SWAMIKKANNU J.


This is an appeal by the defendants in O.S. No. 174 of 1978 on the file of the Court of the Subordinate Judge, Udumalpet, against the judgment and decree of the trial court dated September 24, 1979, decreeing the suit for recovery of a sum of Rs. 12, 533.55 said to be due on a promissory note dated February 16, 1970, executed by the defendants in favour of the respondent bank, for Rs. 22, 900 repayable with interest thereon at 18 per cent. per annum. The appellants have restricted their dispute in the appeal to a sum of Rs. 7, 000 admitting their liability to pay the balance of Rs. 5, 533.55.


The case of the respondent bank before the lower court is as follows : For the purchase of a tractor, trailer and their accessories, the first defendant, Muthian, got a loan of Rs. 22, 900 from the respondent bank and he and the second respondent as his surety executed a promissory note under exhibit A-1 for the said amount in favour of the respondent bank on February 16, 1970, agreeing to repay the said loan with interest at 9 per cent. per annum. Thus, the liability of the second defendant is joint, several and co-extensive with that of the first defendant. As per the instructions of the Reserve Bank of India, the interest rate has been raised and along with the default rate of interest, the appellants are bound to pay interest at 18 per cent. per annum. The appellants had acknowledged the outstanding in writing on September 2, 1972, and August 12, 1975, which acknowledgments save the suit claim from being barred by limitation under section 18 of the Limitation Act. The appellants having evaded payment of the loan in spite of demands, a suit was laid for the abovesaid relief by way of recovery of the loan amount with interest. The respondent bank has been keeping true, proper, regular, correct and day-to-day accounts in the usual course of its business, and as per the ledger accounts relating to the first defendant, there is a balance of Rs. 12, 533.55 due as on August 10, 1978.The first defendant filed a written statement which was adopted by the second defendant in the suit. The defendants admitted execution of the suit promissory note for Rs. 22, 900 payable with interest at 9 per cent. per annum for the purchase of a tractor and the second defendant stood surety for the said borrowing. They, however, contended that the respondent did not pay any cash. The respondent paid a sum of only Rs. 22, 757.06 to Annamalai Agencies and so, there is failure of consideration to the extent of Rs. 142.94. The respondent's account does not reveal this fact. The appellants are agriculturists and the loan was taken for agricultural purposes only. The respondent's account does not show the date or up to what date interest was calculated and at what rate. Though the original interest agreed was only 9 per cent. per annum, it has been progressively and unilaterally, without the consent of the appellants, raised to higher rates such as 11%, 12%, 13%, 14 1/2%, 15 1/2%, 18% and 19 1/2%. These higher rates are not binding on the defendants-appellants, who are not liable to pay such enhanced and unconscionable interest, since they are agriculturists even though the creditor may be a nationalised bank. The appellants further submitted that the suit may be decreed for the amount really found payable by the defendants, without costs of the suit.


On the above pleading, the following issues were framed by the trial court :


(1) Whether the suit promissory note is not supported by consideration to an extent of Rs. 142.94 ?


(2) Whether the rate of interest has been unilaterally and without the consent of the defendants increased and whether the defendants are not liable to pay such enhanced rates of interest as alleged in paragraphs 7 and 8 of the written statement ?(3) Whether a sum of Rs. 327 and the amount in savings bank account have to be credited to the suit amount as alleged in paragraph 9 of the written statement ?


(4) Whether the payment of a sum of Rs. 2, 500 by bank draft must be credited as payment on March 24, 1973, and interest worked out afresh giving credit to later payments on proper dates as alleged in paragraphs 10 and 11 of the written statement ?


(5) Whether there are several other unauthorised debit non-interest entries in the plaintiff's account and if so, what are they and whether the defendants are not liable to pay amounts for such entries ?


(6) To what amount is the plaintiff entitled ? and


(7) To what relief is the plaintiff entitled ?


