JUDGMENT
Ratnam, J.
1. This civil revision petition has come before us on a reference made by Sethuraman, J. The petitioner is a nationalised bank carrying on the business of banking subject to the provisions of the Banking Regulation Act, 1949, and the control of the Reserve Bank of India. On 1240-1971, the petitioner advanced to respondents 1 to 3 herein a sum of Rs.1850 as agricultural medium term loan, which respondents I to 3 agreed to repay with interest at 4-1/2 per cent per annum, over the official rate of the Reserve Bank of India with a minimum interest of 10-1/2 per cent per annum with quarterly rests. A promissory note Ex. A. 1, dated 12-10–! 1971 was also executed by respondents I to 3 along with the fourth respondent as a co-obligant. On 1-10-1974, the respondents wrote under Ex. A. 3 to the petitioner acknowledging their liability to repay the amounts as agreed, but never the less, no amounts were paid. Thereafter, a notice Ex. A. 4 was issued by the petitioner on 20-5-1975, which was received by all the respondents to which only the first respondent replied under Ex. A. 9 on 28-6-1975, praying for some time to repay the amounts due to the petitioner. In spite of this, the respondents did not make any payment, which obliged the petitioner to issue another notice under Ex. A. 10 on 16-1-1976 to the respondents. Even this notice evoked response only from the first respondent, who, in his reply, under Ex. A. 15 dated 29-1-1976 prayed for time till 15-4-1976 for paying the amount and since the respondents made no payment even thereafter to the petitioner, the petitioner instituted 0. S. 386 of 1977 in the District Munsif’s Court, Tiruvannamalai against the respondents herein for the recovery of a sum of Rs. 2,233.10 p. towards principal and interest due under the promissory note Ex.A. 1. In the course of the plaint, the petitioner referred to its being a banking company carrying on business under the provisions of the Banking Regulation Act and the execution of the promissory note by respondents 1 to 4 agreeing to pay interest over the official rate of the Reserve Bank of India with the minimum of 10-1/2 per cent per annum with quarterly rests and proceeded to state that though the respondents were agriculturists, yet, the principal and interest, as agreed to be paid by the respondents, would be recoverable in accordance with the statement of accounts filed.
2. In the written statement filed by the first respondent, he admitted having borrowed from the petitioner on the basis of Ex. A. 1, but pleaded that with the borrowed amount and his own, he had carried on agricultural operations for the last five years and sustained loss and that was responsible for his inability to repay the amounts due to the petitioner. The charging of interest on interest as disclosed by the memo of calculation, according to the first respondent was not valid in law. The correctness of the calculation was also disputed and amounts repaid, according to the first respondent, should be credited towards principal. A plea that the claim was barred by limitation was raised by the first respondent. The written statement of the first respondent wound up with the plea that as the loan was an agricultural medium term loan and he had sustained loss in agricultural operations, no liability could be fastened on him in respect of the loan. Respondents 2 to 4 herein adopted the aforesaid defences raised by the first respondent
3. On a consideration of the evidence, the learned District Munsif, Tiruvannamalai, found that the respondents had acknowledged their liability to pay the amount as claimed by the petitioner bank and, therefore, the claim is not barred by limitation. Dealing with the right of the petitioner to recover interest at the rate claimed, the learned District Munsif was of the view that since the respondents are, agriculturists, the provisions of the Usurious Loans Act 1918, as amended by Tamil Nadu Act 8 of 1937 (hereinafter referred to as the Usurious Loans Act) have to be applied and that simple interest at 10-1/2 per cent per annum would be fair and reasonable and on this basis, after giving credit to the payments made by the respondents, the petitioner bank was granted a decree for a sum of Rupees 1,651.25 p. with proportionate costs. Aggrieved by this, the petitioner preferred an appeal in A. S. 17 of 1979 before the Sub Court, Tiruvannamalai claiming that a decree as prayed for should have been granted in its favour. The only point debated in the appeal was as regards the usurious nature of the rate of interest claimed by the petitioner bank, particularly in view of the inability of nationalised banks like the petitioner, to charge lower rates of interest owing to the directives issued from time to time by the Reserve Bank of India under the provisions of the Banking Regulation Act. Dealing with this question, the appellate Court held that a nationalised bank is not a social parasite to suck the blood of the common man in the form of interest, that in the case of agriculturists like, the respondents, different considerations would arise, that the rate of interest charged by the petitioner was excessive and that 10-1/2 per cent per annum simple interest as allowed by the trial court would in the circumstances, be fair and reasonable. On this conclusion, the appeal was dismissed against which this civil revision petition has been preferred.
