the
political question has come under a cloud and has been the
subject-matter of adverse criticism. It is said that all that the
doctrine really means is that in the exercise of the power of
judicial review, the courts must adopt a "prudential" attitude,
which requires that they should be wary of deciding upon the
merit of any issue in which claims of principle as to the issue
and claims of expediency as to the power and prestige of courts
are in sharp conflict. The result, more or less, is that in America
1
(1982) 1 SCC 271
9
the phrase "political question" has become "a little more than a
play of words".
27. The Rajasthan case [State of Rajasthan v. Union of
India, (1977) 3 SCC 592: (1978) 1 SCR 1] is often cited as an
authority for the proposition that the courts ought not to enter
the "political thicket". It has to be borne in mind that at the time
when that case was decided, Article 356 contained clause (5)
which was inserted by the 38th Amendment, by which the
satisfaction of the President mentioned in clause (1) was made
final and conclusive and that satisfaction was not open to be
questioned in any court on any ground. Clause (5) has been
deleted by the 44th Amendment and, therefore, any
observations made in the Rajasthan case [State of
Rajasthan v. Union of India, (1977) 3 SCC 592: (1978) 1 SCR
1] on the basis of that clause cannot any longer hold good. It is
arguable that the 44th Constitution Amendment Act leaves no
doubt that judicial review is not totally excluded in regard to the
question relating to the President satisfaction.
28. There are, however, two reasons why we do not
propose to discuss at greater length the question as regards the
justiciability of the President's satisfaction under Article 123(1)
of the Constitution. In the first place, the ordinance has been
replaced by an Act. It is true, as contended by Shri Tarkunde,
that if the question as regards the justiciability of the President's
satisfaction is not to be considered for the reason that the
ordinance has become an Act, the occasion will hardly ever arise
for considering that question because, by the time the challenge
made to an ordinance comes up for consideration before the
court, the ordinance almost invariably shall have been replaced
by an Act. All the same, the position is firmly established in the
field of constitutional adjudication that the court will decide no
more than needs to be decided in any particular case. Abstract
questions present interesting challenges, but it is for scholars
and textbook writers to unravel their mystique. It is not for the
courts to decide questions which are but of academic
importance.
29. The other reason why we are not inclined to go
into the question as regards the justiciability of the
President's satisfaction under Article 123(1) is that on
the material which is placed before us, it is impossible for
10
us to arrive at a conclusion one way or the other. We are
not sure whether a question like the one before us would
be governed by the rule of burden of proof contained in
Section 106 of the Evidence Act, though we are prepared
to proceed on the basis that the existence of
circumstances which led to the passing of the Ordinance
is especially within the knowledge of the executive. But
before casting the burden on the executive to establish
those circumstances, at least a prima facie case must be
made out by the challenger to show that there could not
have existed any circumstances necessitating the
issuance of the Ordinance. Every casual or passing
challenge to the existence of circumstances, which
rendered it necessary for the President to take immediate
action by issuing an ordinance, will not be enough to shift
the burden of proof to the executive to establish those
circumstances. Since the petitioners have not laid any
acceptable foundation for us to hold that no
circumstances existed or could have existed which
rendered it necessary for the President to take immediate
action by promulgating the impugned Ordinance, we are
unable to entertain the contention that the Ordinance is
unconstitutional for the reason that the pre-conditions to
the exercise of the power conferred by Article 123 are not
fulfilled. That is why we do not feel called upon to
examine the correctness of the submission made by the
learned Attorney-General that in the very nature of
things, the 'satisfaction" of the President which is the
basis on which he promulgates an ordinance is founded
upon materials which may not be available to others and
which may not be disclosed without detriment to public
interest and that, the circumstances justifying the
issuance of the ordinance as well as the necessity to
issue it lie solely within the President's judgment and
are, therefore, not justiciable.
30. The two surviving contentions of Shri Garg that
the power to issue an ordinance can operate on a virgin
land only and that Articles 14, 19 and 21 will be reduced
to a dead letter if the executive is permitted to take away
the life or liberty of the people by an ordinance, need not
detain us long. The Constitution does not impose by its
terms any inhibition on the ordinance-making power that
11
it shall not be used to deal with a subject-matter which is
already covered by a law made by the legislature. There
is no justification for imposing any such restriction on the
ordinance-making power, especially when an ordinance,
like any law made by the legislature, has to comply with
the mandate of Article 13(2) of the Constitution. Besides,
legislative activity, properly so called, has proliferated so
enormously in recent times that it is difficult to discover a
virgin land or a fresh field on which the ordinance-making
power can operate, as if on a clean slate. Today, there is
possibly no subject under the sun which the legislature
has not touched.
31. As regards Articles 14, 19 and 21 being reduced
to a dead letter, we are unable to appreciate how an
ordinance which is subject to the same constraints as a
law made by the legislature can, in its practical operation,
result in the obliteration of these articles. The answer to
this contention is again to be found in the provisions
contained in Article 13(2)."