On behalf of the respondent-bank, one R. Kandavel, an assistant of the respondent bank, was examined as P.W.-1 and exhibits A-1 to A-49 were marked as evidence on its side. The documents marked on the side of the respondent are the suit promissory note, exhibit A-1, a receipt for Rs. 22, 757.06 issued by Annamalai Agencies to the bank for payment made by the bank on behalf of the appellants, exhibit A-2, another similar receipt issued to the first appellant, exhibit A-3, a letter dated September 2, 1972, by the appellants revising their liability to the bank, exhibit A-4, another similar letter dated August 12, 1975, exhibit A-5, lawyer's notice issued to the appellants on behalf of the bank, exhibit A-6, and the postal acknowledgment, exhibit A-7, a refused postal cover sent to the address of the second appellant, exhibit A-8, copy of accounts filed by the plaintiff, exhibit A-9, a letter from the respondent to the first appellant, exhibit A-10, the ledger entry at page 66 of the respondent's ledger, exhibit A-11, another letter from the bank to the first appellant, exhibit A-12, ledger entries of the respondent bank, exhibits A-13 to A-18, a letter of acknowledgment sent by the first appellant to the bank, exhibit A-19, a letter sent by the bank to the first appellant, exhibit A-20, and similar other letters sent on various dates, exhibits A-21 to A-31, a copy of the telegram sent by the bank to the appellants, exhibit A-32, copy of a letter sent by the bank to the first appellant, exhibit A-33, a hypothecation agreement by the appellants to the bank, exhibit A-34, a letter dated February 16, 1970, acknowledging security by the appellants, exhibit A-35, a ledger entry at page 61 of the respondent's ledger, exhibit A-36, a letter written by the first appellant to the bank and the bank's reply thereto, exhibits A-37 and A-38, another letter by the bank to the first appellant, exhibit A-39, quarterly reports signed by the first appellant, exhibits A-40 to A-47, a postal acknowledgment signed by the first appellant, exhibit A-48, and a copy of the savings bank account which the first appellant had with the respondent bank, exhibit A-49. On behalf of the appellants, the first appellant was examined as D.W.-1 and exhibits B-1 to B-6, viz., the savings bank pass book held by the first appellant, two challans for payment of Rs. 327 and Rs. 2, 500, a letter from the Superintendent of Post Offices addressed to the first appellant, an attested copy of the acknowledgment and a telegram received by the first appellant.After considering the oral and documentary evidence, the lower court came to the conclusion under issue No. 1 that the suit promissory note is supported by consideration to the full extent of Rs. 22, 900 as claimed in the plaint, and under issue No. 2 that the rate of interest had not been increased by the respondent bank unilaterally and without the consent of the appellants as contended in the written statement, and that the appellants are bound and liable to pay such enhanced rate of interest as demanded by the bank despite their agreement under the promissory note to pay interest only at nine per cent. Under issue No. 3, the lower court found that a sum of Rs. 327 sent by the first appellant on June 29, 1970, by way of bank draft and the amount in the savings account of the first appellant cannot be credited towards the suit amount as demanded by the appellants in the written statement and answered that issue against the appellants. Under issue No. 4, the lower court held that payment of Rs. 2, 500 sent by the first appellant by bank draft cannot be credited as a payment as on March 24, 1973, and interest cannot be worked out afresh giving credit to later payments on proper dates as alleged in the written statement and found that issue against the appellants. Under issue No. 5, the lower court held that there are several other unauthorised non-interest debit entries in the account of the respondent bank and the appellants are liable to pay the same and found that issue in favour of the respondent bank. Consequent on the above findings on issues Nos. 6 and 7, the lower court decreed the suit for a sum of Rs. 12, 533.55 with interest at 18 per cent. per annum and costs of suit.


Aggrieved by the above decision of the lower court, the defendants have preferred this appeal, restricting their dispute to an amount of Rs. 7, 000 by way of excess interest said to have been charged by the bank.Mr. G. M. Nathan, learned counsel for the appellants, inter alia, contends that the lower court had not properly appreciated the provisions of the Usurious Loans Act of 1918 as well as the provisions of the Banking Regulation Act, 1949, and the ratio decidendi in the judgment of the Karnataka High Court in D. S. Gowda v. Corporation Bank, 1985 (57) CC 49, 1983 AIR(Kar) 143, 1982 (2) Kar(LJ) 490 : 1985 (57) CC 49, 1983 AIR(Kar) 143, 1982 (2) Kar(LJ) 49072, for the following propositions 1985 (57) CC 49, 1983 AIR(Kar) 143, 1982 (2) Kar(LJ) 490.


