Bhat, J.
1. The Kerala Financial Corporation advanced a loan to the appellants in M.F.A. No. 481 of 1984, on execution of relevant documents including exhibit A-1 mortgage deed dated December 5, 1973. Instalments of interest due fell in arrears from July 1, 1974, and instalments of principal due fell in arrears from October 10, 1975. The Corporation, thereafter, filed 0. P. No. 131 of 1980 before the District Court, Calicut, under Section 31 of the State FinancialCorporations Act, 1951 (for short 'the Act'), seeking an order for sale of the property for recovery of the amount due. The debtors filed a counter-statement raising several contentions. The District Court overruled all these contentions and passed an order for sale for Rs. 5,50,602.13 with interest at the rate of 12.5% on the principal amount of Rs. 2,87,429.75 from the date of petition till realisation as also costs. This order is challenged by the creditor in M.F.A. No. 704 of 1984 and the debtors in M.F.A. No. 481 of 1984.
2. Learned counsel appearing for the debtors contends that the contract stipulates payment of interest only at 10% per annum, that it was unilaterally increased to 11.5% initially and to 12.5% finally, that the contract stipulates payment of compound interest with half-yearly rests and these stipulations are unconscionable and cannot be acted upon under the provisions of the Usurious Loans Act, 1918. Learned counsel also placed reliance on the decision in State Bank of Travancore v. C. T. George, AIR 1975 Ker 169 ; [1975] KLT 416.
3. Exhibit A-1 stipulates payment of interest at the rate of 10% with half-yearly rests. It also contemplates payment of interest on interest. The parties further agreed that it is open to the Corporation to enhance the rate of interest from time to time and when notice of the enhancement is given to the debtors, the latter will be bound to pay interest at the enhanced rate. Thus, it is clear that the appropriations and claim made by the Corporation are in accordance with the terms of the contract between the parties.
4. It is true, as pointed out by learned counsel for the Corporation that the contention based on the Usurious Loans Act was not specifically raised in the counter filed before the District Court, but we find that such a contention was urged in the course of arguments before the District Court. The memorandum of appeal, though it makes no reference to the Usurious Loans Act, refers to the excessive nature of the interest and compound interest. Therefore, we permit the debtors to raise this contention before us.
5. Section 3 of the Usurious Loans Act enables the court to exercise all or any of the powers enumerated in Sub-section (1)(b), in any suit to which the Act applies, where the court has reason to believe that the interest is excessive and that the transaction was as between the parties thereto substantially unfair. The powers enumerated, inter alia, are to reopen the transaction, take an account between the parties and relieve the debtor of all liability in respect of any excessive interest, and direct the creditor to repay any sum which the court considers to be repayable in respect thereof. Section 3 empowers thecourt to exercise such power only in a 'suit to which this Act applies'. Section 2(3) defines 'suit to which this Act applies' as meaning any suit for the recovery of a loan made after the commencement of the Act or for the enforcement of any security taken or agreement made after the commencement of the Act or for the redemption of any security given after the commencement of the Act. Section 3(3) states that the 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 any agreement or security in respect of a loan or for the redemption of any such security. It is thus clear that Section 3 could be invoked only in a suit of the nature explained in the above provisions. Obviously, Section 3 cannot be invoked in suits of other nature or proceedings other than suits.
6. We are dealing in this case with proceedings initiated by an application under Section 31(1) of the Act. What is the nature of such proceedings? Section 31(1) of the Act contemplates an application for an order for the sale of property pledged, mortgaged, hypothecated or assigned to the Corporation as security for the loan or advance, or for enforcing the liability of any surety or for transferring the management of the industrial concern to the Corporation or for an interim injunction restraining the industrial concern from transferring or removing its machinery or plant or equipment from its premises without the permission of the Board of the Corporation. Sub-section (2) requires an application to state the nature and extent of the liability to the Corporation, the ground on which it is made and such other particulars as may be prescribed. Section 32(1) enables the District Judge to pass an interim order attaching the security or a sufficient part of it. Section 32(2) enables an interim order of injunction to be made. If no cause is shown, the court shall forthwith make the interim order absolute and direct the sale of the attached property or transfer management of the concern to the Corporation or confirm the injunction. If cause is shown, the court shall investigate the plea in accordance with the provisions of the Code of Civil Procedure (for short 'the Code'), in so far as such provisions may be applied thereto. Section 32(7) enables the District Court to pass orders of the nature enumerated therein. In a case like the present one, the court has to direct sale of the property.