(Emphasis supplied)
A Seven Judge Bench of the Apex Court in the case of KRISHNA
KUMAR SINGH v. STATE OF BIHAR2 has held as follows:
".... .... ....
I. Presidential satisfaction
49. The constitutional power which has been conferred
upon the President under Article 123 and upon the Governors
under Article 213 to promulgate Ordinances is conditional. Apart
from the condition that the power can be exercised only when
the legislature is not in session, the power is subject to the
satisfaction of the President (under Article 123) or the Governor
(under Article 213) "that circumstances exist which render it
necessary for him to take immediate action".
2
(2017) 3 SCC 1
12
50. In Rustom Cavasjee Cooper v. Union of
India [Rustom Cavasjee Cooper v. Union of India, (1970)
1 SCC 248] , a Bench of eleven Judges of this Court held
that the Presidential power to promulgate an Ordinance
is exercisable in extraordinary situations demanding
immediate promulgation of law. This Court held that the
determination by the President was not declared to be
final. Justice J.C. Shah, speaking for the Court, observed
thus : (SCC p. 276, para 19)
"19. Power to promulgate such Ordinance as the
circumstances appear to the President to require is
exercised -- (a) when both Houses of Parliament are not in
session; (b) the provision intended to be made is within the
competence of Parliament to enact; and (c) the President is
satisfied that circumstances exist which render it necessary
for him to take immediate action. Exercise of the power is
strictly conditioned. The clause relating to the satisfaction is
composite : the satisfaction relates to the existence of
circumstances, as well as to the necessity to take
immediate action on account of those circumstances.
Determination by the President of the existence of
circumstances and the necessity to take immediate action
on which the satisfaction depends, is not declared final."
(emphasis supplied)
However, the issue had been rendered academic because
the Ordinance had been replaced by a legislative
enactment. The justiciability of the satisfaction was not
conclusively decided.
51. The Constitution (Thirty-eighth Amendment) Act,
1975 was brought into force on 1-8-1975 during the period of
the internal emergency. The amendment introduced, among
other things, two crucial provisions into Articles 123 and 213 by
which the satisfaction of the President or, as the case may be of
the Governor, was declared to be final and conclusive and to be
immune from being questioned "in any court on any ground".
Clause (4) of Article 123 provided as follows : (A.K. Roy
case [A.K. Roy v. Union of India, (1982) 1 SCC 271 : 1982 SCC
(Cri) 152] , SCC p. 295, para 24)
13
"24. ... '123. (4) Notwithstanding anything in this
Constitution, the satisfaction of the President mentioned in
clause (1) shall be final and conclusive and shall not be
questioned in any court on any ground.' "
By a similar amendment, clause (4) was introduced into Article
213. The effect of the amendment was to grant an immunity
from the satisfaction of the President or the Governor being
subjected to scrutiny by any court. This amendment was
expressly deleted by Section 16 of the Forty-fourth Amendment
Act.
52. The effect of this deletion [of clause (4)] was urged
before a Constitution Bench of this Court in A.K. Roy v. Union of
India [A.K. Roy v. Union of India, (1982) 1 SCC 271 : 1982 SCC
(Cri) 152] , as a positive indicator that the satisfaction of the
authority issuing an Ordinance on the existence of
circumstances necessitating immediate action was no longer
final and conclusive and that it should be open to judicial
scrutiny. In support, reliance was placed on the following
observations of Shah and Hegde, JJ. in Madhav Rao Jivaji Rao
Scindia v. Union of India [Madhav Rao Jivaji Rao
Scindia v. Union of India, (1971) 1 SCC 85 : (1971) 3 SCR 9] .
Shah, J. observed thus : (A.K. Roy case [A.K. Roy v. Union of
India, (1982) 1 SCC 271 : 1982 SCC (Cri) 152] , SCC p. 296,
para 25)
"25. ... '98. ... Constitutional mechanism in a
democratic polity does not contemplate existence of any
function which may qua the citizens be designated as
political and orders made in exercise whereof are not liable
to be tested for their validity before the lawfully constituted
courts....' (Jivaji Rao case [Madhav Rao Jivaji Rao
Scindia v. Union of India, (1971) 1 SCC 85 : (1971) 3 SCR
9] , SCC p. 147, para 98)"
Justice Hegde observed thus : (A.K. Roy case [A.K. Roy v. Union
of India, (1982) 1 SCC 271 : 1982 SCC (Cri) 152] , SCC p. 296,
para 25)
"25. ... '178. ... There is nothing like a political power
under our Constitution in the matter of relationship between
the executive and the citizens.' (Jivaji Rao case [Madhav
14
Rao Jivaji Rao Scindia v. Union of India, (1971) 1 SCC 85 :
(1971) 3 SCR 9] , SCC p. 178, para 178)"
53. In A.K. Roy [A.K. Roy v. Union of India, (1982) 1 SCC
271: 1982 SCC (Cri) 152], Chandrachud, C.J. speaking for the
Constitution Bench, held that the issue as to whether the
conditions for the exercise of the power under Article 213 had
been fulfilled could not be regarded as a political question: (SCC
p. 296, para 26)
"26. We see the force of the contention that the
question whether the preconditions of the exercise of the
power conferred by Article 123 are satisfied cannot be
regarded as a purely political question. The doctrine of the
political question was evolved in the United States of
America on the basis of its Constitution which has adopted
the system of a rigid separation of power, unlike ours."
