ORDER
S.V. Maruthi, J.
1. This appeal is filed against the decree and judgment of the Principal Subordinate Judge, Eluru, in OS No.100 of 1992 passed on 26-3-1996. The defendants are the appellants. The plaintiff-State Bank of India, Vatluru Branch, West Godavari District, filed the suit for recovery of Rs.3,77,751/-.
2. The facts in brief are as follows :
The 1st defendant is the proprietary concern, 2nd defendant is the guarantor for the loan transaction between the plaintiff-bank and the 1st and 2nd defendants. An amount of Rs.1.50 lakhs was allowed as Cash Credit Mundy by the plaintiff-bank to the defendants in 1986. The defendants executed various security documents and furnished immoveable property as collateral security by creating equitable mortgage. They have also agreed to pay interest at 17.5% per annum with quarterly rests. In
1987, the defendants approached the plaintiff bank for enhancement of the limit by another sum of Rs.50,000/- and the plaintiff bank enhanced the limit by another sum of Rs.50,000/-. Again on 18-5-1987 another loan of Rs.60,000/- was given. Thus the defendants availed a total limit of Rs.2,60,000/- and the defendants had executed, on 1-8-1989 and 19-4-1990, revival letters acknowledging the debt and security. Inspite of the demand, the defendants have not paid the loan amount. Hence the suit.
3. The 1st and 2nd defendants filed a Written Statement which was adopted by the 3rd defendant. The defendants had denied the loan transaction and also execution of the loan documents and creation of equitable mortgage in favour of the plaintiff bank. The defendants claim that they are liable for waiver benefit under Agriculture Rural Debt Clearing Scheme to the tune of Rs.10,000/- as they are small farmers, that the rate of interest is excessive and penal, and that the suit is barred by limitation and therefore prayed for dismissal of the suit.
4. On the basis of the above pleadings, the following issues were framed:
1. Whether defendants 1 and 2 created equitable mortgage against the plaint schedule properties by deposit of title deeds?
2. Whether defendants acknowledged the debt?
3. Whether the suit claim is barred by limitation?
4. Whether the defendants are small farmers and entitled to the benefits of Act 45 of 1987?
5. To what Relief?
5. In support of their case, the plaintiff-bank examined PW1 and marked
Exs.A1 to A28. For the defendants, defendant No.3 was examined as DW1 and defendant No.2 was examined as DW2 and no documents were marked on behalf of the defendants. On the basis of the evidence adduced, the trial Court decreed the suit with interest at 15.5% p.a. with costs for Rs.3,77,751/- together with interest at 15.5% per annum on 2,60,000/- from the date of the suit till the date of redemption and thereafter. Three months time was granted for redemption. Aggrieved by the case the present appeal is filed.
6. The main argument of the learned Counsel for the appellants Sri T. V.S. Prabhakar Rao is that the Supreme Court in N.M. Veerappa v. Canara Bank, , has held that it is open to the Courts to exercise the discretion under Order XXXIV, Rule 11 of Civil Procedure Code (CPC) and reduce the rate of interest in the case of mortgage decrees. Therefore, the learned Judge ought to have reduced the rate of interest from the date of the suit till the date of realisation and the interest should have been awarded at 6% p.a.
7. While the learned Standing Counsel for the respondent-bank relying on Corporation Bank v. D.S. Gowda, 1994 (3) Scale 46 and Stale Bank of India v. Yasangi Venkateswara Rao, , contended that the Supreme Court in these two cases held that in view of Section 21-A of the Banking Regulations Act, 1949, the Courts cannot reopen any account maintained by the banks relating to transactions with its customers on the ground that the rate of interest charged, in the opinion of the Courts, is excessive or unreasonable. Section 21-A of the Banking Regulations Act is a restraint on such power of Courts. Therefore, the Courts have no power to reduce the rate of interest in view of Section 21 of the Banking Regulation Act. The Counsel also submitted that
under the Debt Recovery Act in respect of suits for recovery of money advanced by the financial institutions over and above Rs. 10.00 lakhs, the provisions of CPC are not applicable in the proceedings before the Debt Recovery Tribunal. Therefore, in respect of suits which are filed before the Debt Recovery Tribunal, Order XXXIV, Rule 11 CPC is not applicable and the question of exercising discretion under Order XXXIV, Rule 11 of CPC does not arise. Whereas in respect of suits filed before the civil Courts for recovery of the amounts less than Rs. 10-00 lakhs advanced by the financial institutions in view of judgment in Veerappa’s case (supra), the Courts can exercise discretion and reduce the rate of interest, thus, resulting indi scrim inatory treatment between the loan advanced by the financial institutions on the basis of the value which is not a permissible classification under Article 14 of the Constitution of India. Section 21-A was enacted keeping in view the economy of the country. The business of the banks is to receive deposits and pay interest on the said deposits and advance loans on interest. If the Courts in exercise of its discretion under Order XXXIV, Rule 11 of CPC reduces the rate of interest, then the economy and business of the bank will be affected. The Counsel also submitted that the judgment in Veerappa’s case (supra), has not interpreted Section 21-A, while the judgments in B.S. Gowda’s case (supra) and Yasangi Venkateswara Rao’s case (supra), interpreted the said section and, therefore, the judgment in Yasangi Venkateswara Rao’s case (supra), being a later judgment it prevails over the judgment in Veerappa’s case (supra).
