SV. L. SV. Sevugan Chettiar vs Chinnasami Reddiar and Another

Rajamannar, C.J.—The only question in this appeal preferred by the plaintiff who sued to recover the amount due for principal and balance

of interest on a promissory note dated 24th July 1930 executed by defendant 1 and others in his favour for Rs. 4600 is whether the defendants are

entitled to any relief under the Usurious Loans Act. The suit promissory note carried interest at 24 per cent. per annum. It is common ground that

this promissory note represents the final transaction in a series of transactions between the parties beginning in 1922, In that year there were two

promissory notes executed by defendant 1 in favour of the plaintiff for Rs. 1000 each, Exs. P. 4 and P. 5. Under these promissory notes the rate of

interest was also 24 per cent. per annum. They were consolidated into a single promissory note on 20th September 1924, Ex. P. 6, for Rs. 2000.

On 12th April 1927. for the amount due under the promissory note of 1924 both for principal and balance of interest, another promissory note for

Rs. 3750 was executed carrying interest at 24 per cent. per annum. It is in renewal of this promissory note that the suit promissory note was

executed on 24th July 1930 for Rs. 4600 which included the principal and the balance of interest due under the promissory note of 1927. The

defendants pleaded that they were agriculturists entitled to the benefits of Madras Act IV [4] of 1938 and also pleaded that in any event they

would be entitled to the benefits of the ptovisions of the Usurious Loans Act because the interest claimed was excessive. The learned Subordinate

Judge rejected the former plea but accepted the latter and granted a decree for Rs. 2000 with interest at the rate of 12 per cent. per annum from

the respective dates of the two promissory notes, Exs. P. 4 and P. 5, after giving credit to the payments made from time to time.

The plaintiff, who is the appellant, contends that the lower Court had no power to give the defendants the benefit of the Usurious Loans Act in

the way in which it has done. Firstly he contended that the rate of 12 per cent, is too low and at least 15 per cent, should have been allowed as a

substantially reasonable rate. The rate charged by him on the different promissory notes was 24 per cent, and that rate the plaintiff does not claim

in appeal. He claims only 15 per cent. The lower Court has awarded 12 per cent The question is whether there is any ground for interfering with

the rate awarded by the lower-Court. The learned Subordinate Judge has given, in our opinion, sound reasons for awarding a rate of 12 per cent.

There was obviously not much risk incurred by the plaintiff and it must be specially mentioned that the day after the execution of the suit promissory

note, the plain Clausetiff obtained a security bond from the defendant 1 in respect of it. In Kattamuri Narasimhan Vs. Thumurugoti Premayya, ,

only 9 per cent, per annum was awarded; but as that was a case of a second debt, we do not think that it furnishes much assistance to the present

case. We confirm the rate of 12 per cent awarded by the Court below.

It was next contended by learned counsel for the plaintiff that the lower Court had no power to apply Section 8(1)(ii) of the Act. In so far as it is

relevent for this appeal that provision runs thus, as amended by Madras Act VIII [8] of 1937:

.... where, in any suit to which this Act applies, whether heard ex parte or otherwise, the Court has reason to believe. (a) that the interest is

excessive; and (b) that the transaction was, as between the patties thereto, substantially unfair;

The court shall exercise one or more of the following powers, namely,

(i) .....

(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 to account in respect of such

liability, order the creditor to repay any sum which it considers to be repayable in respect thereof;

Explanation 1: If the interest is excessive, the Court shall presume that the transaction was substantially unfair, but such presumption may be

rebutted by proof of special circumstances justifying the rate of interest.

Sub-section (2) of Section 3 of the Act defines ""excessive"" in Clause. (a) 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.

To Clause (b) of that sub-section the following proviso was added by Madras Act VIII [8] of 1937, which runs thus:

Provided that in the case of loans to agriculturists, if compound interest is charged the Court shall presume that the interest is excessive.