54. The Constitution Bench held that the earlier
case, State of Rajasthan v. Union of India [State of
Rajasthan v. Union of India, (1977) 3 SCC 592 : (1978) 1 SCR
1] was decided at a time when the Presidential satisfaction
under clause (1) of Article 123 had been made final by the
Thirty-eighth Amendment. This Court held that it is arguable
that after the Forty-fourth Amendment, judicial review of the
President's satisfaction is not totally excluded. The observations
of Chandrachud, C.J., speaking for the Constitution Bench are
thus : (A.K. Roy case [A.K. Roy v. Union of India, (1982) 1 SCC
271 : 1982 SCC (Cri) 152] , SCC p. 297, para 27)
"27. The Rajasthan case [State of Rajasthan v. Union
of India [State of Rajasthan v. Union of India, (1977) 3 SCC
592 : (1978) 1 SCR 1] ] is often cited as an authority for
the proposition that the courts ought not to enter the
"political thicket". It has to be borne in mind that at the
time when that case was decided, Article 356 contained
clause (5) which was inserted by the 38th Amendment, by
which the satisfaction of the President mentioned in clause
(1) was made final and conclusive and that satisfaction was
not open to be questioned in any court on any ground.
Clause (5) has been deleted by the 44th Amendment and,
therefore, any observations made in Rajasthan case [State
of Rajasthan v. Union of India [State of Rajasthan v. Union
of India, (1977) 3 SCC 592 : (1978) 1 SCR 1] ] on the basis
of that clause cannot any longer hold good. It is arguable
15
that the 44th Constitution Amendment Act leaves no doubt
that judicial review is not totally excluded in regard to the
question relating to the President's satisfaction."
(emphasis supplied)
However, in the ultimate analysis, the Court declined to
go into the question as regards the justiciability of the
President's satisfaction under Article 123(1) since, on the
material placed before it, it was not possible for the Court
to arrive at a conclusion one way or the other.
55. The impact of the Forty-fourth Amendment was
noticed by Jeevan Reddy, J. in the nine-Judge Bench
decision in S.R. Bommai v. Union of India [S.R.
Bommai v. Union of India, (1994) 3 SCC 1] : (SCC p. 270,
para 379)
"379. ... We, however, agree that the deletion
of this clause is certainly significant in the sense that
the express bar created in the way of judicial review
has since been removed consciously and deliberately
in exercise of the constituent power of Parliament.
(See A.K. Roy v. Union of India [A.K. Roy v. Union of
India, (1982) 1 SCC 271: 1982 SCC (Cri) 152] .) The
cloud cast by the clause on the power of judicial
review has been lifted."
As the above extract indicates, the observations in A.K.
Roy [A.K. Roy v. Union of India, (1982) 1 SCC 271: 1982
SCC (Cri) 152] found a specific reference,
in Bommai [S.R. Bommai v. Union of India, (1994) 3 SCC
1] . The Court while construing the provisions of Article
356 noted that clause (5) which expressly barred the
jurisdiction of the courts to examine the validity of a
Proclamation had been deleted by the Forty-fourth
Amendment to the Constitution. Elucidating the approach
of the Court, when a Proclamation under Article 356 is
questioned, Jeevan Reddy, J. held that : (Bommai
case [S.R. Bommai v. Union of India, (1994) 3 SCC 1] ,
SCC pp. 266-67, para 373)
"373. Whenever a Proclamation under Article
356 is questioned, the court will no doubt start with
16
the presumption that it was validly issued but it will
not and it should not hesitate to interfere if the
invalidity or unconstitutionality of the Proclamation is
clearly made out. Refusal to interfere in such a case
would amount to abdication of the duty cast upon the
court -- Supreme Court and High Courts -- by the
Constitution."
56. The standard of judicial review was formulated in the
following observations : (Bommai case [S.R. Bommai v. Union
of India, (1994) 3 SCC 1] , SCC p. 268, para 374)
"374. ... the truth or correctness of the material
cannot be questioned by the court nor will it go into the
adequacy of the material. It will also not substitute its
opinion for that of the President. Even if some of the
material on which the action is taken is found to be
irrelevant, the court would still not interfere so long as there
is some relevant material sustaining the action. The ground
of mala fides takes in inter alia situations where the
Proclamation is found to be a clear case of abuse of power,
or what is sometimes called fraud on power -- cases where
this power is invoked for achieving oblique ends."
