Judgment:
Jeevan Reddy, J.
1. Two questions of law arise in this appeal, namely :
Whether the expressions 'agriculture' and 'agriculturist' in their ordinary sense include 'horticulture' and 'horticulturist'?
Whether section 21A of the Banking Regulation Act, 1949, which came into force with effect from June 21, 1984, applies to appeals pending on that date
2. Section 21A declares :
'Not withstanding anything contained in the usurious Loans Act, 1918, or any other law relating to indebtedness in force in any State, a transaction between a banking company and its debtor shall not be reopened by any court on the ground that the rate of interest charged by the banking company in respect of such transaction is excessive.'
3. Factual matrix :
Defendants are the appellants. The respondent, State Bank of India, filed a suit for recovery of a sum of Rs. 2,35,927.86 with interest at the rate of 14% per annum on the said amount from the date of suit till realisation. The bank's claim, in short, is the following : the first defendant (second defendant is the wife of the first defendant) was given an overdraft facility, as also term-loan facility by the plaintiff-bank. The first defendant executed a mortgage in a sum of Rs. 1,70,000 on May 5, 1971. On the date of suit, an amount of Rs. 2,17,161.59 was due on medium term loan account, and a sum of Rs. 18,766.27 on cash credit crop loan account. The loans were sanctioned to the first defendant for developing a grape garden. The mortgage executed by the first defendant pertains to the medium term loan besides the personal guarantee, while the second loan was secured by hypothecation of the crops, farm tools etc., evidenced by a hypothecation deed dated October 16, 1973, and a promissory note of the same date. The second defendant is the guarantor under both the documents. The defendants did not pay in spite of repeated notices. The first defendant, by his letter dated June 22, 1974, requested the plaintiff bank to inform him about the amount payable by him, and he was accordingly intimated by letter dated July 1, 1974. Interest payable on the said loans is 1 1/2% over and above the State Bank of India advance rate with a minimum of 10% per annum. Under the second loan, the rate of interest is the same, with the difference that monthly rests are also provided for.
4. The defendants filed a common written statement. They admitted the transactions and the documents executed by them. They, however, disputed the amounts claimed in the suit as incorrect and exaggerated. They submitted that the plaintiff has charged compound interest, and also that the rate of interest charged is higher than the stipulated rate of interest. According to them, the dues from them cannot exceed Rs. 50,000. They submitted that in spite of repeated requests, the plaintiff-bank did not furnish the correct and full accounts. They submitted further that they approached the plaintiff-bank for loans believing in their public declarations that they propose to encourage agriculturists. The amount mentioned in the mortgage was not paid to the first defendant in a lump sum but is made up of past transactions; the rate of interest charged is not correct; it is illegal. The liability of the defendants to discharge the loans completely was due to the plaintiff's default and refusal to supply full and correct accounts, showing the principal and interest due from the defendants. Accordingly, they prayed that the suit, being premature, may be dismissed with costs.
5. On the above pleadings, the learned trial judge framed the following issues :
(1) Whether D-1 has not received any part of the consideration of Rs. 1,14,000 which he acknowledged under the mortgage bond dated May 5, 1971
(2) Whether the plaintiff advanced Rs. 56,000 further, as stipulated in the said mortgage bond
(3) To what rates of interest is the plaintiff entitled from time to time Is the interest claimed by the plaintiff excessive
(4) Whether the plaintiff is entitled to expenses debited to the account
(5) Whether the defendants discharged the cash-credit crop loan in full
(6) Whether the defendants are entitled to the benefit of the Hyderabad Agricultural Debtors' Relief Act, 1956
(7) To what relief ?'