7. The Supreme Court in Gujarat State Financial Corporation v. Natson ., AIR 1978 SC 1765 ; [1979] 49 Comp Cas 187 has considered the nature of proceedings under Section 31 of the Act. Considering the nature of the reliefs the court can grant, the scope of investigation of the claim and scheme of therelevant provisions, the Supreme Court held that the claim to be investigated is not a monetary claim though it may be necessary to specify the sum of money for the purpose of determining how much of the security should be sold. But the investigation does not involve all the contentions that can be raised in a suit. The claim is not a money claim. Section 32(8) only prescribes the mode and method for executing the order of attachment or sale of property. The provisions do not render the application to be a suit between the mortgagee and the mortgagor. Repayment of loan is not the substantive relief claimed by the Corporation, though ultimately the amount due may be recovered. The substantive relief is something akin to the relief claimed in an application for attachment in execution of a decree at a stage posterior to the passing of a decree. See also Bharat Chemical Works v. Gujarat State Financial Corporation, AIR 1983 Guj 104, Parkash Playing Cards Mfg. Co. v. Delhi Financial Corporation, AIR 1980 Delhi 48, and Man Singh v. Punjab Financial Corporation, AIR 1985 P & H 149.
8. An order under Section 32 of the Act is not a decree within the meaning of Section 2(2) of the Code. This view which logically follows from the decision in Gujarat State Financial Corporation v. Natson Mfg. Co., AIR 1978 SC 1765; [1979] 49 Comp Cas 187 (SC) has been taken by a Division Bench of this court in Rahima Beevi v. Kerala Financial Corporation, AIR 1987 Ker 126 ; [1986] KLT 539. The Supreme Court, in Everest Industrial Corporation v. Gujarat State Financial Corporation, AIR 1987 SC 1950 ; [1987] 62 Comp Cas 513 has followed its earlier decision in Gujarat State Financial Corporation v. Natson Mfg. Co., AIR 1978 SC 1765 ; [1979] 49 Comp Cas 187 (SC) and held that Section 34 of the Code cannot be invoked in an application under Section 31(1) of the Act. That is because Section 34 of the Code applies only at the stage of passing of the decree and an application under Section 31(1) of the Act is something akin to an application for attachment in execution of a decree. See also Bharat Chemical Works v. Gujarat State Financial Corporation, AIR 1983 Guj 104, Parkash Playing Cards Mfg. Co. v. Delhi Financial Corporation, AIR 1980 Delhi 48 and Man Singh v. Punjab Financial Corporation, AIR 1985 P & H 149. Since Section 3 of the Usurious Loans Act, 1918, applies only to suits and an application under Section 31(1) of the Act is not a suit but something akin to an application in execution proceedings and the order passed thereunder is not a decree, we hold that Section 3 of the Usurious Loans Act cannot be invoked in an application under Section 31(1) of the Act.
9. Since the matter has been argued before us, we will consider, even assuming that Section 3 of the Usurious Loans Act can be invoked in a case like this, whether the debtors are entitled to any relief. Section 3 enables the court to give relief to debtors where the court has reason to believe that the interest is excessive and the transaction was as between the parties thereto substantially unfair. 'Excessive* as explained in Sub-section (2) 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 on the date of the loan. In considering whether it is excessive, the court shall take into account the facts enumerated in Clause (b) of Sub-section (2). If compound interest is charged, the court shall take into account the periods at which it is calculated and the total advantage which may reasonably be taken to have been expected from the transaction. According to Sub-clause (c), in considering the question of risk, the court shall take into account the presence or absence of security and the value thereof, 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. Sub-clause (d) states that, in considering whether the transaction was substantially unfair, the court shall take into account all circumstances materially affecting the relations of the parties at the time of the loan or tending to show that the transaction was unfair, including the necessities or supposed necessities of the debtors at the time of the loan so far as the same were known, or must be taken to have been known, to the creditor. As per the Madras Act, 8 of 1937, a proviso was added to Clause (b) of Sub-section (2) of the Usurious Loans Act to the effect that 'in the case of loans to agriculturists, if compound interest is charged, the court shall presume that the interest is excessive.'
