Sukhraj Rai and Others vs Prithvi Chand Lal Chaudhuri

Harries, C.J.—This is a plaintiffs'' appeal against a decree of the learned Subordinate Judge of Bhagalpur partly decreeing their claim. The respondent has preferred a cross objection against the same decree. The suit out of which this appeal arises was brought for the recovery of Rs. 13,306 on the basis of a roka dated 20th September 1932. According to the plaintiffs, the defendant borrowed on that day from the plaintiffs a sum of Rs. 50,000 and executed the roka in question. In the roka it is provided that the defendant was to pay interest at the rate of 18 per cent, per annum with yearly rests. The plaintiffs admitted that the defendant had from time to time made payments amounting to Rs. 50,000 and the claim was brought for the balance of principal and interest due upon this transaction. The defendant admitted borrowing Rs. 50,000 but pleaded that the interest agreed upon was not 18 per cent, per annum compoundable yearly but 6 per cent, per annum simple.

The learned Subordinate Judge came to the conclusion that the rate of interest agreed upon was 18 per cent, per annum compoundable yearly. He however was of opinion that this interest was excessive and that the transaction as between the parties was substantially unfair. He accordingly acting under the provisions of the Usurious Loans Act 1918, reduced the rate of interest upon this loan to 12 per cent, per annum simple and passed a decree upon that basis. The plaintiffs being dissatisfied with this decision as to interest have preferred this first appeal. The defendant being dissatisfied with the finding that the rate of interest was not 6 per cent, per annum simple as alleged by him has preferred a cross-objection.

In the first place, it must be observed that the loan in this case was a very substantial one, namely Rs. 50,000. Further it was a loan made upon no security whatsoever. In ordinary circumstances the risk of such a loan is great, and in my view the risk was greater than usual in this case by reason of the financial position of the defendant. The learned Subordinate Judge has referred to the defendant as a man possessing vast properties yielding an annual income of about Rs. 10,00,000. However it, is clear that the defendant''s properties are very heavily mortgaged and at the time when this loan in dispute was made, a portion of the defendant''s properties was about to be sold for arrears of Government revenue. It is obvious that at the time when, the money was borrowed the defendant was financially embarrassed. In evidence he has admitted that interest is mounting up rapidly on their loans, and it cannot possibly be said that the defendant is a person with ample resources out of which he can repay money borrowed. He is a man who owns large properties, but unfortunately; for him those properties yield him little or nothing at all. Lending to a man whose financial position is similar to that of the defendant is a highly risky transaction. That being so the lender is clearly entitled'' to a higher rate of interest to compensate him for the risk which he is running.

The learned Subordinate Judge at a later-stage in his judgment stresses the fact that-the defendant was in serious financial difficulties, though earlier in his judgment he mentions that the defendant was a man of vast properties to whom money could be lent with little or no risk. He stresses the-defendant''s financial difficulties to show that the relationship existing between the lenders and the borrower were such as to render the transaction substantially unfair. The learned Judge points out that the defendant was in urgent need of money to-prevent his property being sold. It appears-that plaintiff 2, who is the son of plaintiff 1 had apparently at an earlier stage agreed, to lend money at 9 per cent, per annum-It may be that the son promised to lend money at that low rate, but it is clear that the moment his father was brought into the transaction no money could be obtained at that rate. This promise of the son, it is suggested, shows that money was readily available at this time at the rate of 9 percent, per annum, and the very fact that 18 per cent, per annum compoundable yearly was obtained, shows that the plaintiffs took advantage of the defendant''s financial position.

If a lender does take advantage of the embarrassed condition of a borrower and accordingly drives a harsh and unconscionable bargain, the Court may reduce ''the rate of interest under the provisions of Section 3, Usurious Loans Act, 1918. There can ''be no doubt that the defendant was financially embarrassed, but I am not satisfied that the plaintiffs took advantage of his position to demand an unreasonable rate of interest. Persons who are financially embarrassed cannot hope to obtain loans as cheaply as persons who can offer substantial security. It has always been recognized that the lender of money upon a note of hand is entitled to a greater rate of interest than the lender of money on security. Further, the lender of money to a person "whose chances of repayment are slight is ''obviously entitled to demand a higher rate of interest than if he was lending to a person who was obviously in a position to pay ''whenever called upon so to do. It appears to me that in the circumstances of this case, the plaintiffs were entitled to demand -a substantial rate of interest to compensate them for the risk they were running. The learned Judge has held that the agreed rate of interest was 18 per cent, per annum compoundable yearly, and in my view it cannot be said that such a rate is unfair or excessive in all the circumstances of the case.

It has been laid down in Dalip Narayan Singh v. Mt. Sharfunnissa A.I.R (1929) . Pat. 383 that what rate of interest can be charged depends upon the circumstances of each case and the security offered and that no fixed rate of interest can be specified as feeing reasonable or fair in all cases. In that particular case a rate of 15 per cent, per annum compoundable yearly was held not to be by itself excessive and would not by itself make a mortgage transaction unfair. It will be observed that in that particular case the advance was upon security, yet the Court held that interest at the rate of 15 per cent, per annum compoundable yearly was not unfair. In the present case, as I have pointed out, there is no security of any kind except the promise of the defendant, who at that time was clearly not in a position to carry out.

The version given by the defendant of this transaction cannot possibly be accepted. According to him, the rate of interest agreed upon was 6 per cent, per annum simple. He says that at the actual date of the loan one Meherchand, a servant of the plaintiffs, came to him and refused to hand over the bank draft unless the roka now relied upon by the plaintiffs was signed.

According to the defendant, the roka showed a rate of interest 18 per cent, per annum compoundable, though the contract rate was only 6 per cent. Further the defendant alleges that a payment of Rs. 1500 was made to Meherchand as interest in advance at the rate of 6 per cent., but the learned Judge has found that this payment of Rs. 1500 was not a payment of interest in advance but of commission or a bribe to Meherchand for negotiating the loan. The fact that the defendant had to pay Meherchand a bribe or commission of Rs. 1500 to secure this loan is, in itself strong evidence of the fact that money, even at a comparatively high rate of interest could not be obtained by the defendant in his then circumstances. It is inconceivable that the plaintiffs could have agreed to advance the defendant Rs. 50,000 at the rate of 6 per cent, per annum simple. Such a rate is practically unheard of in mortgages where substantial security is given, and I cannot believe that any money-lender would lend money on a mere note of hand to a financially embarrassed borrower at such an absurdly low rate of interest. In my view, the defendant''s case was clearly false and the learned Subordinate Judge was perfectly right in rejecting it in its entirety. In my view the learned Subordinate Judge was right in holding that the agreement was to pay interest at the rate of 18 per cent, per annum compoundable yearly and such is the rate of interest which he ought to have granted.

For the reasons which I have given, I hold that the plaintiffs are entitled to interest at the rate of 18 per cent, per annum compoundable yearly and I would accordingly allow this appeal with costs, and dismiss the cross-objection with costs.

Manohar Lall J.

I agree.