On a consideration of the oral and documentary evidence adduced by the parties, the trial court answered the issues as follows : Issues Nos. 1 and 2 were considered together and answered in favour of the plaintiff; Issues Nos. 3, 4 and 6 were considered together. The learned trial judge held that the Hyderabad Agricultural Debtors' Relief Act, 1956, does not apply to the suit transactions, since the debt due exceeds Rs. 15,000; the defendants are, no doubt, entitled to take advantage of the Usurious Loans Act; but, there is nothing on record to show that the prevailing rate of interest in the local market was lower than the rate charged by the plaintiff-bank, and hence it cannot be said that the interest charged by the plaintiff is excessive; the first defendant cannot be held to be an 'agriculturist' because horticulture is not included within the meaning of the expression 'agriculture', and hence the first defendant is not entitled to take advantage of the Madras Amendment to the Usurious Loans Act. On issue No. 5, the trial judge held that the first defendant has paid only a sum of Rs. 5,000 on March 26, 1974, in partial discharge of the cash-credit crop loan, which the plaintiff has given credit to and hence the first defendant's plea that he had discharged the entire loan is unacceptable. On the above findings, the learned trial judge decreed the suit as prayed for.
6. In this appeal, Sri S. Krishna, learned counsel for the defendants appellants, urged the following contentions :
(i) the learned trial judge erred in holding that 'horticulture' is not included within the meaning of the expression 'agriculture'. The first defendant is an 'agriculturist' and hence entitled to take advantage of the Madras Amendment to the Usurious Loans Act, which raises a presumption of law that charging of compound interest to an agriculturist is per se excessive;
(ii) Section 21A of the Banking Regulation Act introduced with effect from June 21, 1984, does not apply to the present transactions, since the institution of the suit as well as the decree were earlier to the said date. The said provision cannot be applied for the first time in appeal, which will have the effect of depriving the defendants of an accrued benefit under law; and
(iii) in any event, section 21A cannot apply to, and cannot be invoked against agriculturists so as to deprive them of the benefit conferred upon them either by the Madras amendment to the Usurious Loans Act, or any other State law; Parliament is not competent to make such a provision practically nullifying the State laws.
I. Sub-sections (1) and (2) of section Usurious Loa of the Usurious Loans Act, 1918, unaffected by the Madras amendment, read thus :
'3. Reopening of transactions. - (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, -
(a) that the interest is excessive; and
(b) that the transaction was, as between the parties thereto, substantially unfair,
7. the court may exercise all or any of the following powers, namely, may, -
(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 :
8. 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 a date more than twelve years from the date of the transaction;
(ii) do anything which affects any decree of a court.
Explanation. - In the case of a suit brought on a series of transactions, the expression 'the transaction' means, for the purposes of proviso (i), the first of such transactions.
(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.
(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 know, to the creditor.
(d) In considering whether a 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 debtor at the time of the loan so far as the same were know, or must be taken to have been known, to the creditor.
Explanation : Interest may of itself be sufficient evidence that the transaction was substantially unfair.'
Sub-section (3) of section Usurious Loa has been substituted by the Usurious Loans (Madras Amendment) Act, 1936.
9. It reads thus :
'(3) The provisions of this Act shall apply to all suits to which the Usurious Loans Act, 1918, would apply and which are pending on, or are instituted on or after, the date of the commencement of this Act.'
10. The Madras Amendment further introduced a proviso to clause (b) of sub-section (2) which reads thus :
'Provided that in the case of loans to agriculturists, if compound interest is charged, the court shall presume that the interest is excessive.'