8. Before considering the issues
that arise for consideration in this appeal, at the outset, we would like to point out that in the plaint the interest claimed by the respondent bank is 17.5% per annum. However, the trial Court granted the interest
at 15.5% per annum. There is no cross objection filed by the respondent bank. Therefore, the rate of interest awarded by the trial Court has become final. It is also not in dispute that the apepllant has executed equitable mortgage by deposit of title deeds in favour of the respondent-bank. The issue, therefore, is whether the Courts have power to reduce the rate of interest from the date of the suit till the date of realisation under Order XXXIV, Rule 11 CPC. Had the judgments in Gowda’s case (supra) and Yasangi Venkateswara Rao’s case (supra) were not brought to our notice, perhaps, we would have answered the question in the affirmative following the judgment in Veerappa’s case (supra). Therefore, we have to examine the issue in the light of the judgments of the Supreme Court in Gowda’s case (supra); Veerappa’s case (supra) and Yasangi Venkateswara Rao ‘s case (supra).
9. In D.S. Gowda’s case (supra), there were two issues viz., the 1st issue relates to the loan advanced by the bank for agricultural purpose for which the borrower executed a promissory note and also a Hypothecation Deed and the interest payable ranges from 10.5% to 13% per annum; and the 2nd issue relates to the loan advanced by the bank to construct flats on the plot allotted to D.S. Gowda, i.e., for commercial purpose. D.S. Gowda the borrower secured over draft facility upto Rs.2,50,000/- from the Bank to construct flats and agreed to repay the loan with interest at 16.5% per annum. He also executed a promissory note and created equitable mortgage by depositing the title deeds. The question that arose for consideration in the said decision was whether in view of the insertion of Section 21-A in the Banking Regulations Act by Banking Loans (Amendment) Act, 1983 (Act 1 of 1984), whether the Courts are precluded from subjecting transactions entered into between the banks
and borrowers from scrutiny under the provisions of the Usurious Loans Act, 1918 or any other similar State law, with a view to giving relief thereunder, and, if yes, whether relief under such laws is wholly impermissible. While answering the questions raised above, the Supreme Court distinguished the loans granted for commercial purpose from the loans granted for agricultural purpose. As regards the loans granted for commercial purposes, the Supreme Court held that the Courts have no power to reduce the rate of interest and the circulars issued by the Reserve Bank of India regulating the rate of interest for commercial purpose is binding on the banks. While holding as above, the Supreme Court accepted the contention of the Corporation Bank that the rate of interest prescribed by the Reserve Bank of India take into consideration the true financial and economic policy of the country and operate as bench-makers against which private lending parties are supposed to adjust and compare their own rates of interest and, therefore, the Court should ordinarily show reluctance to interfere in such matters as it may have the effect of disturbing the economic policy meticulously framed and implemented in the country and the learned Judges further observed that “we find considerable substance in this line of reasoning, particularly where the minima and the maxima are prescribed by the Reserve Bank.” The learned Judges also held that the rate of interest insofar as the loan advanced for commercial purpose is concerned, is not excessive and the Courts are not competent to reduce the same. Holding as above, the Supreme Court held that the borrower is liable to pay interest at 16.5% p.a, viz., the contracted rate of interest. It was also held that as long as the Banks do not charge interest higher than the rate prescribed by the Reserve Bank of India under the circulars issued, the Courts would not interfere with the rate of interest charged by the Banks.