(emphasis in original)
57. Applying the principles which emerge from the
judgment of Jeevan Reddy, J. in Bommai [S.R.
Bommai v. Union of India, (1994) 3 SCC 1] , there is
reason to hold that the satisfaction of the President under
Article 123(1) or of the Governor under Article 213(1) is
not immune from judicial review. The power of
promulgating Ordinances is not an absolute entrustment
but conditional upon a satisfaction that circumstances
exist rendering it necessary to take immediate action.
Undoubtedly, as this Court held in Indra
Sawhney v. Union of India [Indra Sawhney v. Union of
India, 1992 Supp (3) SCC 217 : 1992 SCC (L&S) Supp 1]
the extent and scope of judicial scrutiny depends upon
the nature of the subject-matter, the nature of the right
affected, the character of the legal and constitutional
provisions involved and such factors. Since the duty to
arrive at the satisfaction rests in the President and the
Governors (though it is exercisable on the aid and advice
17
of the Council of Ministers), the Court must act with
circumspection when the satisfaction under Article 123 or
Article 213 is challenged. The Court will not enquire into
the adequacy, or sufficiency of the material before the
President or the Governor. The Court will not interfere if
there is some material which is relevant to his
satisfaction. The interference of the Court can arise in a
case involving a fraud on power or an abuse of power.
This essentially involves a situation where the power has
been exercised to secure an oblique purpose. In
exercising the power of judicial review, the court must be
mindful both of its inherent limitations as well as of the
entrustment of the power to the head of the executive
who acts on the aid and advice of the Council of Ministers
owing collective responsibility to the elected legislature.
In other words, it is only where the court finds that the
exercise of power is based on extraneous grounds and
amounts to no satisfaction at all that the interference of
the court may be warranted in a rare case. However,
absolute immunity from judicial review cannot be
supported as a matter of first principle or on the basis of
constitutional history.
... ... ...
105.13. The satisfaction of the President under
Article 123 and of the Governor under Article 213 is not
immune from judicial review, particularly after the
amendment brought about by the Forty-fourth
Amendment to the Constitution by the deletion of clause
(4) in both the Articles. The test is whether the
satisfaction is based on some relevant material. The court
in the exercise of its power of judicial review will not
determine the sufficiency or adequacy of the material.
The court will scrutinise whether the satisfaction in a
particular case constitutes a fraud on power or was
actuated by an oblique motive. Judicial review, in other
words, would enquire into whether there was no
satisfaction at all."
(Emphasis supplied)
18
Later, the Apex Court in MADRAS BAR ASSOCIATION v. UNION
OF INDIA3 has held as follows:
".... .... ....
II. India
(A) Scope of judicial review
43. Shifting focus to legislative override in our
country, it is necessary to first appreciate the scope of
judicial review of Ordinances which is the same as that of
a legislative Act. Article 123 of the Constitution
empowers the President to promulgate an Ordinance
during recess of Parliament, which shall have the same
force and effect as an Act of Parliament. The validity of an
Ordinance can be challenged on grounds available for
judicial review of a legislative Act. An Ordinance passed
either under Article 123 or under Article 213 of the
Constitution stands on the same footing. When the
Constitution says that the Ordinance-making power is
legislative power and an Ordinance shall have the same
force as an Act, an Ordinance should be clothed with all
the attributes of an Act of legislature carrying with it all
its incidents, immunities and limitations under the
Constitution. It is settled law that judicial review of an
Ordinance should be akin to that of legislative action.
[R.K. Garg v. Union of India, (1981) 4 SCC 675 : 1982 SCC
(Tax) 30; T. Venkata Reddy v. State of A.P., (1985) 3 SCC 198 :
1985 SCC (L&S) 632; Krishna Kumar Singh v. State of Bihar,
(2017) 3 SCC 1]
44. The controversy that arises for the consideration of
this Court relates to the legislative response to the judgment of
this Court in MBA (3) [Madras Bar Assn. v. Union of India,
(2021) 7 SCC 369] . The power to strike down primary
legislation enacted by the Union of India or the State
Legislatures is on limited grounds. The Courts can strike down
legislation either on the basis that it falls foul of federal
distribution of powers or that it contravenes fundamental rights
3
(2022) 12 SCC 455
19
or other constitutional rights/provisions of the Constitution of
India. [BinoyViswam v. Union of India, (2017) 7 SCC 59] Where
there is challenge to the constitutional validity of a law enacted
by the legislature, the Court must keep in view that there is
always a presumption of constitutionality of an enactment and a
clear transgression of constitutional principles must be shown.
In State of M.P. v. Rakesh Kohli [State of M.P. v. Rakesh Kohli,
(2012) 6 SCC 312 : (2012) 3 SCC (Civ) 481] , this Court held
that sans flagrant violation of the constitutional provisions, the
law made by Parliament or a State Legislature is not declared
bad and legislative enactment can be struck down only on two
grounds:
(i) that the appropriate legislature does not have the
competence to make the law, and
(ii) that it takes away or abridges any of the fundamental
rights enumerated in Part III of the Constitution or any
other constitutional provisions.