11. It is not necessary to note the other amendments effected by the Madras (Amendment) Act for our purposes.
12. Now, the question is whether the first defendant is an 'agriculturist' within the meaning of the aforesaid proviso. If he is one, the court has to presume that the charging of compound interest is excessive. No doubt, this presumption is a rebuttable presumption, but then the burden shifts to the plaintiff-bank to establish that charging of compound interest is not excessive. The expression 'agriculturist' and 'agriculture' are not defined either in the Usurious Loans Act or in the Madras (Amendment) Act. The expression 'agriculturist' is defined in the Madras Agriculturists Relief Act, 1938; but that is a special definition and cannot be imported into the Usurious Loans Act, or its Madras Amendment. It may also be noted that the Madras (Amendment) Act is anterior to the Madras Agriculturists Relief Act, 1938. The Andhra Pradesh (Telengana Area) Agricultural Debtors' Relief Act, 1956, defines the expression 'debtor' which is, in effect, a definition of the expression 'agriculturist'; but, since it is a definition meant for the said Act, it cannot also be imported into the Usurious Loans Act, read with its Madras Amendment. (The aforesaid Madras (Amendment) Act has been extended to the Telengana area of this State with effect from September 7, 1961, by the Andhra Pradesh Act 24 of 1961). In the above situation, we have necessarily to rely upon the dictionary meaning of the expression 'agriculturist'.
'Agriculture' has been defined in the Oxford English Dictionary, Volume I, in the following words :
'the science and are of cultivating the soil; including the allied pursuits of gathering in the crop and rearing livestock; tillage, husbandry, farming (in the widest sense).'
'Agriculturist' is defined as 'one engaged in agricultural pursuits, a husbandman.' The expressions 'agriculture' and 'agriculturist' have fallen for consideration under several enactments before various courts. While it is not necessary to refer to all of them, it would be sufficient if we refer to the more prominent among them.
13. In CIT v. Raja Benoy Kumar Sahas Roy : [1957]32ITR466(SC) , the question arose with reference to the Indian Income-tax Act, 1922. Section 2(1) of the said Act defined 'agricultural income' in the following words (at page 471):
'(a) any rent or revenue derived from land which is used for agricultural purposes, and is either assessed to land revenue in the taxable territories or subject to a local rate assessed and collected by officers of the Government as such;
(b) any income derived from such land by -
(i) agriculture, or
(ii) the performance by a cultivator or receiver of rent-in-kind of any process ordinarily employed by a cultivator or receiver of rent-in-kind to render the produce raised or received by him fit to be taken to market, or
(iii) the sale by a cultivator or receiver of rent-in-kind of the produce raised or received by him, in respect of which no process has been performed other than a process of the nature described in sub-clause (ii) ......'
14. It may be noted that the very same definition has been attributed to the said expression in article 366(1) of the Constitution of India as well. The word 'agriculture' was not defined by the Indian Income tax Act, 1922, nor is it defined by the Constitution. No doubt, the question before the Supreme Court arose with reference to forest income, but the discussion relating to the meaning of the expression 'agriculture' is highly relevant for the present purposes. The following observations of the Supreme Court are apposite (at page 473):
'Agriculture' in its root sense means ager, a field, and culture, cultivation, cultivation of a field which of course implies expenditure of human skill and labour upon land. The term has, however, acquired a wider significance and that is to be found in the various dictionary meanings ascribed to it...... Turning, therefore, to the dictionary meaning of 'agriculture', we find Webster's New International Dictionary describing it as 'the art or science of cultivating the ground, including rearing and management of livestock, husbandry, farming etc., and also including in its broad sense farming, horticulture, forestry, butter and cheese making, etc.' Murray's Oxford Dictionary describes it as 'the science and art of cultivating the soil; including the allied pursuits of gathering in the crop and rearing livestock; tillage, husbandry, farming (in the widest sense).'
15. In Bouvier's Law Dictionary quoting the Standard Dictionary, 'agriculture' is defined as 'the cultivation of soil for food products or any other usual or valuable growths of the field or garden tillage, husbandry; also by extension, farming, including any industry practised by cultivator of the soil in connection with such cultivation, as breeding and rearing of stock, dairying, etc. The science that treats of the cultivation of the soil.'
16. In Corpus Juris, the term 'agriculture' has been understood to mean: 'art or science of cultivating the ground, especially in fields or large quantities, including the preparation of the soil; the planting of seeds, the raising and harvesting of crops, and the rearing, feeding and management of livestock; tillage, husbandry and farming. In its general sense, the word also includes gardening or horticulture.'
