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2004(5) Supreme 422
SUPREME COURT OF INDIA
(From Karnataka High Court)
V.N. Khare, CJI., S.B. Sinha, J.
Indian Banks Association, Bombay and Ors. -Appellants
versus
M/s. Devkala Consultancy Service and Ors. -Respondents
Civil Appeal No. 4655 of 2000
With
Civil Appeal No. 5218 of 2000
Decided on 16-4-2004
Counsel for the Parties :
For the Appearing Parties : Altaf Ahmed, L. Nageswara Rao, Additional Solicitor Generals, Dushyant A Dave, P. Chidambaram, Gopal Subramanium, K.N. Bhat, T.L. Viswanatha Iyer, (AC), Sr. Advocates, Ms. Arpita Mahajan, Ms. Nina Gupta, Sukhjinder Singh, Anish Verma, Ms. Poonam Das, Ms. Bina Gupta, P.R. Ramasesh, H.S. Parihar, Kuldeep Parihar, Ms. V.Mohana, Nikhil Sakharadande, Ms. Sushma Suri, B.V. Balram Das, Advocate (NP)/Advocates.
Held : It was lawful for the credit institution to vary the agreement as regard rate of interest only for the purpose of recovering the amount of tax which was payable by the Appellants and a fortiori - nothing over and above the same. Such increase in rate of interest would be (a) to the extent to which such institution is liable to pay the interest tax; (b) in relation to the amount of interest on the term loan; and (c) which is due to the credit institution. Increase in rate of interest in terms of Section 26C of the Act, thus, has a direct nexus with the statutory impost. The action on the part of the appellants in rounding up of the interest, thus, was wholly unjustified. Once it is held that increase in interest in a justifiable manner pertains to passing of the burden of tax, the contention that the same had been done by the bank in exercise of its contractual power must be rejected. A taxing statute must be construed reasonably. Nothing can be realised by way of tax or akin thereto which has not been authorised by the Parliament. The Executive cannot levy tax. It, for the said purpose, therefore, cannot even take recourse to the process of interpretation of a statute. (Paras 21 to 23)
A plain reading of Section 26C of the Act leaves no manner of doubt that the same was enacted only for a limited purpose, namely, to pass on the burden of tax to the borrowers. The amount of tax must be calculated having regard to the contractual rate of interest as thence obtaining and not upon in addition of the purported interest by way of tax or otherwise. Once Section 26C is read in a meaningful way, no difficulty arises in giving effect to sub-section (2) of Section 4 and Section 5 and 6 of the Act. If the provisions of the Act are read in a manner in which we have made an endeavour, for an amount of Rs. 100/- charged and the rate of interest charged by the bank being 10 , the interest thereon having been earned would come to Rs. 10, and, thus, the borrower would be bound to pay only Rs. 10.30 and not Rs. 10.50, which is said to be the effect of calculation at various steps as referred to by the appellants. The appellants are, thus, not correct to contend that they have exercised the power to claim a higher rate of interest only. They may have a power to claim a higher rate of interest under the agreement but they did not exercise the said jurisdiction. They invoked the enabling provisions contained in Section 26C of the Act and/or raised rate of interest so as to pass on the burden of tax upon the borrowers. They, while purporting to exercise their jurisdiction under a statute were required to act in terms thereof and not in derogation thereto. The appellants sought to achieve the same object indirectly which they could not do directly. (Para 27)
The amount collected from the borrowers may be negligible for the appellant banks but the amount they have realised from five crores of borrowers is not a small one. By reason of a self-created confusion, misconception as regard application of a statute and misapplication and misconstruction thereof by the appellants herein had resulted in an illegal action; as a result whereof the borrowers have been deprived of a huge amount. Consequently the Union of India and the appellants have unjustly enriched themselves. When such an unjust enrichment takes place, the doctrine of de minimis, in our view, should not be applied in equity or otherwise. (Para 32)
The purported approval granted by the Reserve Bank of India was wholly without jurisdiction and ultra vires the provisions of the said Act. (Para 43)
The Union of India, as noticed hereinbefore, had proposed that the banks concerned be directed to deposit the excess recovered by it, if no direction is issued by us that the same be returned to the borrowers. Interestingly, the Union of India has not volunteered, which as a State it should have done, to suo motu undertake the exercise of identifying the borrowers and refund the excess amount recovered, a part whereof had been deposited by way of interest tax by the concerned banks. Furthermore, directing the Union of India to refund the excess amount collected through the banks and consequently ask the banks to refund the same to the borrowers whether with the amount retained by them by way of rounding up of interest invariably would take a long time. We, therefore, are of the opinion that a fund may be created for the benefit of the disadvantaged people. (Paras 52 and 53)
(ii) WORDS AND PHRASES-De minimus-Law does not take notice of small or trifling matters. (Paras 30 and 31)
No, the provided legal document does not support or discuss the statement that "the statutory rules only require consent if the bid is less than the reserve price."
