Bank of India vs Rao Saheb Krishna Rao Desai

Sabhahit, J.-This appeal by the plaintiff bank is directed against the judgment and decree dated 16-6-1979 passed by the II Addl. Civil Judge, Belgaum, in O.S. No. 101 of 1977, on his file, disallowing compound interest and interest at enhanced rate from a certain period.

The defendant obtained a loan of Rs. 36,750 from the plaintiff Bank on 16-10-1971. He executed a promissory note as per Ext-P-1 as also a hypothecation deed, as per Ex P-5. He also deposited title deeds of immovable properties creating mortgage. Both in the promissory note Ex P-1 as also in the hypothecation deed, he agreed to pay the said sum on demand with interest at 41/2% per annum over the Reserve Bank Rate, minimum 91/2% per annum with quarterly rests. The original minimum rate fixed was 101/2% per annum. According to the Bank, it was subsequently increased from 1-8-1974 to 141/2% per annum and from 25-6-1975 it was raised to 151% per annum by the appellant in terms of the agreement between the parties.

The plaintiff Bank instituted the suit at O.S. No. 101 of 1977 for recovery of the amount outstanding viz., Rs. 65,997-17 p. with interest at 151/2% per annum from the date of the suit till the date of realisation and for costs etc. by sale of the mortgaged properties and the hypothecated tractor.

The suit was decreed by the Court below for Rs. 52,989-61 p., with future interest @ 101/2% per annum on Rs. 36,750 from the date of the suit till the date of realisation. Feeling aggrieved by the disallowance of part of interest claimed and the rejection of claim for compound interest, the plaintiff Bank has come up in appeal before this Court.

The learned Advocate Shri S.G. Sundaraswamy appearing for the appellant vehemently contended that the Court below erred in disallowing a sum of Rs. 13,007-56 p. from the suit claim. He further submitted that the Court below was not justified in restricting the interest to 101/2% per annum, even with regard to future interest. The future interest should have been awarded @ 151/2% per annum from the date of the suit till the date of realisation. He further submitted that the Court below should have seen that the respondent agreed, to pay interest @ 51/2% per annum over the Reserve Bank Rate, minimum 141/2% per annum from 1-8-74 as per Ex-P-32. According to him, the words ''with quarterly rests for value received'' in the promissory note Ex. P-1 as well in the hypothecation deed Ex P-5, clearly indicated that the defendant respondent agreed to pay compound interest as per the usual custom of Banks and commercial Institutions. Hence, he submitted that the appeal was entitled to succeed.

As against that, the learned Advocate Shri V.T. Raya Reddy appearing for the respondent vehemently contended that there was no custom nor understanding to pay compound interest at the time of taking the loan. He further submitted that the conditions stipulated in Ex. P-5 for enhancing the rate of interest were not satisfied by the Bank and, hence, the Bank could not ask for enhanced rate of interest. He also submitted that the so called agreement Ex p-32 was taken as a blank form on which the respondent was made to put his signature even at the time of issuing the loan and that subsequently it was filled up without the consent and knowledge of the defendant respondent and so it was not binding on him. He also pointed, out that Ex P-32. the latter part, purported to create novation in the contract which was never the intention, of the parties and, hence, he submitted that the appeal was liable to be dismissed.

The points, therefore, that arise for our consideration in this appeal are:

(1) Whether the parties understood that compound interest was stipulated by the term ''with quarterly rests'' at the time of the execution of Ex P-1, the promissory note and ExP-5, the hypothecation deed? and, if not, whether the defendant is liable to pay compound interest as claimed?

(2) Whether the Bank has satisfied the conditions stipulated by notifying the enhanced rate of interest to the loanee and so is entitled to charge enhanced rate of interest as claimed?

(3) Whether the trial Court was justified in awarding simple interest @ 101/2% per annum on the arrears of loan as also as future interest?

8.Point I: The plaint is for recovery of money due under equitable mortgage under S. 26 read with Order VII Rule I of the Code of Civil Procedure and is in the form contemplated in the Schedule to the Code of Civil Procedure. In para-3 of the plaint, the details are given. It reads:

"For the said consideration of Rs. 3,6,750 the defendant created'' an equitable mortgage of his agricultural lands by depositing with the plaintiff|Bank his title deeds. The particulars of the mortgage are as under:

Name of Mortgagor Rao Saheb Krishna Rao Desai

Name of Mortgagee. Branch, Shahapur, Belgaum.

Bank of India, Shahapur (Belgaum)

Consideration for the mortgage. Rs. 36, 750.

