1973 Supreme(AP) 122

Andhra Pradesh High Court
Judges : A.SAMBASIVA RAO, K.RAMACHANDRA RAO
Konakalla Venkata Satyanarayana (Died) - Appellant
Versus
State Bank of India - Respondent
Decided On : 08-18-73

The burden of establishing that the interest is excessive lies on the debtor setting up a plea that the interest charged is usurious and that it is only when that is established the presumption under Explanation (1) to Section 3 (1) of the Usurious Loans Act, as amended by the Madras Amendment Act, arises.

Headnote:

BANKING - USURIOUS LOANS ACT - INTEREST - COMPOUND INTEREST - WHETHER USURIOUS - CIRCUMSTANCES TO BE CONSIDERED - SECTION 3 OF THE USURIOUS LOANS ACT.

Fact of the Case:

The plaintiff, the State Bank of India, filed the suit for the recovery of a sum of Rupees 74,644-04 on the basis of two accounts opened by the defendants with the plaintiff. The 1st defendant was a partnership firm known as Padarti Ratnam and Company. Defendants 2 to 7 were the partners of that firm. Padarthi Ratnam and Co. , was carrying on business in tobacco at Guntur for a long time, Prior to 13-8-1964 the partners of the firm were late Padarthy Ratnam (who is the son of the 4th defendant and the husband of the 5th defendant) and defendants 2, 3, 6 and 7. During the lifetime of Padarthy Ratnam, the said Ratnam and the second defendant were managing the business and the firm. In the year 1961 the firm applied to the plaintiff-Bank for cash credit facilities and the Bank granted the firm cash credit facilities known as Factory type and Lock and Key Type loans to the tune of Rupees 4,00,000/ -. Subsequently the cash credit limit was raised and by the year 1963 it was enhanced to Rs. 6,00,000. 00 under the Factory Type loan and the Rs. 8. 5 lakhs under the Lock and key type loan. Those facilities were given to the firm against pledge of tobacco stored in the firms godowns and grading halls and against Agmarked tobacco stored in the licensed godowns and also against warehouse receipts covering stocks of tobacco issued by approved shipping agents. In view of the large cash credit facilities and on account of fluctuations in price and the possible deterioration in the quality of the pledged tobacco the plaintiff demanded and the firm furnished additional security on 29-4-1963 by depositing the title deeds relating to immovable properties described as items 1 and 2 in the II schedule appended to the plaint. Padarthy Ratnam died on 12-8-1964 and his legal representatives viz. his mother and his widow, defendants 4 and 5 along with the erstwhile partners constituted themselves into a partnership firm under the same old name and took over all the assets and liabilities of the previous firm and continued with the Bank the previous dealings of the original firm. As further collateral security the second defendant deposited with the plaintiff-Bank the title deed relating to item No. 3 of the II Schedule on 15-3-1965.

Finding of the Court:

The court held that the interest charged by the bank was not excessive and that the transaction was not substantially unfair. The court also held that the defendants had not established that the interest charged was excessive. There was neither pleading nor evidence on record to support such a plea and the defendants had failed to discharge the burden which clearly lay on them. The mere fact that interest was charged at 8 1/2 per cent per annum with monthly rests by the plaintiff-bank, it cannot be presumed that the interest is excessive and that the transaction was substantially unfair on the date on which the loan was advanced by the bank to the defendants firm.

Issues: 1. Whether the account filed by the plaintiff is entitled to the amount claimed? 2. Whether the interest claimed by the plaintiff is contrary to the contract governing the parties? 3. Whether the interest claimed is usurious? 4. Whether the settlement of accounts dated 29-3-1965 amounts to novatio and, if so, whether the defendants, 3 to 7 are liable for the suit claim? 5. Whether the defendants are not liable to pay the watchmans salary and trunk call charges debited against them? 6. Whether the defendants are not liable for costs of the suit? 7. To what relief?

Ratio Decidendi: The court held that the interest charged by the bank was not excessive and that the transaction was not substantially unfair. The court also held that the defendants had not established that the interest charged was excessive. There was neither pleading nor evidence on record to support such a plea and the defendants had failed to discharge the burden which clearly lay on them. The mere fact that interest was charged at 8 1/2 per cent per annum with monthly rests by the plaintiff-bank, it cannot be presumed that the interest is excessive and that the transaction was substantially unfair on the date on which the loan was advanced by the bank to the defendants firm.

Final Decision: The appeal was dismissed with costs.