Subsequently, the Court has also recognised "manifest
arbitrariness" as a ground under Article 14 on the basis of which
a legislative enactment can be judicially reviewed. [K.S.
Puttaswamy (Aadhaar-5 J.) v. Union of India, (2019) 1 SCC 1]"
(Emphasis supplied)
The Apex Court, in the afore-quoted judgments, would clearly hold
that constitutional Courts can exercise judicial review of an
Ordinance, to scrutinize whether satisfaction of the Governor in
promulgating an Ordinance constitutes fraud or it was actuated by
any oblique motive. Further, the Apex Court in MADRAS BAR
ASSOCIATION supra holds that sans flagrant violation of the
constitutional provisions, the laws made by Parliament or the State
20
Legislature cannot be struck down, if it does not meet the following
ingredients:
(i) the appropriate legislature does not have the
competence to make the law; and
(ii) that the law takes away or abridges any of the
fundamental rights enumerated in Part-III or
any other constitutional provisions.
Even, manifest arbitrariness as a ground under Article 14 could be
judicially reviewed. Therefore, it is no law that an Ordinance
cannot become a subject matter of judicial review. The Apex Court
has clearly held the parameters of judicial review of an Ordinance
or an Act of Parliament or State Legislature. Therefore, the first
issue is answered holding that judicial review of an Ordinance is
permissible.
Issue No.2:
(ii) Does the impugned Ordinance suffer from
arbitrariness/manifest arbitrariness and non-application of
mind, for it to be held unconstitutional?
9. It becomes germane to notice the objects and reasons and
certain sections of the Ordinance. They read as follows:
21
"KARNATAKA ORDINANCE NO. 02 OF 2025
THE KARNATAKA MICRO LOAN AND SMALL LOAN
(PREVENTION OF COERCIVE ACTIONS)
ORDINANCE, 2025
(Promulgated by the Governor of Karnataka in the seventy sixth year of the
Republic of India and first published in the Karnataka Gazette Extra-ordinary
on the 12th day of February, 2025)
An Ordinance to protect and relieve the
economically vulnerable groups and individuals,
especially farmers, women and women's self-help groups
from the undue hardship of usurious interest rates and
coercive means of recovery by Micro Finance Institutions
or Money Lending Agencies or Organizations operating in
the state of Karnataka and for matters connected
therewith and incidental thereto.
And whereas, the Karnataka Legislative Assembly and
Karnataka Legislative Council are not in session, and the Hon'ble
Governor of Karnataka is satisfied that the circumstances exist
which render it necessary and expedient to exercise powers
under Article 213 (1) of the Constitution of India, and
promulgate the following Ordinance, namely:-
1. Short title, commencement and application.-(1)
This Ordinance may be called the Karnataka Micro Loan and
Small Loan (Prevention of Coercive Actions) Ordinance, 2025.
(2) It shall come into force at once.
(3) Nothing in this Ordinance shall be applicable to
any banking or Non-Banking Finance Company (NBFC)
registered with RBI.
(4) The provisions of this Ordinance shall be in
continuation of and not in derogation of any existing law for the
time being in force.
2. Definitions.- (1) In this Ordinance, unless the context
otherwise requires,-
22
(a) "Borrower" means an individual or a Self-Help
Group (SHG) or Joint Liability Group (JLG) or group
of individuals who avail money in the form of a loan
for any purpose from Micro Finance Institutions or
Money Lending Agencies or Organizations or Lender
under an agreement either orally or in writing with
terms and conditions that the money shall be repaid
within a certain period of time.
(b) "Coercive Action" means the Coercive Action as explained
in section 8.
(c) "Interest" for the purposes of the terms defined under the
provisions of this Ordinance means a return on the
amount lent by the Micro Finance Institutions or Money
Lending Agencies or Organizations or Lender in cash or
kind as the case may be, to a Borrower and includes
interest charged on daily, weekly, monthly or yearly
basis;
(d) "Loan" means an advance or hand loan whether of
money or in kind such as seed, fertilizer, etc, given
to the borrower at interest explicitly or otherwise.
(e) "Lender" includes Micro Finance Institutions (MFI)
or Money Lending Agencies or Organizations and
any partnership firm or person or group of persons
or digital lending platform whose principal or
incidental activity is to lend money or offer financial
support of whatsoever nature, in cash or kind to
earn profit by charging interest on daily, weekly,
monthly or yearly basis.
(f) "Registering Authority" means the Deputy Commissioner
of the concerned District:
Provided that, the State Government may by
notification appoint such other designated officer as
Registering Authority.
