TMI Blog1982 (3) TMI 271X X X X Extracts X X X X X X X X Extracts X X X X ..... itioner acknowledging their liability to repay the amounts as agreed, but never the less, no amounts were paid. Thereafter, a notice Ex. A. 4 was issued by the petitioner on 20-5-1975, which was received by all the respondents to which only the first respondent replied under Ex. A. 9 on 28-6-1975, praying for some time to repay the amounts due to the petitioner. In spite of this, the respondents did not make any payment, which obliged the petitioner to issue another notice under Ex. A. 10 on 16-1-1976 to the respondents. Even this notice evoked response only from the first respondent, who, in his reply, under Ex. A. 15 dated 29-1-1976 prayed for time till 15-4-1976 for paying the amount and since the respondents made no payment even thereafter to the petitioner, the petitioner instituted 0. S. 386 of 1977 in the District Munsif's Court, Tiruvannamalai against the respondents herein for the recovery of a sum of ₹ 2,233.10 p. towards principal and interest due under the promissory note Ex.A. 1. In the course of the plaint, the petitioner referred to its being a banking company carrying on business under the provisions of the Banking Regulation Act and the execution of the p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uvannamalai claiming that a decree as prayed for should have been granted in its favour. The only point debated in the appeal was as regards the usurious nature of the rate of interest claimed by the petitioner bank, particularly in view of the inability of nationalised banks like the petitioner, to charge lower rates of interest owing to the directives issued from time to time by the Reserve Bank of India under the provisions of the Banking Regulation Act. Dealing with this question, the appellate Court held that a nationalised bank is not a social parasite to suck the blood of the common man in the form of interest, that in the case of agriculturists like, the respondents, different considerations would arise, that the rate of interest charged by the petitioner was excessive and that 10-1/2 per cent per annum simple interest as allowed by the trial court would in the circumstances, be fair and reasonable. On this conclusion, the appeal was dismissed against which this civil revision petition has been preferred. 4. Sethuraman, J. before whom the civil revision petition initially came up for hearing, felt that the question, whether the rates of interest charged by the nationalis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he provisions of the Usurious Loans Act, to nationalised banks functioning under the provisions of the Banking Regulation Act and the scope and effect of S. 3 and the provisos thereunder, Besides, this very question was argued at great length before this court by the learned counsel for the respondents. No objection regarding the incompetency of the appeal on the score that it involved a question of fact, was ever attempted to be raised by the respondents in the Court below, We are, therefore, of the view that it is too late to urge that no question of law arose in the appeal before the court below. We are satisfied that the appeal did raise a question of law and was rightly on such a question of law, entertained under S. 96(4) of the Civil P. C. 7. The decision in Joseph Thompson v. Nallathampi Nadar (1980)2MLJ389 relied on by the learned counsel for the respondents has no application whatever to the present case. In that case, in answer to a claim for the recovery of a sum of ₹ 758.42 p. as principal and interest of ₹ 98.54 p. at 12 per cent per annum from 25-5-1976 on the footing that this amount was recoverable in respect of payments made for 21 months as premi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t certain rates by a nationalised bank functioning under the Banking Regulation Act in accordance with the circulars and directives issued by the Reserve Bank of India periodically, would fall within the scope of the provisions of the Usurious Loans Act. In attempting to sustain the claim of the nationalised bank that the provisions of the Usurious Loans Act will not be applicable, the learned counsel for the petitioner first submitted that there is an irreconcilable inconsistency between the provisions of the Banking Regulation Act, 1949, and the provisions of the Usurious Loans Act and that the provisions of the Banking Regulation Act being later in point of time, will prevail over the provisions of the Usurious Loans Act. It was next submitted that even assuming that the provisions of the Usurious Loans Act would apply, yet, on proof of special circumstances which may even be traced to a statute justifying the rate of interest, viz., the particular rate of interest charged being in accordance with directions and circulars issued by the Reserve Bank of India from time to time under the provisions of the Banking Regulation Act, the provisions of the Usurious Loans Act cannot be in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the notifications issued by the Reserve Bank of India from time to time, a violation of which would be visited with certain penalties. Attention was also drawn to the circumstance that all debtors, who had availed themselves of similar credit facilities from such nationalised banks, were being charged the very same rates of interest and all other banks similarly placed like the petitioner were also