Madras High Court
C. Narayana Reddy vs State Bank Of India (Agricultural ... on 10 August, 2004
Equivalent citations: I(2006)BC128, [2005]125COMPCAS67(MAD), (2004)4MLJ53
JUDGMENT M. Thanikachalam, J.
1. In a suit for recovery of a sum of Rs.82,613.85, with subsequent interest, filed by the plaintiff bank, the first defendant unable to resist the same successfully, suffered a decree and the result is this appeal.
2. The first respondent in this appeal as plaintiff had filed a suit against the appellant and others, for recovery of a sum of Rs.82,613.85 with interest thereon at 14" percent per annum. According to the first respondent/ plaintiff, the first defendant on his behalf, and as the power of attorney for other defendants, borrowed a sum of Rs.10,000/- on 27.11.1973 as crop loan, that they have borrowed a further sum of Rs.50,000/-, for the purchase of a tractor and other farm implements, as per the agreement dated 18.2.1975. It is the further case of the plaintiff, that the defendants though agreed to repay the loan amount on installment basis, failed to pay the same, despite repeated request and demand. The first defendant as the power agent, had acknowledged the liability, by executing the revival letters on 16.1.1978, 25.12.1980, 12.12.1983 and 20.10.1984 and in this view, according to the plaintiff, the suit is in time. The effort of the bank, to realise the amount outside the Court failed despite notice and therefore, a suit came to be filed, for recovery of the above said amount.
3. The first defendant opposed the claim of the plaintiff bank, admitting the borrowing, that he did not agree to pay compound interest, then adding the interest to the principal at regular intervals, that if at all, the plaintiff could claim only simple interest at reasonable rate and in this view, the amount claimed in the plaint should be scaled down substantially. The defendant challenged the inclusion of some sundry expenses such as, inspection charges, insurance amount, etc. It is the further contention of the appellant/first defendant, since he had not executed any revival letters, as alleged in the plaint, the suit is barred by limitation. The further defence of the appellant is that, since the amounts were advanced for agricultural purposes, as such, the plaintiff bank is not entitled to claim interest, especially the subsequent interest at 14 "%.
4. On the above pleadings, the parties went on trial before the learned Subordinate Judge, Krishnagiri. In order to substantiate the plaint allegations, one Ramachandran has been examined as P.W.1, seeking aid from nine documents, exhibited as A1 to A9. The first defendant/appellant has been examined as D.W.1, to nullify the effect of the above evidence.
5. The learned Subordinate Judge, carefully scanning the oral and documentary evidence and also considering the other attending circumstances, came to the conclusion,
(i) that in view of the specific clauses in the agreement, the plaintiff bank is entitled to add interest to the principal amount and in this view, question of scaling down the claim made by the plaintiff is not available to the contesting defendant,
(ii) that the first defendant had executed revival letters (Exs.A5 to A8) under which he had acknowledged the liability, as well as paid a sum of Rs.25,000/- on 25.3.1986 and in this view, the suit is well within in the time,
(iii) that though the loan was advanced, for the purchase of a tractor for agricultural purpose, the first defendant had every chance to utilise the Tractor for commercial purpose, such as lending the same to third parties and in this view, the transaction should come within the meaning of commercial transaction, thereby enabling the bank to claim contractual rate of interest, de hors section 34 of C.P.C. and
(iv) that the plaintiff bank is entitled to claim the sundry expenses incurred, such as insurance amount and other expenses.
Thus holding, a decree has been granted as prayed for, awarding interest at 14% per annum from the date of the plaint till the date of realisation.
6. The first defendant ,aggrieved by the decree and Judgment of the trial Court, has preferred this appeal, challenging the above findings.
7. Heard the learned counsel for the appellant, Mr. P. Mathivannan and the learned counsel for the respondent, Mr. R. Krishnamachari.
