Karnataka High Court
Bank Of India vs Karnam Ranga Rao And Ors. on 27 November, 1985
Equivalent citations: [1988]64COMPCAS477(KAR)
Author: K. Jagannatha Shetty
Bench: K. Jagannatha Shetty
JUDGMENT
K. Jagannatha Shetty, Act. C.J.
1. This appeal has been preferred against the judgment and decree dated Septtember 15, 1984, passed by the Civil Judge, Hospet, in O.S. No. 45 of 1984.
2. It was suit instituted by the Bank of India ("the bank") which is the appellant herein, for recovery of a sum of Rs. 30, 564 which was said to be the amount due and outstanding from defendants Nos. 1 and 2 on the loan of Rs. 10,000 granted to them for raising sugarcane crop. Defendant No. 3 guaranteed repayment of the loan executing a letter of guarantee. The document exchanged between the parties seem to suggest that defendants Nos. 1 and 2 were liable to pay interest at the rate of 4 per cent above the rate prescribed by the Reserve Bank of India subject to the minimum of 13 per cent. with quarterly rests. The bank, however, has charged only half-yearly rests and also claimed at the same rate in the suit.
3. Defedants, while admitting the loan taken, however, denied their liability to pay interest with quarterly rests on the ground that the loan was for agricultural purpose and the bank, by a settled practice, has no right to charge periodical compound interest. They also prayed for grant of installments to repay the loan in five equal annual installments.
4. On the basis of the pleadings, the trial court framed the following issues:
(1) Whether the plaintiff was not entitled to charge compound interest?
(2) Whether the defendants are entitled for five equal annual installments?
5. The parties did not produce oral evidence, perhaps in view of the fact that the defendants did admit the loan transaction. Defendant No. 3 remained ex parte. The documents produced by the bank were marked as exhibits P-1 to P-15. Exhibit P-1 is the demand promissory note date April 29, 1976, for Rs. 10,00 payable with interest at the rate of 4 per cent. per annum above the Reserve Bank of India rate subject to the minimum of 13 per cent with quarterly rests. Exhibit P-2 dated April 29, 1976 is a letter acknowledging the debt and the liability to pay. Exhibits P-3 is a letter of lien and set off. Exhibit P-4 is the hypoothecation deed in regard too the standing crop. Exhibit P-5 is the guarantee boons by defendant No. 3. Exhibits P-6,P-7 and P-9 are acknowledgments if debt and securities regarding the amount due at that time. Exhibit P-8 is an acknowledgment of debt undertaking to pay interest at the revised rate subject to a minimum of 15 per cent with half-yearly rests. The other document are not relevant except exhibit P-14 which is the account extract of the bank.
6. The trial court, after considering the contentions urged and the documents produced, held:
"...It was been well settled now that for agriculture loans in India, the concept of quarterly rests basis, i.e. charging of compound interest, does not apply. That being so, the plaintiff would not be entitled to charge compound interest on the loan amount advanced to defendants Nos. 1 and 2...."
7. With that conclusion, the court directed the bank too submit a revised statement of account charging simple interest on the amount due. Accordingly, the bank submitted a revised statement determining Rs. 19,851.66 as sum due from the defendants. The court then decreed the suit for the said amount with future interest at 6 per cent payable in two annual instalments.
8. The question raised by this appeal is of general nature and it relates to the right of the bank to charge compound interest on agricultural advances. Similar questions have been raised in a large number of appeals pending in this court and subordinate courts. The question, though reeks of simplicity, is not easy of solution. In order to reach a satisfactory conclusion on the question, this court by order dated January 16, 1985, issued notice under Order 1, rule, rule 8, of the Code of Civil Procedure, to the Reserve Bank of India to inspect the account concerned in this case and submit a report. As per the direction, the account have been inspected and a re[port dated June 7, 1985, has been submitted. The officer who submitted the report also appeared before this court on July 18, 1985, along with Mr. Krishna, the legal adviser of the Reserve Bank of India at Bombay. Both of them explained the matter and assisted the court with reference to the directives issued by the Reserve Bank of India. The report has been taken on record since the bank has no objection.
