ORDER :

PRAYER: Writ petition filed under Article 226 of the Constitution of India praying to issue a Writ of Declaration declaring the impugned circular of the second respondent bearing Ref. RBI/2006-07/14 DBOD. Dir.BC.5/13.03.00/2006-07, dated 01.07.2006 as illegal and unconstitutional and opposed to public policy.

Writ Petition has been filed challenging the impugned circular of the second respondent bearing Ref. RBI/2006-07/14 DBOD. Dir.BC.5/13.03.00/2006-07, dated 01.07.2006 as illegal and unconstitutional and opposed to public policy.

2. The main ground on which the challenge is made to the circular is that the circular retrospectively directs all the banks to charge compound interest at monthly interest and also prescribing minimum rate of interest. According to the petitioner the rate of interest should be reasonable and the very concept of capitalization is only for the deterrent effect and not for unjust enrichment of the lenders. The impugned circular leads only to unjust enrichment and it mandatorily directs all the Banks to be Shylocks and as such it is opposed to public policy. The impugned circular is violative of Article 14 of the Constitution of India and 19(1)(g) of the Constitution of India and seeks to quash the impugned circular issued by the 2nd respondent.

3. Learned counsel for the 2nd respondent would submit that the Writ Petition is not maintainable as Reserve Bank of India, which is banker's bank, is creature of statute. It has large contingent of expert advice relating to the matters affecting the economy of entire country and nobody can doubt the bona fides of the Reserve Bank, in issuing the impugned directions and as per Sec.21 of the Banking Regulation Act, 1949, the Reserve Bank would control the banks.

4. The allegation that the interest rates at monthly rests are made applicable retrospectively is beyond truth and denied. The instructions in respect of charging of interest rates at monthly rests were issued to all scheduled commercial banks by the Reserve Bank in view of the circular dated March 9, 2002, wherein the banks were advised to move over to charging of interest on loans/advances at monthly rest with effect from 01.04.2002.

5. Learned counsel for the petitioner submitted that penal interest has been applied under the pretext of above circular. Practice of charing interest on compound interest will lead to changing interest even on monthly rests and capitalizing the same. Therefore, according to him the circular is violative of Art. 14, 19(1) (g) and 21 of the Constitution of India. In support of his submissions, learned counsel relied on the judgment of the Hon'ble Supreme Court in the case of Central Bank of India Vs. Ravindra and Others, (2002) 1 SCC 367.

6. Learned counsel appearing for the 2nd respondent would submit that circular has been issued taking note of the functioning of the banks and economy as a growth and only on the advice of the expertize the circular has been issued and the Writ Court has no jurisdiction to interfere with the same. In support of his submissions, learned counsel relied on the judgment of this Court in the case of Deccan Chronicles Holdings Limited vs. Union of India, (2014) 4 MLJ and the case of Peerless General Finance and Investment Co. Ltd vs. Reserve Bank of India, AIR 1992 SC 1033.

7. Heard the learned counsel for the petitioner and the learned counsel for the respondents and I have perused the entire materials.

8. The main challenge is the circular, which according to the petitioner directs the banks to retrospectively apply the interest in a monthly rests and the same has been regularized by the Reserve Bank of India. It is the contention of the RBI that only the banks are adviced to move over for changing of interest on loans with monthly rests with effect from 01.04.2002. Therefore, the contention that there is a direction to apply retrospective interest is misconceived. What was issued is only a direction to switch over to the monthly rests. Though