8. The learned counsel for the appellant submits, that the trial Court has committed an error, in allowing the so called sundry expenses, which the debtor is not liable to pay, that the trial Court has presumed that the loan transaction is a commercial one, enabling the plaintiff to claim contractual rate of interest, forgetting the fact that the bank itself has been established, to help the agriculturist and further ignoring the fact, that the loan has been sanctioned only, for the agricultural purpose, in which case, the bank is not entitled to claim more than 6% interest, as contemplated under Section 34 of C.P.C., since the original contract will not come to the aid of the plaintiff, after the filing of the suit, because of the further fact, it is squarely covered by Section 34 C.P.C. The further submission made by the learned counsel for the appellant is, that the suit is clearly barred by limitation, which is not properly considered by the trial Court. In this view of the matter, the learned counsel prayed, for the modification of the judgment and decree, accordingly.
9. Opposing the above said contentions, Mr. R. Krishnamachari, the learned counsel for the respondent submits, that the Court has no power, to reopen the settled account which includes interest, in view of Section 21A of the Banking Regulation Act, 1949 (as amended), that though the loan was advanced for agricultural purpose, the borrower had the benefit of commercial activities, by utilising the tractor and in this view, subsequent interest also could be charged as per the contractual rate. It is the further submission of the learned counsel, that as per the agreement, the bank is entitled to claim sundry expenses, which are correctly included and the challenge is unsustainable. It is the further submission of the learned counsel, that in view of the revival letters executed, which are proved, the suit is well within the time.
10. From the above pleadings and the submissions made on behalf of the parties, the following points would arise for consideration:
(i) Whether the suit is barred by limitation.
(ii) Whether the plaintiff is entitled to claim inspection, postal and insurance charges, as shown in the account.
(iii) Whether the interest claimed by the plaintiff is excessive, if so what is the rate of interest prior to the claim and subsequent to the filing of the suit.
Points:
11. On 27.11.1973, the first defendant had obtained a loan, from the plaintiff bank, not only for himself, but also as the power agent of other defendants, as crop loan. Thereafter, on 18.2.1975, the defendants have borrowed a loan of Rs.50,000/-, for the purchase of a tractor and some farm implements. Evidencing the loan transaction, the first defendant had executed Exs.A2 to A4, not disputed. Though the defendants have agreed to pay the tractor loan by installments, they failed to pay the same periodically; though they made some payments then and there, not reaching the target of repayment. The plaintiff bank waited till 1986 for the realisation of the loan amounts, but it has not been materialised, resulting the suit hereinbefore mentioned and its opposition.
12. The first loan transaction took place on 27.11.1973 and the second loan transaction took place on 18.2.1975. The suit was filed for the recovery of the amount on 16.6.1986 i.e. not within three years from the respective dates of advancement of loan. Therefore, it was urged on behalf of the appellant, that the suit is barred by limitation. As an answer to this defence, the plaintiff very much relied upon Exs.A5 to A8, as well as the last payment made by the first defendant on 25.3.1986. A feeble attempt was made to disown the above documents, as if they have not been executed by the first defendant, whereas the bank had obtained his signatures, in the printed blank forms. To substantiate the same, except the interested uncorroborative oral testimony of D.W.1, we find on record nothing substantial, to accept the above defence. The first defendant had admitted his signatures in the above said revival letters, when he was in the box. The execution of the revival letters is also spoken by P.W.1. Considering the admission of D.W.1, regarding his signatures in these letters, as well as nil evidence on the side of the defendant, to establish that his signatures were obtained in blank forms, we are constrained to reject this defence, as correctly did by the trial Court. Within three years from the date of acknowledgment under Ex.A8, the suit has been filed. It is the case of the plaintiff bank, that on 25.3.1986, the defendants have paid a sum of Rs.25,000/-, which could be treated as an acknowledgment of the liability. The payment of the amount, just prior to the filing of the suit, would indicate that the borrowers were aware of the live debt, and that is why acknowledging the same, paid some heavy amount.
13. Considering the insufficient evidence, as well as the admitted payment, in all fairness, the learned counsel for the appellant also has not strained himself, to urge the question of limitation, till the end. The trial Court in its elaborate judgment, considering the oral evidence of P.W.1 and D.W.1, in addition to the effect of Exs.A5 to A8, has come to an irresistible conclusion, that the suit is in time, which should be approved. Having regard to the facts and circumstances of the case and for the reasons assigned supra, we are of the considered opinion, that the suit is not barred by time and the plaintiff is entitled to the suit claim, if it is otherwise established.