Rate of interest 41/2% over Reserve Bank rate minimum 101/2% per annum or at such other increased rates notified to the borrower mortgagor by the plaintiff Bank from time to time.

Date of Mortgage 16th Oct. 1971.

Description of the mortgaged properties xx xxx xx Thus, against Column No. 4, the rate of interest is no doubt shown as 41/2% per annum over Reserve Bank rate minimum 101/2% per annum or at such other increased rates notified to the borrower. It does not state about any compound interest or quarterly rest.

In para-6 of the plaint, however, it is no doubt stated thus:

"The defendant has agreed to pay interest with quarterly rests. The interest applied in the loan if not paid has been compounded with the principal. This is in accordance with the defendant''s agreement -"

That is stated while explaining the statement of accounts kept in the Bank against loanees account.

In the written statement, the defendant has specifically denied that he ever agreed to pay compound interest In para-9 of the written statement, this is what the defendant has, stated:

"The allegations in para-6 of the plaint would clearly show that the Bank has charged compound interest which is not in accordance with the terms of agreement between the parties. It is not true to say that the defendant has agreed for charging compound interest on the loan account......."

Thus there is obvious dispute with regard to the charging of compound interest.

The learned Civil Judge in the course of his judgment, in para-15 towards the end, has observed:

"..The learned Counsel for the plaintiff has not produced any commentary or authority wherein it has been held that the clauses similar to the one contained, in, Ex P-1 is to be interpreted as the clause authorising to charge compound interest. Therefore, I find that the claim of the plaintiff for charging the account of the defendant, with compound interest is liable to be rejected"

It is no doubt true that the learned Advocate Shri Sundaraswamy invited our attention to Paget''s law of Banking, 8th Edn. (1972), In Chapter V"of the Book, under the caption ''Interest. It is stated thus:

"There is no common law right to charge even simple interest on an overdraft but the claim could be supported on the ground of universalcustomof bankers or on the basis of implied agreement Where the customer has acquiesced in the system under which the interest is charged, that also would justify the claim. Such acquiescence will justify the charging compound interest or interest with periodical rests, so long as the relation of banker and customer exists, and the relationship is not changed into that of mortgagee and mortgagor. The taking of a mortgage or a charge by way of legal mortgage to secure the fluctuating balance of an account is not, however, inconsistent with the relation of banker and customer so as to preclude compound interest. The effect of the practice of bankers in debiting interest to an overdrawn current account periodically and thereby increasing the capital sum was considered in Yourell v. Hibernian Bank (1918) AC 372, in which Lord Atkinson said:

"The Bank, by taking the account with these half-yearly rests, secured for itself the benefit of compound interest. This is a usual and perfectly legitimate mode of dealing between banker and customer"

In Holder v. Inland Revenue Commissioners, 1932 AC 624=1932 All.E.R. 265 the Court of Appeal approved the statement of Lord Cowan in Reddie v. Williamson (1863) 1 Macph (Ct. of Sess.) 228.

"that the periodical interest at the end of each Year is a debt to be then paid, and which must be held to have been paid when placed to the debit of the account as an additional advance by the bank for the convenience of the obligate"

The case went to the House of Lords and the decision was confirmed but the above point was not touched on by the House, their judgment being given on the construction of s. 36 (1) of the Income Tax Act, 1918,. In Paton v. Inland Revenue Commissioners, (1938) AC 341=(1938) 1 All.E.R. 786. However, the same point was dealt with by Lord Atkin in the following terms "The question is whether, when the charges are added to the existing indebtedness at the end of one half-year and the whole sum brought down is a debit item at the beginning of the next half-year so that interest is charged on the last half-year''s interest, the charges have been paid.

The ordinary man would, I think, say that so far from being paid they are added to the ordinary indebtedness because they are not paid; and I see no reason why the law should say anything different."

There were no credit entries in the account and the debit entries comprised miscellaneous charges and interest. His Lordship then quoted Russell, J., in Re Jauncey, Bird v. Arnold 1928 Ch 471 with approval that the contention that interest must be deemed to have been paid "would really amount to a travesty of the actual facts; because in the case of such a provision as is contained in the present deed which enables the interest to be capitalised, the interest is not capitalised because it is in fact paid, but because it has in fact not been paid."

His Lordship further referred to the ''system adopted by the banks for the purpose of giving them compound interest without perhaps flaunting that fact before their customer This does not, however, affect the, question whether a banker is entitled to charge compound interest. The cases referred to immediately above were tax cases and the question which came up in each of them for decision was whether the interest had, for tax purposes, been paid, Lord Maugham concluded:

"that Holder''s case cannot be supported so far as it decided that the customer must be taken to have paid the interest on the advance due by him by means of further periodical advances made for that purpose."

