1989 (8) TMI 367 - SC - Indian Laws

Summary

Issues Involved:
1. Applicability of Section 13 of the Andhra Pradesh Agriculturists Relief Act, 1938 (A.R. Act) to nationalized banks.
2. Constitutional validity of Section 4(e) of the A.R. Act.
3. Applicability of Section 21-A of the Banking Regulation Act, 1946, to agricultural loans.
4. Applicability of the Usurious Loans Act, 1918, to debts owed to banks.

Detailed Analysis:

1. Applicability of Section 13 of the Andhra Pradesh Agriculturists Relief Act, 1938 (A.R. Act) to Nationalized Banks:
The plaintiff, a nationalized bank, filed a suit for the recovery of dues on an agricultural loan. The trial and appellate courts dismissed the suit, upholding the respondent's defense that Section 13 of the A.R. Act prohibited the charging of compound interest. The bank argued that Section 4(e) of the A.R. Act excluded its application to banks constituted under a statute. However, both courts rejected this argument, relying on an earlier decision in Indian Bank, Alamuru v. Muddana Krishna Murthy, which held that banks constituted under the Banking Companies Act were not exempt from the A.R. Act.

2. Constitutional Validity of Section 4(e) of the A.R. Act:
In the second appeal, the High Court examined the constitutional validity of Section 4(e) of the A.R. Act, despite it not being raised by the respondent. The High Court found that the provision violated Article 14 of the Constitution, as it created an impermissible classification of debtors based on the identity of the creditor, which had no rational nexus with the object of the A.R. Act. The High Court held that Section 4(e) brought about an impermissible classification of debtors and was therefore unconstitutional.

3. Applicability of Section 21-A of the Banking Regulation Act, 1946, to Agricultural Loans:
The High Court also held that Section 21-A of the Banking Regulation Act, introduced by the Banking Regulation (Amendment) Act, 1984, did not override the provisions of the A.R. Act. The High Court concluded that the appellant-bank, like any other creditor, was forbidden under Section 13 of the A.R. Act from charging compound interest on agricultural loans. The court further noted that Section 21-A was prospective in operation and did not affect debts incurred prior to its enactment.

4. Applicability of the Usurious Loans Act, 1918, to Debts Owed to Banks:
The High Court did not directly examine the applicability of the Usurious Loans Act, 1918, to debts owed to banks, as it primarily relied on the A.R. Act. However, the court noted that other decisions had held that the Usurious Loans Act was no longer applicable to any debt due to a banking company following the introduction of Section 21-A of the Banking Regulation Act. The High Court's observations suggested that the Usurious Loans Act could still apply to loans advanced by banks, but this was not fully explored in the judgment.

Conclusion:
The Supreme Court set aside the High Court's finding on the unconstitutionality of Section 4(e) of the A.R. Act, holding that it was not appropriate for the High Court to have taken up this question in the absence of any plea raised by the respondent. The Supreme Court remitted the second appeal to the High Court for consideration of the applicability of Section 21-A of the Banking Regulation Act to the Usurious Loans Act and whether the appellant-bank could rebut the presumption of excessive interest. The second appeal was directed to be placed before a Division Bench of the High Court for further hearing. The appeal was disposed of without an order as to costs.