4. Sethuraman, J. before whom the civil revision petition initially came up for hearing, felt that the question, whether the rates of interest charged by the nationalised banks functioning within the parameters of the Banking Regulation Act would fall within the scope of the provisions of the Usurious Loans Act, Is an important one, which is likely to frequently arise with reference to every such bank and, therefore, requires an authoritative decision by a Division Bench and that is how the matter has come up before us.
5. Before proceeding to consider the matter on its merits, it would be convenient at this stage to deal with a preliminary objection raised by Mr. R. S. Venkatachari, the learned counsel for the respondents, as regards the maintainability of this civil revision petition. He submitted that the suit in this case laid on the promissory note for recovery of amounts not in excess of Rs. 3,000, would be cognisable by a Court of Small Causes and that as the only question debated in the appeal related to the rate of interest payable, no question of law arose and, therefore, the appeal in A. S. 17 of 1979 was not competent under S. 96(4) of the Civil P. C. Reliance in this connection was also placed on Joseph Thompson v. Nallathampi Nadar, 1980-2 Mad LJ 389. In meeting this objection, the learned counsel for the petitioner drew our attention to S. 96(4) of the Civil P. C. and stated that the question whether nationalised banks, obliged to charge interest at specified rate in accordance with the circulars and directives periodically issued by the Reserve Bank of India under the provisions of the Banking Regulation Act, can be taken out of the category of cases where the presumption regarding excessive nature of interest under the provisions of the Usurious Loans Act can be raised, is a question of law and that only that question was raised and debated before the lower appellate court and, therefore, the appeal did involve a question of law. Our attention in this connection has also been drawn to the decision in Pathumma v. Kuntalan Kutty, .
6. At the outset, it has to be remembered that the civil revision petition itself has come up before us on a reference by a learned Judge, who felt that the importance of the question raised, is such that it deserves a decision by a Division Bench, Even apart from this, a perusal of the memorandum of appeal filed before the court below and the judgment therein discloses that the appeal was filed and argued on a question of law, viz., the applicability of the provisions of the Usurious Loans Act, to nationalised banks functioning under the provisions of the Banking Regulation Act and the scope and effect of S. 3 and the provisos thereunder, Besides, this very question was argued at great length before this court by the learned counsel for the respondents. No objection regarding the incompetency of the appeal on the score that it involved a question of fact, was ever attempted to be raised by the respondents in the Court below, We are, therefore, of the view that it is too late to urge that no question of law arose in the appeal before the court below. We are satisfied that the appeal did raise a question of law and was rightly on such a question of law, entertained under S. 96(4) of the Civil P. C.
7. The decision in Joseph Thompson v. Nallathampi Nadar (1980) 2 Mad LJ 389 relied on by the learned counsel for the respondents has no application whatever to the present case. In that case, in answer to a claim for the recovery of a sum of Rs. 758.42 p. as principal and interest of Rs. 98.54 p. at 12 per cent per annum from 25-5-1976 on the footing that this amount was recoverable in respect of payments made for 21 months as premium on the cessation of the conduct of the chit later, the principal defence raised was that the plaintiff had taken the chit and payment was also made to him on 18-11-1976, and a promissory note was also executed for the balance of the instalments payable in respect of the chit and, therefore, the amount was not recoverable. The learned District Munsif, Kuzhithurai, accepted the oral evidence in support of the defence and dismissed the suit. However, on appeal, the learned Subordinate Judge disbelieved the oral evidence on behalf of the defendants and accepted that of t e plaintiff and found that both the defendants were liable for the suit amount and decreed the suit. On further revision under S. 115 of the Civil P. C., the objection was raised that in view of S. 96(4) of the Civil P. C., the appeal before the learned Subordinate Judge, Kuzhithurai, was incompetent and that it was also not open to the learned Sub-ordinate Judge to go into the question of fact. Dealing with this objection, the learned Judge first proceeded to consider the question whether the suit was of the nature cognisable by a Court of Small Causes and after finding that it was so, the learned Judge further held that In view of S. 96(4) of the Civil P. C., the appellate court had no jurisdiction to go into the evidence and other questions of fact as in a regular first appeal, In that view, the order of the appellate Court was set aside. In the instant case, the question that had been raised and considered by the appellate court, as stated earlier, is one of law relating to the impact of the provisions of the Usurious Loans Act, on the advances made by nationalised banks to persons like the respondents. The decision in Pathuamma v. Kuntalan Kutty, , relied on by the learned counsel for the petitioner dealt with a question of an objection to territorial jurisdiction under S. 21 of the Civil P. C., and did not relate to S. 96(4) of the Code of Civil Procedure, as in this case. Therefore, that decision has no application to this case. We have, therefore, no hesitation in holding that the preliminary objection raised by the learned counsel for the respondents is without substance and in overruling the same.