The reference is a little harsh, for the borrower has the option of paying the interest, if he can and it is convenient for him to do so; moreover, where the borrowing is by overdraft, interest debited at even periods, whether quarterly, half-yearly or annually is inevitably compound if it is merely added to the debt on which it is charged and is not paid from other sources. It becomes a liability for which the customer is liable from the moment it accrues and where there is no question of obtaining an advantage such as that offered by the Income Tax Act it does not matter whether the interest is in effect compound interest.

The question whether a bank is entitled to charge compound interest must, it would seem, be decided in the affirmative on the basis that there is a custom, to that effect or that the customer has impliedly consented where without protest he allows his account to be debited at regular intervals. Of course, where the overdraft fluctuates considerably it may well be that the interest debited one day is paid by the operation of the rule in Clayton''s case, (1916), 1, Mor. 572, as applied to the account. Under the Law Reform (Miscellaneous Provisions) Act 1934, sec. 3 any Court of Record may in any proceedings for the recovery of any debt or damages, order such interest as it thinks fit.

In Corinthian Securities, Ltd. v. Cato, (1970) 1 QB 377, the plaintiffs were not bankers (though they claimed to be) giving a client overdraft facilities. The Court of Appeal found that their loan to the defendant was an investment on a mortgage of property and applied the dicta of Lindley, L.J., in Goslings and Sharpe v. Blake, (1889) 23 QBD 324. The defendant was thus entitled to deduct tax when paying the interest." (Emphasis added)

Thus, it is seen that the entire chapter applies to the relationship of banker and customer in the matter of overdraft and it has no application in the case of loans advanced on mortgage of properties, as in the present case. It is pointed out by the Author, relying on the observation of Lord Atkinson in Yourell v. Hibernian Bank, 1918 AC 372, that it is the practice of bankers to debit interest to an overdrawn current account periodically and thereby increase the capital sum. In fact, it is very clearly pointed out in the above passage itself, quoting several decisions, that the practice is available so long as the relationship of banker and customer exists and the relationship is changed in the case of mortgagee and mortgagor.

It is pointed out by the learned Author at the very beginning that there is no common law right to charge even simple interest on an overdraft but the claim could be supported on the ground of universal custom of bankers and on the ground of implied agreement. Further, the learned Author has observed that the question whether a bank is entitled to charge compound interest must, it would seem, be decided in the affirmative on the basis that there is a custom to that effect or that the customer has impliedly consented where without protest he allows his account to be debited at regular intervals. Again, the learned Author has pointed out that under the Law Reforms (Miscellaneous Provisions) Act 1934, s. 3, any Court of Record may in any proceedings for the recovery of any debt or damages, order such interest as it thinks fit and the custom was not made available in the case of CorinthianSecurities Ltd, v. Cato, (1970) 1 Q.B. 377, as it was found that loan to the defendant was for an investment on a mortgage of property.

Thus, reading the passage carefully, though it is true that the term ''quarterly rest'' in banking practice would in England normally mean that at the, end of every quarter the banker is entitled, if the interest is not paid, to credit that amount to the principal on the assumption that thereby the interest due from the customer is discharged, this custom exists only in the case of the normal commercial banking transactions like overdrafts and it would not apply in the ease of a mortgage transaction where money is advanced on the security of landed property, even in England.

Moreover, it is in evidence that the plaintiff Bank was not, in the instant case, concerned in this transaction with its normal commercial banking. The loan advanced in effect is a mortgage transaction as is made clear in the plaint. It is a matter of common knowledge that after the banks were nationalised in our country in the year 1970, with a view to develop the agricultural sector, the Central Government thought it necessary to open sections in the commercial banks also for advancing loans to the agriculturists. A separate branch is set up in the commercial banks wherever they deal with agricultural financing for this purpose and the usual practice and custom prevailing in commercial banking would not be attracted to this section of agricultural financing. Compound interest or the practice of quarterly or half-yearly rest is something strange to agricultural financing where the loans are either short-term, middle-term or long-term. Short-term financing is done for growing the annual crops. They are termed as ''crop loans''. Middle-term financing is done for improvements in the lands and the period would be about three years to five years. Long-term financing is given for clearing off of old debts and for the long-term investments. That being so, in agricultural financing, the question of the normal commercial banking conditions as in overdrafts would not come into play and the bank ''custom'' and habits which are usual in the case of commercial banking cannot be smuggled into agricultural financing.