obliged to charge the same rate of interest in accordance with the directions issued by the Reserve Bank of India from time to time. In addition, it was also submitted that the provisions of the Usurious Loans Act did not contemplate a nationalised bank or a banking company regulated by the Banking Regulation Act, but only an ordinary creditor, who has the freedom of charging different rates of interest for different types of debtors. Referring to the provisions of several State enactments dealing with debt relief, the learned counsel for the petitioner further submitted that in all these enactments passed with the avowed object of affording relief to indebted agriculturists, nationalised banks and the debts due to them have not been in any manner touched upon and that also is an indicat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... et out the content of the expression 'excessive' as meaning in excess of that which the court deems to be reasonable having regard to the risk incurred as it appeared or must be taken to have appeared, to the creditor at the date of the loan. Section 3(2)(b) of the Act laid down the circumstances to be taken into account by the court in considering the question whether the interest is excessive, under this section. The court shall, in this connection, take into account any amounts charged or paid, whether in money or in kind, for expenses, inquiries, fines, bonuses, premier, renewals or any other charges, and if compound interest is charged, the periods at which it is calculated and the total advantage which may reasonably be taken to have been expected from the transaction. Section 3(2)(c) of the Act set out the circumstances to be taken into account in considering the question of risk like the presence or absence of security and the value thereof, the financial condition of the debtor, the result of any previous transactions of the debtor by, way of loan so far as they were known or must be taken to have been known to the creditor. Section 3(2)(d) provided that in consid ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ns Act, 1918, was retained but renumbered as Explanation II and another Explanation I was inserted according to which if the interest is excessive, the court shall presume that the transaction was substantially unfair, but that such presumption may be rebutted by proof of special circumstances justifying the rate of interest. To clause (b) of sub-sec. (2) of S. 3 of the Usurious Loans Act 1918, a proviso to the effect that in the case of loans to agriculturists, the court shall presume that the interest is excessive, if compound interest is charged, was added. The explanation to S. 3(2)(d) was omitted. On a consideration of the relevant provisions of the Usurious Loans Act, it is evident that there is no prohibition as such against the charging of compound interest. Indeed, no provision of law has been brought to our notice, which per se prohibits the charging of compound or even high rates of interest, But where such transactions are sought to be enforced through courts of law, the courts have been charged with the duty of examining the transaction as a whole and ascertaining whether in a given case, the transaction is unfair or the rate of interest is usurious and if that is foun ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... day during the continuance of the contravention. A consideration of the aforesaid provisions of the Banking Regulation Act 1949, clearly points out that a banking company, more particularly, a nationalised bank like the petitioner, has really no free scope for carrying on the business of banking permitted under the provisions of the Banking Regulation Act in any manner it likes, but every activity is hedged in by and subjected to the control of the Reserve Bank of India and its orders or directives issued periodically, a contravention of which is also made punishable under the provisions of the Banking Regulation Act. It is, therefore, evident that if a banking company has to carry on the business of banking, it has to carry out the mandates and directions of the Reserve Bank of India issued by it periodically, as enjoined by the statute. 14. We may briefly pause to consider the contention of the learned counsel for the petitioner that there is an irreconcilable inconsistency between the provisions of the Banking Regulation Act, '1949 and those of the Usurious Loans Act. The avowed object of the Banking Regulation Act, 1949 is to consolidate and amend the law relating to ba ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e parties thereto is substantially unfair. No hard and fast rule can be laid down as regards the excessive nature of interest and each case has to be decided on its own merits taking into account a variety of circumstances such as the security obtained by the creditor for the advance of the amount, the pecuniary position of the debtor, the rate of interest prevailing at the time well as the advantage the debtor would derive from the loan. 16. In this case, the petitioner, no doubt, advanced certain amounts to the respondents, who, it is not disputed, are agriculturists and such amounts were repayable by them with compound interest. Under the proviso to S, 3(2)(b) of the Usurious Loans Act, referred to earlier, if on an advance to an agriculturist, compound interest is charged, then the court shall presume that the interest is excessive. This