8. We now proceed to a consideration of the meat of the matter on its merits. The only question which we are called upon to decide is, whether the charging of interest at certain rates by a nationalised bank functioning under the Banking Regulation Act in accordance with the circulars and directives issued by the Reserve Bank of India periodically, would fall within the scope of the provisions of the Usurious Loans Act. In attempting to sustain the claim of the nationalised bank that the provisions of the Usurious Loans Act will not be applicable, the learned counsel for the petitioner first submitted that there is an irreconcilable inconsistency between the provisions of the Banking Regulation Act, 1949, and the provisions of the Usurious Loans Act and that the provisions of the Banking Regulation Act being later in point of time, will prevail over the provisions of the Usurious Loans Act. It was next submitted that even assuming that the provisions of the Usurious Loans Act would apply, yet, on proof of special circumstances which may even be traced to a statute justifying the rate of interest, viz., the particular rate of interest charged being in accordance with directions and circulars issued by the Reserve Bank of India from time to time under the provisions of the Banking Regulation Act, the provisions of the Usurious Loans Act cannot be invoked.
9. On the other hand, the learned counsel for the respondents submitted that S. 2 of the Banking Regulation Act 1949, will not preclude the applicability of the provisions of the Usurious Loans Act and that the provision of the Usurious Loans Act having been enacted as a valid piece of beneficial legislation to free agriculturists from the burden of indebtedness, will have to prevail over the provisions of the Banking Regulation Act, 1949. An attempt was made to say that the circulars and directives issued by the Reserve Bank of India acting under the provisions of the Banking Regulation Act, 1949, would be in the nature of executive orders or instructions to the concerned banks and cannot override the specific statutory provisions of the Usurious Loans Act. The learned counsel further contended that in all cases where the borrower is an agriculturist and a high rate of interest is charged, the presumption that the transaction is unfair is conclusive and that thereafter there is no question of the existence of any special circumstances, which would justify the charging of a high rate of interest, as otherwise, the very object of the beneficial legislation would be defeated. The construction to be adopted, according to the learned counsel for the respondents must be a generous one consistent with the objects of the legislation, and if so construed, no exemption as such can be carved out in favour of nationalised banks from the operation of the provisions of the Usurious Loans Act.
10. In reply to these contentions, the learned counsel for the petitioner submitted that specific provision has been made in Secs. 2 and 21 of the Banking Regulation Act, 1949, to regulate the interest on advances made by the nationalised banks and to the extent to which the provision has been so made, no other provision could either apply or prevail and, therefore, the provisions of S. 21 of the Banking Regulation Act alone relating to the regulation of the rate of interest will govern, It was also further submitted that special circumstances may be facts which have to be pleaded or proved or even be regulations or instructions issued pursuant to a statute. In this context, the learned counsel for the petitioner contended that the petitioner is a nationalised bank governed b3~ the Banking Regulation Act and is empowered to charge interest on advances in accordance with the notifications issued by the Reserve Bank of India from time to time, a violation of which would be visited with certain penalties. Attention was also drawn to the circumstance that all debtors, who had availed themselves of similar credit facilities from such nationalised banks, were being charged the very same rates of interest and all other banks similarly placed like the petitioner were also obliged to charge the same rate of interest in accordance with the directions issued by the Reserve Bank of India from time to time. In addition, it was also submitted that the provisions of the Usurious Loans Act did not contemplate a nationalised bank or a banking company regulated by the Banking Regulation Act, but only an ordinary creditor, who has the freedom of charging different rates of interest for different types of debtors. Referring to the provisions of several State enactments dealing with debt relief, the learned counsel for the petitioner further submitted that in all these enactments passed with the avowed object of affording relief to indebted agriculturists, nationalised banks and the debts due to them have not been in any manner touched upon and that also is an indication that nationalised banks were intended to be treated and actually treated on a footing different from the other creditors and that would also justify the exclusion of the nationalised banks from the purview of the provisions of the Usurious Loans Act regarding the rate of interest charged on advances.
