Rate of interest to be governed by the circulars of R.B.I.

RATNAM J.

This civil revision petition has come before us on a reference made by Sethuraman J. The petitioner is a nationalised bank carrying on the business of banking, subject to the provisions of the Banking Regulation Act, 1949, and the control of the RBI. On October 12, 1971, the petitioner advanced to respondents Nos. 1 to 3 herein a sum of Rs. 1, 850 as agricultural medium term loan, which respondents Nos. 1 to 3 agreed to repay with interest at 4 1/2 per cent. per annum over the official rate of the RBI with a minimum interest of 10 1/2 per cent. per annum with quarterly rests. A promissory note, exhibit A-1, dated October 12, 1971, was also executed by respondents Nos. 1 to 3 along with the fourth respondent as a co-obligant. On October 1, 1974, the respondents wrote under exhibit A-3 to the petitioner acknowledging their liability to repay the amounts as agreed, but nevertheless, no amounts were paid. Thereafter, a notice, exhibit A-4, was issued by the petitioner on May 20, 1975, which was received by all the respondents to which only the first respondent replied with exhibit A-9 on June 28, 1975, praying for some time to repay the amounts due to the petitioner. In spite of this, the respondents did not make any payment, which obliged the petitioner to issue another notice under exhibit A-10 on January 16, 1976, to the respondents. Even this notice evoked response only from the first respondent, who, in his reply under exhibit A-15 dated January 29, 1976, prayed for time till April 15, 1976, for paying the amount and since no payment was made even thereafter by the respondents to the petitioner, the petitioner instituted O.S. No. 386 of 1977 in the District Munsif's Court, Thiruvannamalai, against the respondents herein for the recovery of a sum of Rs. 2, 233.10 towards principal, and interest due under the promissory note, exhibit A-1. In the course of the plaint, the petitioner referred to its being a banking company carrying on business under the provisions of the Banking Regulation Act and the execution of the promissory note by respondents Nos. 1 to 4 agreeing to pay interest over the official rate of the RBI with the minimum of 10 1/2 per cent. per annum with quarterly rests and proceeded to state that though the respondents were agriculturists, yet the principal and interest, as agreed to be paid by the respondents, would be recoverable in accordance with the statement of accounts filed. In the written statement filed by the first respondent, he admitted having borrowed from the petitioner on the basis of exhibit A-1, but pleaded that with the borrowed amount and his own, he carried on agricultural operations for the last five years and sustained loss and that was responsible for his inability to repay the amounts due to the petitioner. The charging of interest on interest as disclosed by the memo of calculation, according to the first respondent, was not valid in law. The correctness of the calculation was also disputed and the amounts repaid, according to the first respondent, should be credited towards principal. A plea that the claim was barred by limitation was raised by the first respondent. The written statement of the first respondent wound up with the plea that as the loan was an agricultural medium term loan and as he had sustained loss in agricultural operations, no liability could be fastened on him in respect of the loan. Respondents Nos. 1 to 4 herein adopted the aforesaid defences raised by the first respondent. On a consideration of the evidence, the learned District Munsif, Tiruvannamalai, found that the respondents had acknowledged their liability to pay the amount as claimed by the petitioner-bank and, therefore, the claim is not barred by limitation. Dealing with the right of the petitioner to recover interest at the rate claimed, the learned District Munsif was of the view that since the respondents are agriculturists, the provisions of the Usurious Loans Act, 1918, as amended