A Division Bench of the A.P. High Court comprising Chief Justice Nisar Ahmad Kakru and Justice Vilas Afzulpurkar on Friday made it clear that microfinance institutions (MFIs) in the State have to register themselves and can do business only as per Sections 9 and 16 of the ordinance issued by the government.

The government is free to launch action when there is violation, but shall not arrest the persons belonging to MFIs. The Bench was not inclined to stay the operation of the ordinance.

The Section 9 (1) stipulates that the interest on loans advanced by MFIs shall not exceed the principal amount while Section 16 lays down penalties for coercive actions resorted to by the MFIs against the borrowers.

These interim orders were passed in a batch of writ petitions filed by various MFIs challenging the constitutional validity of the ordinance. On hearing the arguments, the Bench made it clear that the MFIs shall have to register themselves with the concerned authorities. The application has to be made within a week and the officer shall process the application as per rules. Pending registration, the MFIs can do business subject to the Sections 9 and 16 of the ordinance.

Interim directions

No coercive steps shall be taken by the MFIs. The returns have to be filed with the authority within 48 hours of the transactions. The government was asked to file its counter affidavit within two weeks and the case is listed thereafter. These interim directions will be in force till next day of hearing.