The South Indian Bank Ltd. vs V. Krishna Chettiar and Brother and Others

T. Ramaprasada Rao, J.—The plaintiff in O.S. No. 85 of 1966 on the file of the Subordinate Judge, Salem, is the appellant. Defendants 2 to

8, as partners of a registered partnership firm, known as V. Krishna Chettiar and Brother had on application obtained financial aid from the

plaintiff-Bank under four different heads, such as Key Loan Advances, Gash Credit Open Loans, Bills Purchases Account, and Cheques

Discounting Account. From time to time, under one or other of the Heads of Advances, moneys were lent by the plaintiff-Bank to the partnership

firm. The partnership was running an oil mill and a Ginning Factory. The premises in which the machinery of the mill and the factory was situate

belonged to some of the partners of the line. But, in connection with the advances made by the Bank to the partnership firm in connection with the

partnership business, two kinds of securities were offered by the partners-The first one was under Exhibit A-24, dated 113th May, 1964, wherein

some of the partners of the firm, who are the owners of the premises, which contained the machinery deposited the title deeds of the premises at

Coimbatore, with the intention of creating an equitable mortgage thereon. The other security which they offered was under Exhibit A-29, dated

20th May, 1964, which was in connection with an express loan granted by the Bank to the tune of Rs. 80,000 on a hypothecation of the

machineries and movables contained in the mill premises, but delineated in a particular schedule attached to Exhibit A-29, which was the deed of

hypothecation.

The case of the plaintiff is that the defendants were operating on the various accounts under which financial aid was given by the Bank to the

partnership firm. Originally, the rate of interest at which the amount so advanced by the Bank was repayable by the defendants, was agreed to at 9

per cent, per annum with quarterly rests. Later, admittedly, under Exhibit A-33, having regard to the increased demand in the rate of interest by the

Reserve Bank of India, the rate of interest was increased from 9 per cent, to 11 per cent. per annum. The plaintiff has come to Court for the

realisation of the amount due and payable by the defendants under the various heads of account and under which advances were made by the

Bank to the defendants'' partnership firm. The suit was laid for the recovery of a sum of Rs. 1,52,941-50 made up of a sum of Rs. 83,941-77 on

the Cash Credit Open Loan and a sum of Rs. 66,725-20 under the Fully Secured Account and a sum of Rs. 95-87 under the Cash Credit

Account. The plaintiff claims that it would be entitled to a concurrent remedy against defendants personally for the recovery of the suit debt and

also sought for a charge decree against the immovable property, which is the mill premises which was equitably mortgaged with it, under Exhibit A-

24 and also sought a charge on the machineries enumerated in the deed of hypothecation, Exhibit A-29, dated 20th May, 1964.

The 9th defendant was added on as a party-defendant, as it appears that he is a subsequent mortgagee over the immovable properties.

In so far as the defence is concerned the defendants do not dispute the accounts and the principal amount due. Inter alia, the main contention

raised by the defendants was that the plaintiff, by virtue of the deed of hypothecation, Exhibit A-29, is not entitled to claim a charge on the

machineries and movable properties in the mill premises, as according to the defendants, the said machineries have got imbedded themselves with

the premises, which contained them and, therefore, such movable properties or machinery enumerated in the deed of hypothecation should be

deemed to be annexed to the immovable property and in the absence of a regular instrument of mortgage, as contemplated under the Transfer of

Property Act, and registered under the Registration Act, the deed of hypothecation, by itself, cannot create a right in the plaintiff to seek for a

charge-decree as against the movables which are the subject matter of the deed of hypothecation.

The second contention is that the rate of 11 per cent per annum with quarterly rests is an arbitrary and usurious rate of interest and on that

ground, the claim of the plaintiff was resisted. No doubt, they also contended that there was no proper equitable mortgage acceptable in the eye of

law over the ''A'' Schedule properties, which are the mill premises, as according to them, there was no proper deposit of title deeds with the

intention of creating an equitable mortgage over them, in a manner ordinarily understood in law. These are in the main, the defences to the action.

On these relevant pleadings, the following issues were framed:

Is the alleged mortgage over the plaint ''A'' schedule properties by deposit of title deeds true, Valid and binding on any or all of the defendants ?

Is the alleged charge over the plaint ''B'' schedule properties true, valid and binding on the defendants?

Is there any charge over items 25 to 28 of plaint ''B'' schedule properties ?

What is the amount for which the charge if any, is available over one or more of plaint ''B'' schedule properties ?