(g) "Vulnerable section of the society" means and
includes farmers, women, self help group of
women, agricultural labours, workmen, footpath
23
vendors, other vendors who move from one place to
other, worker working in milk dairy, construction
workers, migrant workers, those group of people
who are disadvantaged as compared to others
mainly on account of reduced access to their basic
services and the underlying determinants of health,
housing sanitation etc. and the people who are
economically backward, low on livelihood patterns
with no regular source of income.
(2) Words used but not defined in this Ordinance, shall
have the same meanings respectively assigned to them in the
relevant Acts and rules made thereunder.
... ... ...
6. Micro Finance Institutions or Money Lending
Agencies or Organizations or Lender not to seek
security.- No Micro Finance Institution (MFI) or Money
Lending Agencies or Organizations or Lender shall seek
any security from a borrower by way of pawn, pledge or
other security for the loan:
Provided that, any such security obtained from a
borrower before the date of commencement of this Ordinance
shall forthwith stand released in favor of the borrower.
Explanation: For the Purpose of this Ordinance
"security" means, any form of collateral.
... ... ...
8. Penalty for coercive actions against Micro
Finance Institutions (MFI).- Micro Finance Institution
(MFI) or Money Lending Agencies or Organization or
Lender shall not use any coercive action either by itself or
by its agents for recovery of money from the borrower
and any form of coercive recovery shall be liable for
punishment under the provisions of this Ordinance and
empower the Registering Authority to suspend or cancel
the Registration of such Micro Finance Institution (MFI)
or Money Lending Agencies or Organization or Lender as
provided under the provisions of this Ordinance.
Explanation: For the purposes of this section, "coercive
Action" by a Micro Finance Institution (MFI) or Money Lending
24
Agencies or Organization or Lender against the borrowers
include the following, namely:-
(i) exerting pressure or obstructing or using violence to or
insulting or intimidating the borrower or his/her family
members, or
(ii) persistently following the borrower, his/her family
member from place to place or interfering with any
property owned or used by him/her or depriving him/her
of, or hindering him/her in the use of any such property,
or
(iii) frequenting the house or other place where the borrower
resides or works, or carries on business, or happens to
be, with an intension of taking coercive action, or
(iv) using the service of private or outsource or external
agencies, criminal background to negotiate/urging the
borrower to make payment using coercive and undue
influence, or
(v) Seeking to take forcibly any document from the borrower
which entitles the borrower to a benefit under any
Government programme.
... ... ...
10. Complaints.- A complaint can be filed regarding
violation of the provision of this Ordinance by a Micro Finance
Institution (MFI) or Money Lending Agencies or Organization or
Lender before the concerned/ jurisdictional police station and
the concerned police officer. No police officer shall refuse to
register a case:
Provided that, a Police officer not below the rank of
Deputy Superintendent of Police shall be empowered to file a
suo-moto case.
11. Appointment of an Ombudsperson.- The
Government may by notification, appoint an Ombudsperson who
can act as mediator between the borrower or lender, for settling
the disputes.
25
12. Penalty for contravention of section 8 of the
Ordinance.- Any person who contravenes of section 8 of this
Ordinance, shall be tried and punishable by the Judicial
Magistrate First Class, with imprisonment for a term which may
extend to ten years and with fine which may extend to rupees
five lakh. The offences under this Ordinance are cognizable and
non-bailable.
13. Every officer to be public servant.- Every officer of
the Government and every person acting under the provisions of
this Ordinance shall be deemed to be a public servant within the
meaning of sub-section (28) of section 2 of the Bharatiya Nyaya
Sanhita, 2023.
14. Relief to borrower from coercive action by the
unlicensed and unregistered Micro finance institutions or
Money Lending Agencies or Organizations or Lender.-
Notwithstanding anything in any law for the time being in force
or in any contract or instrument having force by virtue of any
such law and save as otherwise expressly provided in this
Ordinance, with effect from the date of commencement of this
section,-
(a) Every loan advanced before the commencement of
this section including the amount of interest, if any, payable by
the borrower to Micro finance institutions or Money Lending
Agencies or Organizations or Lender shall be deemed to be
wholly discharged for "Vulnerable section of the society" if the
Micro finance institutions or Money Lending Agencies or
Organizations or Lender are unregistered and unlicensed.
(b) No Civil Court shall entertain any suit or proceeding
against the borrower for the recovery of any amount of such
loan including interest, if any:
Provided that, where a suit or proceeding is instituted
jointly against the borrower and any other person nothing in this
section shall apply to the maintainability of the suit or the
proceeding in so far as it relates to such other person.
(c) All suits and proceedings (including appeals, revisions,
attachments or execution proceedings) pending on the said date
26
against any borrower for the recovery of any such loan shall
abate."