17. Bhashyam Ayyangar J. in Murugesa Chetti v. Chinnathambi Goundan ILR (1901) Mad 421, gave the following dictionary meanings of agriculture as culled out from the Century Dictionary and Anderson's Dictionary of Law :
'The primary meaning of agriculture is the cultivation of the ground (The Century Dictionary) and in its general sense, it is the cultivation of the ground for the purpose of procuring vegetables and fruits for the use of man and beast including gardening or horticulture and the raising or feeding of cattle and other stock (Anderson's Dictionary of Law). Its less general and more ordinary signification is the cultivation with the plough and in large areas in order to raise food for man and beast (The Century Dictionary) or, in other words, 'that species of cultivation which is intended to raise grain and other field crops for man and beast.' (Anderson's Dictionary of Law). Horticulture, which denotes the cultivation of gardens or orchards, is a species of agriculture in it primary and more general sense.
18. Ramesam J. in Panadai Pathan v. Ramaswami Chetti ilr [1922] Mad 710 : AIR 1922 Mad 351 referred to the following connotation of 'agriculture':
'Wharton's Law Lexicon adopts the definition of 'agriculture' in 8 Edw. VII, c. 36, as including 'horticulture', forestry and the use of land for any purpose of husbandry, etc. In 10 Edw. VII, c. 8, section 41, it was defined so as to include the use of land as 'meadow or pasture land or orchard or osier or woodland, or for market gardens, nursery grounds or allotments, etc.' In 57 and 58 Vict. c. 30, section 22, the term 'agricultural property' was defined so as to include agricultural land, pasture and woodland, etc.'
19. These are the various meanings ascribed to the term 'agriculture' in various dictionaries and it is significant to note that the term has been used both in the narrow sense of the cultivation of the field and the wider sense of comprising all activities in relation to the land including horticulture, forestry, breeding and rearing of livestock, dairying, butter and cheese-making, husbandry, etc.'
20. After noticing several English and Indian decisions, the court finally observed thus (at page 489) :
'The cases above noted all of them involve some expenditure of human skill and labour either on the land or the produce of the land, for without such expenditure there would be no question of the income derived from such land being agricultural income. Where, however, the products of the land are of wild or spontaneous growth involving no expenditure of human labour and skill there is unanimity of opinion that no agricultural operations were at all involved and there is no agricultural income. In such cases, it would be the absence of any such operations rather than the performance thereof which would be the prime cause of growth of such products.'
21. This decision makes it clear that the expression 'agriculture' is capable of both a narrow, as well as a wider definition, and further that the wider definition does include 'horticulture' within it. Now, the question is : which meaning should we adopt in the case before us On this question as well, the following observations of the Supreme Court in the same decision are apt (at page 476) :
'Whether the narrower or the wider sense of the term 'agriculture' should be adopted in a particular case depends not only upon the provisions of the various statutes in which the same occurs but also upon the facts and circumstances of each case. The definition of the term in one statute does not afford a guide to the construction of the same term in another statute and the sense in which the term has been understood in the several statutes does not necessarily throw any light on the manner in which the term should be understood generally.'