The document is a Supreme Court judgment concerning the Interest Tax Act, 1974 (Sections 4, 5, 26C), the Banking Companies (Acquisition and Transfer of Undertakings) Acts, and related provisions under the Banking Regulation Act, 1949 (e.g., Sections 21, 35A, 36(1)). It addresses banks' authority to increase interest rates to pass on the exact burden of interest tax to borrowers on term loans, ruling that "grossing up" calculations and rounding up rates to the next 0.25% (e.g., from 10.30% to 10.50%) were illegal, arbitrary, and without statutory jurisdiction. (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!)
Key holdings include: - Section 26C permits rate increases only to the precise extent of the tax liability calculated on the original contractual interest (e.g., for Rs. 100 principal at 10% interest, tax at 3% yields Rs. 10 interest + Rs. 0.30 tax = Rs. 10.30 total, not rounded up). (!) (!) (!) (!) - Banks cannot exceed this via executive interpretation, RBI approval, or contractual powers; any excess constitutes unjust enrichment. (!) (!) (!) (!) (!) (!) - No provisions mention auctions, bids, reserve prices, or consent requirements in any context.
The document contains no reference to bidding processes, reserve prices, or conditional consent rules. The query appears unrelated to the subject matter (interest tax recovery on loans). If this pertains to a different statute (e.g., auction/sale rules under SARFAESI, IBC, or transfer of property laws), provide the relevant document for analysis.
JUDGMENT
S.B. Sinha, J.-The authority of the bankers to round up the existing interest rates to 0.25 is in question in these appeals which arise out of a judgment and order dated 18.12.1994 passed by the High Court of Karnataka in Writ Petition No. 3927 of 1994: Civil Appeal No. 5218 of 2000 has been filed by the Association of Borrowers of Karnataka upon getting itself impleaded as a party in the connected appeal.
2. Appellant No.1 herein is an Association of Bankers. Appellant Nos. 2 to 28 are banks which were created under respective Parliamentary Acts or nationalized in terms of provisions of the Banking Companies (Acquisition & Transfer of Undertakings) Act, 1970 and the Banking Companies (Acquisition & Transfer of Undertakings) Act, 1980.
FACTUAL MATRIX :
3. Interest Tax Act was enacted by the Parliament w.e.f. 1.8.1974 with an object of imposing tax on the total amount of interest received by Scheduled Banks/Credit Institutions on loans and advances. It, however, was withdrawn in the year 1978, but reintroduced in the year 1980; whereafter it was again withdrawn in the year 1985. The said tax, however, was reintroduced w.e.f. 1.10.1991 by reason of Finance Act, 1991. The Reserve Bank of India by its Circular letter dated 2.9.1991 advised all the Scheduled Commercial Banks that the incidence of interest tax should pro rata be passed on to the borrowers wherefor a uniform practice should be followed in consultation with the First Appellant herein.
4. The first appellant purported to be acting pursuant to or in furtherance of the said circular as also with a view to formulate a structure of uniform interest rate chargeable after including the interest tax payable, which was passed on to the borrowers by the concerned banks, advised them that the rate of interest be loaded with interest tax of 3 and rounded up to the next higher 0.25 . Such rounding up was allegedly found necessary allegedly on account of grossing up involved in calculating the incidence of tax. The Reserve Bank of India purportedly gave its approval to the proposal of the first appellant in terms of its letter dated 22.4.1993. Other appellants herein followed the said purported policy.
5. The aforementioned action on the part of the appellants herein came to be questioned by the respondents in a public interest litigation filed before the Karnataka High Court, inter alia, on the ground that such purported rounding up is illegal and without jurisdiction as thereby the tax element came to be increased and as a result thereof the banks collected additional sums of Rs. 723.79 crores annually by way of resorting to rounding up on the basis thereof.
HIGH COURT JUDGMENT :
6. The appellants herein inter alia contended that such rounding up of interest was done by way of enhancement of the rate of interest which is permissible. Such a matter, the appellants, contended, being contractual in nature, the writ petition was not maintainable.
7. The High Court of Karnataka by reason of its impugned judgment dated 18.12.1998 rejected the said contention and found the action on the part of the appellants herein illegal and consequently issued the following directions :
"...The Writ Petition is allowed. Rule issued is made absolute. The action of the Respondents-Banks in rounding up interest rates to the next higher 0.25 is held illegal, arbitrary and untenable. A command is issued to all the Banks to submit an account of the excess interest collected by them from the borrowers and deposit the same with the Reserve Bank of India to be debited in the account of the Union of India. The Reserve Bank of India-Respondent No.2 is directed to take immediate effective steps for implementation of our directions by calculating the excess interest collected by the Banks and ensuring the same to be deposited in the funds of the Union of India."
8. The appellants herein are before us questioning the said judgment.
SUBMISSIONS :
9. Mr. Dushyant A. Dave, Senior Counsel appearing on behalf of the fi
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