14. The submission of the learned counsel for the appellant, that there is no agreement to pay inspection, postal and insurance charges, fails to inspire us, because of the specific clauses in the agreement and the undertaking given by the borrower, to reimburse such charges also. A Tractor was purchased by the first defendant, by obtaining loan from the bank and for its safety and to preserve this security, as per the rule, insurance is a must. Since the tractor has been hypothecated to the bank, a compulsory insurance is unavoidable. In this view alone, as seen from the account, paying the insurance amount, those amounts and other incidental expenses have been included in the account of the defendant, in which we are unable to find any infirmity or error. This point is properly considered by the trial Court and negativing the defence, it is concluded that the defendants are liable to pay such sundry expenses also. We are unable to deviate from the said finding and in this view, the plaintiff bank is entitled to claim other expenses incurred actually, connecting with the loan transaction, such as insurance amount, postal charges, etc.
15. The main thrust of the learned counsel for the appellant/first defendant is, that the plaintiff bank is not entitled to claim interest at 14% or 14" %, as the case may be, since the loan was advanced, for agricultural purpose. By going through the pleadings as well as the evidence, we are of the considered opinion, that the loan transaction should come within the umbrella of agricultural loan, not warranting contractual rate of interest, thereby reducing the rate of interest, applying Section 34 C.P.C. Unfortunately, on presumption, the learned trial Judge has come to the conclusion, that the loan transaction should be construed as commercial one, which is not the case of even the plaintiff.
16. In this context, it is pertinent to note the cause title and the pleadings. The plaintiff is described as "State Bank of India, Agricultural Development branch, Hosur, rep. by its Manager", thereby making it clear, that this bank had advanced loan to the agriculturists for agricultural development having been established for the said purpose. As far as the first loan is concerned, even as per the pleadings, it is a crop loan against the security of immovable properties and at any stretch of imagination, this amount cannot be brought under the shadow of commercial transaction. Paragraph-4 of the plaint reads:
"The first defendant approached the plaintiff/bank for a medium term loan to purchase a Tractor, a farm machinery for the improvement of agriculture".
Nowhere, in the plaint, it is stated that the defendant(s) had lend the tractor, to third parties, for hire and earned profits. It is also not brought on record through the mouth of P.W.1 even, that the first defendant had earned profit by lending the tractor, on hire basis, to third parties. The pleadings and the evidence being so, unfortunately, the learned trial Judge had observed in the Judgment, that the defendants would have used the tractor and its implements, for hire purpose, after using the same, for their agricultural purpose and therefore, it should be held that the loan was not for agricultural purpose. This observation as seen from paragraph-6 of the judgment appears to have been made, only on the basis of the argument advanced by the learned counsel for the plaintiff, not based upon any materials. The learned trial Judge has not only committed an error in accepting the argument, without evidence, but was also unfortunately carried on by the submission, as if the loan was not an agricultural loan. The view so taken by the learned trial Judge, does not find favour or support either from pleadings or from the oral evidence and therefore, we are of the considered opinion, that the loan was only for agricultural purpose and not for commercial transaction. To support the view, that the loan was utilised for commercial purpose, the learned counsel for the plaintiff also failed to bring to our notice, any part of the pleadings or evidence, so as to label this debt, as commercial one, to grant contractual rate of interest, even after the decree or after the filing of the suit, as the case may be. In the light of the above observation, concluding that the suit debt is an agricultural debt or in other words, it is not a commercial one, we have to see, what is the rate of interest that could be claimed by the plaintiff, prior to the filing of the suit and subsequent to the filing of the suit.
