Andhra HC (Pre-Telangana)
Union Bank Of India And Ors. vs G. Shiva Reddy And Ors. on 21 June, 1999
Equivalent citations: 1999(3)ALT719
JUDGMENT B. Prakash Rao, J.
1. Since a common question of law arises in all these six appeals, they are heard together and are being disposed of by this common judgment.
2. A.S. No. 3242 of 1985 is filed by the Union Bank of India against the judgment and decree in O.S. No. 247 of 1982 dated 19-11-1983 on the file of the Subordinate Judge, Eluru, whereby the suit filed by the Bank claiming a sum of Rs. 15,178-45 on the basts of a pro-note, further advances and on the basis of an equitable mortgage was partly decreed. However, as regards the interest, by placing reliance on the judgment in Indian Bank, Alamuru v. Muddana Krishna Murthy, 1983 (1) ALT 357, the debt was scaled down and traced back under the provisions of the Andhra Pradesh (Andhra Area) Agriculturists Relief Act, 1938, Act 4 of 1938 (hereinafter referred to as the Act No. 4 of 1938).
3. A.S. No. 3511 of 1985 is filed by the Andhra Bank against the judgment and decree in O.S. No. 158 of 1982 dated 541-1984 on the file of the Subordinate Judge, Eluru whereby the suit filed by the Bank for recovery of Rs. 81,696-70 on the basis of a pro-note and also equitable mortgage in favour of the Bank was partly decreed by scaling down the interest under the provisions of Act 4 of 1938 by placing reliance on the judgment in M. Satyanarayana v. Andhra Bank Ltd., 1984 (2) ALT 285, 1984 (2) APLJ21 (SN).
4. A.S. No. 3231 of 1985 is filed by the Andhra Bank against the judgment and decree in O.S. No. 17 of 1980 dated 8-4-1985 on the file of the Subordinate Judge, Kovur whereby the suit filed by the Bank for recovery of Rs. 37,539-75 on the basis of a pro-note and equitable mortgage by deposit of title deeds was decreed partly by scaling down the interest under Act 4 of 1938 by placing reliance on the judgment in M. Srinivasa Rao v. The Andhra Bank Ltd., Eluru, 1984 (2) APLJ 290.
5. A.S. No. 3523 of 1985 is filed by the State Bank of India against the judgment and decree in O.S. No. 69 of 1982 dated 31-3-1984 on the file of the Subordinate Judge, Vizianagaram whereby the suit filed by the Bank for recovery of Rs. 35,392-98 with interest on the basis of equitable mortgage by deposit of title deeds was decreed partly by awarding interest at 11 1/2% per annum on the principal amount from the date of Ex.A-1 agreement.
6. A.S. No. 3405 of 1985 is filed by the Andhra Bank against the judgment and decree in O.S. No. 94 of 1981 dated 31-10-1984 on the file of the Subordinate Judge, Machilipatnam, Krishna District whereby the suit filed by the Bank for recovery of Rs. 35,808-75 was decreed giving the benefit of Act 4 of 1938 and scaling down the interest by placing reliance on the judgment in M. Satyanarayana's case.
7. A.S. No. 2655 of 1985 is filed by the State Bank of India against the judgment and decree in O.S. No. 368 of 1982 dated 29-3-1985 on the file of the Subordinate Judge, Vijayawada whereby the suit filed by the Bank for recovery of Rs. l,35,785-00 was partly decreed by scaling down the interest under the provisions of Act No. 4 of 1938.
8. The facts are not in dispute in all these matters and admittedly, the loans were advanced on the basis of hypothecation and mortgages and there is no serious contest with regard to the same. The Courts below relying upon the decisions as mentioned above have given the benefit of the provisions of Act No. 4 of 1938 to the respective defendants in the suits.
9. The main contention raised in support of the appellants is that in view of the subsequent decisions and the provision of Section 21-A of the Banking Regulation Act, 1949 (for short "the Act"), the question of scaling down of interest irrespective of the purpose for which the loans were advanced does not arise and the Banks are entitled to interest as per the contract entered into between the parties.
10. The said plea was resisted by the learned Counsel for the respondents-defendants and they contended that the defendants are entitled to the benefit of Act No. 4 of 1938 and the other debt relief legislations.
11. On the rival contentions, the only question of law that arises for consideration in these appeals is:
"Whether the benefit of Act No. 4 of 1938 is available to the defendants in respect of loans advanced by Banks?"
12. The Act No. 4 of 1938 was enacted for providing relief to the indebted agriculturists, as defined thereunder, by scaling down of interest and also debts. In all these cases, the loans were advanced to agriculturists and therefore, there is no dispute as to whether the defendants fall within the definition of agriculturists or not. As regards the applicability of the said legislation in respect of the loans advanced by the banks, earlier there have been different opinions expressed by this Court and also by the various other High Courts. However, in view of the amendment introduced to the Act by adding Section 21-A by the Amending Act 1 of 1984 with effect from 15-2-1984, a bar is created against reopening of the interest by the Courts in respect of transactions with the banking companies and its debtors. The said provision reads thus:
"21-A. Rate of interest charged by banking companies not to be subject to scrutiny by Courts:- 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."