11. Very wide in range as these arguments are, it is unnecessary to deal with all of them, if the limited scope of the reference is borne in mind. But in order to answer the question referred, it is necessary to notice the relevant provisions of the Usurious Loans Act. The Usurious Loans Act, 1918, conferred additional power on courts to deal with cases of usurious loans of money or kind. Section 2 contains the definition of the expressions used in the Act. Under S. 3(1), if the court has reason to believe that the interest is excessive or that the transaction was as between the parties thereto substantially unfair, the court may exercise all or any of the following powers namely, (i) to reopen the transaction, take an account between the parties, and relieve the debtor of all liability in respect of any excessive interest; (ii) notwithstanding any agreement, purporting to close previous dealings and to create a new obligation, reopen any account already taken between them and relieve the debtor of all liability in respect of any excessive interest, and if anything has been paid or allowed in account in respect of such liability, order the creditor to repay any sum which it considers to be repayable in respect thereof; and (iii) set aside either wholly or in part or revise or alter any security given or agreement made in respect of any loan, and if the creditor has parted with the security, order him to indemnify the debtor in such manner and to such extent as it may deem fit; provided that, (i) in the exercise of these powers, the court shall not reopen any agreement purporting to close previous dealings and to create a new obligation which has been entered into by the parties or any persons from whom they claim at a date more than twelve years from the date of the transaction and (ii) do anything which affects any decree of a court. The explanation proceeded to set out the meaning of the expression ‘transaction’ for purposes of S. 3(1)(i) when a suit was brought about on a series of transactions. Section 3(2)(a) of the Usurious Loans Act 1918, set out the content of the expression ‘excessive’ as meaning “in excess of that which the court deems to be reasonable having regard to the risk incurred as it appeared or must be taken to have appeared, to the creditor at the date of the loan. Section 3(2)(b) of the Act laid down the circumstances to be taken into account by the court in considering the question whether the interest is excessive, under this section. The court shall, in this connection, take into account any amounts charged or paid, whether in money or in kind, for expenses, inquiries, fines, bonuses, premier, renewals or any other charges, and if compound interest is charged, the periods at which it is calculated and the total advantage which may reasonably be taken to have been expected from the transaction. Section 3(2)(c) of the Act set out the circumstances to be taken into account in considering the question of risk like the presence or absence of security and the value thereof, the financial condition of the debtor, the result of any previous transactions of the debtor by, way of loan so far as they were known or must be taken to have been known to the creditor. Section 3(2)(d) provided that in considering whether a transaction was substantially unfair, the court shall take into account all circumstances materially affect in the relations of the parties at the time of the loan or tending to show that the transaction was unfair, including the necessities or supposed necessities of the debtor at the time of the loan so far as the same were known, or must be taken to have been known, to the creditor. The explanation to S. 3(2)(d) of the Act provided that interest may of itself be sufficient evidence that a transaction was substantially unfair. Section 3(3) declared the applicability of S. 3 to all suits irrespective of the form where the recovery of a loan or the enforcement of an agreement or security in respect of a loan or for redemption of such security was substantially sought for.Under S. 3(4), the rights of a bona fide transferee for value without notice were saved. Section 3(5) affirmed the additional nature of the powers by stating that nothing in Sec. 3 shall be construed as derogating from the existing power or jurisdiction of any court. Section 4 declared the applicability of Section 3 to proceedings in insolvency.
12. By Tamil Nadu Act 8 of 1937, the provisions of the Usurious Loans Act 1918, was amended. In the statement of the objects and reasons for the amendment, (vide Fort St. George Gazette dated 24-11-1’936, part IV pp. 360-3611, it was mentioned that the powers conferred on courts have not been utilised with any degree of uniformity and that it was, therefore, necessary to make it obligatory on courts to exercise such powers. It was also further stated that the unfairness of a transaction should be presumed, if the rate of interest charged is found to be excessive, though this could be rebutted by proof of special circumstances justifying the high rate of interest and that as regards agriculturists, if compound interest is charged on loans advanced to them, such interest should be presumed to be excessive. In order to give effect to the above, by Tamil Nadu Act 8 of 1937, amendments were made in S. 3 of the Usurious Loans Act 1918. Under the amended S. 3(1) of the Usurious Loan Act 1918, the court was enabled to exercise one or more of the powers under S. 3(1)(i), (ii) and (iii), if it had reason to believe that the transaction was as between the parties thereto substantially unfair. The explanation to S, 3(1) of the Usurious Loans Act, 1918, was retained but renumbered as Explanation II and another Explanation I was inserted according to which if the interest is excessive, the court shall presume that the transaction was substantially unfair, but that such presumption may be rebutted by proof of special circumstances justifying the rate of interest. To clause (b) of sub-sec. (2) of S. 3 of the Usurious Loans Act 1918, a proviso to the effect that in the case of loans to agriculturists, the court shall presume that the interest is excessive, if compound interest is charged, was added. The explanation to S. 3(2)(d) was omitted. On a consideration of the relevant provisions of the Usurious Loans Act, it is evident that there is no prohibition as such against the charging of compound interest. Indeed, no provision of law has been brought to our notice, which per se prohibits the charging of compound or even high rates of interest, But where such transactions are sought to be enforced through courts of law, the courts have been charged with the duty of examining the transaction as a whole and ascertaining whether in a given case, the transaction is unfair or the rate of interest is usurious and if that is found to be so, to afford relief to the debtor concerned. This being the principal object of the Usurious Loans Act, we now proceed to consider the provisions of the Banking Regulation Act 1949.