"It is not correct to say that since the loan transactions entered into by banks with their customers are governed by statutory directives of the Reserve Bank, the transactions become statutory agreements and courts cannot apply the Usury Acts to scale down the interest charged in view of the overriding effect given to the Banking Regulation Act under section 5A. The directives issued by the Reserve Bank, no doubt, have statutory force. They lay down the guidelines about the methodology of operations, policy, procedure and rate of interest in financing or advancing loans to various classes of persons. But the loan transactions entered into by the executives of banking institutions in the usual course of their business are not statutory agreements. They are just commercial transactions governed by the guidelines laid down by the Reserve Bank" *


In the said decision, the High Court of Karnataka has observed as follows (headnote of 1983 AIR(Kar) 144) :


"Where a nationalised bank converted the overdraft outstanding balance of a customer into mortgage loan with 16 1/2 per cent. interest on monthly rests and has charged monthly rests for some period and quarterly rests for the remaining period and it has also charged two per cent. penal interest and also some service charges, charging interest with monthly rests in a case like the one in question, was nothing but usury ; and even charging interest with quarterly rests was not warranted by the facts and circumstances of the case. Charging of penal interest was also held to be not warranted. Further, the bank was directed to charge interest at 12.5 per cent. with annual rests." *


It is further contended on behalf of the appellants that though the bank has been contending that by virtue of the provisions of section 21A of the Banking Regulation Act, 1949, as well as the circulars emanating from time to time from the Reserve Bank, the bank was obliged to increase the rate of interest as per the circulars periodically and, in the instant case, no such circular has been filed and proved, yet it is open to the court to consider the rate of interest with reference to the provisions of the Usurious Loans Act, because the main contention of the appellants, in their written statement as well as in the evidence let in, both oral as well as through documents, was that the rate of interest has been unconscionably increased by the bank without even prior intimation to them. According to learned counsel, exhibit A-19 is not an intimation, nor can it be taken as consent on behalf of the appellants so as to bind themselves to pay enhanced interest at 14 1/2% when the rate of interest contemplated under the promissory note is only 9%. In other words, learned counsel strenuously contends that the rate of interest ought to have been considered by the lower court with reference to the nature of the profession for which the lease had been taken by the appellants from the respondent bank and this aspect had not been dealt with at all by the lower court. In this regard, the following observation in the above decision, referred to by learned counsel, is relied on (at page 75 of 1985 (57) CC 158 of AIR 1983 Kar) :


"The court, therefore, has to analyse the entire transaction and also the components of the interest collected. In making that enquiry, the court shall take into account the amounts charged or paid for expenses, enquiries, fines, premia, renewals or any other charges. If compound interest is charged, the court must examine the periods at which it is calculated and its burden on the debtor. If, on the whole, the interest charged is found to be unreasonable and harsh, the court shall reduce the rate of interest appropriately and give relief to the debtor. This is the paramount duty cast on all courts, the exercise of which is neither controlled nor curtailed by the provisions of the Banking Regulation Act."


It is also pointed out by Mr. G. M. Nathan, learned counsel for the appellants, that in this decision, rendered by the Karnataka High Court, the decision of this court in Indian Bank, Tiruvannamalai v. V. A. Balasubramania Gurukkal, 1984 (56) CC 41, 1982 AIR(Mad) 296, 1982 (11) MLJ 238 : 1984 (56) CC 41, 1982 AIR(Mad) 296, 1982 (11) MLJ 238

has been referred to and the Karnataka High Court observed about this court's decision as follows (at page 70 of 1985 (57) CC 156 of AIR 1983 Kar) :