It was difficult to follow the argument of the learned counsel for the plaintiff that the lower Court had no power to reopen the previous dealings

between the parties which eventually resulted in the suit promissory note. The fact that at each stage of the dealings a fresh promissory note was

being executed for the amount of the principal and the balance of interest outstanding at the time, does not, in our opinion, take this case out of the

above provision relating to the reopening of the account to give relief to the debtor. The decision of the Judicial Committee on an appeal from the

Court of Appeal at Johore reported in AIR 1940 60 (Privy Council) was relied on by the appellant. In that case there was a series of transactions

of loan and the interest charged was 24 per cent, per annum in respect of each of them. Interest charged at that rate was on each transaction

capitalised and made payable by monthly instalments. The Court of appeal at Johore held that the rate of 24 per cent, was excessive and unfair

and should be reduced to 15 per cent. They reopened the whole course of dealings and awarded interest right through at 16 per cent, but 15 per

cent simple interest. Their Lordships in appeal did not disturb the finding of the Court of appeal that 15 per cent, was the right interest to allow

under all the circumstances proved at the trial. But they varied the order of the Court of appeal by allowing interest on the balance of interest which

was outstanding at the time of each new transaction. Their Lordships were of opinion that where a loan had been incurred for interest and this

interest was added to the amount agreed to be due when a new transaction was agreed between the parties which included such payment of

interest as an acknowledged debt, it was not open to any sound objection. Actually there was nothing in the Usurious Loans Statute which was

applicable in that case to prohibit compound interest. It will be noticed that this decision of the Privy Council is really against the contention of the

appellant that the Court has no power to reopen the previous dealings in circumstances such as those which exist in the present case. There, as in

the case before us, there was a series of transactions of loan and at each stage of the course of dealings when a fresh document was executed

interest outstanding on that date was included along with the principal. Nevertheless their Lordships awarded a rate lesser than what was agreed

between the parties right through.

An alternative contention, relying on this decision, was put forward by the appellant''s counsel that in any event the lower Court ought to have

awarded him interest on the balance of interest which was outstanding at the time of the successive promissory notes. The difficulty however, in his

way is the proviso recently added by Madras Act VIII [8] of 1937 above mentioned which provides that in cases of loans to agriculturists if

compound interest is charged, the Court shall presume that the interest is excessive. In our opinion, though the lower Court has held that the

defendants were not agriculturists within the meaning of the Madras Agriculturists Relief Act, they are agriculturists within the meaning of the

Usurious Loans Act because the term ""agriculturist"" in this Act must be understood in the ordinary sense of a person following the calling of an

agriculturist. The question then is whether the calculation of interest in the manner claimed by the appellant''s counsel, would not amount to the

grant of com-pound interest. On this point we derive no assistance from the ruling in Girwar Prasad v. Ganeshlal Saroji, A. I. R. 1949 P. C. 57 :

1949 F. c. R. 23, to which reference was made by the learned counsel for the appellant, nor from the prior ruling of the Federal Court in Jaigobind

Singh v. Lachmi Narain Ram, 1940 P. C. B. 61 : A. I. R. 1940 P. C. 20. On the other hand, there is direct authority of a decision of Patanjali

Sastri J. in Venkanna Chettiar and Sons v. Mohammad Rowther, 56 M. L. W. 718 : A. I. R. 1944 Mad. 105, in which, on facts almost identical

with those in the present case, the learned Judge held that interest charged in the same way must be regarded as compound interest. We

respectfully agree with the reasoning of this decision and we hold that to allow interest in the way which was suggested by the appellant''s counsel

would be to award compound interest. Now compound interest, according to the Madras proviso in the case of loans to agriculturists shall be

presumed to be excessive interest. We understand this to mean that compound interest as such is excessive, whatever the rate may be. We

therefore cannot allow any compound interest to the plaintiff in this case.

The appeal fails and is dismissed with costs.