The main legal point established in the judgment is that the Reserve Bank's directives and circulars are binding on banks, and the court should not interfere with the interest rates agreed upon by the parties unless it is against statutory provisions or public policy.

C.S. Rajan, J.

The first respondent is the plaintiff in the suit filed for recovery of the money advanced by the Bank to the appellant on account of a loan he took for agricultural purposes. According to the plaintiff, as per the terms of the loan, the amount was repayable on demand within twelve months in a lump sum with interest at 16.5% at quarterly rests. As a security for the advance, the appellant executed a demand promissory note in favour of the Bank. He also executed a hypothecation agreement in favour of the Bank. A collateral security was also offered as equitable mortgage in respect of the scheduled property by depositing the title deed.

2. The appellant contended in his written statement inter alia, that (he action of the Bank in charging interest at the rate of 16.5% per annum was unauthorised and illegal. The directions issued by the Reserve Bank of India to the Scheduled Banks in the matter of charging interest for loans are binding on the Bank. According to the above circumstances, the Bank is precluded from charging interest on agricultural loans in excess of 13.5%. Therefore, it was contended that the agreement to pay interest at the rate of 16.5% per annum is opposed to public policy. The suit was decreed allowing the plaintiff to realise from the defendants and their assets and also charged over the scheduled property, the loan amount with interest there on at the rate claimed in the plaint and at 6% from the date of the suit till realisation of the amount Aggrieved by the Decree and judgment of the lower court, the appellant has filed this appeal.

3. Sri. C.V. Vasudevan, learned counsel for the appellant contended that the charging of interest at the rate of 16.5% is illegal and opposed to the various circulars issued by the Reserve Bank of India. The directions issued by the Reserve Bank of India are statutory in nature and therefore, the Bank has got a duty to abide by them. The Court is also entitled to take note of the provisions contained in the above circular. The learned counsel also relied on the decision of the Karanaka High Court and one decision of this Court

4. In the ruling reported in D.S. Gowda v. M/s. Corporation Bank (AIR 1983 Kam. 143) a Division Bench of the Karanaka High Court held that the Banks are bound by the directives and circulars issued by the Reserve Bank of India. S.21 of the Banking Regulation Act provides that such directive could be issued in the public interest or in the interest of depositors or in the interest of Banking Policy. Therefore, according to the Karanaka High Court these circulars are not only statutory directives but also statutory instruments of national policy.

5. In the ruling reported in H.P. Krishna Reddy v. Canara Bank, Bangalore (A.I.R.1985 Kam 228) a Division Bench of the Karanaka High Court had occasion to consider the impact of S.21A of the Banking Regulation Act. S.21A of the Banking Regulation Act as amended by the Banking Laws (Amendment) Act, 1983 reads as follows:

"21 A. Rates of interest charged by Banking Companies not to be subject to scrutiny by Courts-Notwithstanding anything contained in the Usurious Loans Act, 1918, or any other law relating to indebtedness in force in any State, a transaction between a Banking Company and its debtor shall not be re-opened by any Court on the ground that the rate of interest charged by the banking company in respect of such transaction is excessive".

The Division Bench of the Karnataka High Court held that S.21A has no bearing on the jurisdiction of Courts to give reliefs to an aggrieved party when it is established that the Bank in a particular case has charged interest in the excess of the limit prescribed by the Reserve Bank of India.

6. Yet another ruling of the Karnataka High Court reported in Bank of India v. Karnam Ranga Rao (1988 Company Cases 477), deals with the same question and held that though S.21A of the Banking Regulation Act is a restraint on the power of the Court to reopen any acc