A diamond, gold and silver trader has asked a court to set aside a guarantee he made to a business that provides cash advances, saying it has failed to comply with money-lending laws.

City Sky Corporation director Adukia Mukesh Kumar filed the claim in a High Court writ against Global Merchant Funding (GMF), which a court cleared last year of breaching the Money Lenders Ordinance.

Adukia claims, via his lawyers, that GMF lent City Sky money in the form of a merchant cash advance at an effective annual interest rate of at least 61.52 per cent - above the 60 per cent maximum permitted by the ordinance.

Under the contract, GMF buys a merchant's future credit and debit card receipts at a discount, offering cash up front. It then takes a percentage of card sales directly from the merchant's processing bank.

Adukia who, according to the writ, signed the guarantee to pay GMF if Sky City failed to do so, is asking the court to declare the guarantee cannot be enforced because it does not comply with money-lending laws. "At the time when the loan … was made by the defendant to [City Sky], the defendant in fact was carrying on business as a money lender," the writ, filed on Saturday, says.

GMF says its cash advances are not loans. It was acquitted in July of carrying on business as a money lender without a licence.

The Department of Justice said yesterday that it had applied to appeal against the acquittal.

Clifford Smith SC argued during the trial that the product was, in fact, a loan. "The effective rates of return show that a very high level of interest is built into the purchased amount," he said.

According to Adukia's writ, City Sky agreed in 2011 to "sell" HK$11.03 million from its future sales to GMF for HK$9.38 million.

Adukia says the arrangement was a loan in which the principal was HK$8.82 million and carried interest of HK$1.32 million.