"Upon reading the entire judgment, it appears to us that all the relevant circulars and directives of the Reserve Bank were not brought to the notice of that court. The loan in that case was admittedly one given to the agriculturists and the interest charged was undisputedly above the bank rate and with quarterly rests. Firstly, it is not known whether the bank rate, referred to therein, was the 'minimum lending rate' prescribed by the Reserve Bank or the rate at which the Reserve Bank lends money to banks. The two are entirely different and one has nothing to do with the other. If there was a maximum lending rate prescribed by the Reserve Bank, then the Indian Bank had no power to charge any interest above the ceiling. Assuming that in 1971, the Reserve Bank prescribed only the minimum lending rate, there was, to our knowledge, no directive to charge interest with 'quarterly rests'. That apart, the Reserve Bank has issued circulars in 1972, 1974 and 1976 commanding all commercial banks including nationalised banks not to charge compound interest on agricultural loans. The circular dated August 17, 1976, is clear on this point. It reads :


'RESERVE BANK OF INDIA


CENTRAL OFFICE


DEPARTMENT OF BANKING OPERATIONS AND DEVELOPMENT


BOMBAY-400 001.


Ref : DBOD. No. BPBC. 94/C-453(A)-76, dated August 17, 1976, Sravana 26, 1898 (Saka).To


All the Scheduled Commercial Banks.


Dear Sir


Method of charging interest on agricultural advances.


Please refer to our directive DBOD. No. DIR. B.C. 30/C. 96-97, dated March 13, 1976, stipulating the maximum rate of interest that could be charged on loans, advances, etc., by scheduled commercial banks. It has been stated therein that interest shall be charged with quarterly rests. It is clarified that this aspect of the directive will not apply to agricultural advances in respect of which the instructions issued in our letters No. Nat. 389/C, 453(A)-72, dated March 14, 1972, and No. BPBC. 107/C. 453(A)-74, dated October 5, 1974, will continue to prevail. In other words, payment of interest on agricultural advances should be insisted upon only at the time of repayment of principal/instalment of principal and interest on current dues should not be compounded.


2. Please acknowledge receipt.


Yours faithfully


(Sd.)...............


Chief Officer.'


One does not know whether this circular was produced in the said case before the Madras High Court." *


Learned counsel for the appellants further submits that the lower court had lost sight of the fact that no circular of the Reserve Bank of India enhancing the rate of interest had been filed on behalf of the plaintiff bank before the lower court, especially the circular giving concession to agriculturists in the payment of interest, like the one referred to in the observations of the Karnataka High Court in the decision cited above.


Mr. S. Sampath Kumar, learned counsel for the respondent bank, points to the provisions of section 21A of the Banking Regulation Act, 1949, which was inserted by Act I of 1984 and was made effective from February 15, 1984, and submits that the rate of interest cannot be the subject-matter of scrutiny by courts. According to him, exhibits A-19 is sufficient to mulct the appellants with the enhanced rate of interest, viz., 14 1/2%, since no objection had ever been raised at the time of the service of the said communication to the appellants by the respondent bank.The point in this appeal is whether this court can, at this stage, interfere with the rate of interest that had been charged by the respondent bank, so far as the suit transaction is concerned, by raising its claim as per exhibit A-19. Exhibit A-19 reads as follows :


"SYNDICATE BANK


(Head Office, Manipal, Karnataka)


Branch : Pollachi


Date : 12-9-1974.


To


Sri B. Muthian


S/o. Sri R. Doraisamy Gounder


Muthu Gounder Lane, Tammanpatty P.O.


Athur Taluk, Salem.


Dear Sir


Change in the rates of interest on advances.


In view of the enhancement in the bank rate with effect from July 23, 1974, it has been decided to enhance the rate of interest on all advances.


You are at present enjoying the following facilities with us on which the rate of interest/discount has been revised as follows with effect from July 23, 1974.


Nature of Rate of interest/ Rate of interest/


facility discount up to discount with


22-7-1974 effect from


23-7-1974


Tractor loan 13% 14 1/2%


19/70


You are requested to return the duplicate of this letter in token of your having agreed to the revised rates with effect from July 23, 1974. Assuring you of our best services


Yours faithfully


(Sd.)...............


Manager.


I/we hereby agree to the revised rates, as stipulated above, with effect from July 23, 1974.