9. The report submitted by the officer of the Reserve Bank, inter alia states that the bank has debited interest to the crop loan account thrice before the due date of repayment of the loan also compounded the interest. But compounding of interest on current dues on agricultural advances has been prohibited by the circulars of the Reserve Bank. The bank, however, could add interest outstanding to the principal and compound the interest when the crop loan becomes overdue keeping in view what has been stated in the circular dated March 14, 1972. As such, the bank compounding of interest at half-yearly intervals after the loan amount has become overdue cannot be question. As per the Reserve Bank directive dated February 28, 1978, banks should charge interest with quarterly or longer rests. The interest charge by the bank with half-yearly rests was, therefore, in compliance with the instructions contained in the directive.
10. The essential question we have to decided is whether the bank was justified in charging interest with half-yearly rest of the agricultural loan amount due and outstanding from the defendants.
11. It is first convenient to understand the meaning of the term "rest" which is the exclusive preserve of the banks. In Stride's Judicial Dictionary the meaning of "rest" has been give given as follows " A rest, in taking an account is a pause at which the net balance between receipts and expenses is ascertained, so that interest may abated or charged according to the finding e.g. as between mortgage in possession and his mortgagor..."
12. In Page's law of Banking, 132, there is a reference to the meaning of "rest" given by Lord Atkinson in Yourell v. Hibernian Bank Ltd. [1918] AC 372 (HL) in the following terms (at page 385).
" The bank, by taking account with these half-yearly rests, secured for itself the benefit of compound interest. This is a usual and perfectly legitimate mode of dealing between bankers and customer."
13. This court in State bank of Mysore v. Official Liquidator [1967] 10 Mys LR 767 observed (at page 781) :
When the accounts were to be taken with annual rests, it would necessarily mean that the balance of pervious year would constitute as principle for the next year and interest would be charge on that amount."
14. With regard to the right or custom of banks to charge compound interest on agricultural advances, we have a trilogy of case of this court. It is better that we examine the principles laid down in those decisions before we consider the question raised in this appeal.
(i) The first case on the point is Bank of India v. Raosaheb Krishnarao [1980] 2 KLJ 495. There the State Bank of India charged interest with quarterly rests on an agricultural loan. This court, mainly relying upon a passage from Page's Law of Banking 8the edition 1972, observed that the custom of charging compound interest by bank would be normally applicable in the matter of overdraft facilities only and that too, when there is existence of relationship of banker and customer. But such a custom has no application to loan advances on the security of properties. Sabhahit J. speaking for the Bench, observed:
" Compound interest or the practice of quarterly or half-yearly rests is something stage to agricultural financing where the loans are either short-term, middle-term or long-term. Short-term financing is done for growing the annual crops. They are termed as `crop loans'. Middle-term financing is done for improvements in the lands and he period would be about three years to five years. Long-term financing is given for clear-ing off of old debts and for the long-term investments. That being so, in agricultural financing, the question of the normal commercial banking conditions as in overdrafts would not come into play and the bank `custom' and habits which are usual in the case of commercial banking cannot be smuggled into agricultural financing."
15. On a consideration of evidence adduced in that case, the learned judge also held that there was not agreement to charge compound interest on the loan taken.
(ii) The next case in point of date is D.S. Gowda v. Corporation Bank [1985] 57 Comp Cas 49 (Kar). It was not a case concerned with agricultural advance. The loan concerned in that case was for a commercial purpose and the interest charged thereon was with monthly and quarterly rests. This court examined the customary practice of banks to charge compound interest monthly or quarterly on advance and also incidentally considered the right of banks to charge such interest on agricultural loans under the directives of the Reserve Bank of India. On the first question as to customary practice, it was observed (at page 65):
" It is thus clear that the ordinary practice or custom of banks was only to charge interest with yearly rests and that too only on overdraft amount and unsecured loans. The monthly or quarterly rests, therefore, does not appear to be the recognised banking practice. It may be that some banks, as in the present case, might have charge interest with quarterly rests or monthly rests on some transactions, but to state that it was a banking practice generally accepted or universally followed by all banks, in our opinion, is far from truth."
16. On the second question, this court, after examining the various directives and circulars issued by the Reserve Banks under section 21 of the Banking Regulation Act, 1949, observed that the directives and circulars do not support the right claimed by commercial banks to charge interest with monthly or quarterly rests on agricultural advances.
17. On other prominent question also came up for consideration in D.S. Gowda's case [1985] 57 Comp Cas 49 (Kar). That is with regard to the power of courts under the usury enactment to give relief to a debtor in distress, if the interest charged by the bank is found to be excessive or unreasonable. This court, in that context, dealt with the general guidelines issued by the Reserve Bank as to the rate of interest to be charged by commercial banks and also the power conferred on courts under the Usurious Loans Act. It was held that courts courts could, in appropriate cases analyse the loan transaction and the components of the interest charged to find out whether the totality of interest collected was excessive or unreasonable. It was also held that the directive of the Reserve Bank regulating the of interest to be charged by commercial banks do not imping upon the courts powers to give relief to a debtor under the Usurious Loans Act.
