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Judgment
Ratnam, J.—The Indian Overseas Bank (Salem Main) (hereinafter referred to as the ''Bank'') the plaintiff in O.S. 315 of 1976 Sub-Court,
Salem is the appellant in this appeal. One Appavoo Pillai was the owner of a fleet of buses operating in Salem and Dharmapuri districts. He died
on or about 17-8-1963 leaving a registered will D/- 18-3-1957 under which he had made some arrangements for the management of his fleet of
buses as well as the division of his properties. Respondents 1 to 6 in this appeal are the sons of Appavoo Pillai. Respondents 7 and 8 are the wives
of respondents 1 and 2, respectively.
After the death of Appavoo Pillai the first respondent, one of his sons, who was also appointed as the executor under the Will of Appavoo Pillai
entered into the management of the bus business, left behind by Appavoo Pillai. For the purpose of payment of taxes on the buses, respondents
1to 6 were in need of funds and they approached the Bank for financial help to pay off the taxes due to the Government on the buses.
The Bank sanctioned a cash credit limit of Rs. 2,00,000 and the Bank was directed by its Cathedral Branch to advance the amounts to the
respondents. In order to secure the repayment of the advances by the Bank to respondents 1 to 8 jointly, severally and individually up to the
sanctioned limit of Rs. 2,00,000 respondents 7 and 8 deposited with the Bank certain title deeds relating to the properties owned by them.
On 26-7-1973, all the respondents herein with the exception of the 3rd respondent, executed a promissory note in favour of the Bank for a sum of
Rs. 2,00,000 only agreeing to repay the amount with interest at the rate of 4 per cent over the Reserve Bank of India official rate of interest with a
minimum of 11 per cent per annum from 26-7-1973 until payment in full with quarterly rests. On the same day, respondents 7 and 8 executed a
letter referring to the deposit of the title deeds already made by them on 26-7-1973, and stating that the documents had been so deposited with
the Bank with the intention of securing the repayment to the Bank of the moneys that are due or that may become due from respondents 1 to 8
including interest, commission and other banking charges.
In view of the execution of the promissory note as well as the deposit of title deeds referred to above, the Bank started advancing moneys to the
respondents and the first respondent drew the amounts from the bank whenever necessary and the bank had entered the amount in the account
kept by it in the regular course of business debiting interest at the rates agreed. According to the Bank, as on 31-12-1975, a sum of Rs.
2,14,569.81 was due from the respondents to the Bank and the respondents, on 19-4-1976 confirmed by letter, the correctness of this amount
and also gave revival letter acknowledging their liability under the promissory note D/- 26-7-1973.
The case of the bank is that it had been demanding the repayment of the amounts due to it from the respondents and had also issued a notice to
that effect on 17-4-1976 but that no payments had been made excepting a sum of Rs. 10,000 on 19-4-1976 and therefore, it became necessary
for the bank to recover the amounts due from the respondents. It is in this situation, the Bank instituted O. S. 315 of 1976 praying for the recovery
of a sum of Rs. 2,22,857.73 by enforcing the mortgage created on 20-7-1973 in its favour by the deposit of title deeds.
In the written statement filed by the first respondent, which was adopted by others, while admitting that pursuant to the cash credit facilities to a
limit of Rs. 2,00,000, extended by the bank, three amounts, namely, Rs. 85,297.60, Rs. 43,318.58 and Rs. 35,179.73, were withdrawn by them
on 26-7-1973, 28-7-1973 and 1-8-1973, respectively, it was stated that after taking into account the payments made to the tune of Rs.
26,795.50 on various dates, a balance of Rs. 1,37,000.41 alone will be due with interest at 11 per cent per annum.
The Bank, according to the respondents, could charge and claim interest only at 11 per cent per annum and that the amount claimed was
excessive, penal and usurious as well. Finally, the respondents prayed that a decree for Rs. 1,37,000.41 with simple interest at 11 per cent per
annum may be granted in favour of the Bank with costs on the admission scale and giving two years'' time for payment.
