Madras High Court
S.Ramachandran vs Union Of India on 20 September, 2022
Author: N. Sathish Kumar
Bench: N. Sathish Kumar
W.P.No.4061 of 2012
IN THE HIGH COURT OF JUDICATURE AT MADRAS
DATED: 20.09.2022
CORAM:
THE HONOURABLE MR.JUSTICE N. SATHISH KUMAR
W.P.No.4061 of 2012
&
M.P.No.2 of 2012
S.Ramachandran
Proprietor
M/s. Pratheba Gashion
SF 315, 316, Vengamedu
11, Chettipalayam Main road
Angeripalayam Post,
Tiruppur-641 603 ... Petitioner
Vs.
1.Union of India
Rep by its Secretary to Government
Ministry of Finance
Department of Finance
New Delhi.
2. The Reserve Bank of India
Rep by its Chief General Manager
Fort Glacis, Rajaji Salai
Chennai-600 001
3.HDFC Bank Limited
rep by Branch Manager
Tiruppur Branch
Tiruppur ... Respondents
PRAYER: Writ petition filed under Article 226 of the Constitution of India
________
https://www.mhc.tn.gov.in/judis
Page 1 of 16
W.P.No.4061 of 2012
praying to issue a Writ of Declaration declaring the impugned circular of the
second respondent bearing Ref. RBI/2006-07/14 DBOD.
Dir.BC.5/13.03.00/2006-07, dated 01.07.2006 as illegal and unconstitutional
and opposed to public policy.
For Petitioner : Mr.T.Saikrishnan
For Respondents : Mr.K.S.Jeya Ganesan, SPC for R1
Mr.T.Poornam for R2
Mr.K.Rajasekaran for R3
ORDER
Writ Petition has been filed challenging the impugned circular of the second respondent bearing Ref. RBI/2006-07/14 DBOD. Dir.BC.5/13.03.00/2006-07, dated 01.07.2006 as illegal and unconstitutional and opposed to public policy.
2. The main ground on which the challenge is made to the circular is that the circular retrospectively directs all the banks to charge compound interest at monthly interest and also prescribing minimum rate of interest. According to the petitioner the rate of interest should be reasonable and the very concept of capitalization is only for the deterrent effect and not for ________ https://www.mhc.tn.gov.in/judis Page 2 of 16 W.P.No.4061 of 2012 unjust enrichment of the lenders. The impugned circular leads only to unjust enrichment and it mandatorily directs all the Banks to be Shylocks and as such it is opposed to public policy. The impugned circular is violative of Article 14 of the Constitution of India and 19(1)(g) of the Constitution of India and seeks to quash the impugned circular issued by the 2nd respondent.
3. Learned counsel for the 2nd respondent would submit that the Writ Petition is not maintainable as Reserve Bank of India, which is banker's bank, is creature of statute. It has large contingent of expert advice relating to the matters affecting the economy of entire country and nobody can doubt the bona fides of the Reserve Bank, in issuing the impugned directions and as per Sec.21 of the Banking Regulation Act, 1949, the Reserve Bank would control the banks.
4. The allegation that the interest rates at monthly rests are made applicable retrospectively is beyond truth and denied. The instructions in respect of charging of interest rates at monthly rests were issued to all scheduled commercial banks by the Reserve Bank in view of the circular dated March 9, 2002, wherein the banks were advised to move over to ________ https://www.mhc.tn.gov.in/judis Page 3 of 16 W.P.No.4061 of 2012 charging of interest on loans/advances at monthly rest with effect from 01.04.2002.
5. Learned counsel for the petitioner submitted that penal interest has been applied under the pretext of above circular. Practice of charing interest on compound interest will lead to changing interest even on monthly rests and capitalizing the same. Therefore, according to him the circular is violative of Art. 14, 19(1) (g) and 21 of the Constitution of India. In support of his submissions, learned counsel relied on the judgment of the Hon'ble Supreme Court in the case of Central Bank of India Vs. Ravindra and Others, (2002) 1 SCC 367.