P.W. 1 Mohan Mangesh Yardi, in his evidence, has made it clear that the defendant was an agriculturist and the loan was advanced for the purpose of purchasing a tractor with a view to improve his 54 acres of land under cultivation and also to bring into cultivation some barren lands. In para 12 of his deposition, there are indications also to show that the bank has a separate section for agricultural financing. This is what he has stated:

"It is true that in case of hypothecation it is to be periodically inspected by the Bank staff and when such inspection is held the record is maintained in the Bank. During my tenure the tractor hypothecated in this case was inspected by my agricultural Finance Officer .... During my period the Agricultural Finance Officer, a lady as well as a gentleman, who succeeded her, have inspected the tractor in this case..."

In the instant case, however, the Bank has used the printed forms which are normally used in the case of commercial transactions and the promissory note Ext P-1 and the hypothecation deed Ext. P-5 are taken in the printed forms and in the printed form in Ext. P-1 there is a clause about quarterly rests. It reads:

"On Demand 1, Raesaheb Krishna, rao Desai promise to pay Bank of India or order, the sum of Rupees Thirty six thousand seven hundred and fifty together with interest on such sum from this date at the rate of 41/2% OBR, min. 91/2% p.a., present effective rate 101/2 per cent per annum with quarterlyrests for value received. " (Emphasis added)

Again, in Ext. P-5 (the hypothecation deed), which is in printed form, Clause 3 reads:

Where the accommodation is by way of Loan then the said Loan or the balance thereof due for the time being shall carry interest at the rate of 41/2 per cent per annum above the Reserve Bank of India rate for Demand Loans from time to time with a minimum rate of 91/2% per annum or at such rate as may from time to time be fixed by the Bank and notified to the Borrower and shall be payable with quarterly rests on the 31st March, 30th June, 30th September and 31st December each year."

We have already explained above that the clause ''quarterly rests'' would not arise in the case of agricultural transactions in the sense it prevails in England in commercial banking. Moreover, there is no whisper in the plain alleging any such custom or bank practice or implied contract by acquiescence on the part of the defendant It is significant to note in this context that the Bank has not madeavailable to the Court the terms andconditions on which the loan was sanctioned by the Regional Office though the said document, as admitted by P.W. 1 Yardi, was in the branch office. (Vide: Para-7 of his deposition) The agreement and promissory note are taken on printed forms meant for commercial transactions, though no doubt annual instalments are granted as in agricultural loans under Ext. P-4.

We have to next see whether the parties had in mind the meaning of this clause as meaning charging of compound interest'' by crediting the interest due to the principal when the transaction actually took place. It is manifest that any valid contract is based on consensus ad idem. The maxim is included in the Indian Contract Act in S. 13, which reads:

"Two or more persons are said to consent when they agree upon some-thing in the same sense."

We would proceed to examine whether, on the facts of this case, it is clear that the bank and the loanee understood and Agreed by the term ''quarterly rests'' that the loanee was bound to pay compound interest in case he defaulted in payment of interest every quarter.

For that, we turn to the evidence of P.W. 1 Mohan Mangesh Yardi, the Manager of the Shahapur Branch of the Bank from July 1971 to July 1974. The date of the transaction is admittedly 16-10-1971. It is, therefore, obvious that P.W. 1 was the person who represented the Bank at the time of the present transaction.

It may be pointed out that P.W. 1 has never stated in the course of his evidence that he understood by the term ''quarterly rest'' in Exts. P-1 and P-5 that if the loanee did not pay the interest every quarter, the same would be added on to the principal, thus making the loanee pay compound interest. On the other hand, he has made it clear by his answers in the course of his cross-examination that he never understood the term ''quarterly rest'' in that sense. This is what he has stated in para-10 of his deposition:

"There is no stipulation in the promissory note that interest is to be compounded"

This makes it manifest that P.W. 1 never intended that while taking the promissory note Ext P-1 or the Hypothecation deed Ext. P-5 that the loanee should pay compound interest, because of the term ''quarterly rest'' used in the documents. Moreover, that manifestly shows that there is no such custom, as in England, of charging compound interest in the plaintiff Bank, relying on the words ''quarterly rests'' which literally mean only that the interest shall be paid every quarter.

Adverting now to the evidence of the defendant it is his case throughout that he never agreed to pay compound interest in his evidence, he has emphatically stated in para-2 of his deposition thus:

"There was no agreement between me and the Bank to pay the compound interest or the penal interest."

That is also the contention in the written statement.

Thus, it is obvious that when the parties entered into the transaction of loan neither the creditor nor the debtor intended that compound interest should be paid in the sense that at every quarter if the interest is not paid by the loanee the same should be added on to the principal, thus making the loanee pay compound interest. That being so, the stipulation which is printed was never intended as in England and as such it cannot be enforced placing reliance on English custom and practice.