On a consideration of the oral as well as the documentary evidence, the learned subordinate Judge concluded that the principal amount payable
by the respondents to the Bank was Rs. 1,37,000.41. Regarding the claim for interest made by the Bank, the court below was of the view that the
award of 11 per cent interest with quarterly rests up to the date of the suit would be adequate and reasonable as according to it the agreement
regarding payment of interest was vague and it was not known whether the respondents actually agreed to pay interest at the rates claimed by the
Bank.
Finally, the Bank was granted a preliminary decree for the recovery of a sum of Rs. 1,37,000.42, with interest 11 per cent per annum with
quarterly rests up to the date of suit plus an amount of Rs. 66.72 in respect of other claims made in the plaint with proportionate costs. Six months''
time was granted to the respondents to pay this amount. It is the correctness of this decree, particularly as regards the award of interest that is
challenged by the Bank in this appeal.
Before proceeding to consider the controversy regarding the claim for interest, which is the subject matter of this appeal, it would be necessary
to correct an error in the decree granted by the Court below to which our attention was drawn by Mr. M. R. Narayanaswami, the learned counsel
for the bank. Though according to the judgment the principal amount recoverable by the bank is Rs. 1,37,000.41, in the decree it is stated to be
Rs. 2,00,000. Obviously a mistake has crept in incorporating the principal amount in the decree. Consistent with the stand taken by the
respondents in the written statement as well as the finding of the court below on issue No. 1, the respondents are liable to pay the bank towards
principal only a sum of Rs. 1,37,000.41, and not Rs. 2,00,000, as erroneously stated in the decree of the court below.
That takes us to a consideration of the rate of interest which is the bone of contention between the parties. While the claim of the Bank is that
the interest sought to be recovered from the respondents is in accordance with the agreement to pay interest entered into by the respondents and
also the regulations and circulars of the Reserve Bank of India governing the rate of interest on such advances, the respondents herein refute their
liability to pay interest in excess of simple interest at 11 percent per annum.
In order to substantiate the rival stand thus taken by the bank as well as the respondents, our attention was invited to certain documents, which we
shall presently refer to. Exs. A. 3, A. 4, A. 23, A. 34 and A. 25 were relied on by the bank in this connection. Ex. A. 3 is the promissory note dt.
26-7-1973 executed by all respondents excepting the 3rd respondent in favour of the bank. The recital therein regarding the rate of interest is
significant. The rate is specified to be 4 per cent over the Reserve Bank of India official rate of interest with a minimum of 11 per cent per annum.
D. W. 1 has admitted in his evidence that the recital regarding the rate of interest mentioned in Ex. A. 3 is correct. Thus, to begin with, all the
respondents excepting the 3rd respondent had agreed to pay interest at the rate stipulated in Ex. A. 3.
Ex. A. 4 is the true copy of the accounts of the bank and therefrom it is seen that the bank has been debiting the withdrawals made by the
respondents and the interest thereon and crediting the periodical payments made by the respondents. It is seen therefrom that the respondents had
withdrawn on 26-7-1973, 27-7-1973 and 1-8-1973, a sum of Rs. 85,297-80, Rs. 43,318-58 and Rs. 35,179-73 respectively. Some
remittances have also been made by respondents amounting to Rs. 16,795-50 up to the end of Dec. 1975. There are two debit entries relating to
interest on 29-9-1973 and 29-12-1973, in a sum of Rs. 3007-28 and Rs. 4421-06.
It is also further clear from Ex. A. 4 that on 29-3-1974, 28-6-1974, 27-9-1974 and 30-12-1974, interest of Rs. 4969-60, Rs. 5972-83, Rs.
7017-91 and Rs. 7623-26 has been debited. Similarly for 1975, on 31-3-1975, 28-4-1975, 30-5-1975, 28-6-1975, 30-7-1975, 30-8-1975,
30-9-1975, 31-10-1975, 27-11-1975 and 24-12-1975 interest has been debited in a sum of Rs. 7783-83, Rs. 2707, Rs. 2837-40, Rs. 2,87-
55,Rs. 2922-07. Rs. 2965-18, Rs. 2912-67, Rs.3062-83 and Rs. 2998-98 and Rs. 3143-53 respectively. The closing debit balance as on 31-
12-1975 is shown in Ex. A-4 to be Rs. 2,14,569-81.
