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Studies in Ancient Hindu Polity (Based on the Arthashastra of Kautilya), Vol. I c14.s3: § 3.—Loans

Studies in Ancient Hindu Polity (Based on the Arthaśāstra of Kauṭilya), Vol. I c14.s3

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§ 3.—Loans

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We shall now discuss the subject of loans. The rules regulating loans are justly recognized to be of great importance, for on them depends

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275; and Nârada, II, 17. It is interesting to note that a similar provision has also been incorporated in the Manu-Kyay-Damathat of the Burmese law: "If cattle have been stolen, the inhabitants of that district were held liable to which the footmarks of the stolen cattle are traced."—Richardson's Transl., IV, 8, p. 117.

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to a large extent the economic welfare of the country, राजव्ययोमजेन as Kauṭilya puts it.¹

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¹ अर्थशास्त्रम्, Bk. III, p. 174.

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In those olden days the exploitation by the grinding money-lenders of the necessities of the poor and the needy was checked by a fair rate of interest. The fair rate was determined by the State, which punished all deviations from it.

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The legal rate² of interest for a money-lender, as mentioned in the Arthaśāstra, is 1¼ p.c. per month, i.e. 15 p.c. per year. For the reasons given below, it seems that this rate of interest was chargeable on secured debts, the maximum rate allowed on unsecured ones being prescribed

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² This rate of interest, viz. 1¼ p.c. per month, is also found in the Saṃhitās. The question is whether it was charged on a secured debt or not. Vyāsa is very explicit on this point. He says: "Monthly interest is declared to be an eightieth part of the principal, if a pledge be given; an eighth part is added if there be only a surety; and if there be neither pledge nor surety, two in the hundred may be taken from a debtor of the sacerdotal class" (see Cole.'s Digest, i, 80). Yājñavalkya also makes 1¼ p.c. per month the interest on a secured loan, for he enjoins that "on a secured loan the interest every month is one-eightieth part of the principal" (II, 38, M. N. Dutt's ed.). Manu, Vasiṣṭha and Nārada are at one on this point. "A money-lender may stipulate, as an increase of his capital, for the interest allowed by Vasiṣṭha, and take monthly the eightieth part of a hundred" (Manu, VIII, 140, S. B. E.). According to the commentators Kûll., Nār., Ragh., and Nand., the rule refers to a secured debt, but Med. and Gov. think that the rule refers to cases where the creditor is able to live on this interest and is not compelled to take a higher rate for his living. However, the former is the view accepted on all hands, supported as it is by the parallel passages of Yājñ., etc. (see also Cole.'s Digest, i, 24). Vasiṣṭha's text runs thus: "Hear the interest for a money-lender declared by the words of Vasiṣṭha: 5 māshas for

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20 kārshāpaṇas may be taken every month; thus the law is not violated" (II, 51, p. 16, S. B. E.). One kārshāpaṇa being equal to 20 māshas, the rate is 1¼ p.c. per mensem. Nārada also refers to Vāsishṭha: "Let a money-lender take in addition to the principal the interest fixed by Vāsishṭha, viz. an eightieth part of a hundred in every month" (I, 99, S. B. E.). Bṛihaspati prescribes an eightieth part of the principal to be the interest on it every month (XI, 8, S. B. E.), while Gautama says: "The legal interest for money lent is at the rate of 5 māshas for 20 kārshāpaṇas per month" (XII, 29, S. B. E.). On the strength of the other Saṃhitās, these two passages would no doubt be taken to relate to the case of secured loans. Baudhāyana, however, differs from all the above authorities by prescribing a different rate of interest, viz. 1 p.c. per month. His rule is that "a sum of 25 kārshāpaṇas shall bear an interest of 5 māshas per mensem" [I, 5, 10—(22), S. B. E.]. He does not expressly apply it to cases of secured loans; but even if it be taken to apply to unsecured loans, the difference from the other Saṃhitās does not cease; for almost all the authorities quoted above, including Vishṇu and Hārita, expressly mention that the creditor may take 2, 3, 4 and 5 p.c. (and not more) as monthly interest on unsecured loans according to the order of the castes, e.g., a Brāhmaṇ debtor has to pay 2 p.c. per month, a Kshatriya debtor 3 p.c. per month, and so on. So Baudhāyana is the only dissentient authority in regard to this point.