18. The decision in D.S. Gowda's case [1985] 57 Comp cas 49 ((Kar) is under appeal before the Supreme Court. In the meantime, Parliament`has amended the Banking Regulation ct. Section 21A has been inserted in that Act by the Banking Law's (Amendment Act, 1983 (Act No. 1 of 1984).
19. Section 21A provides:
Rates of interest charged by banking companies not to be subject to scrutiny by courts. Notwithstanding anything contained in the Usurious Loans Act, 1918, or 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."
20. The scope of this section was considered by this court in Krishna Reddy v. Canara Bank, , where the conclusion was expressed (at page 231):
" The mandate of this section is that courts cannot reopen the account relating to a transaction between a banking and its customer on the ground that the rate of interest charged, in the opinion of courts, is excessive or unreasonable. The courts, in other words, cannot exercise jurisdiction under the purpose of giving relief to any party. This appears to be intent of the Legislature in enacting the banking Laws (Amendment) Act, 1983.
Section 21A has, however, no bearing on the jurisdiction of court to give relief to any aggrieved party when it is established that the bank in a particular case has charged interest in excess of the limit prescribed by the Reserve bank of India .... If, in any case, it is proved that the bank has charged interest in violation of the direction of the Reserve Bank, the court could gone relief to the aggrieved party withstanding section 21A of the Banking Regulation Act. The interest charged beyond the rate prescribed by the Reserve Bank would be illegal and void."
21. It was also reiterated that the bank cannot charge interest with quarterly rests on agricultural advances.
22. The principles stated in the above decision may be summed up as follows:
23. The court cannot reopen any account maintained by banks relating to transactions with its customers on the ground that the rate of interest charged, in the opinion of courts, is excessive or reasonable, Section 21A of the Banking Regulation Act is a restraint on such power of courts. However, in any case, if it is proved that the interest charged by banks on loans advanced is not in conformity with the rate prescribed by the Reserve Bank, then the court could disallow such excess interest and give relief to the party notwithstanding the provisions of section 21A. Banks are bound to follow the directives or circulars issued by the Reserve Bank prescribing the structure of interest to be charged on loans and any interest charged by banks in excess of the prescribed limit would be illegal and void. Banks cannot charge compound interest with quarter rests on agricultural advances.
24. In the present case, although the terms of the advanced to the respondent authorised the bank to charge interest with quarterly rests, the banks, however, has charged interest only with half-yearly rests. Mr. Govinda Bhat, Counsel for the appellant bank, therefore, has a two-fold submission. Counsel, while justifying the interest charged with half-yearly rests, also contended that the directives of the Reserve Bank imposed no constraint on commercial banks from charging interest with periodical rests, quarterly or half-yearly. On the contrary, according to counsel, it will be obligatory for banks to charge interest with quarterly or longer rests. In support of the contention, he depended upon the following five circulars/directives issued by the Reserve Banks relating to charging of interest on agricultural advances:
Circular I dated March 14,1972 Circular II dated October 5, 1974 Circular III dated March 13, 1976 Circular IV dated August 17, 1976 Circular V dated February 28, 1978
25. We will examine these circular in turn:
Circular I, dated March 14, 1972: of the circular above mentioned, circular I is by far most important. it has a decisive bearing on the question that falls for determination in this case. It is, therefore, necessary to analyse the circular in detail. Paragraph (1) of the Circular reads:
" CHARGING OF INTEREST ON AGRICULTURAL ADVANCES There is at present no uniformity in the manner of charging interest on the various types of agricultural advances by blanks. Although interest is compounded at monthly, quarterly or half yearly rests on advances, such a system of compounding in the case of agricultural advances may not be suitable. The agriculturists do not have any regular sources of income other than the sale proceeds of their crops. They will not, therefore, be in a position to pay interest at usual fixed intervals."
26. Paragraph (2):
" Having regard to the special characteristics of agricultural finance, banks are advised too bear inn mind the following principles in the matter of application of interest on such advances.
(i) Repayment period of agricultural advances, whether short-term or medium-term, should be so fixed as too coincide with the period when the farmer is fluid, i.e. after harvesting and marketing of his crops. Payment of interest should also be insisted upon only at the time of repayment of loan/installment so fixed.