Is the plaintiff entitled to club together plaint ''A'' and ''B'' schedule properties for the entire suit amount ?

Is the plaintiff entitled to claim interest at 11 per cent. per annum and not at 9 per cent, per annum?

Are the alleged mortgages and charge unlawful and do they amount to a fraud on the statute as pleaded by the 9th defendant?

What is the amount, if any, due to the 9th defendant in respect of the mortgage deed dated 17th November, 1965?

What is the nature of the decree that the 9th defendant is entitled to?

To what relief is the plaintiff entitled ?

Issue No. 3 having been deleted, the learned Judge found on Issue No. 1, that there was a valid mortgage by deposit of title deeds over the ''A''

schedule properties at Coimbatore and that Coimbatore being an area notified u/s 69 of the Transfer of Property Act, the equitable mortgage by

the plaintiff is sustainable. There is no cross-appeal over this finding. On the issue whether the hypothecation deed, Exhibit A-29, could be acted

upon, so as to vest in the plaintiff a right to claim a charge on it, on foot that it was a mortgage on movable property, the finding of the trial Court is

that the deed of hypothecation could not be acted upon or enforced, as the hypotheca, in the peculiar circumstances of the case, ought to be

understood as movable property annexed to immovable property and, in the absence of a registered instrument on the foot of which such a relief

could be asked, the trial Court negatived the relief for a charge over the ''B'' Schedule property for the recovery of the suit claim. On the other

question whether the interest at 11 per cent. per annum with quarterly rests, was usurious, it found in favour of the defendants. In the result, the trial

Court decreed the suit for a sum of Rs. 1,48,223-82 with subsequent interest from the date of suit upto the date fixed in the usual mortgage decree

at 9 per cent, per annum with quarterly rests and at � the rate of 6 per cent per annum thereafter and proportionate costs personally as against

defendants 1 to 8, and created a charge over the ''A'' Schedule properties only. It also incidentally gave a direction that the 9th defendant would be

entitled to a sum of Rs. 26,000 with interest from 1st March, 1968, from and out of the surplus sale proceeds, if any, when the ''A'' Schedule

properties are brought to sale. As already indicated, it negatived the plaintiff''s request for a charge-decree over the ''B'' Schedule properties,

which are the machinery or movables hypothecated under Exhibit A-29.

It is as against this, the present appeal has been filed by the Bank.

There is no appeal as against this judgment and decree by the 9th defendant. Nor, is there a cross-appeal by the contesting defendants against

the finding of the trial Court that there is a valid mortgage over the ''A'' Schedule properties and that the usual mortgage decree ought to be passed

for the amount due and payable by the defendant-partnership firm to the Bank.

The Bank''s contention, however, is that the trial Court went wrong in having found that the ''B'' schedule properties cannot be proceeded

against by the plaintiff on the foot that a charge has been created over it for the amount lent thereon under Exhibit A-29. The submission is that

under the hypothecation deed, the"" plaintiff has secured a right to obtain a charge as against the hypothecated articles and such deed being an

independent and separate one, the Court ought not to have denied the usual charge-decree as against the ''B'' schedule properties as well

The second contention is that the trial Court, without any material, which is acceptable by Courts of law, barely relied upon the contentions of

the defendants in holding that 11 per cent, per annum with quarterly rests, would be usurious. As a matter of fact, the defendants having agreed to

pay the said rate of interest, since the Reserve Bank of India, in turn has raised the rate of interest which it could claim from its subsidiaries, the

argument is that there is no arbitrariness or usury in the claim of the plaintiff-Bank when it demanded 11 per cent, interest with quarterly rests on

the actual amount due under the various accounts of the defendant with the plaintiff-Bank.

Mr. M. S. Venkatarama Iyer, learned Counsel for the contesting respondents, however, would urge that in the context of events, the

hypothecation deed should be interpreted in the light of the equitable first mortgage, and so interpreted, it should be held that the parties

understood that the movables which were the subject-matter of the hypothecation were also being mortgaged as if it got annexed to the mill

premises to which they were attached, and so understood, it would amount to a mortgage of immovable property and such mortgage not being

evidenced by a deed of mortgage, in accordance with law, and registered in accordance with the Registration Act, the relief for a charge decree,

as against the movables as if it is a separate transaction is a misconceived one. On the next contention, it is stated that 11 per cent. interest with

quarterly rests, would be usurious.

