Usurious Loans Act, 1918

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THE USURIOUS LOANS ACT, 1918 
 
 
CONTENTS 
1.  Short title and extent 
2.  Definitions 
3.  Re-opening of transactions 
4.  Insolvency proceedings 
 

 
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THE USURIOUS LOANS ACT, 1918 
1ACT No. X OF 1918 
[22nd March, 1918] 
An Act to give additional powers to Courts to deal in certain cases with usurious loans of money or 
in kind. 
 WHEREAS it is expedient to give additional powers to Courts to deal in certain cases with 
usurious loans of money or in kind ; 
 It is hereby enacted as follows :- 
 1. Short title and extent.___ (1) This Act may be called the Usurious Loans Act, 1918. 
 2[(2) It extends to the whole of Pakistan.] 
 (3) The 3[Provincial Government] may, by notification in the 4[official Gazette], direct that it 
shall not apply to any area, class of persons, or class of transactions which it may specify in its 
notification. 
 2. Definitions. In this Act, unless there is anything repugnant in the subject or context,___ 
 (1) “Interest” means rate of interest and includes the return to be made over and above what 
        was actually lent, whether the same is charged or sought to be recovered specifically by       
         way of interest, or otherwise. 
 (2) “Loan” means a loan whether of money or in kind and includes any transaction which is, 
        in the opinion of the Court, in substance a loan. 
 
 (3) “Suit to which this Act applies” means any suit- 
 
(a)  for the recovery of a loan made after the commencement of this Act ; or 
 
(b)  for the enforcement of any security taken or any agree ment, whether by way 
of settlement of account or otherwise, made, after the commencement of this 
Act, in respect of any loan made either before or after the commencement of 
this Act ; 5[or  
(c)  for the redemption of any security given after the com mencement of this Act 
in respect of any loan made either before or after the commencement of this 
Act.] 
 
1For Statement of Objects and Reasons, see Gazette of India, 1917. Pt. V, p. 86 ; for Report of Select Committee, see ibid., 1918, Pt. V., p. 47 ; and for 
Proceedings in Council, see ibid., 1917, Pt. VI, pp. 714, 815 and ibid., 1918, Pt. VI, pp. 94 and 707. 
This Act has been applied to Phulera in the excluded Area of Upper Tanawal to the extent the Act is applicable in the N.-W.F.P., subject to certain 
modifications ; and also extended to the Excluded Area of Upper Tanawal (N.-W F. P.) other than Phulera with effect from such date and subject to 
such modifications as may be notified. see N.-W. F. P. (Upper Tanawal) (Excluded Area) Laws Regulation, 1950. 
It has been amended in the Punjab by the Punjab Act 7 of 1934 and in the N.-W.F.P. by the N.W.F.P Act 4 of 1935. 
2Subs. by the Central Laws (Statue Refrom) Ordinance, 1960 (21 of 1960), s. 3 and 2nd Sch. (with effect from the 14th October, 1955), for the original 
sub-section (2) as amended by A. O., 1949 and the Federal Laws (Revision and Declaration) Act, 1951 (26 of 1951), s. 3. 
It has also been extended to the Leased Areas of Balochistan, see the Leased Areas (Laws) Order, 1950 (G. G. O. 3 of 1950); and applied in the 
Federated Areas of Baluchistan see Gazette of India, 1937, Pt. I, p. 1499. 
3Subs. By A. O., 1937, for “L.G”. 
4Subs by A. O., 1937, for “local official Gazette”. 
5Ins. by the Usurious Loans (Amdt.) Act, 1926 (28 of 1926), s. 2. 
 
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 3. Re-opening of transactions.___ (1) Notwithstanding anything in the Usury Laws Repeal 
Act, 1855 (XXVIII of 1855), where, in any suit to which this Act applies, whether heard ex- parte or 
otherwise, the Court has reason to believe,___ 
(a)  that the interest is excessive ; and 
(b)  that the transaction was, as between the parties thereto, substantially unfair,  
the Court may exercise all or any of the following powers, namely, may ___ 
(i)  re-open the transaction, take an account between the parties, and 
relieve the debtor of all liability in respect of any excessive interest ; 
(ii)  notwithstanding any agreement, purporting to close previous dealings 
and to create a new obligation, reopen any account already taken 
between them and relieve the debtor of all liability in respect of any 
excessive interest, and if anything has been paid or allowed in account 
in respect of such liability, order the creditor to repay any sum which it 
considers to be repayable in respect thereof ; 
(iii)  set aside either wholly or in part or revise or alter any security given or 
agreement made in respect of any loan, and if the creditor has parted 
with the security, order him to indemnify the debtor in such manner 
and to such extent as it may deem just : 
 Provided that, in the exercise of these powers, the Court shall not- 
(i)  re-open any agreement purporting to close previous dealings and to create a 
new obligation which has been entered into by the parties or any persons from 
whom they claim at a date more than 1[twelve] years from the date of the 
transaction ; 
(ii)  do anything which affects any decree of a Court. 
 Explanation.___ In the case of a suit brought on a series of transactions the expression “the 
transaction” means, for the purposes of proviso (i), the first of such transactions. 
(2) (a)  In this section “excessive” means in excess of that which the Court deems to 
be reasonable having regard to the risk incurred as it appeared, or must be 
taken to have appeared, to the creditor at the date of the loan. 
(b)  In considering whether interest is excessive under this section, the Court shall 
take into account any amounts charged or paid, whether in money or in kind, 
for expenses, inquiries, fines, bonuses, premia, renewals or any other charges, 
and if compound interest is charged, the preiods at  which it is calcula ted and 
the total advantage which may reasonably be taken to have been expected 
from the transaction. 
 
 
1Subs. by the Usurious Loans (Amdt.) Act, 1926 (28 of 1926), s. 3, for “six”. 
 
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(c)  In considering the question of risk, the Court shall take into account the 
presence or absence of security and the value thereof, the financial condition 
of the debtor and the result of any previous transactions of the debtor, by way 
of loan, so far as the same were known, or must be taken to have been known, 
to the creditor. 
(d)  In considering whether a transaction was substantially unfair, the Court shall 
take into account all circumstances materially affecting the relations of the 
parties at the time of the loan or tending to show that the transaction was 
unfair, including the necessities or supposed necessities of the debtor at the 
time of the loan so far as the same were known, or must be taken to have been 
known, to the creditor. 
 Explanation.___Interest may of itself be sufficient evidence that the transaction was 
substantially unfair. 
 (3) This section shall apply to any suit , whatever its form may be, if such suit is substantially 
one for the recovery of a loan or for the enforcement of any agreement or security in respect of a loan 
1[or for the redemption of any such security]. 
 (4) Nothing in this section shall affect the rights of any transferee for value who satisfies the 
Court that the transfer to him was bona fide, and that he had at the time of such transfer no notice of 
any fact which would have entitled the debtor as against the lender to relief under this section. 
 For the purposes of this sub-section, the word “notice” shall have the same meaning as is 
ascribed to it in Section 4 of the Transfer of Property Act, 1882 (IV of 1882). 
 (5) Nothing in this section shall be construed as derogating from the existing powers or 
jurisdiction of any Court. 
 4. Insolvency proceedings. On any application relating to the admission or amount of a 
proof of a loan in any insolvency proceedings, the Court may exercise the like powers as may be 
exercised under section 3 by a Court in a suit to which this Act applies. 
 
___________ 
 
 
 
 
 
Date: 11-09-2024 
1Ins. by the Usurious Loans (Amdt.) Act, 1926 (28 of 1926), s. 3.