22. This involves an examination of the object and purpose underlying the Madras amendment. While the Usurious Loans Act, 1918, is designed to relieve the debtors from the burden of high interest rates, the Madras amendment is specially designed to relieve rural indebtedness. It is well known that one of the major concerns of all economists who have studied the Indian economic scene over the last more than half a century, has been rural indebtedness. Because of his illiteracy, helplessness and weak bargaining position, coupled with the vagaries of the monsoon and nature, the agriculturist in this country is rendered particularly vulnerable to exploitation by money-lenders and other exploiting elements. It is a well-known feature of Indian economy that both money-lenders as well as bigger landlords have gradually deprived the smaller holders of their land through money-lending, charging high and/or compound interest rates. The said amendment is, therefore, designed to alleviate the misery of a class as such, namely, the agriculturists. It says that, where compound interest is charged to an agriculturist, the court shall presume that the interest is excessive. The burden then shifts on to the lender to establish that it is not so. While construing such a beneficial provision, we do not think it permissible to adopt a narrow interpretation. We see no reason to exclude horticulture from the purview of the expression 'agriculture'. 'Horticulture' is defined by the Oxford English Dictionary as meaning 'the cultivation of a garden; the art or science of cultivating or managing gardens, including growing of flowers, fruits and vegetables', and the expression 'horticulturist' as one who practises the art of horticulture; a gardener especially one who practises gardening scientifically as a profession. 'Horticulture' does include raising of orchards like mango, guava, apple, etc. Without doubt, it includes the raising of grape gardens as well. We are, therefore, of the opinion that horticulturist is included within the meaning of the expression 'agriculturist', occurring in the proviso to clause (b) of sub-section (2) of section Usurious Loa of the Usurious Loans Act added by the Madras (Amendment) Act, 1936.
23. It is, however, necessary to clarify an aspect. Having regard to the aim and object of the Madras (Amendment) Act aforesaid, an agriculturist would be one whose main and major income is from agriculture. The test of predominance must be applied, while determining whether a person is an agriculturist or not. An illustration would bring home the point we are making : suppose there is an industrialist or a businessman who derives an annual income of, say, Rs. 10 lakhs, from industry or business, as the case may be; he also owns agricultural land of an extent of, say, 5 acres, from which he derives an income of, say, Rs. one lakh. Can he be called an 'agriculturist' for the purpose of the said proviso We think not. It is important to notice that the said proviso is not concerned with the object of the loan, but is concerned with the person who takes the loan. The test under the proviso is, whether the borrower is an agriculturist, and not whether he has taken the loan for an agricultural purpose, or for a non-agricultural purpose. If we do not apply the test of predominant activity, it would so happen that in the illustration given by us, an industrialist or a businessman would be able to claim the benefit of the said proviso in respect of all the loans raised by him - for whatever purpose they may have been raised - a situation which could never have been contemplated by the legislature. Indeed, he may take loans generally, without relating them to a particular purpose. He may use the amounts borrowed partly in his industrial/business activity, and partly on agriculture. We are, therefore, of the opinion that, while determining whether a person is an agriculturist or not, the court must apply the test of predominant activity; his main and substantial income must be from agriculture; only then will he be an agriculturist and not otherwise.
24. Counsel, however, brought to our notice a decision of the Madras High Court in Rajayya v. Ramachandra Rao : AIR1954Mad488 , which appears to have held to the contrary. It was observed (p. 489) :
'In this case, the appellants contend that the defendants are not agriculturists, but businessman carrying on business in money- lending and in running two rice mills in partnership with others. As the learned District Judge observed, the fact that they own two rice mills, would not be sufficient to hold that they are not agriculturists, especially in view of the fact that they own agricultural lands and look after their cultivation. We see no reason to disagree with the finding of the learned District Judge that they are agriculturists, and they being agriculturists, we consider that the rate of interest is excessive...'
25. This decision was indeed rendered with reference to the very same proviso being considered by us. With great respect to the learned judges constituting the Bench, we think that their failure to apply the test of predominant activity or the test of main and substantial source of income, has led them to place too wide a definition upon the said expression, which is not only inconsistent with the object of the said Amendment Act but is also likely to lead to mischief. Such a wide interpretation would tend to confer the benefit of the proviso even upon those classes of persons for whom it was never meant.
26. Applying the above test to the facts of the present case, we find no evidence or material to show that the first defendant is having any other income or any activity other than the grape garden in question. The first defendant must, therefore, be held to be an 'agriculturist', entitled to invoke the benefit of the said proviso. The finding of the learned trial judge to the contrary is, in our opinion, not correct.