13. Section 2 of the Banking Regulation Act, 1949 states that the provisions of that Act shall be in addition to, and not, save, as thereinafter expressly provided, in derogation of the Companies Act 1956 (1 of 1956), and any other law for the time being in force. S. 6 of the Banking Regulation Act, which lays down the forms of business in which Banking companies may engage themselves includes the lending or advancing of moneys either upon or without security. S. 21(1) of the Banking Regulation Act 1949, relates to the power of the Reserve Bank of India to control advances by banking companies. Under S. 21(1), where the Reserve Bank of India in satisfied that it is necessary or expedient in the public interest so to do, it may determine the Policy in relation to advances to be followed by banking companies generally or by any banking company in particular and it is also laid down that when once a policy has been so determined, all banking companies or the banking company concerned, as the case may be, shall be bound to follow the policy as so determined. S. 21(2)(e) of the Act specifically adverts to the policy with reference to the rate of interest and states that the rate of interest and other terms and conditions on which advances or other financial accommodation may be made or guarantees may be given, may be determined by the Reserve Bank of India. S. 21(3) of the Act obliges every banking company to comply with any directions given by the Reserve Bank of India to it under this Section. S. 46(4) of the Banking Regulation Act 1949 provides for punishment for a contravention of any of the Provisions of the Act plying with any or of any order, rule or condition imposed or any default in complying with any requirement of this Act or direction made there under. Section 47A(1)(b) of the Act provides that if a contravention or default of the nature referred to in sub-see. (4) of S. 46 is made by a banking company then the Reserve Bank of India may impose on such banking company as referred to in S. 46(4), a penalty not exceeding two thousand rupees; and where such contravention or default is a continuing one, a further penalty which may extend to one hundred rupees every day during the continuance of the contravention. A consideration of the aforesaid provisions of the Banking Regulation Act 1949, clearly points out that a banking company, more particularly, a nationalised bank like the petitioner, has really no free scope for carrying on the business of banking permitted under the provisions of the Banking Regulation Act in any manner it likes, but every activity is hedged in by and subjected to the control of the Reserve Bank of India and its orders or directives issued periodically, a contravention of which is also made punishable under the provisions of the Banking Regulation Act. It is, therefore, evident that if a banking company has to carry on the business of banking, it has to carry out the mandates and directions of the Reserve Bank of India issued by it periodically, as enjoined by the statute.
14. We may briefly pause to consider the contention of the learned counsel for the petitioner that there is an irreconcilable inconsistency between the provisions of the Banking Regulation Act, ‘1949 and those of the Usurious Loans Act. The avowed object of the Banking Regulation Act, 1949 is to consolidate and amend the law relating to banking and there under provision is made for the regulation and control by the Reserve Bank of India of the carrying on of the business of banking by banking companies including the rates of interest on advances by banks. Any contravention on the part of the banks to charge interest at the rates specified under Section 21(2)(e) is made punishable under S. 46(4) of the Banking Regulation Act, 1949. The primary object of the Usurious Loans Act is to confer a power on court to afford relief to a debtor, if the court has reason to believe that a particular transaction between the parties is substantially unfair, No particular rate of interest, as reasonable interest or excessive interest, has been prescribed in the Usurious Loans Act and the reasonableness or otherwise of the rate of interest in any given case has to be decided and determined in the light of the statutory provisions contained therein. In other words, the provisions of the, Usurious Loans Act do not in any manner control or regulate the charging of rates of interest, but are intended merely to afford relief from a claim for excessive interest in cases where the transaction is considered to be substantially unfair. It is obvious that the spheres of operation of these two enactments are very different, in that one is concerned with the control and regulation of the business of banking including the rate of interest on advances to be made by the banking companies, while the other is intended to secure relief from excessive claims for interest sought to be enforced through courts. On a consideration of the diverse scope of the operation of the provisions of these enactments, we are of the view that the provisions of the Banking Regulation Act 1949, alone regulate the rate of interest on advances by natioalised banks and that there is no inconsistency between its provisions and the provisions of the Usurious Loans Act. The contention of the learned counsel for the petitioner in this regard, has therefore, to be negatived. Equally, the contention of the learned counsel for the respondents that the provisions of the Usurious Loans Act will prevail over the provisions of the Banking Regulation Act, 1949 has also to be rejected,
15. In order to claim the benefits of the Usurious Loans Act, the borrower must establish that the interest payable on the loan is excessive and that the transaction between the parties thereto is substantially unfair. No hard and fast rule can be laid down as regards the excessive nature of interest and each case has to be decided on its own merits taking into account a variety of circumstances such as the security obtained by the creditor for the advance of the amount, the pecuniary position of the debtor, the rate of interest prevailing at the time well as the advantage the debtor would derive from the loan.