In so far as the first question is concerned, it is a vexed one. Movable property has not been defined in the Transfer of Property Act. If some

light at all is thrown in the General Clauses Act, movable property is that which is not immovable property. There is no decisive and final test or

guidelines to earmark property such as machinery etc. found in a building as immovable property or movable property. The English maxim

quicquid plantatur solo solo cedit"" does not apply to India. Thus, the difficult question as to whether movable properties which are fixed to the

earth are an annexation to the land often depends upon the mode of annexation and primarily on the intention of the parties and other relevant

surrounding circumstances, in each particular case. It is often presumed that if an owner of machinery which could be annexed to the earth, so

annexes it, with his own immovable property in connection with his trace or business, then it is said to assume the character of immovable property.

Equally, a prima facie presumption, but not a sure one, is raised in the case of a tenant or a person not owning the immovable property but causing

such annexation of movable property, such as machinery etc., to be made to the premises as such, which is to the effect that such annexed

property is movable property, because the tenant or a person having only a leasehold interest in the immovable property is often free to remove his

movable property, such as machinery, etc. But, in the ultimate analysis, if the intention of either the owner or the tenant in making such annexation

of movable property to immovable property is to permanently fix it along with the earth or the said immovable property, then it becomes part and

parcel of it. Cases may arise when an article or machinery may be very firmly fixed to the land, but, yet the surrounding circumstances may be such

as to show that it was never intended to be a part of the land. Thus, it reduces itself to a question of fact and a matter of proof. The onus is on the

person, who alleges that the particular article was always intended to retain the character of movable property. He has to establish it. It ultimately

depends upon the intention of the parties. Such intention on the part of either the owner or the tenant, to treat such machinery fixed to the earth as

movable property can sometimes be inferred by their voluntary treatment of such property as belonging to one or the other species of property and

by their conduct.

A true test is contained in the explanation given to the parenthesis ""attached to the earth"" appearing in Section 3 of the Transfer of Property

Act.

Attached to the earth"" means:

(a) rooted in the earth, as in the case of trees and shrubs;

(b) imbedded in the earth, as in the case of walls or buildings:

or

(c) attached to what is so imbedded for the permanent beneficial enjoyment of that to which it is attached.

From the above meaning given by the statute to the expression attached to the earth"", it is clear that such attachment should be for the

permanent beneficial enjoyment of that, to which it is attached.

Mulla in his book on Transfer of Property Act, 1966 (Sixth Edition) quoted with approval a decision of the Calcutta High Court in Jnan Chand

Chugh Vs. Jugal Kishore Agarwal and Others, and stated:

In a recent Calcutta case, it has been held, it is submitted, correctly, that the test is whether the annexation is with the object of the permanent

beneficial enjoyment of the land or building; so machinery for metal-shaping and electroplating which was attached by bolts to special concrete

bases and could not be easily moved, was held not to be a part of the structure housing it or the soil beneath it. The Court held that the machinery

was not attached for the more beneficial enjoyment of either the soil or the concrete; it was actually a case of the structure being built around the

machinery to protect it.

We shall now refer to the evidence let in, in the instant case. The plaintiff examined P.W. 2, who was the Agent of the plaintiff-Bank at Salem

Branch, at or about the time when the financial aid was granted by the Bank to the partnership firm. While giving out the nature of the machinery in

the factory premises and as a person who had first hand knowledge of it, as he had inspected the mills and the machineries, the witness would have

it that all the machineries were not permanently fixed to the earth. He went on to describe the important machineries housed in the factory such as

the transformer, lathe, the welding transformer, and generator, etc., in cross examination and would say, that each of these and parts of machinery

which were in the mills and the Ginning Factory were based on studs or platforms fixed on the earth and they were fitted by bolts and nuts. He was

emphatic that almost all the parts inside the factory premises were all so fixed on studs which, in turn, of course, were imbedded to earth.

In fact, D.W. 2, examined on the side of the defendants, would not speak about the machineries being annexed to earth, or imbedded on

earth, in chief examination, and even in cross-examination, his case is that all the machineries have been fixed on concrete platforms

Thus, therefore, the principle in the Calcutta decision, cited above, squarely applies to the facts of this case. The machineries are attached by

bolts to special concrete bases or studs, or platforms and no one interested in saying so, would say that they are so attached to earth, so as to

make it appear that such articles have been so imbedded for the permanent beneficial enjoyment of the mill premises itself. We accept the evidence

of P.W. 2, in the absence of any contrary materials before us, to say that the imbedding is as urged by Mr. Venkatarama Iyer.

