Karnataka HC upholds microfinance ordinance, dismisses petition

The Karnataka High Court has dismissed a petition challenging the Karnataka Micro Loan and Small Loan (Prevention of Coercive Actions) Ordinance, 2025, reinforcing its objective to protect economically vulnerable individuals from aggressive recovery tactics.

Also read: Karnataka govt moves to curb microfinance harassment, Bill under review

The Karnataka Hire Purchase Association had contested the ordinance, arguing that its provisions were vague and interfered with business operations. However, a bench led by Justice M Nagaprasanna ruled on March 17 that the ordinance specifically shields borrowers with an annual income of Rs 3 lakh or less, who avail unsecured microloans without collateral. The court emphasized that the ordinance does not impact secured lending by regulated financial entities but rather seeks to prevent coercion against low-income borrowers.

Advocate General Shashikiran Shetty defended the ordinance, arguing that the petitioner had no standing in the matter as it dealt with secured lending, while the ordinance focused solely on microfinance institutions offering unsecured loans. He highlighted cases of borrower distress and suicides linked to aggressive recovery measures as justification for the ordinance.

While acknowledging that ordinances can be subject to judicial review, the court determined that this one was neither arbitrary nor unconstitutional. It clarified that the petitioner’s business remained unaffected and that existing financial regulations continued to apply to secured loans.

Dismissing the plea, the court upheld the ordinance as a necessary step towards financial protection for vulnerable borrowers.