Place : Tammanpatty (Sd.) D. Muthian


Date : 26-9-1974 (Borrower).............." *


It is relevant in this connection to note that there is absolutely no documentary evidence to show that there has been ever an acceptance by the appellants herein of the enhancement of the interest, nor had any circular enhancing the rate of interest by the Reserve Bank been produced. It is relevant to note that the Karnataka High Court had observed that the Reserve Bank's circular dated August 17, 1976, had not been produced before this court in the case reported in Indian Bank v. V. A. Balasubramania Gurukkal, 1984 (56) CC 41, 1982 AIR(Mad) 296, 1982 (11) MLJ 238 : 1984 (56) CC 41, 1982 AIR(Mad) 296, 1982 (11) MLJ 238 (Mad). In the said decision of this court, at least two circulars by way of exhibit A-17 and exhibit A-18 had been produced before this court. In the instant case before us, no circular at all has been produced by the bank nor any communication from the Reserve Bank authorising the respondent bank to enhance the rate of interest, especially as against the first defendant for whom the second defendant had stood surety, and who are both related as father and son, and are admittedly agriculturists since it is patent that the loan had been granted for purchasing a tractor for agricultural operations.Section 21A has come into existence by way of an amendment to the Banking Regulation Act, 1949, by the Amendment Act I of 1984, with effect from February 15, 1984, only, evidently without any retrospective effect. That provision cannot be said to clothe the respondent bank with the right to enhance the rate of interest even in the case of transactions with agriculturists, especially when there is no acknowledgment of any copy of any communication from the Reserve Bank addressed to the appellants herein informing them that the respondent bank was enhancing the rate of interest to 14 1/2%. In this regard, Mr. Nathan, learned counsel for the appellants, contends that exhibit A-19 cannot be taken as a notice with reference to the alleged circular enhancing the rate of interest to 14 1/2%. By the above argument, Mr. Nathan explains away the signature of the first defendant found in exhibit A-19 in token of its having agreed to the enhancement of the rate of interest to 14 1/2% by the respondent bank, from July 23, 1974. In this regard, the Usurious Loans Act, 1918, as amended by the Tamil Nadu Amendment Act 8 of 1937, which gives discretion to the court to scale down the interest may usefully be referred to and the relevant provision therein, viz., section 3, reads as follows :


"3. (1) Notwithstanding anything in the Usury Laws Repeal Act, 1855, where, in any suit to which this Act applies, whether heard ex parte or otherwise, the court has reason to believe that the transaction was, as between the parties thereto, substantially unfair, the court shall exercise one or more of the following powers, namely :--


(i) reopen the transaction, take an account between the parties thereto, and relieve the debtor of all liability in respect of any excessive interest ;(ii) set aside either wholly or in part or revise or alter any security given or agreement made in respect of any loan, and if the creditor has parted with the security, order him to indemnify the debtor in such manner and to such extent as it may deem fit :


Provided that in the exercise of these powers, the court shall not :


(i) reopen any agreement purporting to close previous dealings and to create a new obligation which has been entered into by the parties or any persons from whom they claim at any date more than six years from the date of the transaction ;


(ii) do anything which affects any decree of a court.


Explanation I.--If the interest is excessive, the court shall presume that the transaction was substantially unfair ; but such presumption may be rebutted by proof of special circumstances justifying the rate of interest.


Explanation II.--In the case of a suit brought on a series of transactions, the expression 'the transaction' means, for the purpose of, proviso (i), the first of such transaction.


(2) (a) In this section, 'excessive' means in excess of that which the court deems to be reasonable having regard to the risk incurred as it appeared, or must be taken to have appeared, to the creditor at the date of the loan.


(b) In considering whether interest is excessive under this section, the court shall take into account any amounts charged or paid, whether in money or in kind for expenses, inquiries, fines, bonuses, premia renewals or any other charges, and if compound interest is charged, the periods at which it is calculated, and the total advantage which may reasonably be taken to have been expected from the transaction :


Provided that in the case of loans to agriculturists, if compound interest is charged, the court shall presume that the interest is excessive.(c) In considering the question of risk, the court shall take into account the presence or absence of security and the value thereof, the financial condition of the debtor and the result of any previous transactions of the debtor, by way of loan, so far as the same were known or must be taken to have been known to the creditor.


