1. A party cannot engage in the business of money lending without a valid license and that would be an offence. Since you have stated that the person is lending money to other parties also, it could be proved in trial as a matter of evidence that the person was engaged in the business of money lending.
The Punjab & Haryana High Court, deciding a case under the Punjab Registration of Money-Lender’s Act, 1938, Narsi Dass v. Surender, 2015 (1) RCR (Civil) 108, held that a complainant money-lender could not initiate prosecution under Section 138 of the Negotiable Instruments Act if he did not possess a valid money-lender’s license.
Similar provision is contained in Section 10(1) of the Bombay Money-Lenders Act, 1946 which provides that a suit for recovery of a loan shall be dismissed if, at the time of advancing the loan, the money lender did not hold a valid money-lending license.
However, this leads me to a question from you. What was the mode of payment of loan in your case? If the loan was paid through a negotiable instrument (i.e. the loan was paid through a cheque) then in terms of Section 2(9)(f) of the Bombay Act the same is not considered as a loan for the purposes of that Act and the provisions of the Act shall not apply. What this means is that if the ‘loan’ amount was paid by cheque, prosecution under Section 138 shall not be barred (stopped) merely because the person did not have a money lending license since the restrictions of the Act do not apply in case of payment of loan amount by cheque. In Manishbhai Bharatbhai Shah v. State of Gujarat, (2008) 1 GLR 392, the Gujarat High Court has held that prosecution under Section 138 of NIA shall not be barred merely because the money lender was unable to produce a money-lender’s license.
So far as the fact of cheque being drawn by your father from his personal account is concerned, that will not be of much help to you because the drawer of the cheque is responsible under section 138 of NIA even if he has issued the same in discharge of the liability of some third person as held by the Supreme Court in Jammu & Kashmir Bank v. Abhishek Mittal, (2011) SC. This Section provides for discharge of debt or other liability by a person even if it is a debt or other liability of another.
2. As far as the rate of interest is concerned, that may come into picture if the money lender files a Suit for recovery of the amount and then you can resort to the Usurious Loans Act. But this cannot be a defence for the purpose of proceedings under the NIA.
3. In your reply, you should state that since the person is lending money without a valid money lender’s license not only has he committed offence under the Bombay Money-Lenders Act, 1946 but also, in terms of that Act, he is restricted from initiating any action under the NIA. For a valid demand under the NIA, there needs to exist a legally enforceable debt or liability and the notice has no force in the eyes of law because the debt is not legally enforceable in view of the restriction contained in the Money-Lenders Act against money-lending without license. In prudence, however, I’d suggest making the payment of the debt due.
5. Under the Bombay Money-Lenders Act, 1946, carrying on the business of money-lending without holding a valid licence can lead to imprisonment which may extend to one year or with fine which may extend to Rs.1500 or with both, for the first offence.