There is no question of acquiescence also because it is not the case of P.W. 1 or of P.W. 2 that the statement of accounts were sent to the debtor every quarter showing that interest was added on to the principal. Hence, there is no implied contract also.

It should be seen that when the Bank got issued a legal notice to the debtor as per the original of Ex-P-25, the Bank never claimed compound interest. In Ex p-25, it is stated:

"..You approached my clients for grant of loan for the purpose of meeting part cost of purchasing one International 35 H.P. Tractor valued at 49,274/-. On being satisfied about your need my clients agreed to sanction you a sum of Rs. 36,750. It was agreed that the loan should carry interest at 4% Over Bank Rate minimum 131/2% per annum with liberty to my clients to increase the rate of interest according to the directions of the Reserve Bank of India.

Thus it is obvious that the Bank never instructed the lawyer to, mention about compound interest and compound interest is never mentioned. The notice is dated 28-6-1975. It may further be mentioned that in the last but one para it is even stated thus:

"It is found by my clients that you have failed to pay instalments as agreed. Similarly you have failed to pay interest as and when it accrued due..."

Thus, it makes it clear that the parties understood if at all by ''quarterly rest'' that interest is to be paid every quarter and nothing more.

The fact that even the Advocate appearing for the Bank before the trial Court was unable to show to the Court any ruling or commentary to show that term ''quarterly rest'' indicated by necessary implication compound interest would go to show that even during trial, the Bank was unable to point out that by quarterly rest they meant that if interest is not paid every quarter it should be added on to the principal and thus compound interest should, be charged. That again establishes absence of any custom as in England.

Even in the plaint, as pointed out above, in para-3, while giving the particulars, against column No, 4, it is not mentioned that the loanee was to pay compound interest. Obviously, therefore, that was neither the proposal of the Bank nor was it accepted by the loanee.

Again, in para-4 of the plaint, during description of different documents taken from the defendant, it is stated in Clause (a) thus:

"A Demand promissory Note for a sum of Rs. 36,750 under which the Defendant has promised to pay on demand the sum of Rs. 36,750 with interest at 41/2% over Reserve Bank rate, minimum 91/2% per annum effective rate being 101/2% per annum."

Thus, there is no mention of stipulation of payment of compound interest as understood by the words ''quarterly rest''.

That makes it clear that at any rate till 28-6-1975 the Bank nor it officers never intended or meant that by the term ''quarterly rest'' the loanee was to pay compound interest. That being so, it as obvious that that clause ''quarterly rest'' used in the printed form was never intended in its English technical or customary sense by the parties meaning thereby that compound interest should be charged. Hence, that clause of the contract as is now tried to be enforced, which was never intended by the parties at its inception and execution, cannot be enforced by the Bank as it is void in the eye of law.

In that view, though for different reasons, discussed above, we agree with the trial Court that the plaintiff Bank could not charge compound or penal interest on the loan.

35.Point No. II: The Bank has claimed enhanced rate of interest at 141/2% per annum from 1-8-1974 and at 151/2% from 25-6-1975; it has also claimed; future interest at the same rate. The defendant has resisted the claim on the basis that he agreed to pay 101/2% per annum, though an option was reserved by the Bank to notify to him higher rate of interest as and when that Reserve Bank of India increased its rate of interest and the Bank never notified such increase in the rate of interest.

To this, the reply of the Bank is that since the plaintiff himself gave Ex-P-32 on 28-11-1974 agreeing in the latter part and confirming under para-2 to pay interest at 141/2% per annum from 1-8-1974, there was no need to further notify to him about the increase.

It is however, the case of the defendant respondent that Ex. P-32 was never given by him and that the Bank took several signatures on blank forms at the time of executing the promissory note and the hypothecation deed and that without his consent and knowledge they have thereafter inserted particulars in the blanks left in such forms and that Ex-P-32 is one such blank form on which his signature was taken.

It is no doubt true that in Ex-P-5 it is stipulated thus:

"3. Where the accomodation is by way of Loan then the said Loan or the balance thereof due for the time being shall carry interest at the rate of 41/2% per annum above the Reserve Bank of India rate for Demand Loans from time to time with a minimum rate of 91/2% per annum or at such rate as may from time to time be fixed by the Bank and notified to the Borrower and shall be payable, with quarterly rests on the 31st March, 30th June, 30th September and 31st December each year."

Thus, the conditions stipulated for increasing the rate of interest are:

(1) There should be a corresponding increase in the Reserve Bank of India Rate for demand loans and (2) The Bank shall notify to the borrower about such increase.