One other aspect, which also prompts us to hold that the parties intended to treat the machinery and other articles in the factory premises as

movable property and not property attached to earth or imbedded to earth, within the meaning of the provisions of the Transfer of Property Act, is

that when they secured financial aid from the Bunk, they executed an independent hypothecation deed, wherein they say that they have

hypothecated in favour of the Bank, machineries and other movables described in general terms in the schedule to that deed. They have described

the hypotheca as ""hypothecated goods"". They have explained the meaning of the expression as meaning all the machineries and other movables of

any kind now fixed to the earth, installed in, or kept in, or chat will be hereafter fixed from time to time, or which shall be brought in and installed,

or mounted or kept in use at the borrowers'' premises or workshop. The schedule to this deed gives the description of the machineries. There are

24 items in it and almost all these items have been referred to by P.W. 2 in his evidence. We have already referred to his testimony. He would say

that all such items are either fixed to a platform or affixed to a stud over the earth by bolts and nuts. The parties, therefore, intended, at all material

times, and at the crucial time when they borrowed money under Exhibit A-29 that the machineries which they had and the machineries to be

brought in, on which they obtained financial aid from the Bank, have to be treated as movable property. If their evidence was that this property

should also be treated as annexed to their mill premises, nothing prevented their from including these movables as an additional schedule under

Exhibit A-24, whereunder they deposited their title deeds to their properties with the intention of creating an equitable mortgage.

From the conduct of the borrowers and from the intrinsic value of the recitals in Exhibit A-24, which is the hypothecation deed, we are unable

to resist the reasonable conclusion which flow from the surrounding circumstances and the facts of this case, that the parties intended that the

machineries delineated in Exhibit A-29 were to be understood and meant as movable property rather than as immovable property in the sense that

they become imbedded to earth so permanently as without it, the mill premises cannot be beneficially enjoyed.

One other circumstance, which also reflects such an intention of the parties is that whilst the deposit of title deeds was made on 15th May,

1964 under Exhibit A-24, the deed of hypothecation deed over the movables was made 5 days later, under Exhibit A-29. This conduct of the

borrowers is also a pointer to the fact that the intention was to keep the mortgage over immovable property distinct, separate and different from

the hypothecation over movables. This treatment of the machineries as independent goods, different from the premises which contained them

makes the intention of the parties clear. That in such matters, it is the intention of the parties, which often looms large, is clear from the decision of a

Division Bench of our Court in Pachigolla Satyanarayanamurthy Vs. Chavala Gangaya and Others, Varadachariar, J., speaking for the Bench,

found as a fact, that the machinery which formed part of the building was dealt with independently in an independent schedule and even then, the

learned Judge was satisfied that the movables which formed part of a separate schedule cannot be treated as immovable property and dealt with,

as such. The learned Judge went on to say ""It also appears to us that on the construction of mortgage deeds the machinery specified in schedule ''C

''was mortgaged not as part of or passing with the immovable property, but independently as immovable property"". We are, therefore in the instant

case unable to agree with the contention of the learned Counsel for the respondents that the machinery in the instant case should. be considered as

movable, which got imbedded to earth so as to metamorphose itself into in movable property and be treated as such, for purposes of this

discussion.

The trial Court, therefore, was wrong in having applied certain principles in certain, well settled decisions of this Court and other Courts, which

obviously depended upon the facts and circumstances in those relevant decisions. But, as it appears to us, and on the facts and circumstances of

this case, and having regard to the conduct and intention of the parties, which is explicit, we find that the hypothecation related to movable property

and that the plaintiff, therefore, in terms of Exhibit A-29, is entitled to claim a charge-decree over the properties described in the ''B Schedule to

the plaint, which are the movables enumerated in Exhibit A-29. To this extent, the judgment of the trial Court is reversed.

The other contention of the learned Counsel for the appellant is that the plaintiff is entitled to interest at 11 per cent. per annum with quarterly

rests. The learned Judge referred to various decisions, which touched upon usury and unreasonable rate of interest and suddenly concluded that

the 11 per cent, interest with quarterly rests is excessive, having regard to the security offered by the borrowers. No doubt under Exhibit A-21, the

interest originally agreed to on the advances to be made by the Bank was only 9 per cent. per annum with quarterly rests. But, under Exhibit A-33

the contesting defendants were informed that the Reserve Bank of India has increased the Bank Rate from 5 to 6 per cent. and placed restrictions

on borrowings by scheduled Banks from it. It is also claimed that the Reserve Bank advised that the rates of interest on Savings Bank and time

Deposit should be stepped up in order to enable the Banking System to attract more deposits. In those circumstances, the plaintiff-Bank, in turn

said, that it was constrained to increase the rate of interest on its advances from 9 per cent. to 11 per cent, on overdraft, open loan, and key loan

facilities. That was to take effect from the 18th of February, 1965.

