Section 21-A of the Banking Companies Regulation Act, 1949 is not constitutionally valid and is ultra vires of the legislative powers of the Parliament. Section 21-A of the Banking Companies Regulation Act, 1949 cannot be construed as overriding the operation of the Usurious Loans Act, 1918 as amended by the Madras Amendment Act VIII of 1937 in their application to farmers.

The facts:- The plaintiff, the State Bank of India, Eluru Branch is the appellant. It appeals against a judgment of the learned District Judge, Eluru who in A.S.No. 151 of 1980 confirmed the judgment of the trial Court dismissing a suit filed by the Bank for recovery of a sum of money advanced by the Bank as loan to an agriculturist. The Bank sued its debtor, who is an agriculturist, in O.S.No. 176 of 1979 on the file of the district Munsif, Eluru for recovery of a sum of Rs. 8,260.20. That amount was made up of the principal and compounded interest due on the loan minus the part payments made by the defendant-agriculturist from time to time.

2. The principal sum the defendant borrowed from the plaintiff was only Rs.7,200/- and that amount was secured by a mortgage. But that amount soared to be the suit amount even after the defendant had made part payments because of the stipulation of agreement providing for payment of compound interest. The loan agreement provided for the payment of 1½ of interest over and above the prevailing bank rate but subject to a condition of the debtor paying a minimum of 8½% per annum with quarterly rate on the borrowed amount. Thus the principal amount of loan earned every quarter interest which was added in that quarter to the principal amount. The principal amount thus got geometrically swollen up. In telugu this would be described as (Vernacular omitted). This method of charging interest known as the method of charging compound interest is always condemned. Lord Wright in Riches v. West Minster Bank Ltd. 1947 AC 390 refers to the saint-socialist scholar Prof. Tawney to say that money-lending was condemned by the medieval mind as usurious. In our country, charging of compound interest is particularly condemned in relation to the loans advanced to the agriculturists. Many reports of the famine and other commissions appointed to look into the causes for the economic misery of the Indian farmer found agricultural indebtedness as one of the principal causes for the economic misery of the farmer and asked for enacting a law prohibiting charging of compound interest. From time to time, the laws enacted by the Legislatures had made several attempts to prohibit levying of compound interest on the loans borrowed by the agriculturists and otherwise to relieve the farmers of their economic burden of debts. The A.P. Agriculturists Relief Act of 1938 otherwise known as the Rajaji Act is one of the outstanding modern instances of such enactments. So is the Usurious Loans Act of 1918 as amended by the Madras Act VIII of 1937. A Full Bench of this Court in K. Purushottam v. K. Nageswara Rao, (1978) 2 APLJ 145 : (AIR 1979 Andh Pra 48) agreeing with an earlier Full Bench judgment of Subbarao, C. J. (as he then was) in Nainamul v. Subbarao, (1957) 2 Andh WR 53 : (AIR 1957 Andh Pra 546) (FB) held that the object of S.13 of the above A.P. Agriculturists Relief Act, 1938 is to give effect to the statutory rate of interest, if necessary even by disregarding the contractual rate of interest. Mode of fixing allowable rate of interest is settled by S. 13 of Agriculturists Relief Act. Under S. 13 of the A.P. Agriculturists Relief Act, "In any proceeding for recovery of a debt, the Court shall scale down all interest due on any debt, incurred by an agriculturist after the commencement of this Act, so as not to exceed a sum calculated at 6¼% per annum. Simple interest, that is to say, one pie per rupee per mensum simple interest, or one anna per rupee per annum simple interest. Provided that the State Government may by notification in the Official Gazette, alter and fix any other rate of interest from time to time." However, the amount for the recovery of which the Bank had sued the defendant agriculturist in our present case was calculated on the basis of the contracted rate of compound interest. The defence of the agriculturist in the suit was twofold. He firstly objected to the mode of appropriation adopted by