27. The question next arises is whether section 21A of the Banking Regulation Act, 1949 (introduced by the Banking Laws (Amendment) Act, 1983, with effect from June 21, 1984), applies to the present case. Section 21A expressly seeks to override not only the Usurious Loans Act, 1918, but 'any other law relating to indebtedness in force in any State'. By virtue of the said provision, it would not be permissible for the court to reopen a transaction between a banking company and its debtor on the ground that the rate of interest charged by the banking company, in respect of such transaction, is excessive. Without a doubt, the said Madras (Amendment) Act is a law relating to indebtedness in force in this State; it is also an amendment to, and is thus incorporated in, the Usurious Loans Act, 1918.
28. Before proceeding further, it is necessary to clear the ground. Section 21A was struck down as being unconstitutional by a single judge of this court in State Bank of India, In re (Second Appeal No. 972 of 1984, disposed of on October 16, 1985). We have sent for and perused the said judgment. It appears that the Union of India was not a party to the said appeal, nor was it heard. Notice to the Attorney General of India was also not given, nor was he heard as required by rule 1 of Order XXVII-A of the Code of Civil Procedure, before striking down the said provision. We are informed that an application for grant of leave to appeal to the Supreme Court has been filed against the said decision. Meanwhile, a Bench of this court, consisting of P. Rama Rao J. and P. Kodandaramayya J. has overruled the said decision in Andhra Bank Ltd. v. B. Narasamma [1988] 63 Comp Cas 328, (A.S. No. 532 of 1978, etc., disposed of on April 16, 1986). The constitutional validity of section 21A, therefore, not in issue before us. Indeed, in our opinion, the competency of Parliament to enact the said provision could never have been in doubt.
29. One other aspect which we must clarify is this : a learned single judge of this court (Kodandaramayya J.) has held in M.Satyanarayana v. Andhra Bank Ltd. : AIR1985AP77 , that, notwithstanding section 21A, agriculturists are entitled to the benefit of the said proviso to clause (b) of sub-section (2) of section Usurious Loa of the Usurious Loans Act (i.e., Madras Amendment). The learned judge is of the opinion that, while the Banking Regulation Act, including section 21A, deals with the subject of banking (entry 45 in List I of the Seventh Schedule to the Constitution), the Madras Amendment is a law relating to relief of agricultural indebtedness (entry 30 in List II of the Seventh Schedule), and that 'viewed in this background, the operation of the Central Act and the State Act are quite independent and intended to achieve different objects altogether'. On the above reasoning, the learned judge held that section 21A does not, and cannot have the effect of repealing the said Madras (Amendment) Act - a State law covering the field of agricultural indebtedness which is a State subject. We do not propose to go into the correctness of the said decision which also appears to have been affirmed in the recent Bench judgment of P. Rama Rao and P. Kodandaramayya JJ. (Andhra Bank Ltd. v. B. Narasamma referred to above. We have certain reservations about the correctness of the said decision, but we do not think it necessary to go into the said aspect herein. We shall proceed on the assumption that section 21A does indeed supersede the said Madras Amendment as well, as it expressly proclaims.
30. There is yet another aspect which requires clarification; in the judgment delivered by a Bench consisting of one of us (Jeevan Reddy J.) and P. Kodandaramayya J. dated September 23, 1985, A.S.No. 825 of 1977, there is an observation, which is relied upon by counsel for the respondent, as holding that section 21A applies even to cases where the decree of the trial court has been passed, prior to the coming into force of section 21A. In that case, it was not disputed by the debtor that section 21A applies to pending proceedings as well; secondly, it was also admitted in that case that the debtor therein was not an agriculturist. Basing on the said admission, it was observed :
'It is clear that the said provision (section 21A) makes the provision of the Usurious Loans Act inapplicable to any transaction 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 is excessive is no longer available. It is not disputed that it affects the pending proceedings also though the Act came into force on February 15, 1984. Thus, it is clear that the Usurious Loans Act is no longer applicable to any debt due to a banking company....'
