Syndicate Bank vs D. Muthian and Another

Bellie, J.—The plaintiff Bank is the appellant in this Letters Patent appeal. The Syndicate Bank, Pollachi Branch, filed the suit against the

defendants for recovery of a sum of Rs. 12,533-55 alleged to be due on a promissory note Ex.A-1, dated 16.2.1970. This promissory note was

executed by the defendants for the loan of Rs. 22,900 received from the Bank for purchase of a tractor by the first defendant. First defendant is

the son and the second defendant is his father and it appears the second defendant has joined in the promissory note as surety for his son the first

defendant. The suit claim is alleged to be due after deduction of the amount paid by the defendants.

In the written statement various contentions were raised which were all considered by the trial Court which decreed the suit. With respect to one

contention the defendants preferred an appeal and that contention is with regard to the rate of interest charged by the plaintiff Bank and in the

appeal A.S. No. 174 of 1980 Swamikkannu, J. accepted the contention of the defendants and modified the decree.

As per Ex.A-1, promissory note the interest payable is 9 per cent per annum. The defendants executed on Ex.A-4 on 2.9.1972, a letter

acknowledging the debt due under ExA-1 promissory note. Similarly, they executed another acknowledgement letter on 12.9.1974. These two

letters obviously have been obtained for the purpose of saving limitation. But, in these letters while stating the case of promissory note and the

principal amount no rate of interest has been mentioned. The plaintiff-Bank served a letter ExA-19, dated 12.9.1974 on the first defendant and

obtained his acknowledgement thereof. In this letter it is mentioned that in respect of loan No. 19 of 1970 from the Bank by the defendants the

rate of interest has been raised from 13 per cent to 14 1/2 per cent per annum from 23.7.1974. While so, as seen from the evidence of P.W.1,

farm representative of the plaintiff-Bank, on the principal amount due they have charged interest at 11 per cent from 9.1.1971, at 12 per cent from

1.6.1973, at 13 per cent from 162.1974 at 14 1/2 per cent from 23.7.1974, at 15 1/2 per cent from 1.8.1974, as 21 per cent from 16.2.1975 at

18 per cent from 1.7.1976 and at 17 1/2 per cent from 1.3.1978. According to the defendants the agreed rate of interest mentioned in the

promissory note being only 9 per cent per annum, the plaintiff Bank cannot charge interest more than that and hence interest amount calculated at

the said rates cannot be allowed. As regards this, the case of the plaintiff Bank is that the Reserve Bank of India would vary the rate of interest

chargeable from tune to time and that would be higher or lesser than the prevailing rate and accordingly the Bank would charge interest on the loan

amounts and the interest charged in the present case was only because of such variations of interest rates enhanced by the Reserve Bank of India

and therefore, the defendants are liable to pay interest at those rates. The trial Court did not accept the case of the defendants and therefore, it

decreed the suit for the entire interest charged.

In the appeal the learned single Judge of this Court who heard the appeal accepted the contention of the defendants and held that interest could

be charged only at 9 per cent per annum and not more than that and therefore, he allowed the appeal which was filed with regard to the excess

interest claimed which was Rs. 7,000. As against this judgment the plaintiff Bank has filed this Letters Patent Appeal.

Now the learned Counsel for the appellant plaintiff Bank, argues that it is not the plaintiff Bank, which arbitrarily increased the rate of interest 9

per cent and the increase was only because of the direction of the Reserve Bank of India fixing the rates of interest from time to time which was, as

bound to do, followed by the Bank, and hence the defendants are liable to pay interest at the increased rate. The learned Counsel has also pointed

out that some times the rates of interest have been reduced. The question arises whether even though the Reserve Bank has revised the rate of

interest the plaintiff Bank can unilaterally without the consent of the defendants raise the rate of interest. It is not in dispute that the suit has been

filed only on the promissory note. Therefore, the parties are bound by the terms in the promissory note only. When the rate of interest chargeable

has been expressly stated in the promissory note only that rate can be claimed and not anything more. Here it may be relevant to note Section 79

of the Negotiable Instruments Act which reads as follows:

79 Interest when rate specified: When interest at a specified rate is expressly made payable on a promissory note or bill of exchange, interest shall

be calculated at the rate specified on the amount of the principal money due thereon, from the date of the instrument, until tender or realisation of

such amount, or until such date after the institution of a suit to recover such amount....

