The Court can reduce the rate of interest on a loan if it finds that the interest is excessive and that the transaction was substantially unfair.

Judgment

MITTER, J. : This is an appeal from a judgment of the High Court at Madras on a certificate granted by it.

2. The main question in this appeal relates to the rate of interest payable in respect of four mortgages executed in between March 20, 1936 and January 2, 1938. Both the learned trial Judge, Ramaswami, J of the Madras High Court and the Bench of two Judges in appeal were of the view that the provision for interest in the impugned mortgages should be reduced; but where as the learned trial Judge reduced the rate of interest from 15 per cent compoundable every quarter to 15 per cent compoundable with yearly rests, the Judges in appeal after taking all the circumstances into consideration held that 10 per cent compound interest with yearly rests would not be excessive and they reduced the rate accordingly. They also scaled down the rate of interest to 6 per cent from the date of the institution of the suit. The creditor has come up before this Court in appeal and his substantial complaint is that the rate of interest should not have been cut down by the Division Bench of the Madras High Court.

3. The power of the Court to reduce interest in a case like this is derived from S. 3 of the Usurious Loans (Madras Amendment) Act VIII of 1937. Sub-section (1) of that section gives the Court the power to give relief in various ways if it has reason to believe that the transaction as between the parties thereto was substantially unfair. One of such reliefs is the reopening of the transaction and relieving the debtor of all liability in respect of any excessive interest. Explanation I to the section lays down that "if the interest is excessive, the Court shall presume that the transaction was substantially unfair, but such presumption may be rebutted by a number of special circumstances justifying the rate of interest."

Sub-section (2) of S. 3 provides by Cl. (a) that the word "excessive" in the section means 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. Under Cl. (b) of the said sub-section the Court has also to take into account any amounts charged or paid, etc., and if compound interest is charged the period at which it is calculated and the total advantage which may reasonably be taken to have been expected from the transaction. Clause (c) of sub-s. 2 provides that in considering the question of risk, the Court shall take into account the presence or absence of security and the value thereof, the financial condition of the debtor and the result of any previous transactions of the debtor, by way of loan, so far as the same were known, or must be taken to have been known, to the creditor. Clause (d) of the said sub-section enjoins upon the Court to consider also all circumstances materially affecting the relations of the parties at the time of the loan or tending to show that the transaction was unfair, including the necessities or supposed necessities of the debtor at the time of the loan so far as the same wore know, or must he taken to have been known, to the creditor.

4. In effect the provisions of the section which are relevant for the purpose of this appeal are as follows:

(a) If the Court has reason to believe that the transaction was unfair it will exercise the powers given by sub-s. (1);

(b) The Court shall presume the transaction to be substantially unfair if the interest is excessive, such presumption being a rebuttable one by thee special circumstances of the case.

(c) In order to find out whether the interest is excessive the Court must examine the circumstances of the case in the light of the risk incurred or the risk as would be apparent to the creditor at the date of the loan, and then Judge whether compound interest at the rate prescribed and with the rests provided for was justifiable keeping also in view the security given by the mortgagor, the value of such security and the cond