The main legal point established in the judgment is that the Usurious Loans Act cannot be invoked in proceedings under S.31(1) of the State Financial Corporations Act, 1951, and that debtors are liable to pay interest at the rate awarded on the entire amount due, including interest on arrears of interest.

1. The Kerala Financial Corporation advanced loan to the appellants in M.F.A. No.481 of 1984, on execution of relevant documents including Ext.Al mortgage deed dated 5 -13-1973. Instalments of interest due fell in arrears from 1-7-1974 and instalments of principal due fell in arrears from 10-10-1975. The Corporation thereafter filed O.P.No.131 of 1980 before the District Court, Calicut under S.31 of the State Financial Corporations Act, 1951 (for short 'the Act') seeking an order for sale of the property for recovery of the amount due. The debtors filed counter-statement raising several contentions. The District Court over-ruled all these contentions and passed an order for sale for Rs.5,50,602.13 with interest at the rate of 121/2% on the principal amount of Rs.2,87,429.75 from the date of petition till realisation as also costs. This order is challenged by the creditor in M.F.A.No.704 of 1984 and the debtors in M.F.A No.481 of 1984.

2. Learned counsel appearing for the debtors contends that the contract stipulates payment of interest only at 10% per annum, that it was unilaterally increased to 111/2% initially and to 121/2% finally, that the contract stipulates payment of compound interest with half-yearly rests and these stipulations are unconscionable and cannot be acted upon under the provisions of the Usurious Loans Act, 1918. Learned counsel also placed reliance on the decision in State Bank of Travancore v. George (1975 K.L.T. 416).

3. Ext. Al stipulates payment of interest at the rate of 10% with half-yearly rests. It also contemplates payment of interest on interest. The parties further agreed that it is open to the Corporation to enhance the rate of interest from time to time and when notice of the enhancement is given to the debtors, the latter will be bound to pay interest at the enhanced rate. Thus it is clear that the appropriations and claim made by the Corporation are in accordance with the terms of the contract between the parties.

4. It is true, as pointed out by learned counsel for the Corporation that the contention based on Usurious Loans Act was not specifically raised in the counter filed before the District Court, but we find that such a contention was urged in the course of arguments before the District Court. The memorandum of appeal, though it makes no reference to Usurious Loans Act, refers to the excessive nature of the interest and compound interest. Therefore we permit the debtors to raise this contention before us.

5. S.3 of the Usurious Loans Act enables the court to exercise all or any of the powers enumerated in sub-section (1)(b), in any suit to which the Act applies where the court has reason to believe that the interest is excessive and that the transaction was as between the parties thereto substantially unfair. The powers enumerated, inter alia, are to re-open the transaction, take an account between the parties and relieve the debtor of all liability in respect of any excessive interest, and direct the creditor to repay any sum which the court considers to be repayable in respect thereof. S.3 empowers the court to exercise such powers only in a "suit to which this Act applies". S.2(3) defines "suit to which this Act applies" as meaning any suit for the recovery of a loan made after the commencement of the Act or for the enforcement of any security taken or agreement made after the commencement of the Act or for the redemption of any security given after the commencement of the Act. S.3(3)states that the Section shall apply to any suit, whatever its form may be, if such suit is substantially one for the recovery of a loan or for the enforcement of any agreement or security in respect of a loan or for the redemption of any such security. It is thus clear that S.3 could be invoked only in a suit of the nature explained in the above provisions. Obviously S.3 cannot be invoked in suits of other nature or proceedings other than suits.

6. We are dealing in this case with proceedings in