16. In this case, the petitioner, no doubt, advanced certain amounts to the respondents, who, it is not disputed, are agriculturists and such amounts were repayable by them with compound interest. Under the proviso to S, 3(2)(b) of the Usurious Loans Act, referred to earlier, if on an advance to an agriculturist, compound interest is charged, then the court shall presume that the interest is excessive. This rule of presumption only obviates the need for the court in the case of, an agriculturist to go into the question of the excessive nature of the interest by a consideration of matters like these: whether the rate of interest is reasonable having regard to the risk or it also takes into account any amounts charged or paid, whether in money or in kind, for expenses, inquiries,, fines, bonuses, premia, renewals or any other charges and also the rates at which and the periods at which the compound interest is calculated and also the total advantage which may be taken to have been expected from the transaction. Therefore, all that, the proviso to See. 3(2)(b) of the Usurious Loans Act states is that instead of the court embarking upon an enquiry into these aspects in relation to an agriculturist, the matter is simplified by raising a presumption that if compound interest is charged in respect of a transaction between a creditor and. An agriculturist, then the presumption is that the interest is excessive. Under Explanation I to Section 3(1) of the Usurious Loans Act, if the interest is excessive, then the court shall presume that the transaction was substantially unfair. But this presumption is not absolute but a reputable one by proof of special circumstances which justified the rate of interest charged in a particular case. If the transaction is substantially unfair, only then and in that event only, the court is empowered to exercise one or more of the Powers enumerated under S., 3(1)(i) to (iii) of the Usurious Loans Act. A con joint reading of this integrated provision as a whole would establish that in the case of an advance to an agriculturist debtor where compound rate of interest is charged, the rate of interest is presumed to be excessive, but if that is rebutted by proof of special circumstances justifying the rate, then the transaction will not be a substantially unfair, one despite the charging of excessive interest in order to enable the court -to proceed under S. 3(1)(i) to (iii) and afford relief. In this case, it is not in dispute that the petitioner had charged compound interest on the advances made to the respondents and the respondents being agriculturists, the charging of compound interest on the advances made by the petitioner would by itself give rise to the presumption that the interest is excessive and also that the transaction was substantially unfair. But merely raising such a presumption would not make it a ‘substantially unfair’ transaction in order to enable the court to exercise the powers under Section 3(1)(i) to (iii) of the Usurious Loans Act. The court must he also satisfied that in a case where such a presumption is raised with reference to agriculturists, no special circumstances justifying the rate of interest charged existed. In this case, it is not disputed that the petitioner is a nationalised bank functioning under the provisions of the Banking Regulation Act. It may be that the object of the Usurious Loans Act is to relieve agricultural indebtedness and to achieve that object certain benefits by, way of reduction of interest has also been conferred upon them, but even while doing so, the provisions of the Act had taken care to exclude debts from the operation of the Act, namely, debts where in spite of the interest being excessive, it would not be an ‘unfair transaction’ because of the special circumstances justifying the rate of interest actually charged. In the present case, the Petitioner has produced the relevant circulars, which have been issued by the Reserve Bank of India, and they are marked as Exs. A-17 and A-18. These circulars do contain instructions issued by the Reserve Bank of India, with reference to the charging of a Particular rate of interest. This would be a special circumstance justifying the nationalized bank in charging the rate of interest it did, as otherwise, the petitioner bank would have violated Section 21(e) read with S. 21(3) and the penalties provided for violation thereof under S. 46(4) of the Banking Regulation Act would stand attracted. In addition it must be remembered that the provisions of the Usurious Loans Act were enacted at a time when ordinary money-lenders exploited the needy agriculturists and imposed upon them onerous terms by way of compound interest while making available loans to them. But such a charge cannot be leveled against the nationalised banking institutions which are really in the nature of representative institutions governed by rules and regulations which do not change from debtor to debtor and which, if anything, are intended only to benefit the weaker sections of the society. It is perhaps for this reason that even in other legislations giving relief to indebted agriculturists, debts in favour of nationalised banks have been totally exempted, as for instance. S. 4(h)(b) of Tamil Nadu Act IV of 1938, S. 3(h)(B) Tamil Nadu Act XXXVIII of 1972; 13 (g) (i) (A) of Tamil Nadu Act XXXI of 1976 and S. 1-2(h)(i)(A) of the Tamil Nadu Act XIII of 1980. Indeed, Sec. 34 of the Code of Civil Procedure enables a nationalised bank to recover a higher rate of interest in respect of commercial transactions. Having regard to these considerations, in our view, when a nationalised bank controlled by the provisions of the Banking Regulation Act 1949 lends money to a debtor charging interest at the rates prescribed by the Reserve Bank of India from time to time, it cannot be said that the charging of such rates by such banks is per se excessive as to render such transaction ‘substantially unfair’ so that the transactions can be ripped open by applying the provisions of the Usurious Loans Act and the rate of interest cut down accordingly.