(ii) Interest on current dues should not be compounded.
(iii) When crop loans or installments under medium-terms loans become overdue, banks can add interest outstanding to the principal and compounded the interest keeping in view what has been stated in paragraph (1) above."
27. Paragraph (3):
"Subject to the observance of the above principles, banks may adopt suitable accounting procedures in the matter of charging interest on agricultural loans."
28. Paragraph (3), which is the last paragraph of the circular, allows liberty to banks to adopt suitable accounting procedures for charging interest on agricultural loans. What are those suitable accounting procedures contemplated by the Reserve Bank? It is not far to seek. The circular itself provides enough guidelines for banks to determine the mode of charging interest.
29. Paragraph (1) of the circular deprecates the tendency of banks in charging compound interest on agricultural loans at usual fixed intervals at monthly, quarterly or half-years rests. It expressly states that such a system in the case of agricultural advance may not be suitable. It also gives reasons why such a system is not suitable for agriculturists. It recongnises the economic condition of the agriculturists. it states that the agriculturists do not have any regular source of income other than the sale proceeds of their crops.
30. Paragraph (2) again provides general guidelines for application in the matter of charging interest on agricultural advances. It begins with a statement that agricultural finance has special characteristics. It advises banks to bear in mind the principles set out thereunder in sub-paras (i) and (iii).
31. Sub-para (i) states that repayment period of agricultural advances whether short-term or medium-term should be so fixed as to coincide with the period when the farmer is fluid, that is, when the farmer gets cash on the sale of his crops. It further states that payment of interest should also be insisted upon only at the time of repayment of loan or installment so fixed.
32. Sub-para (ii) prohibits compounding of interest on current dues.
33. Sub-para (iii), however, allows some discretion to banks to charge compound interest keeping in view what has been stated in para (1) of the circular.
34. Mr. Bhat, after referring to the content of circular I, explained its meaning in his own characteristic style. He urged that what has been prohibited by the circular is only compounding of interest on current dues and not the right of banks to charge compound interest with periodical rests when the loan becomes overdue. Such periodical rests, according to counsel, must be quarterly and above.
35. The first part of the submission is obvious and causes no difficulty Sub-para (ii) of para (2) of the circular expressly directs that interest on current dues should not be compounded. The bank, however, has charged compound interest in this case on current dues. It is clear from the report of the Reserve Bank. It only shows that even an obvious directive is not followed by the bank. The interest charged on current dues is illegal and must be disallowed. The second part of the contention appears to be ingenious, but it overlooks the indwelling and inherent reasons underlying Circular I. The circular, no doubt, permits banks to charge compound interest. There is indeed no dispute as to the right of banks to charge compound interest when the loan becomes overdue. The dispute is only as to the interval at which the interest could be compounded.
36. In order to understand the real object purpose of circular I, we must know the problems internal to agriculture and also the importance of agriculture in national development. it is only then we would be able to determine the interval at which the bank could charge compound interest on agricultural advances.
(i) Agriculture continues to account for over 40 per., of the real gross domestic product on which about three-fourths of the country's population depends directly or indirectly for its living. Its contribution to income growth and distribution of that come, therefore, affects the living conditions of the vast majority of our people.
(ii) In the first place, agricultural production is seasonal: most producers are forced to sell immediately after, or even before the harvest, to meet essential living expenses or to repay debts. Secondly, it is not possible to adjust production perfectly to demand in view of the uncertainties of weather and yields. The actual production turns out mostly to be, if not always, shorter than the demand. Thirdly, any excess production being down the prices disproportionately, leading to a realisation of a smaller sum to farmers. A informally goods crop all over the area outstripping the demand may also equally be bad for them.
(iii) In may part of India, prices of paddy and other produce just after the harvest are barely half of those prevailing 4 to 5 months later. where the commodity market are narrow, such price fluctuations are often mangnified be speculative activities of some traders who try to corner all the stock. The result is again a servers hardship for the farmers and they may sometimes be ruined if there is resistance by the consumers of shift by the consumers to other products.
(iv) In the absent of regulated trading, a variety of malpractices plague the farmers, middlemen and money-lenders have used their position of strength to charge high commissions. There are also malpractices in weighing and payment. (See Agricultural Development in India by P. v. Shehoi, Page 107).
