Jagannatha Shetty, J.

( 1 ) THIS appeal is directed against the judgment and decree dated December 12, 1980, passed by the City Civil Judge, Bangalore City, in O. S. No. 2530 of 1980.

( 2 ) THE appeal raises some questions of considerable importance as to the constraint on banking institutions to charge interest on loans/advances/overdrafts or any other financial accommodation and the power of courts to examine the rigour of such transaction and give relief to the debtor by calling into aid the usury enactments.

( 3 ) THE facts, in brief, are these : one D. S. Gowda was allotted a site No. 132/4 at Rajamahal Vilas Extension, Bangalore, by the bangalore Development Authority. He wanted to construct some residential flats in that site. He approached M/s. Corporation Bank", readily acceded to his request and gave advance and overdraft facilities. D. S. Gowda took the loan and commenced construction. The loan sectioned was perhaps found insufficient. So, he could neither finish the building nor repay the loan.

( 4 ) ON November 26, 1973, he executed an irrevocable power-of-attorney in favour of the bank manager authorising him to supervise and/or to put up construction, according to the sanctioned plan, and to induct tenants and recover rents from them. Still the loan could not be cleared. It went on mounting with addition of compound interests penal interest and service charges.

( 5 ) IN 1975, the building still remained unfinished with the outstanding loan and interest mounted up to rupees four lakhs and seventy-one thousand. The bank then thought that it must have adequate security from D. S. Gowda. On October 10, 1975, D. S. Gowda executed a deed of equitable mortgage in gawkier of the bank with deposit of title deeds of his site for a total liability of rupees five lakhs. It appears, the bank gave him further accommodation at the time of executing the said deed. The material terms of the said deed are : "3. The mortgagor hereby convents to repay mortgage loan of Rs. 5,00,000 as above together with interest thereon at the rate of 16 1/2% p. a. subject to such rate of interest as may be prescribed, within a period of two years. The mortgagor further agrees to pay interest on the mortgage amount at the end of each calendar month without default and that in the event of daily overdue interest may be charged. "

( 6 ) ON November 7, 1975, D. S. Gowda again, at the instance of the bank, executed a promissory note evidently as a collateral security, undertaking to pay rupees five lakhs with interest at 161/2% per annum with quarterly rests.

( 7 ) AS on March 1, 1978, the balance payable by D. S. Gowda with penal interest and service charges stood at Rs. 7,56,934. 17.

( 8 ) ON March 2, 1978, the bank instituted a suit to recover the said sum together with costs and future interest and for sale of the mortgaged property in terms of 0. 34 of the CPC.

( 9 ) THE defendant, D. S. Gowda, while admitting the execution of the said equitable mortgage deed and the promissory note, resisted the suit contending, inter alia : that the promissory note was executed as a collateral security and the quarterly rests prescribed there miner was not one of the conditions of the loan granted to him. The amount actually borrowed under the mortgage was only about rupees four lakhs, but the bank got the deed executed for rupees five lakhs inclusive of the interest on rupees four lakhs earlier advanced. The defendant was not liable to pay compound interest or penal interest, since it was not one of the terms of the loan transaction. The interest charged, at any rate, was exorbitant and the transaction was substantially unfair and, therefore, the defendant would be entitled to the relief under the provisions of the Mysore Usurious Loans Act, 1923.

( 10 ) ARISING out of these pleadings, the court below framed the following among other issues : " (1) Whether the plaintiff is entitled to collect interest with quarterly rests ? (2) Whether the defendant pr

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