For 1976, on 30-1-1976, 28-2-1976, 29-3-1976 and 13-5-1976, interest has been debited in a sum of Rs. 3191- 10, Rs. 3029-70. Rs. 2283-
23 and Rs. 4431-01 respectively. On 19-4-1976 the respondents have also paid an amount of Rs. 10,000 which has been credited. Finally, the
debit balance arrived at as on 13-5-1976 is Rs. 2,18,781-85. Ex. A. 23 is a letter dt. 31-12-1975 addressed by all the respondents to the bank.
In that letter, the respondents have confirmed the debit balance of Rs. 2,14,569-81 as on 31-12-1975. No objection had been raised by the
respondents at that time that the rate of interest charged in the several amounts detailed above up to 31-12-1975 was either excessive or not
agreed to be paid at all.
It is seen that though the third respondent did not originally sign the promissory note, he has also, however, confirmed the balance under Ex. A. 23
at Rs. 2,14,569-81. Ex. A. 34 is an interest calculation memo filed by the bank. That clearly brings out the rates of interest charged periodically as
well as the amount debited towards interest in Ex. A. 4. In Ex. A 4 on 29-9-1974, there is a debit entry for interest in a sum of Rs. 3007-28. The
rate of interest has been worked out at 11 per cent. On 9-12-1973, there is a similar debit entry for interest in a sum of Rs. 4421-06 and this again
has been worked out at 11 per cent. On 29-3-1974, interest of Rs. 4969-60 is debited at the rate of 13 per cent. On 28-6-1974, interest at 15
per cent has been charged and the amount debited is Rs. 5962-83.
Similarly, on 27-9-1974, 15 per cent interest has been charged and the amount debited is Rs. 7017-91. Again on 30-12-1974, 17-1/2 per cent
interest has been charged and the amount debited is Rs. 7623-26. On 31-3-1975, interest in a sum of Rs. 7783-83 has been debited at the rate of
17.1/2 per cent. Interest at the same rate of 17.1/2 per cent has been debited on 28-4-1975, 30-5-1975, 28-6-1975, 30-7-1975, 30-81975,
30-9-1975, 31-10-1975, 27-11-1975 and on 24-12-1975. It is after charging interest at the aforesaid rates and giving credit to such payments as
were made by the respondents that the balance as on 31-12-1975 was arrived at Rs. 2,14,569-81 which was confirmed by the respondents
under A. 23.
Similar debit entries for interest at 17-1/2 percent have been made for the months of Jan. to Mar., May and June 1976. It is thus clear from Exs.
A. 4, A. 23 and A. 34, that consistent with the recital in Ex. A. 3, regarding the rate of interest, the bank has been debiting the respondents with
interest at rates in excess of 11 per cent ranging up to 17-1/2 per cent, that has also been accepted by respondents without demur. The inaction of
the respondents is attributable only to the agreement entered into by them to pay interest at the rate mentioned in Ex. A. 3; as otherwise, they
would not have confirmed the debit balance of Rs. 2,14,569-81 as on 31-12-1975 under Ex. A. 23. There is also one other significant
circumstance that under Ex. A. 25 dt. 14-4-1976, the respondents were called upon by a lawyer''s notice to repay a sum of Rs. 2,24,181-72. In
para 1 of that notice, after referring to the sanction of cash credit limit to Rs. 2,00,000, it is stated that the interest was agreed to be raised
according to the directions of the Reserve Bank of India. Though this notice was received by all the respondents as shown by the
acknowledgments Exs. A. 26 to A. 33 not one of them sent any reply demurring for the claim of interest as made in Ex. A. 24. This would also in
our view, clearly establish that the respondents had agreed to pay interest at the rates periodically fixed by the Reserve Bank of India; as
otherwise, they would have sent a reply disputing the rate of interest as claimed in the notice Ex. A. 25.
