Andhra HC (Pre-Telangana)
Union Bank Of India vs Jogi Mohan Rao And Ors. on 17 November, 1988
Equivalent citations: [1991]72COMPCAS325(AP)
JUDGMENT M.N. Rao, J.
1. This appeal by the plaintiff-Union Bank of India, Vijayawada, from the judgment and decree of the learned Subordinate Judge, Vijayawada, in O.S. No. 236 of 1979, raises the question as to the applicability of the proviso to section 3 of the Usurious Loans Act, 1918, as amended by Act VIII of 1937.
2. The parties in this appeal are referred to in their original character as they appeared in the court below. The first defendant borrowed a sum of Rs. 1,12,356 from the plaintiff-bank for doing abkari business. Defendants Nos. 2 to 4 are the guarantors. The second defendant, it was alleged, mortgaged the plaint schedule properties which comprise two houses, and the first defendant executed a promissory note, exhibit A-3, dated September 29, 1976, in respect of the amount borrowed. The contractual rate of interest is 15% with quarterly rests.
3. The second defendant filed a written statement specifically contending that the interest charged with quarterly rests was usurious and "opposed to public policy". He also pleaded that all the defendants are agriculturists and "they are entitled to the benefits of Act IV of 1938 and Act VII of 1977".
4. The third defendant in his written statement stated that he is an agriculturist eking out his livelihood only by agriculture. He also raised a plea that the interest charged was usurious.
5. Defendants Nos. 1 and 4 filed a memo adopting the written statement filed by the second defendant.
6. The evidence brought on record is meagre and sketchy. PW-1 is an officer of the bank. What all he stated is that banks are charging interest as per the directions of the Reserve Bank of India and that private money-lenders are charging more interest. In the cross-examination, he denied that the rate of interest charged in respect of the defendants was usurious. He had no personal knowledge as to the rate of interest prevailing in the market. The first defendant went into the box as D.W. 1 and asserted that he was an agriculturist owning Ac. 3-50 cents of land, that he has one brother and that he is not an income-tax assessee. He admitted that the loan was taken for abkari business and that he has no idea about the rates of interest charged by the private money-lenders.
7. Based on the aforesaid evidence, the learned judge granted a preliminary decree for Rs. 1,12,356 with interest at 12.5% per annum from the date of the promissory note exhibit A-3, dated September 29, 1976, till the date of the decree and at 6% per annum from the date of decree till the date of realisation. The learned judge held that as the first defendant is an agriculturist, the rate of interest charged was usurious, and, therefore, he was of the view that 12.5% simple interest in the circumstances would be just and proper. As regards the liability of the guarantors, the learned judge held that their liability could not be higher than that of the principal debtor and, in that view, held that the statutory benefit to which the first defendant is entitled should be extended to the other defendants also.
8. This appeal brought by the plaintiff-bank is confined only to the rate of interest allowed by the court below. Sri. T.S. Harinath, learned counsel for the plaintiff-appellant, contends that the statutory presumption under the proviso to section 3 of the Usurious Loans Act, 1918, hereinafter referred to as "the Act," is not attracted to the case on hand and, even if that presumption is attracted, the benefit should be confined to the first defendant only and the other defendants are liable to pay interest at the contracted rate. I am unable to agree.
9. The proviso to section 3, in so far as it is material for the purpose of this case, reads :
(The court) has reason to believe that the transaction was, as between the parties thereto, substantially unfair, the court shall exercise one or more of the following powers, namely :- .....
(ii) the Explanation to the same sub-section shall be renumbered as Explanation II thereof and the following shall be inserted as Explanation I, namely :-
Explanation I. - If the interest is excessive, the court shall presume that the transaction was substantially unfair; but such presumption may be rebutted by proof of special circumstances justifying the rate of interest;
(iii) to clause (b) of sub-section (2), the following proviso shall be added, namely :-
Provided that, in the case of loans to agriculturists, if compound interest is charged, the court shall presume that the interest is excessive."
10. If the debt is contracted by an agriculturist in which compound interest is charged, the aforesaid statutory provision clearly lays down that the court shall presume that the interest is excessive. The specific plea taken by defendants Nos. 2 and 3 in their written statements is that all the defendants are agriculturists. In his evidence, DW-1, the first defendant, has specifically stated that he is an agriculturist and that he owns 3.50 cents of land. He asserts that he is not an income-tax assessee. No evidence was adduced by the bank to rebut this presumption. The contracted rate of interest is 15% compound interest with quarterly rests. A Division Bench of this court in the case of Yogendranath Raj v. State of Bank of India [1987] 1 APLJ 419; [1988] 63 Comp Cas 405 held that charging of compound interest is excessive. It is clear from the evidence of the first defendant that he is an agriculturist and, therefore, there is no possibility to entertain any doubt that his principal calling is not agriculture. At any rate, no questions were put in the cross- examination of the first defendant as to his other sources of income. There is no evidence that prior to exhibit A-3, the suit promissory note, the first defendant had borrowed any amounts from the bank for abkari business. It appears from the evidence on record that, for the first time, the first defendant had borrowed money from the bank for doing abkari business and unless it is established that his main calling is abkari business, there is no warrant for the inference that the rate of interest charged was not excessive.
11. Relying upon a decision of the Madras High Court in Subramanian v. Batcha Rowther, AIR 1942 Mad 145, Sri Haranath, learned counsel for the plaintiff-appellant contends that the sureties, namely, defendants Nos. 2 to 4, are not entitled to the benefit of the reduced rate of interest granted by the court below. I am unable to accept this contention. In the Madras case, after the transaction was concluded, the Madras Agriculturists Relief Act came into force as a result of which the principal debtor got benefit to a certain extent, and so far as the surety who was not an agriculturist was concerned, it was held that he was not entitled to the benefit. The basis for that conclusion is (at page 146) :
".... when a new statutory provision has had the effect of granting a partial discharge to the principal debtor and the creditor has taken no part in releasing the principal debtor from his liability, the remedy of the creditor against the guarantor will not be affected."
12. That principle has no application to the present case since long prior to the transaction in question the Act was on the statute book.
13. The last contention advanced by Sri Harinath, learned counsel for the appellant is that section 21A of the Banking Regulation Act, 1 of 1984 saves the transactions concluded by banking companies from debt relief laws and, therefore, the scaling down of the interest by the court below must be set aside. Considering this aspect, a Division Bench of this court in Yogendranath Raj's case [1988] 63 Comp Cas 405 held that section 21A cannot take away the benefit already granted by courts before that provision came into force. The Division Bench held (page 426) :
"Having regard to the object and the purpose underlying the Usurious Loans Act and the Madras amendment thereto, we are of the opinion that the court should be inclined to sustain and continue the said relief, unless that statute says to the contrary, either expressly or by necessary implication. We may also mention in this behalf that the percentage of loans granted to agriculturists in this country is very small compared to the loans granted to industrial and business concerns."
14. For these reasons, the appeal fails and it is, accordingly, dismissed but in the circumstances without costs.