On receipt of this communication, one partner of the first defendant firm, who is a defendant in the action, agreed to the enhancement in the

rate of interest, as stated in Exhibit A-33. There was, therefore, a contract openly entered into between the borrowers on the one hand and the

Bank on the other, whereunder due to certain known circumstances, the rate of interest was increased from 9 per cent. to 11 per cent. per annum

with quarterly rest.

To find whether a particular rate of interest is usurious, excessive or unreasonable, the aggrieved party should at least let in evidence to show

that such was not the rate of interest which the other Banks charged under similar circumstances. There should also be telling evidence before the

Court to establish that on a prima facie examination of the facts of a particular case it would ordinarily prompt the Court of law to opine that the

rate of interest is exorbitant or excessive. Each case has to be decided on its own merits. No hard and fast rule can be invoked merely on the

mathematics of the rate per cent to hold that the rate of interest was excessive. In the instant case, the parties were appraised of the increase in the

rate of interest, not because the Bank wanted to make unreasonable gain and make the borrowers suffer unreasonable loss, but the increase itself

was attributed to the increased demand of rate of interest by the Reserve Bank of India. This was, therefore, a circumstance, which was of

universal application, in the sense that it applied to all banks and borrowers in similar circumstances. Therefore, it cannot be said that the increase

from 9 per cent. to 11 per cent., having regard to the circumstances and time, at which the rate was increased, was an unreasonable or excessive

rate.

The next question is whether the interest payable with quarterly rests would automatically be assumed or presumed to be an excessive payment

made by the Bank. Here again, Mr. M. S. Venkatarama Iyer did not refer to us any circumstances, or the testimony of the partner, to say that the

plaintiff-Bank has chosen to adopt the method of recovery of interest with quarterly rests unusually and quite differently from the other banking

institutions in the State. It is not even brought out to us that the resultant of the interest calculated On the basis of 11 per cent. per annum with

quarterly rests, would be unconscionably high, or would be unreasonably excessive. It is only in those circumstances when the Court''s conscience

is shaken on a prima facie understanding of the facts, that such demand for interest, in the circumstances of a particular case would place the

defendant in a pitiable situation that the Courts will interfere with the contract rate openly agreed to by parties. No such evidence has been let in

and no such materials have been placed before us for consideration to decide whether the 11 per cent. interest with quarterly rests, would result in

a great prejudice to the borrowers in the instant case. In this respect also, the Trail Court went wrong in referring mechanically to certain decisions

of our Court wherein the rate per cent. was held to be usurious. Having regard to the time at which the increase in the rate of interest was made

and as the borrowers themselves did not raise any protest to it, at any time, until they were called upon to repay the principles with interest at that

rate, we feel that the objection is merely an afterthought. Even otherwise, the materials before us do not compel us to hold that the 11 per cent.

interest per annum with quarterly rests, even though it is secured by the property of the borrowers, can be said to be an excessive, exorbitant and

an unreasonable rate of interest.

The trial Court''s decision on this aspect is also reversed.

The above contract rate of interest will be applied until the date of suit. Thereafter the contesting defendants are liable to pay interest at the rate

of 11 per cent, per annum without being further charged with additional interest at quarterly rests.

The result is that there will be a decree, as prayed for, and together with interest thereon at 11 per cent. with quarterly rests, upto the date of

plaint and thereafter at the rate of 11 per cent. from the date of suit till the date of payment and the usual mortgage-decree will be passed including

Schedules A and B, as the hypotheses or the security from which the plaintiff could realise the decree amount. The appeal is allowed with costs.

C.M.P. No. 14045 of 1974.

The plaintiff has filed a petition to include a sum of Rs. 3,485.70 to the principal amount claimed on the foot that it has paid the insurance

premia in connection with the fire insurance on the suit building and machineries. The plaintiff is entitled to it and this amount will be added to the

principal, provided the plaintiff pays the court fee on this account,

He would be entitled to interest thereon at 6 per cent. from the date of payment.

The appeal and the civil miscellaneous petition are allowed. There will be no order as to costs.