Exs. A. 21 and A. 22 are the copies of the circulars issued by the Reserve Bank of India, to the Bank and therefrom it is seen that the rate of
interest claimed by bank against the respondents is in accordance with those circulars. Above all, the tenor of the letters Exs. A. 18 and A. 20
written by the first respondent to the bank clearly make out that the respondents had not in any manner objected to the charging of interest as
done, but have only prayed that they should be excused for the delay and that serious attempts will be made to make payments and clear the dues.
Further, it is seen from Exs. A. 2, A. 3 and A. 22 that the rate of interest charged at 17-1/2 per cent is quite in order and accords with the recital in
Ex. A. 3 and the instructions issued by the Reserve Bank of India, periodically to the Bank with reference to the interest chargeable on the
advances of the kind made by the respondents.
However, reliance was placed by the learned counsel for the respondents on Exs. A. 1, A. 2 and A. 21 to contend that the rate of interest
charged is not in accordance with those documents. Ex. A. 1 is an intimation relating to the sanction. No doubt, it is stated that the interest
chargeable is 11 per cent per annum. Ex. A. 2 is an advice regarding the extension of credit facilities and there also the rate of interest is mentioned
to be 11 per cent per annum. However, while actually executing the promissory note, the respondents had agreed to pay interest at 4 per cent
higher than the Reserve Bank of India rate and that would mean that they had agreed to pay 15 per cent interest.
Therefore Exs. A. 1 and A. 2 cannot be pressed into service, by the respondents. Ex. A. 21 does not also assist the respondents, for, it is seen
therefrom that the interest chargeable in respect of advances against title deeds is 15 per cent. Further, from Ex. A. 22 it is seen that the banks
have been empowered to charge penal rates varying from 1 per cent to 2.5 per cent over and above the normal rates applicable, and that would
justify the charging of interest at 17.5 per cent as has been done.
Thus, none of the documents relied on by the respondents to establish that they are not liable to pay interest at the rates claimed by the bank. We
therefore find differing from the court below that the interest claimed by the bank at the rates referred to earlier against the respondents is quite in
order.
The learned counsel for the respondents invited out attention to certain decisions holding that the rates of interest as charged in this case are
excessive and should be relieved against. However, we find that on the facts and circumstances of this case, the decision of the Division Bench
reported in Indian Bank, Tiruvannamalai Vs. V.A. Balasubramania Gurukal, would govern this case. Therefore, it is unnecessary to refer to the
decisions relied on by learned counsel for respondents.
A faint contention was raised by the learned counsel for respondents that the deposition of the witnesses recorded in Court had not been signed
by the Presiding Officier and, therefore, no reliance can be placed on that evidence. However we are of the view that there is absolutely no
substance in this contention. Under O. 18, R. 5, C.P.C. as it stood prior to its amendment by Act 104 of 1976, it was obligatory to read the
evidence in the presence of the Judge and the witnesses and the Judge was also obliged to correct the same and sign it. However under the
amended provisions of O. 18, R. 5, C.P.C. this does not appear to be necessary. We have, therefore, no hesitation in rejecting this contention.
A reference was also made to S. 21-A of the Banking Laws Amendment Act and to some related decisions. We do not see how that question
would be relevant at all for this case. We therefore, refrain from dealing with it.
Thus, on a careful consideration of the documentary evidence and the other circumstances we hold that the respondents are liable to the Bank
in a sum of Rs. 1,37,000-41 towards principal and Rs. 85,071-35 towards interest up to date of the suit i.e. 19-6-1976 totalling to Rs. 2,22,071-
76 and interest at 17-1/2 per cent per annum on Rs. 1, 37,000-41 up to 31-7-1978 i.e., the date of decree in the suit and future interest from 1-8-
1978 up to the date of realisation at 9 per cent per annum. There will be a preliminary decree as indicated above with proportionate costs in the
place of the decree granted by the court below Consequently, the appeal is allowed to the extent indicated with costs against the respondents.
Order accordingly.