Explanation.--Interest may, of itself, be sufficient evidence that a transaction was substantially unfair.


(3) This 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 an agreement or security in respect of a loan.


(4) Nothing in this section shall affect the rights of any transferee for value who satisfies the court that the transfer to him was bona fide and that he had, at the time of such transfer, no notice of any fact which would have entitled the debtor as against the lender to relief under this section.


For the purpose of this sub-section, the word 'notice' shall have the same meaning as is ascribed to it in section 4 of the Transfer of Property Act, 1882.


(5) Nothing in this section shall be construed as derogating from the existing power of jurisdiction of any court." *


In this regard, the relevant provision of the Mysore Usurious Loans Act, 1923, as amended by Act 14 of 1955, of that State so far as it is relevant, can also be usefully looked into. That provision, viz., section 3 of the said Act, reads as follows :


"3. (1) Where in any suit to which this Act applies whether heard ex parte or otherwise, the court has reason to believe that, the transaction was, as between the parties thereto, substantially unfair, the court shall exercise one or more of the following powers, namely :--


(i) reopen the transaction, take an account between the parties, and relieve the debtor of all liability in respect of any excessive interest ;(ii) notwithstanding any agreement purporting to close previous dealings and to create a new obligation, reopen any account already taken between them and relieve the debtor of all liability in respect of any excessive interest, and if anything has been paid or allowed in account in respect of such liability, order the creditor to repay any sum which it considers to be repayable in respect thereof ;


(iii) set aside either wholly or in part or revise or alter any security given or agreement made in respect of any loan, and if the creditor has parted with the security, order him to indemnify the debtor in such manner and to such extent as it may deem just.


Explanation I.--If the interest is excessive the court shall presume that the transaction was substantially unfair but such presumption may be rebutted by proof of special circumstances justifying the rate of interest.


Explanation II.--In the case of a suit brought on a series of transactions, the expression 'the transaction' means, for the purpose of proviso (i), the first of such transactions.


(a) In this section 'excessive' means in excess of that which the court deems to be reasonable having regard to the risk incurred as it appeared, or must be taken to have appeared to the creditor at the date of the loan.


(b) In considering whether interest is excessive under this section, the court shall take into account any amounts charged or paid, whether in money or in kind, for expenses, inquiries, fines, bonuses, premia renewals or any other charges, and if compound interest is charged, the periods at which it is calculated, and the total advantage which may reasonably be taken to have been expected from the transaction, provided that in the case of loans to agriculturists, if compound interest is charged, the court shall presume that the interest is excessive." *


In this regard, learned counsel for the appellants also brings to the notice of the court the provisions of section 2 of the Banking Regulation Act, 1949, which reads as follows :--


"The provisions of this Act shall be in addition to, and not, save as hereinafter expressly provided, in derogation, of the Companies Act, 1956, and any other law for the time being in force." *


Learned counsel for the appellants submits that, by the above provisions in the Banking Regulation Act, 1949 1986 (1) LLJ 300, 1986 AIR(SC) 291, 1986 (1) CCC 897, 1986 (52) FLR 149, 1986 (68) FJR 94, 1986 LIC 196, 1986 (1) LLN 290, 1985 (2) Scale 1261, 1986 (1) SCC 400, 1985 (S3) SCR 822, 1986 (1) UJ 383, 1986 SCC(L&S) 177, 1986 SCC(L&S) 177, 1986 SCC(L&S) 177, 1986 AIR(AP) 290, 1986 SCC(L&S) 177, 1986 SCC(L&S) 177, 1986 SCC(L&S) 177, 1986 SCC(L&S) 177, 1986 SCC(L&S) 177 for the following proposition:


"Section 21A of the Banking Regulation Act, inserted by the Banking Laws (Amendment) Act of 1984, makes the provisions of the Usurious Loans Act inapplicable to transactions between a banking company and its debtor. The court's power to reopen the transaction under the provisions of the Usurious Loans Act on the ground that the rate of interest charged by a banking company in respect of such a transaction, is excessive, is no longer available. This, it is clear that the Usurious Loans Act is no longer applicable to any debt due to a banking company." *