In the instant case, P.W. 1 who was the Manager at the relevant time, during the course of his cross-examination, when he was questioned whether he had notified about the increase in the Reserve Bank Rate to the borrower, has stated:

"..During my period, there was enhancement of the rate of interest. I don''t remember that the defendant was informed about the changed rate in interest. The Reserve Bank of India informs our Head Office about the changes in the rate of interest and our Head Office intimates the subordinate branches by issuing circulars. Such circulars are in the plaintiff Branch Office..."

No circular, however, about the enhancement of the rate of interest is produced before the Court.

P.W. 2 Srinivas Sadashiv Bhangui, who was the Manager of the Branch since 21st July 1974, however, is more emphatic. He has stated:

"Whenever there was change in the rate of interest I remembered to have issued a registered letter to him. I don''t think that copy of that letter is produced in this case. From 1971 upto the date of the suit the rate of interest has changed many times. But I can''t say how many times. Apart from Exhibit P-32 there is no document executed by the defendant to pay increased rate of interest. From the document produced in this Court, I cannot say what was the rate of interest charged to the account of the defendant from time to time. Penal interest is also charged to the account. 2 or 21/2% is the penal interest.

Thus, though this witness has stated that he sent registered letters as and when the rate of interest increased his further answers would show that there is nothing to show that he issued such registered letters. The Bank is not a person. It is a corporate body. Whenever notices are issued, conies of such notices are retained. Besides they seek for acknowledgement due. Neither office copies of the notices nor the acknowledgements due are produced in the case though several other documents are got marked. That only shows that the Bank never notified to the borrower the enhancement in the rate of interest if and when it occurred. Therefore, in the normal course, they are not entitled for any higher interest than 101/2% per annum stipulated in Ex-P-1 the promissory note and Ex P-5 the hypothecation deed.

As stated above, however, the learned Advocate appearing for the Bank strenuously urged on us that in view of Ex P-32, an endorsement given by the borrower himself to the effect that he agreed to pay enhanced rate at 141/2% per annum, the Bank is entitled to recover that interest even though the enhanced rate was not notified earlier.

That leads us to consider the question whether there is substance in the contention of the defendant respondent that his signature on Ex. P-32, a printed form, was obtained from him keeping the columns blank even at the time of execution of Ex. p-1 the promissory note and Ex. p-5 the hypothecation deed.

The defendant, in his evidence, has stated in this behalf thus:

"I applied for the loan to the Bank for Rupees 36,000. The Bank Manager obtained my signature to the promissory note and on some forms and gave me the cheque for Rs. 36,000. The forms were blank and I have signed them."

The learned Advocate appearing for the appellant plaintiff, however, submitted that there is no substance in this contention, because the defendant in the course of his cross-examination did admit that after the execution of Ex p-4 he did not sign any blank forms.

This is what the defendant has stated in the course of his cross-examination:

"............The document now shown to me. Exhibit p-4 bears my signature under which instalments were granted. I do not remember in now many forms I have signed on that day. Thereafter the plaintiff Bank has not obtained any signature on the Blank forms............."

Ex. p-4 is dated 16th October 1971. It is a request for instalments. Thus, it is the case of the learned Advocate appearing for the Plaintiff Bank that admittedly no blank forms were signed by the defendant after 16th October 1971 on his own showing. Hence, he submitted that there is no substance in the contention that the defendant signed blank forms.

The learned Civil Judge also has advanced the same reasons to disbelieve that the defendant signed blank forms. This is what he has observed in the course of his judgment:

".. P.W. 2 has proved that the acknowledgement Exhibit P-32 was executed by defendant in his presence on 28-11-1974. The defendant in his cross-examination has admitted that he has signed the documents Exhibits P-22 and P-32. The defendant has not disputed the correctness of exhibits p-22 and p-32 in his examination in-chief on the ground that the printed forms were blank when his signatures were obtained on these documents and later on they have been converted into acknowledgements of the debts. Secondly, in the cross-examination he has admitted that after the date of taking loan he has not signed any blank forms in favour of the plaintiff Bank. .."

It was rightly pointed out by the learned Advocate appearing for the respondent that the observations of the learned Civil Judge are based on misstatement of facts. The learned Civil Judge has observed that the defendant has not disputed the correctness of Ex. p-22 and p-32 in his examination-in-chief on the ground that the printed forms were blank when his signatures were obtained on these documents and that later on they have been converted into acknowledgements of the debts. We have already quoted above the deposition of the defendant wherein he has clearly stated that his signatures on several blank forms were taken at the time when he took the loan. To repeat, this is what he has stated:

".. The Bank Manager obtained my signature to the pronote and on some forms and gave me the cheque of Rs. 36,000. The forms were blank and I have signed them.