(Emphasis supplied)
The objects and reasons for promulgation of the Ordinance is to
protect the economically vulnerable groups and individuals,
especially farmers, women and women's self-help groups from the
undue hardship of usurious interest rates and coercive means of
recovery by Micro Finance Institutions/Money Lending Agencies/
Organizations operating in the State of Karnataka and for matters
incidental thereto. Section 2 deals with definitions. Section 2(a)
defines a 'borrower'. A borrower would mean an individual or a
self-help group or joint liability group or a group of individuals who
avail money in the form of loan for any purpose from Micro Finance
Institutions. The Ordinance is issued for the purpose of protection
of vulnerable sections of the Society. Who are vulnerable sections is
also defined under the Ordinance. Section 2(g) defines vulnerable
section to be agricultural labours, formers, workmen, footpath
vendors or vendors who move from one place to other and so on
and so forth.
27
10. Lender is also defined. The lender includes Micro Finance
Institutions or money lending agencies or organizations of whatever
nature who charge interest on daily, weekly, monthly or yearly
basis. Interest is also defined to be interest charged by Micro
Finance Institutions. Loan is also defined. The loan would mean
advance or hand loan whether of money or in kind such as seeds or
fertilizers etc. Section 6 deals with Micro Finance Institutions not to
seek security. It mandates that no Micro Finance Institution shall
seek any security from the borrower by way of pawn, pledge or
other security. The proviso indicates that any security obtained
from the borrower, as on the date of Ordinance would stand
forthwith released in favour of the borrower. Penalty for coercive
steps is dealt with under Section 8.
11. The issue is, Ordinance is promulgated for the protection
of vulnerable class of the society from the hands of recovery
agents. It is in public domain that the need to bring the Ordinance
became imperative, as suicides happening everywhere on two
counts viz., exorbitant unregulated interest and unethical means of
recovery. This affected the vulnerable sections of the society, as
28
they were borrowers from the Micro Finance lending groups and
these finances are available without security if the borrowers'
annual income would be less than ₹3/- lakhs. It is only those
persons who would become eligible to borrow from a Micro Finance
Company. The borrowing happened contrary to the circulars, as in
some cases security was taken and when the farmers could not
return the loan or pay a particular month's installment, unable to
bear the torture of recovery agents, they have committed suicide.
All this in public domain. This has driven the Legislature to
promulgate the Ordinance. The learned Advocate General submits
that the impugned Ordinance has been replaced by a legislative
enactment now.
12. Therefore, the Ordinance aims at protecting the
borrowers from excessive interest and harsh recovery measures
employed by Micro Finance Institutions and organizations. The
Ordinance stemmed from suicides attributed to exploitative lending
and aggressive loan recovery methods which sparked outrage.
Precious lives were lost due to coercive actions and recovery
measures. Therefore, there is nothing that can be called manifestly
29
arbitrary in the promulgation of the Ordinance. The Apex Court
defines what is manifest arbitrariness in the case of NIKESH
TARACHAND SHAH v. UNION OF INDIA4, as follows:
".... .... ....
23. Insofar as "manifest arbitrariness" is concerned, it is
important to advert to the majority judgment of this Court
in ShayaraBano v. Union of India [ShayaraBano v. Union of
India, (2017) 9 SCC 1: (2017) 4 SCC (Civ) 277]. The majority,
in an exhaustive review of case law under Article 14,
which dealt with legislation being struck down on the
ground that it is manifestly arbitrary, has observed: (SCC
pp. 91-92 & 99, paras 87 & 101)
"87. The thread of reasonableness runs
through the entire fundamental rights chapter. What
is manifestly arbitrary is obviously unreasonable and
being contrary to the rule of law, would violate Article
14. Further, there is an apparent contradiction in the
three-Judge Bench decision in McDowell [State of
A.P. v. McDowell & Co., (1996) 3 SCC 709] when it is
said that a constitutional challenge can succeed on
the ground that a law is "disproportionate, excessive
or unreasonable", yet such challenge would fail on
the very ground of the law being "unreasonable,
unnecessary or unwarranted". The arbitrariness
doctrine when applied to legislation obviously would
not involve the latter challenge but would only
involve a law being disproportionate, excessive or
otherwise being manifestly unreasonable. All the
aforesaid grounds, therefore, do not seek to
differentiate between State action in its various
forms, all of which are interdicted if they fall foul of
the fundamental rights guaranteed to persons and
citizens in Part III of the Constitution.
***
101. It will be noticed that a Constitution Bench of this Court in Indian Express Newspapers (Bombay) (P) Ltd. v. Union of India [Indian Express Newspapers 4 (2018) 11 SCC 1 30 (Bombay) (P) Ltd. v. Union of India, (1985) 1 SCC 641 :
1985 SCC (Tax) 121] stated that it was settled law that subordinate legislation can be challenged on any of the grounds available for challenge against plenary legislation. This being the case, there is no rational distinction between the two types of legislation when it comes to this ground of challenge under Article 14. The test of manifest arbitrariness, therefore, as laid down in the aforesaid judgments would apply to invalidate legislation as well as subordinate legislation under Article 14. Manifest arbitrariness, therefore, must be something done by the legislature capriciously, irrationally and/or without adequate determining principle. Also, when something is done which is excessive and disproportionate, such legislation would be manifestly arbitrary. We are, therefore, of the view that arbitrariness in the sense of manifest arbitrariness as pointed out by us above would apply to negate legislation as well under Article 14."