The decision in State Bank of India, Eluru, In re, 1986 (1) LLJ 300, 1986 AIR(SC) 291, 1986 (1) CCC 897, 1986 (52) FLR 149, 1986 (68) FJR 94, 1986 LIC 196, 1986 (1) LLN 290, 1985 (2) Scale 1261, 1986 (1) SCC 400, 1985 (S3) SCR 822, 1986 (1) UJ 383, 1986 SCC(L&S) 177, 1986 SCC(L&S) 177, 1986 SCC(L&S) 177, 1986 AIR(AP) 290, 1986 SCC(L&S) 177, 1986 SCC(L&S) 177, 1986 SCC(L&S) 177, 1986 SCC(L&S) 177, 1986 SCC(L&S) 177 : 1986 (1) LLJ 300, 1986 AIR(SC) 291, 1986 (1) CCC 897, 1986 (52) FLR 149, 1986 (68) FJR 94, 1986 LIC 196, 1986 (1) LLN 290, 1985 (2) Scale 1261, 1986 (1) SCC 400, 1985 (S3) SCR 822, 1986 (1) UJ 383, 1986 SCC(L&S) 177, 1986 SCC(L&S) 177, 1986 SCC(L&S) 177, 1986 AIR(AP) 290, 1986 SCC(L&S) 177, 1986 SCC(L&S) 177, 1986 SCC(L&S) 177, 1986 SCC(L&S) 177, 1986 SCC(L&S) 177, is relied on by learned counsel for the appellants for the following proposition (headnote of AIR 1986 AP) :


"Section 21A of the Banking Regulation Act, 1949, cannot be construed as overriding the operation of the Usurious Loans Act, 1918, as amended by the Madras Amendment Act, 8 of 1937, in its application to farmers. Section 21A would not interdict the applicability of even the Usurious Loans Act of 1918, as amended by the Madras Amendment Act 8 of 1937, and the Usurious Loans Act, 1918, as amended by the Madras Act 8 of 1937, still applies to the loan transactions entered into by the banks with the farmers. It cannot be said that by the use of the generic word 'debtor', section 21A intends to refer to agriculturists. Therefore, the general language of section 21A is not enough to cover the bank loans advanced to agriculturists also." *


The above two decisions are authorities to the effect that the application of the provisions of section 21A can be only with reference to cases that have come into existence as disputes before courts subsequent to February 15, 1984. This is clear even by section 24 of the Act I of 1984, since it has been stated therein that section 21A, introduced in the Banking Regulation Act, 1949, can be given effect only with effect from February 15, 1984.


In the instant case, as already stated, the point for consideration is whether the rate of interest claimed by the respondent bank can be a subject-matter of judicial scrutiny under the provisions of the Usurious Loans Act. This question has to be answered affirmatively, because there is no prohibition in the Banking Regulation Act, 1949


"We hereby acknowledge our joint and several liability to an extent of Rs. 6, 739.20 (rupees six thousand seven hundred and thirty-nine and paise twenty only) with interest thereon from July 1, 1975, under the demand promissory note executed by us on February 16, 1970, for Rs. 22, 900 in favour of the Syndicate Bank, Pollachi branch.


(Sd.) D. Muthian


(Sd.) Duraisamy Gounder" *


With reference to exhibit A-5, Mr. Sampath Kumar, learned counsel for the respondent bank, submits that the contents of this document are only with respect to the enhancement of the rate of interest to 14 1/2 per cent. from the prior increase in the rate of interest. Mr. Nathan, for the appellants, submits that with reference to the earlier increase of the rate of interest from nine per cent. to the alleged 13 per cent., there is no document evidencing and supporting the enhancement to 13 per cent. either by way of demand by the bank or by way of acceptance by the appellants. Learned counsel for the respondent bank submits that by the first defendant signing, by way of acknowledgment of the rate of interest in exhibit A-19, he had also incidentally acquiesced in the enhancement of the rate of interest to 13 per cent. which is found entered in the second column as the rate of interest up to July 22, 1974, in the tabular statement in exhibit A-19. The question is whether exhibit A-19 serves as an acknowledgment for the rate of interest at 14 per cent. or 13 per cent. Viewing the entire contents in that perspective, we have to confine this acknowledgment which has been made by the first defendant in exhibit A-19, only to the enhancement of interest to 14 1/2 per cent. by the bank and, as such, this court is unable to uphold the contention raised on behalf of the respondent bank that exhibit A-19 has also to be construed to be an acquiescence on the part of the appellants with reference to the imposition of 13 per cent. on an alleged earlier occasion. In other words, this court holds that since there is no document made available to the court so as to hold that at any point of time there had been any intimation to the appellants regarding the rate of interest being enhanced, it cannot be half-heartedly held that there ought to have been some enhancement of interest at some rate or other in between the date of exhibit A-1 and the date of exhibit A-19. We are now concerned only with the question whether this enhancement to 14 1/2 per cent. is a reasonable enhancement in the rate of interest when exhibit A-1 contemplates nine per cent. as on that date. No doubt, it stands to reason that th