10. In order that the court may give relief, both the conditions contemplated in Clauses (a) and (b) of Section 3(1) must be fulfilled. See Girwar Prasad Narain Singh v. Ganeshlal Saragoi, AIR 1949 FC 57. 'Excessive' is a relative term. What is excessive in one case may not be excessive in another case depending on the surrounding circumstances. It cannot be held as a matter of law that interest above a particular rate per se or compound interest per se is excessive and that the transaction with such a provision is unfair.
11. Admittedly, the loan was taken to establish a steel re-rolling mill. In the counter-statement filed by the debtors, no reference has been made to any facts or circumstances throwing light on theposition of the parties at the time' of the transaction. There is nothing to indicate that the debtors were then unable to raise funds from other sources. There is no light thrown on the financial condition of the debtors, existence of any previous transactions of the debtors or knowledge of the credit of such circumstances. Similarly, there are no materials indicating the circumstances materially affecting the relations between the parties at the time of the loan or tending to show that the transaction was unfair. Reliance placed by learned counsel on the decision in State Bank of Travancore v. George [1975] KLT 416 is of no moment since the debtors in that case were agriculturists in respect of whom the court is bound to draw a presumption that stipulation of payment of compound interest is excessive or unfair. The debtors herein have no case that they are agriculturists.
12. We find from the judgment of this court in Kerala State Electricity Board v. Marthoma Rubber Co. Ltd., AIR 1981 Ker 223 ; [1981] KLT 646 [FB] that the bank rate for the period from July, 1974, for fixed deposits for terms of above five years was 10%. The bank rate was increased somewhere after 1981. Debtors in this case were proposing to establish a new industry using the loan amount. In the very nature of things, the Corporation was incurring substantial risk. Mere existence of some security for an institution like the Corporation which must effect quick recovery of loan amounts to enable recycling is not of much consequence. The Corporation was advancing a huge sum of money. Having regard to all these circumstances, we are unable to hold that the interest is excessive or that the transaction was unfair.
13. The next contention urged is that the District Court seriously erred in holding that sale shall be held to recover also future interest from date of the order. Learned counsel placed reliance on the decision in Laxmi Furniture and Saw Mills v. H.P. Finance Corporation, AIR 1985 HP 108, where the court held, relying on an earlier unreported decision of a Division Bench of that court, that since Section 32 of the Act is silent in regard to provision for future interest, the District Court has no jurisdiction to award such future interest. With great respect, we are unable to agree with this view. Section 34 of the Code cannot be invoked in an application under Section 31(1) of the Act which is akin to an application in execution proceedings. Under the contract, the Corporation is entitled to interest till payment. Parties are bound by the contract. Application is only for sale of the charged property to enable the Corporation to recover the money due as per the agreement. As held by the Supreme Court in Everest Industrial Corporation v. Gujarat State FinancialCorporation, AIR 1987 SC 1950 ; [1987] 62 Comp Cas 513, '... interest would be payable on the principal amount due in accordance with the terms of the agreement between the parties till the entire amount due was paid as per the order passed under Section 32 of the Act'. Even going by the provisions of Order XXXIV, Rule 3 of the Code, the Corporation is entitled to interest till payment or realisation. See Man Singh v. Punjab Financial Corporation, AIR 1985 P & H 149.
14. Turning to the appeal filed by the Corporation, the only question urged relates to the direction of the District Court that future interest is payable on the balance principal amount due and not on the entire amount due including interest. The agreement provides for payment of compound interest at half-yearly rests and, in case of default of payment, interest on interest. We have indicated that this provision cannot be regarded as excessive, unconscionable or unfair. On the terms of the contract between the parties, the debtors have undertaken the liability to pay interest till payment of the entire amount due inclusive of interest. That being so, the District Court was not justified in directing that the amount payable would include besides the principal amount only interest on the balance principal amount borrowed and would not include interest on arrears of interest. We hold that the debtors are liable to pay interest at the rate awarded on the entire amount due, namely, Rs. 5,50,602.13. We dismiss M.F.A. No. 481 of 1984 and allow M.F.A. No. 704 of 1984 as indicated above. In the circumstances, we direct the parties to bear costs in the appeals.