6. Learned counsel appearing for the 2nd respondent would submit that circular has been issued taking note of the functioning of the banks and economy as a growth and only on the advice of the expertize the circular has been issued and the Writ Court has no jurisdiction to interfere with the same. In support of his submissions, learned counsel relied on the judgment of this Court in the case of Deccan Chronicles Holdings Limited vs. Union of India, (2014) 4 MLJ and the case of Peerless General Finance and ________ https://www.mhc.tn.gov.in/judis Page 4 of 16 W.P.No.4061 of 2012 Investment Co.Ltd vs. Reserve Bank of India, AIR 1992 SC 1033.
7. Heard the learned counsel for the petitioner and the learned counsel for the respondents and I have perused the entire materials.
8. The main challenge is the circular, which according to the petitioner directs the banks to retrospectively apply the interest in a monthly rests and the same has been regularized by the Reserve Bank of India. It is the contention of the RBI that only the banks are adviced to move over for changing of interest on loans with monthly rests with effect from 01.04.2002. Therefore, the contention that there is a direction to apply retrospective interest is misconceived. What was issued is only a direction to switch over to the monthly rests. Though much emphasis is made the judgment of the Hon'ble Apex Court reported in (2002) 1 SCC 367, Central Bank of India Vs. Ravindra and Others, wherein paragraph 55, it is held as follows:
“......
55. During the course of hearing it was brought to our notice that in view of several Usury Laws and Debt Relief Laws in force in several States ________ https://www.mhc.tn.gov.in/judis Page 5 of 16 W.P.No.4061 of 2012 private money lending has almost come to an end and needy borrowers by and large depend on banking institutions for financial facilities. Several unhealthy practices having slowly penetrated into prevalence were pointed out. Banking is an organised institution and most of the banks press into service long running documents wherein the borrowers fill in the blanks, at times without caring to read what has been provided therein, and bind themselves by the stipulations articulated by best of legal brains. Borrowers other than those belonging to corporate sector, find themselves having unwittingly fallen into a trap and rendered themselves liable and obliged to pay interest the quantum whereof may at the end prove to be ruinous. At times the interest charged and capitalised is manifold than the amount actually advanced. Rule of damdupat does not apply. Penal interest, service charges and other over-heads are debited in the account of the borrower and capitalised of which debits the borrower may not even be aware. If the practice of charging interest on quarterly rests is upheld and given a judicial recognition, unscrupulous banks may resort to charging interest even on monthly rests and capitalising the same. Statements of Ac- counts supplied by banks to borrowers many a times do not contain particulars or details of debit entries and ________ https://www.mhc.tn.gov.in/judis Page 6 of 16 W.P.No.4061 of 2012 when written in hand are worse than medical prescriptions putting to test the eyes and wits of the borrowers. Instances of unscrupulous, unfair and unhealthy dealings can be multiplied though they cannot be generalised. Suffice it to observe that such issues shall have to be left open to be adjudicated upon in appropriate cases as and when actually arising for decision and we cannot venture into laying down law on such issues as do not arise for determination before us. However, we propose to place on record a few incidental observations, without which, we feel, our answer will not be complete and that we do as under :
(1) Though interest can be capitalised on the analogy that the interest falling due on the accrued date and remaining unpaid, partakes the character of amount advanced on that date, yet penal interest, which is charged by way of penalty for non-payment, cannot be capitalised. Further interest, i.e. interest on interest, whether simple, compound or penal, cannot be claimed on the amount of penal interest. Penal interest cannot be capitalised. It will be opposed to public policy.
(2) Novation, that is, debtor entering into a fresh agreement with creditor undertaking payment of previously borrowed principal amount coupled with interest by treating the sum total as principal, any contract express or implied and an express ________ https://www.mhc.tn.gov.in/judis Page 7 of 16 W.P.No.4061 of 2012 acknowledgment of accounts, are best evidence of capitalisation. Acquiescence in the method of accounting adopted by the creditor and brought to the knowledge of the debtor may also enable interest being converted into principal. A mere failure to protest is not acquiescence.
(3) The prevalence of banking practice legitimatises stipulations as to interest on periodical rests and their capitalisation being incorporated in contracts. Such stipulations incorporated in contracts voluntarily entered into and binding on the parties shall govern the substantive rights and obligations of the parties as to recovery and payment of interest.