10. In N.M. Veerappa’s case (supra), the transaction is also a commercial one and the contracted rate of interest is 16.5%. The borrower is a firm and they have executed a promissory note and also created equitable mortgage in favour of the bank. The trial Court decreed the suit with interest at 6% p.a., from the date of the suit till the date of realisation. While the High Court allowed the appeal filed by the bank and decreed the suit with future interest at the contractual rate of interest of 16.5% p.a.m from the date of the suit till the date of realisation, when the matter went to the Supreme Court, the Supreme Court reduced the rate of interest to 6% p.a., on the ground that Section 21 -A of the Banking Regulation Act have not the overriding effect on a Central Legislation like the Civil Procedure Code under Order XXXIV, Rule 11 which begins with a non-obstance clause and the effect of the non-obstante clause in Section 21-A is only to override the Central Act, namely, the Usurious Loans Act, 1918 and any other “law relating to indebtedness in force in any State”. Therefore, the intention of the Parliament in enacting Section 21-A is not to override the Code of Civil Procedure among the Central Statutes. Further the Civil Procedure Code, 1908 is not a law relating to indebtedness in force in any State. Section 21-A overrides only the Usurious Loans Act, 1918 and other laws relating to indebtedness in force in any State. Therefore, Order XXXIV, Rule 11 of CPC prevails over Section 21-A and consequently the Courts are competent to exercise their discretion in levying interest from the date of the suit till the date of realisation. According to the learned Judges, “the discretionary power given to the Courts is neither traceable to Section 74 of the Contract Act nor to any power in the Usurious Loans Act, 1918 nor to any State Statutes permitting a Court to scale down contractual rates of interest.” Referring to the judgment in D.S. Gowda’s case
(supra), the learned Judges observed that the said judgment does not come to the aid of the bank as the questions that arose for consideration in the said decision were that whether the circulars and directives issued by the Reserve Bank oflndia are binding on the banks and if the banks ignore the said circulars and directives, whether the Courts could reopen the transaction as to rate of interest notwithstanding Section 21-A of the Banking Regulation Act and also the question whether the discretion vested in the Courts under Order XXXIV, Rule 11 of CPC is fettered by Section 21-A was not considered by the Courts.
11. Coming to the decision of the Supreme Court in Yasangi Venkaleswara Rao ‘s case (supra), which went to the Supreme Court from the Andhra Pradesh High Court: The High Court held that; “the Banking Regulations Act is beyond the legislative competence of the Parliament as the grant of debt relief has always been treated as a legislative subject to be passed upon by the regional Governments alone and that the words ”Relief of agricultural indebtedness” were specially added by our Constitution to enable the State Legislature to alleviate the suffering of the farmers from their agricultural indebtedness. Therefore, it is within the legislative competence of the State and not the Parliament and hence Section 21-A is ultra vires the power of the Parliament”. The Supreme Court reversed the said decision and held that Section 21-A is within the legislative competence of the Parliament under Entry 45 of List of the Seventh Schedule. While holding as above, the learned Judges observed that when a security is offered in the case of mortgage of property, charging of compound interest cannot be regarded as excessive as entering into a mortgage is a matter of contract between the parties and if the parties agree that in respect of the amount advanced against a mortgage compound
interest will be paid, the Courts cannot interfere and reduce the amount of interest agreed to be paid on the loan so taken. The learned Judges also observed that “The mortgaging of a property is with a view to secure the loan and has no relation whatsoever with the quantum of interest to be charged.
12. What follows from above is that the Supreme Court in D.S. Gowda’s case (supra) was considering the scope of power of the Courts to reopen a transaction under Section 21-A of the Banking Regulation Act in cases where the banks charge interest on the loan advanced by them at a rate higher than the rate prescribed by the Reserve Bank of India. In such cases, the Courts can reopen the said transaction, but not on the ground that the interest charged is excessive or unreasonable, in the sense it is confined only to see whether the banks charge interest on a loan advanced by them inconfirmity with the circulars issued by the Reserve Bank of India or not. If the Courts come to the conclusion that the interest charged by the banks is not inconfirmity with the Circulars/Directives issued by the Reserve Bank of India and is on a higher side, then the Courts will reopen the transaction to bring it inconformity with the rate of interest fixed by the Reserve Bank of India. However, the learned Judges left open the question whether Section 21-A of the Banking Regulation Act would debar the Courts from interfering if the Circulars/Directives issued by the Reserve Bank of India do not fix the maxima and leave it to the discretion of the banks to determine the rate of interest above the minimum fixed. The said principle of reopening a transaction under Section 21-A by the Courts on the ground that the banks have charged the interest at a rate higher than the rate fixed by the Reserve Bank of India is applicable to agricultural loans as well as
the commercial loans (non-agricultural loans).