The learned civil Judge ought to have appreciated this clear statement in the back-ground of the defence taken by the defendant in his written statement wherein he has denied that he executed Exhibit p-32.

The learned Civil Judge has further observed that in the course of the cross-examination the defendant admitted that after the date of taking the loan he has not signed any blank forms in favour of the plaintiff Bank. This is also a mis-statement for what he has stated in the cross-examination is that after the date of Ex. p-4 he has not signed any blank forms. But, the learned Civil Judge forgets that he has in very clear and unambiguous language sworn in the examination in chief that his signatures on several blank forms were taken from him at the time of the execution of the promissory note itself.

That being so, it is clear that it is the case of the defendant that signatures on blank forms were taken on the very day when the promissory note was signed and in that view his answer that thereafter he did not sign any blank forms would be quite consistent and it would never be an admission that he signed Exhibit p-32 after the same was filled up.

The Supreme Court of India, in the case of Chikkam Kotewara Rao v. Chikkam Subba Rao, AIR 1971 SC 1542, has cautioned about describing astray sentence in the deposition as an admission of the party so as to defeat his right. In paras 7 and 8 of the judgment, His Lordship Hegde, J., who spoke for the Bench, has observed:

"7. This admission must be read along with the evidence given by him in his chief-examination. ..

If we read these statements along with his other evidence and in a harmonious manner, it is clear that what the appellant admitted was that the acquisition in question was made by his father on his behalf and the consideration for the same was paid by his father from out of the appellant''s private funds that were in the hands of his father..."

If we consider the so-called admission in that perspective, it becomes clear that there is no admission at all.

The learned Civil Judge is not correct when he observes that the defendant has not disputed the correctn- ess of Exs p-22 and p-32 in his examination-in-chief on the ground that the printed forms were blank when his signatures were taken on the documents. We have quoted above the deposition of the defendant in the examination in chief wherein he has clearly stated that his signatures were taken on the blank forms without filling them up. Thus, we are unable to agree with the learned Civil Judge that the admission of the defendant himself precludes him from contending that Exhibit p-32 was a blank form when his signature was taken on it.

The learned Advocate appearing for the respondent pressed into service the following circumstances to substantiate the contention that the form was blank when the signature of the defendant was taken on Ex. p-32:

(1) Normally, whenever a printed form is filled up initials are taken by the Bank Authority wherever the filling up is done;

(2) The legal notice issued at Ex p-25 on behalf of the Bank contradicts Ex. p-32 showing that Ex. p-32 was not in existence at that time, and (3) The admission made by P.W. 1, the Manager, would show that this branch of the Bank did not view with any seriousness and solemnity in getting the signatures on printed forms with blanks to be filled in later.

The learned Advocate appearing for the appellant no doubt strenuously urged that in view of the sworn statement of P.W. 2 that the document was executed in his presence, his evidence should be believed and the finding of the learned Civil Judge that the signature was not taken on the blank form should be upheld.

P.W. 1, the Manager who brought about the transaction, in the course of his evidence, has clearly stated with regard to the practice of filling in of the blank forms thus:

".. The promissory notes and other documents which are signed by the debtor are all in printed forms. The blanks in the forms are filled up by the officials of the Bank. It is true wherever the hand-writing is there in the documents initials of the borrowers are taken normally. .."

Again, he has repeated:

".. These initials are taken for attesting the writing for the blanks filled up. Whenever the gap is filled up by writing the initials are taken."

Thus, it becomes clear whenever in the Bank a printed form is used to evidence any transaction, the initials of the concerned person are taken whenever the blanks are filled up by handwriting. That this practice was in vogue at that time is clear by looking into Ex p-5, the hypothecation deed. We find that in all those columns where the blanks in the forms are filled up by hand-writing, the initials of the debtor are taken. That way, it is normal to expect that if the blanks in Ex p-32 were filled up in the presence of the debtor, the authority concerned should have taken the initials against all those columns where the blanks were filled up. But, strangely enough, there are no initials to be found against the columns filled up in Ex p-32. There are only two ''X'' marks at the end of the form showing places for the borrower to sign at two places one on the revenue stamp and another at the other end. That no doubt lends support to the contention of the learned Advocate appearing for the respondent that the form was filled up later at the pleasure and convenience of the bank officials and that his signatures were taken only in the blank form.

