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Canara Bank vs K. Muhammed Kunhi And Anr. on 18 July, 1988

Kerala High Court
Canara Bank vs K. Muhammed Kunhi And Anr. on 18 July, 1988
Equivalent citations: AIR 1989 Ker 239, 1991 70 CompCas 284 Ker
Author: B Menon
Bench: P B Menon, P Shamsuddin


JUDGMENT

Balakrishna Menon, J.

1. The only point for decision in this appeal by the plaintiff viz. the Canara Bank is relating to the rate of interest chargeable on the loan advanced by it to the defendant under a promissory note Ext. A1 dt. 7-11-1977.

2. The promissory note Ext. A1 is for the repayment of a loan of Rs. 9,000/- advanced by the plaintiff bank to the defendant. Ext. A1 provides for interest at 3 1/2% per annum above the Reserve Bank of India rate or at 12 1/2% per annum whichever is higher. The interest is to be compounded periodically as provided for in Ext. A1. The plaintiff has produced Ext. A2 accounts as per which the total sum payable is Rs. 13199.50. The accounts show that the interest had been added to the capital every six months.

3. The defendant admitted the execution of the promissory note. The only defence to the suit is that no compound interest is leviable by virtue of the provisions of the Usurious Loans Act, 1918. The court below, following the decision of a Division Bench of this Court in State Bank of Travancore v. C. T. George, 1975 Ker LT 416 : (AIR 1975 Kerala 169) has reopened the accounts and has decreed simple interest at 12 1/2% till the date of the suit and future interest at 6% till the date of realisation. It is against this that the plaintiff bank has come up in appeal.

4. The Division Bench in George’s case has held that the Usurious Loans Act, 1918 as amended by the Madras Act 8/1937 applies to loans advanced by banks to agriculturists in the Malabar area and under Section 3 of the Act there is a presumption that the transaction is substantially unfair if the interest is excessive. There is a further presumption that the interest will be deemed to be excessive if compound interest is charged on loans to agriculturists. The presumption that the transaction is substantially unfair is rebuttable by proof of special circumstances justifying the rate of interest. In the present case the promissory note Ext. A1 provides for levy of compound interest and applying the presumption aforesaid, the court below has held that the transaction Ext. A1 is substantially unfair. It is on that finding that the court below has disallowed compound interest and has decreed simple interest at 12 1/2% per annum till the date of the suit and future interest at 6% per annum thereafter.

5. Subsequent to the decision of the Division Bench in George’s case the Government of Kerala had issued a notification under Section 1(3) of the Usurious Loans Act. 1918 and published the same in the gazette dt. 22-5-1979. The notification reads ;

“In exercise of the powers conferred by Sub-section (3) of Section 1 of the Usurious Loans Act, 1918 (Central Act X of 1918) the Government of Kerala hereby direct that the said Act shall not apply to the loans given by all categories of banks.”

This notification, according to the court below, will not apply to past transactions and those transactions, in spite of the notification, can be reopened under Section 3 of the Usurious Loans Act, as amended by Madras Act 8/1937. Section 3 of the Usurious Loans Act as amended makes the provisions of the Act applicable to all pending suits and suits to be instituted after the commencement of the Act, Sub-section (3) of Section 1 of the Act empowers the State Government to issue notifications in the official gazette directing that the Act shall not apply to “any area, class of persons, or class of transactions which it may specify in its notification.” It is by virtue of the powers vested in the State Government under Sub-section (3) of Section 1 that the Government has issued the notification mentioned above xcluding the applicability of the Act to loans advanced by all categories of banks. Section 3 of the Act confers a power on the court to reopen transactions affected by the provisions of the Act and grant such reliefs to the debtor as are provided for in the Act. It is only by virtue of the power conferred by Section 3 that the court gets jurisdiction to reopen transactions and give relief to the debtor. The notification issued by the Government under Section 1(3) excludes the applicability of the Act itself to loans advanced by all categories of banks. The Usurious Loans Act itself is made inapplicable to the transactions covered by the notification arid the power conferred on the court to re-open such transactions as are covered by the notification is thus taken away by force of the notification itself. The court below was therefore wrong in its view that the notification will have no application to [past transactions.

6. The plaint itself shows that the defendant is an agriculturist. There is nothing on record to show that the suit transaction is a commercial transaction within the meaning of the proviso to Section 34(1) of the C.P.C. The plaintiff bank is therefore entitled to future interest only at 6% per annum from the date of the plaint.

7. The appeal is allowed to the above extent and, in modification of the decree of the court below; the suit is decreed as prayed for in the plaint with future interest at 6% per annum from the date of the suit. The amounts paid during the pendency of the suit and referred to in the decree of the court below will be given credit to.

The plaintiff will be entitled to costs in the court below. The parties will suffer their respective costs in the appeal.

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