This view of the law by two learned Judges of this Court was concurred with by Kurian, J. in para 5 of his judgment."
(Emphasis supplied) A provision would be struck down on the score that it is manifestly arbitrary only if the thread of reasonableness does not run through the entire Ordinance or runs counter to the fundamental rights chapter. If the Courts would come to the conclusion that Ordinance is manifestly arbitrary or unreasonable, it would be violative of Article 14 of the Constitution. Deployment of the concept of manifest arbitrariness should be on sound principles. The test of manifest arbitrariness would be to apply to invalidate the Ordinance only if the legislature capriciously, irrationally 31 or without adequate determining principle has promulgated the said Ordinance. None of these traits, as held by the Apex Court, are found in the case at hand, to declare the Ordinance to be suffering from manifest arbitrariness. It is an imaginary plea of the petitioner which does not inspire a semblance of confidence.
13. The only issue projected by the learned senior counsel for the petitioner is that Micro Finance Institution or borrower or lending agency is not defined. Therefore, reliance will have to be placed upon circulars issued by the Reserve Bank of India. The circulars issued by the Reserve Bank of India have been held to have a statutory force in plethora of cases by the Apex Court. A circular issued on 14-03-2022 defines what is 'Microfinance loan'.
It reads as follows:
"3. Definition of Microfinance Loan 3.1 A microfinance loan is defined as a collateral free loan given to a household having annual household income up to ₹3,00,000/-. For this purpose, the household shall mean an individual family unit, i.e., husband, wife and their unmarried children. 32 3.2. All collateral-free loans, irrespective of end use and mode of application/processing/disbursal (either through physical or digital channels), provided to low-income households i.e., households having annual income up to ₹3,00,000/- shall be considered as microfinance loans. 3.3 To ensure collateral-free nature of the microfinance loan, the loan shall not be linked with a lien on the deposit account of the borrower.
3.4 The REs shall have a board-approved policy to provide the flexibility of repayment periodicity on microfinance loans as per borrowers' requirement."
(Emphasis supplied) A microfinance loan is defined to be a collateral free loan given to a household having annual household income up to ₹3,00,000/- or less. Therefore, the cap is at ₹3,00,000/-. These are microfinance loans without collateral. It further clarifies that to ensure collateral- free nature to the microfinance loan, the loan should not be linked with a lien on the deposit account of the borrower. Therefore, the Reserve Bank of India is clear that microfinance loans should be collateral-free and collateral security should not be created by marking a lien on the deposit account of the borrower. The said definition is to be paraphrased to the so-called ambiguity that the petitioner would project.
33
14. The petitioner does not come within the ambit of the Ordinance. It is still permitted to run its business in terms of other legislations. There is no impediment, in the subject Ordinance, for the petitioner to make a hue and cry that all securities would stand released in favour of the borrower. The borrower is defined; microfinance is defined and vulnerable sections are defined. Therefore, it is unequivocal that it is applicable only to microfinance lending institutions for protection of borrowers who are from the vulnerable sections of the society, inter alia.
15. The Ordinance, conceived in response to the anguished cries of the vulnerable - farmers, women, workers, marginalized groups inter alia seeks to rescue them from usurious money lenders and micro finance entities who as public knowledge and legislative record bear testament, have wielded unconscionable recovery methods, often driving the debtors from buoyancy of hope, to the abyss of despair and death. The Ordinance does not traverse into the realm of secured transactions undertaken by the regulated entities like the petitioner, on the contrary, it carves out a 34 protective shield specifically for those trapped in the labyrinth or unsecured micro loans extended without collateral, targeting an annual income of Rs.3 lakhs or less, which is clearly defined by the Reserve Bank of India, as quoted supra. Therefore, the Ordinance has taken birth from the womb of social justice, it nowhere depicts arbitrariness. The grievance of the petitioner is, on the face of it, imaginary and unacceptable. The issue is thus answered against the petitioner.
16. Therefore, the Ordinance does not suffer from any manifest arbitrariness to declare it to be unconstitutional as is sought by the petitioner. The purport of the Ordinance does not touch upon the business of the petitioner for it to be aggrieved. In view of the preceding analysis, the unmistakable inference is, that the thread of reasonableness runs through the object of the law. With thus being the case, the Courts must always be loathe to strike down a measure of this kind, unless compelled by an egregious violation of constitutional mandates, I find none.
35
17. The petition wanting in merit should necessarily meet its dismissal. It accordingly meets. The petition stands dismissed.
Consequently, I.A.No.1 of 2025 also stands disposed.
Sd/-
(M.NAGAPRASANNA) JUDGE bkp CT:MJ