17. During the course of arguments, reference was made to a number of decisions relating to the general interpretation of the provisions of the Usurious Loans Act as well as other related enactments. In our view, it is not necessary to refer to all of them excepting the following which have a direct bearing on the question. In South Indian Bank Ltd. v. V. K. Chettiar & Bros. (AIR 1976 Mad 215), a Division Bench had to consider whether the interest notice that I stipulated at the rate of 11 per cent per annum with quarterly rests was
In that case also, a banking institution had lent the money, though the borrower was not an agriculturist debtor, but a firm of partners carrying on business. In considering the question whether the rate of interest is usurious, excessive or unreasonable, the Division Bench held that there should be evidence before the court to prima facie establish that the rate of interest is exhorbitant or excessive, and that no hard and fast rule can be laid down merely on the mathematics of the rate per cent to hold that the rate of interest was excessive. In this case, as already pointed out, the circulars issued by the Reserve Bank of India to the effect that banking institutions like the petitioner nationalised bank should charge a particular rate of interest would be a special circumstance which obliges the petitioner to charge a rate of interest as it did on pain of the imposition of a penalty -for the violation thereof. It is also necessary in this connection to the decision referred to above, it had been pointed out that the parties were informed of the increase in the rate of interest not because the bank wanted to make an unreasonble gain out of the transaction and make the debtors suffer loss, but the increase was attributed to an increase in the rate of interest by the Reserve Bank of India and that was a circumstance which was of universal application, in the sense that it applied to all banks and borrowers in decision, in our view, would point out that it is not as if that a nationalised bank is a free agent in the sense that can stipulate for any particular rate of interest as it liked, but is compelled or obliged to adopt a particular rate of interest because Of the dir6ctives or circulars issued periodically from the Reserve Bank of India, which is the controlling bank with reference to the nationalised banking institutions under the Banking Regulations Act, 1949. This, in our opinion, would be a special circumstance, which would justify the charging of the rate of interest, as has been done.
18. In Mahadeviah and Sons v. State Bank of Mysore, (1976) 2 Mad I.J 125, this court had to consider the question whether the rate of interest at 11 per cent per annum with half yearly rests was usurious. In that case also, the institution, which had lent the money, was the State Bank of Mysore, though the borrower was not an agriculturist. It was held that the provisions of the Usurious Loans Act provided that under certain circumstances, and upon certain factors to be taken into account, it would be open to the court to come to the conclusion whether the rate of interest in a particular case is excessive or not, but each case would depend upon the facts of that case. The function of a court under the provisions of the Usurious Loans Act, as laid down earlier, was also referred to and it was pointed out that the court has only a limited power of considering whether the interest contracted for between the parties is, in the circumstances of a particular case, usurious or unconscionable or excessive or liable to be reduced. Applying this test in that case and taking into account the further circumstances that the respondent therein was a bank subject to certain regulations and control by the Reserve Bank of India and the charging of interest was in accordance with the directive of the Reserve Bank of India, it was held that the rate of 11 per cent per annum with half yearly rests cannot be said to be prima facie excessive. This case also, no doubt, related to the case of a borrowing by a non-agriculturist debtor. But this would apply even to a case where the debtor is an agriculturist debtor since at best, the charging of compound interest in relation to a lending to such a debtor would give rise to a presumption that the rate of interest is excessive but that, as noticed earlier, is a rebuttable presumption upon proof of special circumstances. It has also been Pointed out that the regulation of rate of interest on advances to be made available by banking institutions functioning under the control of the Reserve Bank of India in accordance with the provisions of the Banking Regulation Act, would be a special circumstance justifying the charging of a rate of interest in accordance with the directives and circulars periodically issued, as the nationalised banks have no freedom of charging their own rate of interest in respect of advances made to them.