(v) In our country, 80 per cent, of our village are not connected with any market by pucca all-wheather roads. The farmers naturally cannot take their produce for sale to remunerative market due to absence of road and transport facilities (bid page 112).
(vi) Generally, most of the farmers, unless their lands are located within the atchkat area of any irrigation project, have to depend upon the vagaries of climate. Their intercepted showers do not come always in time. Good seasonal conditions which are a sine quo noon of the economic prosperity of the farmers is more often than not their distant dream. If there is no proper seasonal distribution of rainfall, the farmers would be hard put even to eke out there living. The common experience in the recent paste is that even the area which is well-favored by nature, cannot be sure of early rains. If there are more rains, they face calamities of floods in the rivers and streams.
(vii) The plough animal of the farmers is still the bullock which continues to be the main sources of power for cultivation. Their other possessions are cows, sheep, goats and poultry. They are more often exterminated by common contagious disease like black-quarter, haremorrhagic specticamia, anthrax, parasitic diarrhoea, sheep-pox and rinderpest, etc.
37. These are the problems of persons who feed the nation. They have too live with these problems throughout their life. That is why, in our opinion, the Reserve Bank, by Circular I, expresses special concern for the farmers. it states that the system of compounding interest with periodical rests like monthly, quarterly or half-yearly, may not be suitable in the case of agricultural advances. Circular I also sets out the reason why such a system of close periodical rests may not be suitable It expressly states that the farmers do not have any regular sources of income other than the sale proceeds of their crops. the circular then states.
" They will not, therefore, be in a position to pay interest at usual fixed intervals."
38. The usual fixed intervals, in the context, means monthly, quarterly or half-yearly, which are applicable commercial loans.
39. There is one other reason assigned by the Reserve Bank. Bank have also been advised to fix the repayment so as to coincide with the period when the farmer is fluid. The repayment period of loan is required to be fixed when the farmer gets cash by sale of his crop. Generally, the farmers do not get cash continuously or continually. If everything goes on well and nature smiles on them, they get cash only once in a years. It is only when they gets cast, they will be able to repay the loan or the interest thereon. There is , therefore, no point in saddling them with compound interest calculated at close intervals, when they do not get cash from their produce. Banks should maintain the deliberate distinction sought to be drawn between commercial loans and agricultural advances. if the same system of compounding interest is also to be made applicable to agriculture advances, circular I, in or opinion, would be totally uncalled for an unnecessary. Banks, therefore, should not charge interest with monthly, quarterly or half yearly rest in the case of agricultural advises. This is the only purposesful reasonable interpretation of circular I which we could of to effectuate the intention of the Reserve Bank.
40. Circular II, dated October 5, 1974 (charging of interest on agricultural advances): By this circular, the Reserve Bank has reiterated that interest on current dues in respect of agricultural advances should not be compounded and it has accordingly directly all asking institution to suitably advise their branches to follow instructions given under notification dated March 14, 1972.
41. Circular III, dated March 13, 1976: this is general circular issued under section 21 of the Banking Regulation Act, 1949, prescribing the rate of interest at not more than 16.50 per cent annum with quarterly rests. It seems to suggest that it would be obligatory for banks to charge interest at 16.50 per cent. with quarterly rests, but it has no reference to the interest to be charged on agricultural advances. So, circular IV, dated August 17, 1976, was issued by the Reserve Bank clarifying the cession in regard to payment of interest on agricultural advances.
42. Circular IV, dated August 17, 1976: This as been addressed to all scheduled Commercial banks it reads:
"Dear Sirs, METHOD OF CHARGING INTEREST ON AGRICULTURAL ADVANCES Please refer to our directive DBOD NO. DIR B.C. 30/C 96-76, dated 13the March, 1976, stipulating the maximum rate of interest that could be charge on loans, advances, etc., by scheduled commercial banks. It was been stated therein that interest shall be charged with quarterly rests. It is clarified that this aspect of the directive will not apply to agricultural advance in respect of which the instruction issued in our letters No. Nat 389/C 453 (A)-72, dated 14the, 1972 and No. B.P. B.C. 107/C. 453 (A)-74, dated 5the October, 1974 will continue to prevail In other words, payment of interest on agricultural advances should be insisted upon only at the time of repayment of principle /installment of principle and interest on current dues should not be compounded.
Your faithfully, Sd. P.N.Khanna, Chief Officer."
43. It will be seen from the above directive that charging of interest with quarterly rests shall not apply to agricultural advances and Circular I will continue to govern such transaction. Circular IV also reiterates that payment of interest on agricultural advances should be insisted upon at the time repayment of principal/installment of principal, and interest on current dues should not be compounded.