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In view of the general correspondence of the Saṃhitās as to the rule that 1¼ p.c. per month is the interest to be charged on a secured loan, I am inclined to take the passage in Kauṭilya, "सपादपचा धर्म्या मासरद्धिः पञ्चतस," as applicable to secured loans. This view gains further support when we take into account the fact that no separate rates of interest are by the next passage as 5 p.c. per month. But the rate is allowed to increase in view of the risks to which the investment of the money lent, and consequently its realization,

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mentioned in connexion with the rules regarding pledges, upon one kind of which, viz. where the thing pledged is used by the pledgee, interests are chargeable; nor are they mentioned in regard to rules about mortgages.

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The rate of interest allowed by the Saṃhitās in the case of the Śūdra debtors, viz. 5 p.c. per month, corresponds with that given in the second passage of the Arthaśāstra (पञ्चपञ्चा व्यावहारिकी, p. 174, Bk. III): “पञ्चपञ्चा व्यावहारिकी”; and as the Saṃhitās apply the rule to unsecured loans, I am inclined to think that the passage of Kauṭilya mentions the maximum rate allowed in the case of unsecured loans.

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Laws restricting the maximum rate of interest are found in many countries both of ancient and mediæval times. In Greece, “the Seisachthira of Solon (B.C. 594), according to some ancient writers, included a reduction of the rate of interest, stated by Plutarch to have been about 16 p.c. per annum. In the opinion of Grote, however, no restriction was put by it upon interest. At Coreysa, in the second and third centuries B.C., loans on good security commanded 24 p.c., while the common rate at Athens in the time of the Orators was 12 to 18 p.c. . . . Such high rates were exceedingly oppressive to agriculturists, whose fortunes are always precarious” (Palgrave’s Dict. of Pol. Ec.).

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According to the same authority, “the ancient law of Rome allowed interest which, as usual in agricultural communities, reached an exorbitant height, and popular suffering necessitated a readjustment of debts. The law of the Twelve Tables (B.C. 451-450) first, according to Tacitus, limited the rate to one-twelfth part of the capital . . . In B.C. 347 interest was fixed at 5 p.c.; in B.C. 342 it was abolished altogether by the Lex Genucia. Although the prohibition of interest long remained law, it was found impracticable . . . The Lex Unciaria of the are exposed. Accordingly, the money borrowed by persons going to forests for trade is allowed to return an interest of 10 p.c. per month, while, on the same principle, the interest payable by the merchants who trade by sea is allowed to mount up to the maximum rate of 20 p.c. per mensem.¹

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¹ "दशपञ्च कान्तारगानां." Yājñ. uses the word कान्तारम in a similar context—

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A disregard of the maximum limits is punished with fines payable not only by the money-lender and the intermediary, but also by the witnesses to the transaction.²

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² ततः परं कर्तुः कारयितुश्च पूर्वसाहसदण्डः । मोतृवामेकं प्रत्यर्थदण्डः ।

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Consuls Sulla and Rufus fixed the rate of interest at 12 p.c. per annum . . . By a decree of the Senate in B.C. 50 this became the legal limit throughout the Roman provinces."

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Diodorus the Sicilian, who visited Egypt in the middle of the first century B.C., gives us some information about the early Egyptian law on this point: "For those that lent money by contract in writing, it was not lawful to take usury above what would double the stock, and that payment should be made only out of the debtor's goods, but his body was not to be liable in any wise to imprisonment; and those were counted the debtor's goods which he had either earned by his labour, or had been bestowed upon him by the just proprietors." (Diodorus, vol. i, Bk. I, ch. vi, p. 81 : transl. by C. Booth.)

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कान्तारगास्तु दशकं सामुद्रा विंशकं शतम्
दद्युः सदा हविं सर्वे सबांशु जातिषु—II, 39.

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The interest on grain in seasons of good harvest shall not exceed more than half its quantity when valued in money; that on the capital contributed by the members of a commercial company shall be one-half of the profit and be payable as each year expires. In case of partners who by long absence or by maladies such as idiocy are disabled from participation in the business, they may be discharged from partnership by being paid twice the amount of their original capital.¹

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¹ The text is चिरप्रवासं सन्नप्रविष्टो वा मूढविगुणं दद्यात् । p. 174. It seems that “सन्नप्रविष्टः” should be “सन्नप्रविष्टं.” In “वाचस्पत्य,” “सन्न” has been explained as “जड़ता,” by which no doubt such maladies as insanity, idiocy, etc., are meant. One suffering from these would be सन्नप्रविष्ट.