17. Section 21A of Banking Regulation Act 1949 (as amended) reads:
"Notwithstanding anything contained in the Usurious Loans Act, 1918 (10 of 1918), or any other law relating to indebtedness in force in any State, a transaction between a banking company and its debtor shall not be reopened by any Court on the ground that the rate of interest charged by the banking company in respect of such transaction is excessive".
thereby imposing a bar upon the Court, not to reopen the settled account. The effect of this section was considered by the Constitution Bench of the Apex Court in Central Bank of India vs. Ravindra . It is held at paragraph-53 as follows:
"As to capitalisation of interest charged on periodical rests this Court found the High Court of Karnataka having noticed that banks in India were not following a uniform practice and some banks charged interest with monthly or quarterly rests while others charged with yearly or six monthly rests and hence the Reserve Bank of India had to issue directives to bring about uniformity in that behalf. In conclusion this Court held that if bank was claiming interest in excess of that permitted by the circular/direction of the Reserve Bank, the Court could give relief to the aggrieved party notwithstanding Section 21-A to the extent of interest charged in excess of the rate prescribed by the Reserve Bank of India. A distinction was drawn between Court's power to interfere on the premise that the interest charged is excessive under the general law and Court's interference on the premise that the interest charged is in contravention of the circulars/directions issued by the Reserve Bank of India. In the former case it would not be permissible in view of the bar enacted by Section 21A of the Banking Regulation Act while in the latter case it would be permissible because of the Reserve Bank's circulars and directions having statutory force under Sections 21/35-A of the Act having been violated. The question whether interest charged in excess of the minimum rate of interest appointed by the Reserve Bank without fixing a ceiling and levying higher rate to be charged at the discretion of each bank can be treated as excessive and unconscionable and whether in such situation Section 21A would debar the Court from reducing the rate of interest to a reasonable limit was left open and undecided as the same did not arise in the case before the Court. However, it was made very clear that if the Reserve Bank has fixed the maximum rate of interest under 21/35-A of the Act any transaction charging interest within the limit so appointed would not be treated as excessive".
18. From the above observation, it is seen that despite Section 21-A of the Banking Regulation Act, 1949, if it is shown, that the interest charged is excessive and in contravention of circulars/directions issued by the Reserve Bank of India, the bar enacted by Section 21-A of the Banking Regulation Act would not come to the aid of the bank. In that case, the Court can go into the question and find out, whether any excessive amount has been charged by way of interest, violating circulars/directions issued by the Reserve Bank of India. In this case, it is not the case of the contesting defendant, that the plaintiff bank had violated the guidelines of the Reserve Bank of India or had collected penal interest, on interest and included the same in the principal amount. Neither in the pleadings nor in the evidence, no such case has been projected. Therefore, it should be safely concluded, that the plaintiff bank had claimed interest, as per the guideline or directions issued by the Reserve Bank of India. In this view, Section 21A of the Banking Regulation Act comes into operation and the Court cannot reopen the interest, already calculated, which interest has been capitalised, treating the same as principal sum. Therefore, the interest claimed by the plaintiff bank, prior to the filing of the suit, cannot be the subject matter of scrutiny and as such, the plaintiff bank is entitled to claim that amount, treating the same as principal also, as held by the Apex Court, in the above ruling.
19. The submission of the learned counsel for the appellant, that the plaintiff cannot charge contractual rate of interest, in view of Section 34 C.P.C., appears to be well founded, legally sustainable, seeking support from the ratio laid down by the Apex Court. As aforementioned, the loan was sanctioned by the bank, intended for the development of agricultural activities in that area, only for the agricultural purposes. Having this fact in mind, we have to apply Section 34 C.P.C.
20. The Apex Court in the above said ruling has observed as follows, in sub para 6 of paragraph-55:
"Agricultural borrowing are to be treated on a pedestal different from others. Charging and capitalisation of interest on agricultural loans cannot be permitted in India except on annual or six monthly rests depending on the rotation of crops in the area to which the agriculturist borrowers belong".
