The Madras High Court has initiated proceedings by requesting responses from the Union Government and the State of Tamil Nadu regarding a petition that contests the constitutional legality of the Tamil Nadu Money Lending Entities (Prevention of Coercive Actions) Act, 2025. This legal challenge, represented in the case titled Madras Hire Purchase Association (MAHA) Vs Union of India, was brought forward by the Madras Hire Purchase Association (MAHA), Senthoor Motor Finance, and Todi Investors (India) Pvt Ltd.
The Division Bench, comprising Justices GR Swaminathan and V Lakshminarayanan, issued notices concerning this petition. The petitioners are disputing both the 2025 Act and its accompanying Tamil Nadu Money Lending Entities (Prevention of Coercive Actions) Rules, 2025. The Act was proposed in the Tamil Nadu Legislative Assembly on April 26, 2025, passed shortly thereafter on April 30, 2025, and received gubernatorial assent on June 9, 2025. It officially came into effect on November 19, 2025, alongside the relevant Rules.
The petitioners are urging the court to declare the law unconstitutional, arguing it contravenes Articles 14, 19(1)(g), and 21 of the Indian Constitution. They claim the legislation is arbitrary, oppressive, and exceeds the legislative authority of the State government.
MAHA, a well-established association with over 1,200 members involved in financing both movable and immovable assets throughout South India, emphasizes that many 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 contested law was introduced to combat coercive recovery practices by informal and unauthorized moneylenders; however, the petitioners argue that it inadvertently subjects lawful financiers and RBI-regulated entities to potential criminal liabilities.
The petition raises critical questions about whether the Tamil Nadu legislature has the jurisdiction to enact such a law impacting NBFCs and financial entities already governed by the RBI Act, 1934, and the guidelines administered by the RBI. Moreover, the petitioners contend that the legislation’s ambiguous language, specifically terms like “coercive action,” could lead to misuse against financiers conducting legitimate recovery processes.
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Concerns are also raised about the Act’s registration requirements. The petitioners are seeking interim relief while the case is in progress and have requested a stay on the execution of the Act and its Rules. Advocate SR Sundar is representing the petitioners in this matter.