That the blank form was filled up at a date later than 28-11-1974 is rendered probable by another circumstance. In the notice Ex. p-25 issued by the Bank through its lawyer, in the last para, the interest demanded is at 13% per annum till the date of payment. The notice itself is dated 28-6-1975. That being so, it is obvious that if Ex. p-32 had come into existence on on 28-11-1974, while instructing the lawyer, the Bank should have instructed the lawyer in accordance with Ex. P. 32. In Ex. p-32 at para-2, the rate of interest stipulated is 51/2 per cent over Bank rate with a minimum of 143/4 per cent per annum. But, in the lawyer''s notice, as stated above, the interest demanded is only 13% per annum, which again makes it clear that Ext. P-32 was not in existence with the blanks filled even on 28-6-1975.

P.W. 1 Mohan Mangesh Yardi, the Bank Manager, in para-9 of his deposition, has stated thus;

"It is true that the date put in the promissory note in the top portion is altered. It is difficult to say what was the earlier date before it was altered to 16-10-1971. The alterations or overwriting is only in the figure of ''6'' of the date and not in any other figures The altered figure is not initialled. It is true that in Ex. p-2 at the foot where the date is mentioned the date written earlier is erased and ''16'' is mentioned. That erasure and writing of the date is not initialled by any one. It is true that in Ex. p-3 to p-6 in the dates the figure of ''6'' is over-written and they are not initialled by any one. It is true that in Ex. p-5 at the end the date mentioned in writing the word ''6'' is written after erasing the earlier writing and it is not initialled. "

Thus, it becomes clear that the authorities in this branch of the Bank did not treat these documents with necessary seriousness or solemnity. If these erasures and over-writings were done in the presence of the borrower, it can normally be expected that the initials of the borrower would have been taken for those corrections. No initials are there. They only show that these erasures and corrections were done by the Bank in whose custody the documents were, at their sweet will and pleasure without the consent and knowledge of the borrower.

It is in this context that we, have to appreciate the submission of the learned Advocate appearing for the respondent, that the blanks in Ex. p-32 were filled up by the Bank officials at their own sweet will and pleasure and much after the notice Ex. p-25 was issued and, loosing at the document in that perspective for reasons discussed above we are persuaded to agree with the submission of the learned Advocate appearing for the respondent that Ex. p-32 has come into existence by filling up the blanks after Ex. p-25 was issued and that the filling up was done by the Bank officials without the consent and knowledge of the signatory i.e., the defendant respondent in this appeal. Of course, the defendant respondent has not denied his signature making it clear that his signature was taken when the form was blank. We believe his testimony in that behalf in the context explained above and for reasons discussed.

There is one more reason that lends assurance to our inference, and it is this:

In para-2 of Ex p-32, the rate of interest is charged. It is nobody''s case that there was novation. No such case is made out in the plaint. According to the plaint, Ex. p-32 is in conformity with the earlier documents Exs p-1 and p-5. In Ex. p-5, the document on which the suit is based, the suit being asuit on mortgage, it is stated that the rate of interest shall be 41/2% more than the Reserve Bank interest, the present effective interest being 101/2% per annum. In Ex p-32, however, there is change in the condition itself. It stated that the rate of interest shall be 53/4% over the Reserve Bank rate with minimum of 143/4% per annum. Again, in Ex. p-5 it is stipulated that the interest shall be payable with quarterly rests. But, in Ex. p-32 it is stated that the interest is payable with ''half-yearly rests''. Thus, there are changes in the essential terms of the contract and no such case of novation is made out in the plaint. That further shows that signature was taken on some from inadvertently showing half-yearly rests Besides, while filling up the forms, the Bank Officials have raised the rate of interest by 53/4% instead of 41/2 per cent stipulated earlier. That only shows that these Officials did not have any sanctity for these documents. They changed it at their whim and fancy without the least consideration for the sanctity attached to these documents.

In the result therefore we hold that the writings filling the blanks in Ex. p-32 are done without the consent or the knowledge of the defendant respondent and, hence, the same is not binding on him. That being so, it is obvious that the Bank cannot demand for enhanced rate of interest and the learned Civil Judge is right in holding so, though for different reasons discussed and advanced by us above.

In conclusion, we have no reasons to differ from the findings of the learned Civil Judge that the plaintiff Bank is not entitled to the rate of interest more than 101/2% per annum and that the Bank is not entitled to claim compound interest.

The contention of the learned Advocate appearing for the Bank that future interest should have been awarded at 151/2% per annum from the date of suit till realisation, would not survive for consideration. The learned Civil Judge has awarded the agreed sate of 101/2% per annum, which, in the absence of cross-objections, has to stand even though the loan is an agricultural loan and not one advanced for commercial purposes as defined in Section 34 of the Code of Civil Procedure.

Accordingly, the appeal fails and is dismissed with costs.