(4) Capitalisation method is founded on the principle that the borrower failed to make payment though he could have made and thereby rendered himself a defaulter. To hold an amount debited to the account of the borrower capitalised it should appear that the borrower had an opportunity of making the payment on the date of entry or within a reasonable time or period of grace from the date of debit entry or the amount falling due and thereby avoiding capitalisation. Any debit entry in the account of the borrower and claimed to have been capitalised so as to form an amalgam of the principal sum may be excluded on being shown to the satisfaction of the Court that such debit entry ________ https://www.mhc.tn.gov.in/judis Page 8 of 16 W.P.No.4061 of 2012 was not brought to the notice of the borrower and/or he did not have the opportunity of making payment before capitalisation and thereby excluding its capitalisation.....”
9. It is noted that the Apex Court has issued various directions. One of the direction is with regard to the penal interest. Sub Clause (3) make it very clear that the prevalence of banking practice legitimatises stipulations as to interest on periodical rests and their capitalisation being incorporated in contracts. Such stipulations incorporated in contracts voluntarily entered into and binding on the parties shall govern the substantive rights and obligations of the parties as to recovery and payment of interest.
10. Considering the above, if the interest rate is agreed and if there is a contract between parties now it cannot be said that the circular is violative of Art. 14 of the Constitution of India.
11. In the case of Peerless General Finance and Investment Co.Ltd vs. Reserve Bank of India, AIR 1992 SC 1033, it is held that the Reserve Bank was competent and authorised to issued the impugned directions for manner in which the deposits received by the residuary non-banking ________ https://www.mhc.tn.gov.in/judis Page 9 of 16 W.P.No.4061 of 2012 companies are to be deposited by them and also the decision of this Court in case of Deccan Chronicles Holdings Limited vs. Union of India, (2014) 4 MLJ, wherein paragraph 39 it is held as follows:
“ 39. While dealing with a legislation pertaining to a specialised field, that too, a one like economy, the Court should adopt a #dignified reluctance”. While exercising its power of judicial review, a good deal of latitude is permissible in case of economic statutes. The Court should be aware of the fact that the Legislature is dealing with complex problems. The economic mechanism is highly sensitive and therefore we should constantly remind ourselves of our own limit. We do not like to take the role of a higher authority to review a decision made by an expert body on the materials placed before it. The said attempt is to be avoided, as neither the counsels nor the Court can claim a better expertise. Such an attempt would be akin to a search by a visually impaired person to find a black cat during night time in a dark room when the cat itself is not there. In this connection, we only quote the settled position of law as held by the Honourable Apex Court in T.VELAYUDHAN ACHARI AND ANOTHER VS. UNION OF INDIA, ((1993) 2 SCC 582), which reads as under:
“ 28. In examining the various submissions addressed ________ https://www.mhc.tn.gov.in/judis Page 10 of 16 W.P.No.4061 of 2012 on behalf of the appellants and the petitioners we propose to examine the same in the following background since it is a law relating to regulation of economic activities.