rule of presumption only obviates the need for the court in the case of, an agriculturist to go into the question of the excessive nature of the interest by a consideration of matters like these: whether the rate of interest is reasonable having regard to the risk or it also takes into account any amounts charged or paid, whether in money or ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... no special circumstances justifying the rate of interest charged existed. In this case, it is not disputed that the petitioner is a nationalised bank functioning under the provisions of the Banking Regulation Act. It may be that the object of the Usurious Loans Act is to relieve agricultural indebtedness and to achieve that object certain benefits by, way of reduction of interest has also been conferred upon them, but even while doing so, the provisions of the Act had taken care to exclude debts from the operation of the Act, namely, debts where in spite of the interest being excessive, it would not be an 'unfair transaction' because of the special circumstances justifying the rate of interest actually charged. In the present case, the Petitioner has produced the relevant circulars, which have been issued by the Reserve Bank of India, and they are marked as Exs. A-17 and A-18. These circulars do contain instructions issued by the Reserve Bank of India, with reference to the charging of a Particular rate of interest. This would be a special circumstance justifying the nationalized bank in charging the rate of interest it did, as otherwise, the petitioner bank would have vio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... money, though the borrower was not an agriculturist debtor, but a firm of partners carrying on business. In considering the question whether the rate of interest is usurious, excessive or unreasonable, the Division Bench held that there should be evidence before the court to prima facie establish that the rate of interest is exorbitant or excessive, and that no hard and fast rule can be laid down merely on the mathematics of the rate per cent to hold that the rate of interest was excessive. In this case, as already pointed out, the circulars issued by the Reserve Bank of India to the effect that banking institutions like the petitioner nationalised bank should charge a particular rate of interest would be a special circumstance which obliges the petitioner to charge a rate of interest as it did on pain of the imposition of a penalty -for the violation thereof. It is also necessary in this connection to the decision referred to above, it had been pointed out that the parties were informed of the increase in the rate of interest not because the bank wanted to make an unreasonable gain out of the transaction and make the debtors suffer loss, but the increase was attributed to an incr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ce at best, the charging of compound interest in relation to a lending to such a debtor would give rise to a presumption that the rate of interest is excessive but that, as noticed earlier, is a rebuttable presumption upon proof of special circumstances. It has also been Pointed out that the regulation of rate of interest on advances to be made available by banking institutions functioning under the control of the Reserve Bank of India in accordance with the provisions of the Banking Regulation Act, would be a special circumstance justifying the charging of a rate of interest in accordance with the directives and circulars periodically issued, as the nationalised banks have no freedom of charging their own rate of interest in respect of advances made to them. 19. In State Bank of Travancore v. George, 1975 K LT 416: AIR 1976 Ker 169 a question arose whether a stipulation by an agriculturist debtor agreeing to pay compound interest could be presumed to be a substantially unfair transaction. In holding that it would be so in the absence of circumstances made out to rebut the presumption, the award of simple interest at 9 percent per annum up to a particular date and at 12 per cent ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... able the bank to contend that the compound interest is not unreasonable. From a perusal of the judgment. it does not appear that any circular from the Reserve Bank of India directing the lending of amounts at particular rate of interest was produced or relied upon as proof of special circumstances justifying the charging - of higher rate of interest, as in the present case. But if that decision intended to lay down that even if such circulars had been produced, they would not constitute special circumstances within the meaning of Explanation I to S. 3 (11) of the Usurious Loans Act referred to earlier, we have no hesitation in disagreeing with that view. As pointed out earlier, the whole object of the Usurious Loans Act was only to save agriculturist debtors from the oppression of private only lenders and nationalised banking institution, as we have toddy, charging rates of interest in accordance with the circulars issued by the Reserve Bank of India from time to time, was farthest from the contemplation of the makers of the Usurious Loans Act. 21. A faint argument was raised by the learned counsel for the respondents that this would result in a certain category of debts being t ..... X X X X Extracts X X X X X X X X Extracts X X X X
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