e Reserve Bank of India has got power to issue circulars from time to time directing the banks under its supervision to enhance the rate of interest on the advances made by the scheduled banks. In this regard, exhibit A-9, the copy of the accounts maintained by the respondent bank, has necessarily to be gone into, and borne in mind. This copy of the loan in the security ledger, produced and marked as exhibit A-9, on the side of the respondent bank, does not seem to have been served on the appellants. It is an elementary courtesy established that when a person is mulcted with an enhanced rate of interest from 9 to 14 1/2 per cent. the various enhancements in the rate of interest and the dates of their imposition should be divulged to that person who will be affected by the same. In the instant case, apart from producing the copy of account, exhibit A-9, even the original thereof does not seem to have been produced before the lower court in order to prove the transactions as set out in exhibit A-9. It is an elementary principle of law that only if primary evidence is not available, secondary evidence can be admitted. Therefore, the question arises whether exhibit A-9 can be accepted as evidence at all as per the Indian Evidence Act. In this view, the one and the only conclusion that can be arrived at is that as per the decisions of the Supreme Court in Roman Catholic Mission v. State of Madras, 1966 AIR(SC) 1457, 1966 (3) SCR 283, 1967 (1) MLJ(SC) 119, 1973 AIR(Bom) 66, 1967 (1) MLJ 119, and Sital Das v. Sant Ram, 1954 AIR(SC) 606this document, viz., exhibit A-9, has not been proved in accordance with the Evidence Act, and as such, it is inadmissible as a piece of evidence and hence it has to be eschewed from consideration. There is no indication to show that the original ledger was produced before the lower court before actually exhibit A-9 was inducted into the record of the case. Even with regard to the authenticity of exhibit A-9, which has been marked through P.W.-1 who is a member of the staff of the respondent bank, who was then in charge of the suit loan transaction, even he has not whispered a word that exhibit A-9 was signed by the manager of the bank and that he (P.W.-1) was acquainted with the signature of the manager. The respondent bank would want to take shelter under the provisions of the Bankers' Books Evidence Act, 1891, which provisions are not relevant so far as this aspect, discussed supra, is concerned. It is seen that an endorsement has been made at the end of the sheets, three in number, in exhibit A-9. No doubt, the endorsement appears to have been made by the manager of the bank to the effect that he certified that the entries therein were made in the ordinary and usual course of business and were in the custody of the bank. It was for the said manager who had given the certificate to go into the box and speak about the certificate or at least provide the ledger in original with the clerk who had figured as P.W.-1 on behalf of the respondent bank in the trial court. The Banking Regulation Act does not say that instead of the original ledger, a copy of the accounts produced even at the initial stage, without even examining the person who had made the certificate therein, should be accepted as evidence. The provisions of the said Act do not give such a latitude so as to ignore the relevant provisions of the Indian Evidence Act relating to this aspect.A careful reading of the provisions of the Usurious Loans Act makes it clear that this court has power to scrutinise the rate of interest on the loan and come to its own conclusion, namely, to scale down the rate of interest, if it is found to be unconscionable and unreasonable as contemplated by the provisions of the said Act. Viewing the facts of this case from that angle, and since we have already discussed and come to the conclusion that the provisions of the Banking Regulation Act, 1949.