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1. This appeal is directed against the judgment and decree dated, December 12, 1980 passed by the City Civil Judge, Bangalore City in O. S. No. 2530 of 1980.

2. The appeal raises some questions of considerable importance as to the constraint on banking institutions to charge interest on loans/advances/overdrafts or any other financial accommodation and the power of Courts to examine the rigour of such transactions and give reliefs to the debtor by calling into aid the usury enactments.

The facts, in brief, are these:

16. The provisions of the B.R. Act conferring power on the Reserve Bank of India:

The B.R. Act has conferred enormous powers on the Reserve Bank. Section 21 of the B.R. Act confers power to control advances by commercial banks and to regulate the interest rates structure on which advances or other financial accommodation, may be made.

Section 27 consists power on the Reserve Bank to call for returns and information before the close of every month. That return may also pertain to any information regarding the investment of a banking company and the classification of its advances in respect of industry, commerce and agriculture.

Under Section 47A, the Reserve Bank itself may impose penalty for a contravention or default of the nature referred to in sub-section (3) or sub-section (4) of Section 46.

17. Directives and circulars on interest rate issued by the Reserve Bank.

A major instrument of credit control in the banks of the Reserve Bank has been the Bank Rate which may include, the rate at which banks get financial accommodation from the Reserve bank, but also the rates of interest to be charged by banks in respect of advance or other financial accommodation and rates of interest to be allowed on fixed deposits.

In exercise of the powers conferred by S. 21 of the B.R. Act, the Reserve Bank issued a directive dated May 31, 1973 to be effective from June 1, 1973 stating that scheduled banks not being co-operative banks shall not charge interest less than 10 per cent per annum in respect of a loan or advance or other financial accommodation made or provided or renewed by it. Certain categories of loans and advances were, however, exempted from the operation of the said notification. This minimum lending rate of 10 per cent was raised to 12.5 per cent per annum by another notification dated July, 22, 1974.