Prohibition of compound interest and provision as to default

(1) Subject as hereinafter provided, any contract made after the commencement of this Act for the loan of money by a moneylender shall be illegal in so far as it provides directly or indirectly for the payment of compound interest or for the rate or amount of interest being increased by reason of any default in the payment of sums due under the contract, provided that provision may be made by any such contract that if default is made in the payment upon the due date of any sum payable to the money-lender under the contract, whether in respect of principal or interest, the moneylender shall be entitled 30 to charge simple interest on that sum from that date of the default until the sum is paid, at a rate not exceeding the rate payable in respect of the principal apart from any default, and any interest so charged shall not be reckoned for the purposes of this Act as part of the interest charged in respect of the loan. (2) Any moneylender who makes a contract in contravention of sub-section (1) commits an offence and is liable on summary conviction to a fine not exceeding fifty thousand dollars, or to imprisonment for a term not exceeding two years, or to both. (3) Where, under any contract made in contravention of sub- section (1), it is provided that the borrower is required to pay to the moneylender any sum directly or indirectly representing compound interest or an increased rate or increased amount of interest by reason of any default in the payment of any amount due under the contract, such sum– (a) shall not be recoverable from the borrower or any surety; (b) if so paid, shall be recoverable as a debt due to the borrower or surety, as the case may be; and (c) if not recovered, shall be set-off against the outstanding amount of the loan, and all sums of interest, late interest and any fees, costs, charges or expenses prescribed under section 15 that may be payable under the contract.