NBFCs, hire purchase firms move Madras High Court challenging TN law curbing coercive loan recovery

The Madras High Court has asked the Union government and State of Tamil Nadu to respond to a petition challenging the constitutional validity of Tamil Nadu Money Lending Entities (Prevention of Coercive Actions) Act, 2025 [Madras Hire Purchase Association (MAHA) Vs Union of India]

A Division Bench of Justices GR Swaminathan and V Lakshminarayanan issued notice on the plea filed by the Madras Hire Purchase Association (MAHA), Senthoor Motor Finance and Todi Investors (India) Pvt Ltd. (petitioners).

The petitioners moved the Court challenging both the 2025 Act and the Tamil Nadu Money Lending Entities (Prevention of Coercive Actions) Rules, 2025.

The Act was introduced in the Tamil Nadu Legislative Assembly on April 26, 2025 and passed on April 30, 2025. It received the Governor’s assent on June 9, 2025 and came into force on November 19, 2025 along with the Rules.

The petitioners have sought quashing of the law as unconstitutional and violative of Articles 14, 19(1)(g) and 21 of the Constitution.

According to their petition, the law is arbitrary, unreasonable, oppressive and beyond the legislative competence of the State legislature.

As per the plea, MAHA is a 35-year-old association with more than 1,200 members engaged in financing movable and immovable properties across South India. Several of its members are Non-Banking Financial Companies (NBFCs), micro-finance institutions and hire-purchase entities regulated by the Reserve Bank of India (RBI).

The law was brought in to curb coercive recovery practices by informal and unauthorised moneylenders.

However, according to the petitioners, the law also exposes lawful financiers and RBI-regulated entities to criminal consequences.

The challenge raises questions on whether the Tamil Nadu legislature could frame such a law in relation to NBFCs and financial entities already governed by the RBI Act, 1934 and guidelines issued by the regulator.

The petitioners have also claimed that the law creates uncertainty by using vague expressions such as “coercive action”. Such ambiguity may lead to misuse against financiers carrying out lawful recovery proceedings, the plea alleges.

The plea also questions the registration regime under the Act.

The petitioners have prayed for an interim protection during the pendency of the case. One of the petitions also seeks a stay on the operation of the Act and Rules.

Advocate SR Sundar represented the petitioners.