DC debate: ‘Call money’ racket which shook Andhra Pradesh and Telangana

DC debates on the ‘call money’ racket which shook the two neighbouring states of AP and TS; The scam also involved kin of top political parties.

S.S. Prasad Vs M.V. Krishna Rao

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S.S. Prasad (The writer is a senior advocate)

Call Money is a short-term loan with a high rate of interest. In banking terms, it’s a loan usually given for less than a week to ensure liquidity in the bank. There are two markets “regulated and unregulated -- for almost everything, like the labour markets for industrial and domestic workforce. Even in the finance sector, established financial institutions are regulated, be it in grant of loans or in loan recovery.

The unregulated finance market is however robust and flourishing. It keeps catering to the needs of a whole lot of people. No doubt, in an unregulated market, certain excesses seep in. The present controversy over call money revolves more round the mode of recovery being put to use by moneylenders.

Investigations have revealed cases of abuse of the process and of exploitation of victims of call money rackets. These cases are to be dealt with individually and cannot be generalised for the entire trade/market. A Telugu poet once equated moneylender to a doctor. Small and medium-scale moneylenders have catered to the needs of several individuals, and mostly to those who are in dire need of money. So, the practice of “call money” by itself cannot be termed as illegal. The excesses are illegal.

The relationship between a creditor and a debtor is well- recognised. The Negotiable Instruments Act presumes that money lent on the foot of a promissory note is genuine unless the contrary is proven. The moneylender laws, including the AP Pawn Brokers Act, impose statutory controls and the licensing procedure is provided under the said act.
Perhaps the only things lacking are the lack of awareness and the lack of will to enforce these provisions.

The remedy adopted should not be worse than the evil that’s sought to be contained. Several individuals are in dire need of call money, and they cannot avail the same from any financial institution. A man vending vegetables depends on call money to run his daily business. If excesses have surfaced, they be dealt with under the laws, but lending money itself or the recovery thereof is per se not illegal. The imposition of interest on loans is also not illegal. The rate of interest, however, is high. This aspect may be regulated by a new law.

Another controversial aspect of these loans is the securities taken to advance them. Promissory Notes or cheques are recognised instruments and the execution thereof is not illegal. However, if there is coercion or undue influence or fabrication, action should follow. But, painting the entire trade with the same brush would not be right.

Controversy surrounds the mode of recovery of debts in this market. Even in the regulated financial sector, the institutions resort to coercive modes for recovery of loans. The remedies under the Securitisation Act are an example. Hence, the procedure in the presently unregulated financial sector needs regulation to ensure that illegalities don’t occur.
Several individuals are now registering cases against their creditors.

These need to be discouraged. Also, had the existing money laws been scrupulously enforced, most of the controversies would not have arisen. However, the move of the government to appoint a Judicial Commission on the issue is welcome.

The Chief Minister has stated that about 290 such cases have been booked in the past three days. Assuming that all these are genuine, it shows the failure of the law enforcing agencies to curb such practices so far. Having said that, any money borrowed is liable to be repaid. Under the garb of the present controversy, several individuals are registering police cases against their creditors. This cannot be said to be a welcome step.

M.V. Krishna Rao (The writer is a former director general of police)

“Neither a borrower nor a lender be, For loan oft loses both itself and friend, And borrowing dulls the edge of husbandry.”

This was what the bard of all bards, William Shakespeare, stated more than 400 years ago through the character of Polonius in the play Hamlet. The happiest people, therefore, are those who never borrow. However, in the modern Economy, those who do business with their own hard-earned money are fewer and are considered unwise.

The trend now is to borrow, buy, invest, speculateâ?¦. But, the most crucial point, namely as to “how do I propose to repay the loan/debt” is often sidestepped before one decides to borrow. As a result, we tend to fall into the Debt Trap. If money is being borrowed for doing business, the borrower will have to calculate the likely profit margin, and costs (like salaries, rent etc), and how much surplus he would be left with to service his debt.

Unfortunately, if one observes the kind of people (mostly illiterate and semi-literate women) who have become victims of rackets like the “call money”, it will be clear that they have not made any such calculation.

What is “Call Money”? Call money is a method by which banks lend to each other to be able to maintain the Cash Reserve Ratio. The interest rate paid on call money is known as the call rate. It’s a highly volatile rate that varies from day to day and sometimes even from hour to hour. But, in AP, this Call Money metamorphosed into something else, and got intertwined with “Call Girlsâ” and became the curse of all Telugus.

How did this happen? The Telugu people have the dubious distinction of being the most corrupt. The rates of bribes demanded by Public Servants including MLAs in AP is so high that crorepatis among employees and politicians are one too many. But, all these money being ill-gotten wealth or black money, they cannot deposit them either in their bank accounts or in fixed deposits..

In the past one decade, a new breed of entrepreneurs in AP started collecting this ill-gotten money from various corrupt politicians and employees, promising them a good rate of return, and lend them to gullible housewives and old/weak men at exorbitant rates of interest.

Their harassment will start the moment they default on payment of interest. Since the local politicians and policemen would have invested in this business/enterprise, they turn a Nelson’s Eye to the harassment of the borrowers by thugs engaged by the entrepreneurs. In situations where the borrowers are women below 40 years of age, a suggestion is made that if they enter flesh trade and sell their body - say, a few hours every week in a nearby town - they can earn '5,000 to '6,000 an hour, and get out of their financial mess.
What is the remedy?

The only option is to make this business/enterprise of lending un-remunerative. Legally, if the borrowers either refuse to or default in paying interest/principal, the only option available to the lenders is to file a civil suit in a court of law. If the lenders themselves (or their representatives) harass victims by threatening them with violence or actually trespass into the properties of the borrowers, then criminal cases can be filed against them in courts.

If the police refuses to register cases, complaints can be made directly in the courts under Section 156(3) of the Code of Criminal Procedure. Further, there is a need to spread awareness via the media etc. As long as this enterprise of lending the ill-gotten wealth /corrupt money/black money to gullible people continues to be profitable, the prevailing tragedy of ruined families will continue.