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A person claiming interest when it is not due, or claiming as principal the sum-total of the real principal and interest, shall pay a fine of four times the amount under dispute. False claims were punishable with fines of four times the amount falsified. If both the debtor and the creditor mis-state their claims, the punishment is divided between them in the proportion of 1 : 3.

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The following persons were exempted from payment of interest: (i) persons engaged in long-continued sacrifices, probably in view of the general good believed to have been produced thereby; (ii) the diseased; (iii) those detained in the house of their preceptor for studies; (iv) minors; and (v) the indigent.

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The repayment of debts is also subject to the following rules.¹ The creditor is fined 12 paṇas if he refuses to accept in proper time the sum due, unless the refusal be founded upon some adequate grounds. Moreover, in case of refusal, the sum tendered may be deposited by the debtor with some third person, and no interest accrues upon it for the time subsequent to the date of deposit.

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¹ Cf. Yājñ., II, 45: “If a creditor, for the multiplication of his own money, does not take it when offered back by the debtor, and if the latter deposits it with an umpire, interest ceases from that date.”

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The creditor is liable to a penalty for want of diligence on his part to realize his money within ten years next following the due date; for after this period the loan is barred by limitation. But exceptions are made in favour of (i) the senile, (ii) the diseased, (iii) the distressed, (iv) minors, (v) sojourners in other countries, (vi) persons who have forsaken their country (देशत्यागी), and (vii) those who are prevented from claiming their dues owing to political or other disturbances.

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The sons of a deceased debtor shall repay the principal with the interest thereon. If the deceased have no sons, the debts shall be paid by those who inherit his property; or the debt shall be paid by the surviving joint-debtors if it were contracted jointly with them.¹ Where there are sureties for payment, they shall be held liable.

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¹ प्रेतस्य पुत्राः कुषीदं दद्युः । दायादा वा रिक्थहराःसधना-श्चिणः प्रतिभुवो वा । Cf. Yājñ., II, 51, 52; Vishṇu, VI, 27, 28 ff.; Manu, VIII, 166; Nārada, I, 2 ff.; and Bṛihaspati, XI, 48 ff.

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The rules as to surety for payment of a debt are: A minor cannot stand as surety. If there be no restrictions in the contract of surety as to time or place, it shall be borne by the sons, grandsons, or any persons inheriting the property of the deceased surety in case the debt be not paid by the debtor. They have also to bear the liability of the deceased person as surety in regard to (i) personal services, (ii) marriage-dowry, and (iii) transactions concerning immoveable property.

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When there are several debts owing by a single person to several creditors, two creditors cannot sue the debtor simultaneously except in the case of resistance by the debtor,¹ and in the suit the order of the debts has to be proved before the court.

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¹ प्रतिष्ठमान—resisting. (Monier Williams.)

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No suit for debt can lie between husband and wife, father and son, and brothers of undivided interests. Cultivators and Government servants cannot be apprehended during working hours for debts contracted by them. The wife is not as a rule liable for the debt of her husband even if it be acknowledged by her, except in the case of debts due to herdsmen and cultivators.²

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² The meaning of this exception is to safeguard the interests of these useful occupations for the benefit of the public. The text has अर्द्धसीति. Yājñ. uses the word अर्द्धसीरिन् (I, 168) in the sense of "a cultivator who takes half the crop for his labour."

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A husband is liable for the debt of his wife, and if he absconds without making any provision for the debt, he shall be fined with the highest amercement. If he denies the debt, witnesses are depended upon.¹

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¹ In the Saṃhitâs, *e.g.* in Yâjñ., II, 47 and 49; Nârada, I, 18, 19; Bṛihaspati XI, 50, 53; and Viṣṇu, VI, 32, 37, the husband is not as a rule liable for the debt of his wife unless it be contracted for the benefit of the family. Among herdsmen, washermen, hunters, distillers of spirit, etc., the husband is invariably liable for the wife's debt, because "the income of these men depends on their wives, and the household expenses are borne by them also."

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