The above observation would indicate, even in case of agricultural borrowing, capitalisation of interest on agricultural loan is permissible, and the period alone is spread over. It is not the case of the appellant, that the plaintiff has claimed the interest at quarterly rest or monthly rest, as the case may be, thereby violating the ratio laid down by the Apex Court. It is further observed in the above ruling as follows:
"Award of interest pendente lite and post-decree is discretionary with the Court as it is essentially governed by Section 34 of the CPC dehors the contract between the parties. In a given case if the Court finds that in the principal sum adjudged on the date of the suit the component of interest is disproportionate with the component of the principal sum actually advanced the Court may exercise its discretion in awarding interest pendente lite and post-decree interest at a lower rate or may even decline awarding such interest. The discretion shall be exercised fairly, judiciously and for reasons and not in an arbitrary or fanciful manner".
Thus, it is made clear, the Court is competent to reduce the rate of interest, from the contractual rate, pendente lite and post decree interest at a lower rate or even refusing interest.
21. Section 34 of C.P.C. Reads:
"Where and in so far as a decree is for the payment of money, the Court, may, in the decree, order interest at such rate as the Court deems reasonable to be paid on the principal sum adjudged, from the date of the suit to the date of the decree, in addition to any interest adjudged on such principal sum for any period to the institution of the suit, with further interest at such rate not exceeding six per cent per annum as the Court deems reasonable on such principal sum, from the date of the decree to the date of payment, or to such earlier date as the Court thinks fit:
For the reasons assigned by us supra, the proviso to the above said section is not applicable. Section 34(1) gives, wide power and discretion to the Court, to award interest, as the Court deems reasonable to be paid on the principal sum adjudged from the date of the suit, to the date of the decree, in addition to further interest not exceeding 6 % per annum from the date of the decree to the date of payment, thereby indicating contractual rate is not applicable. The purpose of Section 34 is explained by the Apex Court as indicated above. In this view, the Court is competent to reduce the rate of interest, even from the date of filing of the suit, till the date of payment and to decide the same, we have to see whether the component of interest included in the suit claim is disproportionate with the component of principal sum actually advanced, as guided by the Supreme Court.
22. The total sum advanced to the appellant in this case is only Rs.60,000/- (10,000 + 50,000 in the year 1973 and 1975 respectively). As spoken by D.W.1 and as evidenced by Ex.A9, so far the first defendant had paid a sum of Rs.1,03,909.94. As seen from the statement of account (Ex.A9), the plaintiff bank charged a sum of Rs.1,00,110.99 as interest alone, for the principal sum of Rs.60,000/- Though the borrower had paid a sum of Rs.1,03,909.94, exceeding the principal amount, the debt remains undischarged, because of the heavy interest component. The bank had claimed interest, which is more or less double the principal amount, thereby showing that in the principal sum adjudged on the date of the suit, the component of interest is disproportionate, with the component of principal sum, actually advanced. The very purpose of loan, as claimed in the plaint itself is to encourage the agriculturists, and to develop the agricultural industry, to meet the requirement of the nation. Agriculturists of this nation, mainly depending upon the seasonal rain, which failed often, thereby depriving the agriculturist, their income, driving to starvation, compelling the Government to come to their rescue. Such an agriculturist, should be treated as a separate pedestal, different from others, as observed by the Supreme Court. The position being so, if the bank is allowed to claim interest at the contractual rate, for the agricultural loan, even after the filing of the suit, then it would amount to throttling the agriculturists, making them impossible to discharge the loan, thereby depriving the agricultural activities. In this view of the matter, we are of the considered opinion, that the rate of interest should be scaled down, from the date of filing of the suit and the plaintiff bank is not entitled to claim interest at 14%, being the contractual rate of interest, from the date of suit, till the decree amount is discharged.
23. The trial Court, without considering the effect of Section 34 C.P.C., as well as the purpose and nature of loan, directed the defendants to pay subsequent rate of interest at 14% per annum, which is not acceptable to us, for the foregoing reasons. In this view of the matter, to the above said extent, the decree and judgment of the trial Court are to be modified, thereby answering the points accordingly.
The result therefore is, the appeal is allowed in part, granting a decree in favour of the plaintiff, for a sum of Rs.82,613.85 with subsequent interest on Rs.73,968.55 at 6% per annum from 28.5.1986 till the date of realisation with costs in the lower Court. As far as this appeal is concerned, having regard to the facts and circumstances of the case, we direct the parties to bear their respective costs.