29. In R.K. Garg case, (1981) 4 SCC 675), it is held: (SCC pp. 690-91, para 8) "Another rule of equal importance is that laws relating to economic activities should be viewed with greater latitude than laws touching civil rights such as freedom of speech, religion etc. It has been said by no less a person than Holmes, J. that the legislature should be allowed some play in the joints, because it has to deal with complex problems which do not admit of solution through any doctrinaire or strait-jacket formula and this is particularly true in case of legislation dealing with economic matters, where, having regard to the nature of the problems required to be dealt with, greater play in the joints has to be allowed to the legislature. The court should feel more inclined to give judicial deference to legislative judgment in the field of economic regulation than in other areas where fundamental human rights are involved. Nowhere has this admonition been more felicitously expressed than in Morey v. Doud, (354 US 457: 1 L Ed 2d 1485 (1957), where Frankfurter, J. said in his inimitable style:
'In the utilities, tax and economic regulation cases, there are good reasons for judicial self- restraint if not judicial deference to legislative ________ https://www.mhc.tn.gov.in/judis Page 11 of 16 W.P.No.4061 of 2012 judgment. The legislature after all has the affirmative responsibility. The courts have only the power to destroy, not to reconstruct. When these are added to the complexity of economic regulation, the uncertainty, the liability to error, the bewildering conflict of the experts, and the number of times the judges have been overruled by events self-limitation can be seen to be the path to judicial wisdom and institutional prestige and stability.' The court must always remember that legislation is directed to practical problems, that the economic mechanism is highly sensitive and complex, that many problems are singular and contingent, that laws are not abstract propositions and do not relate to abstract units and are not to be measured by abstract symmetry; that exact wisdom and nice adaptation of remedy are not always possible and that judgment is largely a prophecy based on meagre and uninterpreted experience. Every legislation particularly in economic matters is essentially empiric and it is based on experimentation or what one may call trial and error method and therefore it cannot provide for all possible situations or anticipate all possible abuses. There may be crudities and inequities in complicated experimental economic legislation but on that account alone it cannot be struck down as invalid." At page 706, para 19 it is held:
"...That would depend upon diverse fiscal and ________ https://www.mhc.tn.gov.in/judis Page 12 of 16 W.P.No.4061 of 2012 economic consideration based on practical necessity and administrative expediency and would also involve a certain amount of experimentation on which the court would be least fitted to pronounce. The court would not have the necessary competence and expertise to adjudicate upon such an economic issue. The court cannot possibly assess or evaluate what would be the impact of a particular immunity or exemption and whether it would serve the purpose in view or not. There are so many imponderables that would hazard an opinion where even economists may differ. The court must while examining the constitutional validity of a legislation of this kind , be resilient, not rigid forward looking not static, liberal, not verbal and the court must always bear in mind the constitutional proposition enunciated by the Supreme court of the United States in Munn v. Illinois, (94 US 113 : 24 L Ed 77 (1875) namely, that courts do not substitute their social and economic beliefs for the judgement of legislative bodies. The court must defer to legislative judgement in matters relating to social and economic policies and must not interfere, unless the exercise of legislative judgement appears to be palpably arbitrary. The court should constantly remind itself of what the supreme court of the United State said in Metropolis theater Co. v. City of Chicago, (228 US 61 : 57 L Ed 730 (1912):
“ The problems of government are practical ________ https://www.mhc.tn.gov.in/judis Page 13 of 16 W.P.No.4061 of 2012 ones and may justify, if they do not require, rough accommodations, illogical it may and unscientific. But even such criticism should not be hastily expressed. What is best is not always discernible, the wisdom of any choice may be disputed or condemned. Mere errors of government are not subject to our judicial review."
12. Considering the above judgment, this Court is of the view that circular cannot be found fault with. The main grievance appears to be with regard to payment to the bank/3rd respondent. The bank has also initiated DRT proceedings. Learned counsel appearing for the petitioner would submit that they also try to settle the matter by approaching the bank and therefore seeks an opportunity by granting an adjournment. This Court is of the view that as the grievance itself is with regard to the payment of loan amount, it is for the petitioner to approach the concerned bank. Such a liberty is granted to the petitioner to approach the bank to work out his remedy. It is between the bank and the petitioner to arrive at an amicable settlement. In view of the private dispute, circular which was issued considering the growth of the economy by the Reserve Bank of India, cannot be quashed.
13. Accordingly, Writ Petition is dismissed. No costs. Consequently, connected miscellaneous petition is closed. ________ https://www.mhc.tn.gov.in/judis Page 14 of 16 W.P.No.4061 of 2012 20.09.2022 kpr Internet:Yes Speaking/Non speaking order To
1.The Secretary to Government Ministry of Finance Department of Finance New Delhi.
2. The Chief General Manager Reserve Bank of India Fort Glacis, Rajaji Salai Chennai-600 001 ________ https://www.mhc.tn.gov.in/judis Page 15 of 16 W.P.No.4061 of 2012 N. SATHISH KUMAR, J.
kpr W.P.No.4061 of 2012 & M.P.No.2 of 2012 20.09.2022 ________ https://www.mhc.tn.gov.in/judis Page 16 of 16