13. While the Supreme Court in Veerappa’s case (supra) was considering the discretionary power conferred on the Courts under Order XXXIV, Rule 11 of CPC enabling the Courts to reduce the rate of interest from the date of the suit till the date of realisation. The question whether the discretionary power conferred on the Courts under Order XXXIV, Rule 11 of CPC to fix the rate of interest from the date of the suit till the date of realisation did not arise for consideration in D.S. Gowda’s case (supra). Therefore, it cannot be said that there is a conflict between the decision of the Supreme Court in D.S. Gowda’s case (supra) and Veerappa’s case (supra). The issue before the Supreme Court in D.S. Gowda’s case (supra) was entirely different from the issue that arose for consideration in Veerappa’s case (supra). If there is no conflict between D.S. Gowda’x case (supra) and Veerappa’s case (supra), then the judgment in Veerappa’s case (supra) holds the field as far as the interest from the date of the filing of the suit till the date of realisation is concerned as the field is occupied by Order XXXIV, Rule 11 of CPC. If the judgment in Veerappa’s case (supra) holds the field, then the appellant can ask this Court to exercise the discretion to reduce the rate of interest.
14. The next judgment to be considered is the judgment in Yasatigi Venkateshwara Rao ‘s case (supra). We may point out that this is a case where the legislative competence of the Parliament to enact Section 21-A was being considered. The Supreme Court while considering the legislative competency of the Parliament held that enactment of Section 21 is within its competence and they were not considering the power of the Court to reopen the transaction under Section 21-A of the
Banking Regulation Act. It is no doubt true that there was an observation that the High Court would not normally declare charging of compound interest as excessive when a security is offered in the case of mortgage of property. The learned Judges also observed that “Entering into a mortgage is a matter of contract between the parties. If the parties agree that in respect of the amount advanced against a mortgage compound interest will be paid, we fail to understand as to how the Court can possibly interfere and reduce the amount of interest agreed to be paid on the loan so taken”. With great respect, we are of the view that these observations are not supported by any reasons. Further, these observations were not made in the context of interpreting Section 21-A of the Banking Regulation Act as the question of interpretation of Section 21-A of the Banking Regulation Act did not arise in the said decision. The judgment in Veerappa’s case (supra) is supported by reasons. Therefore, though the judgment in Yasangi Venkateswara Rao’s case (supra), is a later judgment, later to the judgment in Veerappa’s case (supra), since the judgment in Veerappa’s case (supra), is supported by reasons, we follow the same as it is now well settled that where there is a direct conflict between the two decisions of the Supreme Court rendered by co-equal benches, the High Court must follow the judgment which appears to it to state the law elaborately and accurately. (Refer: Seethalakshmi Ammal v. State, , Ganga Saran v. Civil Judge, , Etc).
15. In other words, the effect of the judgment in Veerappa’s case (supra) is that the Courts continue to exercise the discretionary power to fix the rate of interest from the date of the suit till the date of realisation notwithstanding Section 21-A of the Banking Regulation Act. However, in our view, the judgment in Veerappa’s case
(supra) requires reconsideration for the following reasons; Section 21-A is incorporated in the Banking Regulation Act keeping in view the financial and economic policy of the country which was recognised by the Supreme Court in D.S, Gowda ‘s case (supra). Further Section 21-A is a special provision regulating the power of the Court to reopen a transaction relating to a loan advanced by the bank. Order XXXIV, Rule 11 of CPC is a general provision regulating the grant of interest from the date of the suit till the date of realisation in the case of mortgage suits. Infact the Civil Procedure Code itself makes a distinction as to the power of the Court to levy interest in suits other than the mortgage suit. !t is now well settled that a special provision prevails over a general provision and, therefore, Section 21-A of the Banking Regulations Act prevails over Order XXXIV, Rule 11 of CPC.
16. Further, the public deposits the money in the bank and the said money is advanced as a loan to the public once again. While carrying on this type of business it pays interest to the public who deposits the money and collects interest from the public on the loans advanced to them. It is necessary in public interest that the margin that the banks have, should be on the higher side. If the interest granted to the public on deposits is higher than the interest that it gets from the loans advanced by it, the banks will be running on loss, which is against the public interest.
17. In addition, under the Debt
Recovery Act for the recovery of loans which are more than Rs.10-00 lakhs, the suits have to be filed before the Debt Recovery Tribunal. The provisions of the Civil Procedure Code are expressly excluded and they are not applicable to the proceedings before the Debt Recovery Tribunal. Therefore, a borrower who obtains loan for more than Rs.10-00 lakhs will not
get the benefit of Order XXXIV, Rule 11 of CPC, while a borrower who obtains loan less than Rs.10-00 lakhs will get the benefit of Order XXXIV, Rule 11, which may perhaps be held to be discriminatory. However, we do not propose to express any opinion on this issue.
18. Since the judgment in Veerappa’s case (supra), is binding on us, we exercise our discretion and reduce the rate of interest from the date of the suit till the date of realisation to 12.5% per annum. The appeal is accordingly allowed. In the circumstances of the case, there will be no order as to costs.