44. Circular V, dated February 28, 1978: This circular has been mis construed by banks and also by the of the Reserve Banks who has submitted a report in this case. This circular was issued in supersession of circular III, dated March 13, 1976. All that has been done by this circular was to reduce the maximum rate of interest prescribed under circular III. It has been reduced from 16.50 per cent. to 15 per cent. So far as compounding of interest is concerned, it has been directed that interest shall be charged with quarterly or longer rests. But this direction cannot have any application to agricultural loans. Circular III, which has been clarified by circular IV, makes it clear that charging of interest with quarterly rests shall not apply too agricultural advances, and circular I alone shall apply too agricultural advances. Circular v, while replacing circular III, was not intended to supersede Circular I and II. It is too much presume that the Reserve Banks has directed the commercial banks to compulsory interest with quarterly or longer rests even in the case in the case of agricultural advances. Such an interpretation would nullify all that has been stated in Circulars I and II. There is nothing even impliedly to suggest in circular V that Circular I and II have been modified or superseded. It is therefore, futile to contend that it would be obligatory for banks to follow circular V even in regard to agricultural advances.
45. Circular VI, dated September 15, 1984: This is yet another circular issued by the Reserve banks to all scheduled commercial banks with a glib restatement of the general guidelines laid down by the aforesaid circulars. It contains instructions regarding the procedure for charging interest on all loan accounts and not exclusively pertaining to agricultural loans. The relevant portion of the circular reads:
"Dear Sir, Compounding of interest by commercial banks.
As you are aware, the Reserve banks of India has issued the following guidelines to commercial banks regarding the procedure for charging interest on loan accounts.
(a) Banks can charge interest on loan accounts at quarterly or longer rests.
(b) In respect of direct agricultural advances, banks should not compound the interest in the case of current dues, i.e. crop loans and installments not fallen due in respect of term loans, as the agriculturists do not have any regular source of income other than sale proceeds of their crops.
(c) When crop loans or installments under terms loons become overdue, banks can add interest outstanding to the principal .
(d) Where the default is due to genuine reasons, banks should extend the period of loan or reschedule the installments under terms loan. Once such a relief has been extended, the overdues becomes current dues and banks should not compound interest.
We shall be glad if you will let know early, say by 29the September, 1984, after verification, if necessary, with you divisional or regional offices of the practices following for charging interest, the extent to which they differ from the advice given and the reason for the same.
Yours faithfully, Sd. (J.R. Prabhu) Joint Chief officer."
46. There is a marked difference between clauses (a) and classes (b) to (d). Clause (a) apparently does not deal with the matter covered under clauses (b) to (d). It becomes clear when we turn to clause (b) which begins "in respect of agricultural advances..." That clause (a) refers to loans other than agricultural advances. It has obvious reference too circular V. Secondly, circular VI was not issued in supersession of circulars I and II and, therefore, we cannot accept the contention the clause (a) of circular VI also applies to agricultural advances.
47. To sum up the above discussion: The circulars /directives of the Reserve Bank direct that agricultural advances should not be treated on par with commercial loans in the matter of application of the system of compounding interest. That the farmers do not have any regular sources of income other sale proceeds of their crops is an acknowledged fact. They get income generally only once a year. They are, therefore, not in a position to pay interest at usual fixed intervals like monthly, quarterly and half-yearly. Banks should not compound interest on current dues. Banks should not also charge interest with monthly, quarterly or half-yearly rests on overdue loans. Perhaps, it may not be illegal to charge interest with years rests.
48. Before we part with this case, we should make it clear that the conclusion that we have reached is only in the light of the circulars/directives of the Reserve Bank of India. The said circulars/directives have not been considered by this court in bank of India v. Raosaheb Krishnarao [1980] 2 Kar LJ 495. That case proceeded solely on the basis of the customary practices of banks. But, banks in India are now governed by the banking Regulation act and the circulars/ directives issued thereunder.
49. In the result, the appeals fails and is dismissed. In the circumstance of the case, we make not order as to costs.
50. Order on oral application for certificate to appeal to the Supreme Court:
51. Mr. Govinda Bhat, learned counsel for the appellant, seeks a certificate for appeal to the Supreme Court.
52. In our opinion, this does not involve any substantial question of law of general importance which to be decided by the Supreme Court,.
53. Certificate prayed for is, therefore, refused.