The court held that the interest charged was not penal and unconscionable, and that the plaintiff was entitled to recover the amount claimed. The court considered the following factors in reaching its decision: * The rate of interest was not excessive, given the circumstances of the case. * The defendants had agreed to pay the interest rate in question. * The defendants had not been coerced into signing the loan agreements. * The defendants had benefited from the loans.

PANCHAPAKESA AYYAR, J. :- These are three connected appeals against the judgment and decrees of the Subordinate Judge of Tirunelveli in O. S. Nos. 131 of 1950 and 101 of 1951.

2. The facts were briefly these: One Subbiah Ayyar of Kesavasamudram was a banker doing business in money-lending. He used to take deposits from persons, including widows and orphans, at an attractive rate of interest, said to be ranging from 7½ per cent. to 9 per cent. per annum, and lend out the moneys so borrowed to bus-owners and others, at 12 per cent. compound interest per annum, with yearly rests, such bus owners etc., making high profits and being ready to give such interest which he considered to be quite reasonable in the circumstances. One Sadagopal Naidu, the second defendant in both the suits, and his brother, Srinivasaga Naidu, the third defendant in O. S. No. 101 of 1951 and not a defendant in the other suit, were running some buses even early in 1945, having contracted loans from Subbiah Aiyar and purchased five buses. The loans thus contracted by the brothers with interest amounted to Rs. 65240-10-4 on 17th August 1945, as shown in Ex. A-1, the pass book relating to the debit and credit transactions opened by Subbiah Aiyar himself. On 17th August 1945, both of them agreed to pay Subbiah Aiyar the said sum of Rs. 65,240-10-4, with interest thereon at 1 per cent. per month from that day. There was no stipulation for compound interest in that document, and it was only shown in the vaddi chittais, sent first to the brothers, and then to the company, and defendant 2, where compound interest was added not only with yearly rests but at odd and irregular intervals whenever Subbiah Aiyar calculated the balance due. These brothers were also carrying on a forest coupe contract business, a toddy business, and a trade in groceries.

On 14th December 1945, the two brothers formed a private limited company called Balasaraswathi Ltd., consisting only of two shareholders, viz., themselves, for running buses, as a G. O. current then required a company. Then they borrowed Rs. 1,40,000, from Subbiah Aiyar and purchased some 16 more buses and began operating a fleet of buses in the urban area of Tirunelveli district. Under the Articles of Association of this private limited company, the second defendant, Sadagopal, was the managing director and was entitled to represent the company in all suits and legal proceedings and to contract debts and do all other necessary business of the company. On 1-1-1947, the two brothers, Sadagopal and Srinivasaga, executed a promissory note, Ex. B-11, in favour of Subbiah Aiyar for Rs. 3,97,671-7-7, the sums advanced, with compound interest added at irregular intervals till that day, and promised to pay the said amount with 1 per cent. interest per month.

Here too, there was no stipulation for compound interest, though it was actually charged at irregular intervals by Subbiah Aiyar later on. On 16-8-1947, Rs. 1,26,400 was paid by the two brothers to Subbiah Aiyar, and this payment was endorsed on Ex. B-11. Soon after this, Srinivasaga filed a partition suit, O. S. No. 37 of 1947, on the file of the Sub-Court, Tirunelveli, against his brother Sadagopal. On 10-12-1947, this suit was compromised, under Ex. A-3, between the brothers. One of the terms of the compromise was that Srinivasaga was to take for his share eleven buses and a lorry, and their routes, and to take over Rs. 2,62,000 out of the debt due to Subbiah Aiyar.

This debt due to Subbiah Aiyar from the two brothers was first entered in a pass book, Ex. A-1, till the formation of the company on 14-12-1945, and thereafter in the pass book, Ex. A-6, and thereafter in another pass book Ex. A-7. In accordance with the arrangement to take over the debt of Rs. 2,62,000, out of the debt due to Subbiah Aiyar, Srinivasaga Naidu executed a promissory note, Ex. A-5, for Rs. 2,62,000 to Subbiah Aiyar on 9-12-1947 itself, Subbiah Aiyar, of course, advancing that money by adjustm