13. After the introduction of the said amendment, again there have been some controversies giving rise to divergent opinions by the Courts. The constitutional validity of the said provision was also challenged and ultimately, the Supreme Court by its pronouncement in State Bank of India v. Yasangi Venkateswara Rao, 1999 (1) Supreme 196 upheld the constitutional validity of Sec. 21-A of the Act and held that the said provision applies to all types of loans which are granted by a banking company - whether to an agriculturist or a non-agriculturist. It was further held:
"Entering into mortgage is a matter of contract between the parties. If the parties agree that in respect of the amount advanced against a mortgage, compound interest will be paid, we fail to understand as to how the Court can possibly interfere and reduce the amount of interest agreed to be paid on the loan so taken. The mortgage of property is with a view to secure the loan and has no relation whatsoever with the quantum of interest to be charged.
14. A Full Bench of this Court had an occasion to consider the said pro vision in State Bank of Hyderabad v. Advath Sakru, (F.B.). In an elaborate judgment and after considering various decisions the Full Bench laid down as under:
(a) Section 21-A of the Act applies to all transactions entered into with the Banking Company and its debtor - whether it is prior to its introduction or thereafter;
(b) It applies to suits pending on the date of coming into force of the said provision and also to the pending appeals irrespective of the fact whether a decree was passed giving relief to the debtor or not; and
(c) There is no distinction between advances made for agricultural purpose or for commercial purpose and thus, it equally applies to both.
15. The Full Bench has followed the judgment of the Supreme Court in Bank of India v. Vijay Transport and overruled the decisions in Andhra Bank v. B. Narasamma 1987 (1) ALT 447 = 1986 (2) APLJ 165 and M. Satyanarayana v. Andhra Bank (2 supra). As regards the applicability of the Usurious Loans Act, 1918, the earlier judgments in Yogendranath Raj v. State Bank of India 1987(1) ALT 316, Central Bank of India v. Popuri Sarangaiah and Ors., ; Bank of Madhurai Ltd. v. M/s. Maddi Venkata Subrahmanyam, 1991 (1) ALT 225 and Kamal Prasad Jaiswal v. Punjab National Bank, New Delhi, AIR 1992 M.P. 545 were overruled.
16. The question on interest and its calculation has once again cropped up for consideration before the Supreme Court in Corporation Bank v. D.S. Gowda, , and on considering the provisions of the Act vis-a-vis the Mysore Usurious Loans Act, 1923, the apex Court has held that in respect of commercial transaction, awarding of interest by the Bank on the mortgage at quarterly or longer rests is perfectly admissible and as regards the agricultural advances made to the farmers, the circulars issued by the Reserve Bank of India have to be followed by charging interest once a year i.e., it does not permit the Banks to charge compound interest with quarterly rests.
17. Similar principles have been reiterated by this Court in Andhra Bank, Inkollu v. C. Sree Ramulu, 1993 (3) ALT 480, K.V. Appa Rao v. State Bank of India, and Andhra Bank, Bapatla v. Muvva Butchayya Choudhary and Anr., . Thus, on a conspectus of the above provision and the decisional law referred to above, the principles which ultimately emerge are:
(1) Section 21-A of the Banking Regulation Act, 1949 is constitutionally valid;
(2) The debt relief legislations like the Usurious Loans Act, 1918 or the Act No. 4 of 1938 does not apply to the banking transactions;
(3) The interest charged in pursuance of a mortgage transaction is valid;
(4) Section 21-A of the Banking Regulation Act, 1949 applies to all transactions prior to or after its coming into force;
(5) Section 21-A of the Banking Regulation Act, 1949 applies to all suits pending or to the appeals challenging the decrees which have already been passed in the suits; and (6) Interest in respect of agricultural transactions has to be only on the basis of yearly rests and not with quarterly or half yearly rests; whereas, in respect of commercial transactions, charging of interest with quarterly or any such longer rests is admissible.
18. In view of the above principles, it has to be held that the trial Courts went wrong in giving the benefit of Act No. 4 of 1938 and scaling down the interest.
19. The appeals, therefore, have to be allowed and the matters have to be remanded back to consider afresh keeping in view the principles laid down above on the awarding of interest. The evidence already on record does not call for any fresh enquiry. Accordingly, the appeals are allowed and the matters are remanded back to the trial Court to consider the same after giving opportunity to the parties within one month from the date of receipt of the orders. The Court fee paid on the appeals shall be returned to the appellants. There shall be no order as to costs.