19. In State Bank of Travancore v. George, 1975 Ker LT 416: (AIR 1976 Ker 169) a question arose whether a stipulation by an agriculturist debtor agreeing to pay compound interest could be presumed to be a substantially unfair transaction. In holding that it would be so in the absence of circumstances made out to rebut the presumption, the award of simple interest at 9 percent per annum up to a particular date and at 12 per cent per annum thereafter as fixed by the courts below, was upheld. This decision would also establish that merely because the borrower happens to be an agriculturist debtor who had agreed to pay compound interest on the advances made to him, the transaction does not ipso facto, become unfair if there are special circumstances warranting, the charging of a higher rate of interest. Again in Union Bank of India v. Dhanekula Koteswara Rao, 1979-2 Andh WR 165, the question that arose was, whether an agriculturist debtor could avail of the benefits of the Usurious Loans Act. In dealing with this question, it was held that though the court shall presume that the interest is excessive, if compound interest is charged on loans given to agriculturists, yet, in that case, there was no proof of any special circumstance justifying the rate of interest and, therefore, the compound interest charged at the rate of 114/2 per cent per annum was held to be excessive. This decision would also emphasise that the presumption with reference to the excessive nature of interest from the circumstance of the charging of compound interest in respect of a loan to an agriculturist debtor is not an absolute one as contended for by the learned counsel for the respondents, but is a rebuttable one on proof of special circumstances justifying the charging of interest at a particular rate in a given case.
20. In Canara Bank, Palan! v. Palaniswami Gounder, S. A. No. 235 of 1q78. Dot- 16-3-1981, this court had to consider the question whether compound interest payable by an agriculturist debtor at 3-1/2 percent per annum and 4 per cent per annum above the rate of interest fixed by the Reserve Bank of India, subject to a minimum of 8-112 per cent per annum and 9 per cent per annum respectively, would be usurious or not. Before the learned Judge, the question of the presumption in favour of agriculturists in respect of whose transaction compound interest is charged being rebutted by the presence of special circumstances justifying the same was not neither raised nor was considered. Indeed, on a consideration of the memo of calculation filed in that case the learned Judge concluded that the compound interest charged in that case was usurious. No doubt, it has also been stated by the learned Judge that the fact that interest has been charged at the discretion of the Reserve Bank of India will not enable the bank to contend that the compound interest is not unreasonable. From a perusal of the judgment. it does not appear that any circular from the Reserve Bank of India directing the lending of amounts at particular rate of interest was produced or relied upon as proof of special circumstances justifying the charging – of higher rate of interest, as in the present case. But if that decision intended to lay down that even if such circulars had been produced, they would not constitute special circumstances within the meaning of Explanation I to S. 3 (11 of the Usurious Loans Act referred to earlier, we have no hesitation in disagreeing with that view. As pointed out earlier, the whole object of the Usurious Loans Act was only to save agriculturist debtors from the oppression of private only lenders and nationalised banking institution, as we have toddy, charging rates of interest in accordance with the circulars issued by the Reserve Bank of India from time to time, was farthest from the contemplation of the makers of the Usurious Loans Act.
21. A faint argument was raised by the learned counsel for the respondents that this would result in a certain category of debts being taken out of the operation of the provisions of the Usurious Loans Act and this may result in the infraction of the guarantee of equality. Debts incurred from nationalised banks and other banking institutions, subject to the control of the Reserve Bank of India, would fall into a separate and distinct class, the classification bearing a nexus with the object of the Act. Under those circumstances, we are of the view that a nationalised bank or a banking institution functioning under the provisi6ns of the Banking Regulation Act and subject to the control of the Reserve Bank of India as the apex bank has no free hand in relation to the stipulation of interest on advances made by it to debtors and is bound by the periodical circulars issued by the Reserve Bank of India regulating the rate of interest on lending and this would, constitute a special; crew vista gee, within the meaning, of Explanation I to S. 3(1) of the Usurious Loans Act. In this case, as seen earlier, the petitioner had produced Exs. A-17 and A-18 and have not been in any manner disputed by the respondents and the circumstances that the petitioner is obliged to charge rates of interest in accordance with those circulars, would Justify the recovery of the amounts as claimed by the petitioner from the respondents without the application of the provisions of the Usurious Loans Act to the transaction in question.
22. The result is, in modification of the decree of the courts below; there will be a decree as prayed for. The Civil Revision Petition is therefore allowed with costs.
23. Revision allowed.