Hence, as stated above, when the rate of interest is expressly stated in the promissory note, interest can be claimed only at that rate.

But in the suit on promissory note, there is a peculiar feature in that with regard to interest, it is stated-

...With interest at 9 per cent per annum for the time being for value received.

This means the interest payable would be 9 per cent per annum only until the time the rate is varied. This would again mean that the parties have

agreed that the rate of interest could be varied at any time in the future. But, this does not mean that higher rate of interest can be claimed by the

plaintiff Bank unilaterally without the concurrence of the defendants. Now we have seen above that the interest has been 9 per cent per annum

from various dates. As regards the charge of rate of interest admittedly the only communication the plaintiff Bank had with the defendants was the

above said letter Ex.A.19 dated 12.9.1974. It is not in dispute that this letter has been acknowledged by the first defendant. However he would

state that his signature was obtained on Ex.A.19 but he did not know the contents thereof. This claim of his cannot be accepted. This letter is to the

effect that the rate of interest has been raised from 13 per cent per annum to 14 1/2 per cent per annum from 23.7.1974. On the same date of

ExA-19 an acknowledgement of the first defendant has been obtained. Therefore, with regard to the increase in the rate of interest before the date

of ExA-19, i.e., 12.9.1974, there is no concurrence of the defendants.

It is argued that interest has been debited in the ledger calculating on the basis of increased rate and excerpts of the ledger had been sent to the

defendants. But, from this it cannot be said that there was consent of the defendants for increase of the rate of interest. It is not the plaintiff''s case

that the rate of interest has also been specified in the ledger entries and therefore, it cannot be said that the defendants knew the increased rates of

interest. The defendants cannot also be expected to calculate rate of interest charged from the interest debited. Hence the interest amounts claimed

at the enhanced rate before Ex.A.19, i.e., 12.9.1974 cannot be allowed. As held by the Karnataka High Court in D.S. Gowda Vs. Corporation

Bank, , referred to by the learned single Judge the directives of the Reserve Bank to the scheduled Banks will be a matter between them but they

will not be binding on the loanees from the scheduled banks unless they have agreed to the implementation of the directives in respect of the loans

received by them. In the instant case as pointed out by the learned single Judge no such directives from the Reserve Bank has been even

communicated to the defendants. Hence it would be unjust and illegal to fasten liability on the defendants mulcted with interest at higher rates than

the agreed rate.

The learned Counsel for the appellant Bank then referred to Section 21-A of the Banking Regulation Act. But this Section is quite irrelevant for

the point at issue in this case. According to that Section a transaction between a banking company and its debtor shall not be re-opened by any

court on the ground that the rate of interest charged by the Banking company in respect of such transaction is excessive notwithstanding anything

contained in the Usurious Loans Act. This Section may be relevant to the agreed rate of interest but not to the rate of interest unilaterally fixed by

the Banking Company.

But as regards the interest calculated at the higher rate of interest after ExA-19 the position is not the same. As mentioned earlier in Ex.A1

promissory note it is stated that ""with interest at 9 per cent per annum for the time being..."" and this would mean that interest can be varied in

future. But that would be only with the concurrence of the defendant. As seen from Ex.A-19 the first defendant has acknowledged the receipt of it

and the acknowledgement states that, ""I/we hereby agree to the revised rates as stipulated above with effect from 23.7.1974.."" Of course the first

defendant has stated in his evidence that without knowing the contents he signed it. This, as stated earlier, cannot be accepted since this claim is not

supported by any further evidence. Therefore, it must be taken that the first defendant has agreed to the higher rate of interest at 14 1/2 per cent

per annum from 23.7.1974. Thus, it is clear that the defendants are liable to pay interest at 14 1/2 per cent per annum from 23.7.1974.

Thus we find that the learned single Judge erred in allowing the appeal in respect of the entire amount claimed as excess. In the result we allow

the Letters Patent appeal to the extent that the Bank will be entitled to claim interest at the higher rate of 14 1/2 per cent per annum from

28.7.1974, on the principal amount due. In respect of the rest of claim in this Letters Patent appeal, it is dismissed. There will be no order as to

costs.