31. It is thus evident that the question of retrospective operation of section 21A not put in issue, was not argued, and was not pronounced upon by the Bench. The observation made therein is based upon a concession and cannot, therefore, operate as a decision of this court.
32. Now, coming back to the applicability of section 21A to pending proceedings, it is necessary to notice the language of section 3 of the Usurious Loans Act. The opening words of sub-section (1) of section Usurious Loa require notice. They read :
'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, -
(a) that the interest is excessive; and
(b) that the transaction was, as between the parties thereto, substantially unfair,
the court may exercise all or any of the following powers, namely, may, -
(i) reopen the transaction,...'
33. A reading of the said provision shows that the language of the section is mandatory. It places on obligation upon the court to reopen the transaction, where it has reason to believe that the interest charged is excessive, or the transaction between the parties is substantially unfair. This obligation is there, whether the defendant appears and raises the plea based upon section 3, or remains ex parte. There may be a case where the defendant appears but still may not raise the plea under section 3. In all such cases, the court is under an obligation to apply the said provision. Though couched as a command to the court, it confers a right upon the debtors. This right accrues to the defendant on the date of suit - at any rate on the date of hearing of the suit.
34. For a proper appreciation of this question, it is necessary to take the facts of this very case. In this case, the suit was instituted on November 9, 1974. It was decreed on August 19, 1977. The present appeal was filed on January 16, 1978, and it came up for hearing before us in March/April, 1986. On the date when the suit was filed or the decree was passed, section 21A of the Banking Regulation Act was not on the statute book; it came into force only during the pendency of the appeal in this court. But for the error of the trial judge in holding that horticulture is not included within the meaning of the expression 'agriculture' (which we have discussed and pronounced upon supra), the trial court would have raised the presumption - which it was bound to raise by virtue of the said proviso (Madras Amendment) - which would have resulted in giving relief to the first defendant against charging of compound interest. Indeed, we can well imagine a case where the defendant is admittedly an agriculturist, and the trial court has reopened the transaction with the assistance of, and applying the said proviso. The decree passed by the trial court is then carried in appeal and, during the pendency of the appeal, section 21A has come into force. Can it be said that section 21A takes away the benefit which has already been conferred upon the defendant by the trial court Indeed, we can also take a case where relief has been granted to the defendant by reopening the transaction with reference to section Usurious Loa of the Usurious Loans Act, without any reference to the Madras (Amendment) Act, and that decree is carried in appeal. The question is, whether the benefit so conferred upon the debtor by applying the provisions of the Usurious Loans Act can be taken away by the appellate court relying upon section 21A This is how the question of retrospectivity of section 21A arises.
35. A number of decisions have been cited by both sides, both on the general principles relating to retrospectivity of statues, and also cases decided with reference to provisions which can be treated as analogous to section 21A. So far as the general principles relating to retrospectivity of statutes are concerned, the position is well-settled. It is sufficient to refer to the celebrated decision of the Supreme Court in Garikapati Veeraya v. N. Subbiah Choudhry : [1957]1SCR488 , where it was held that the rights which have vested in a party to the suit on the date of the institution of the suit, cannot be taken away by a statute unless it says so expressly or by necessary implication. It was held that the right of appeal is a vested right that accrues to a party (whether plaintiff or defendant) on the date of institution of the suit, and can be taken away only by an express statutory provision, or where by necessary implication, such a result must follow. The more difficult question is whether a particular right which is claimed to have been saved is a vested right. We shall, therefore, examine the cases from this point of view.
36. The LIC of India v. Kota Ramabrahman : [1977]3SCR683 , a situation nearer to the one arising herein arose for consideration. The facts necessary for appreciation of the point decided may briefly be stated : a mortgage was executed by the defendants in 1950 in favour of the Andhra Insurance Co. and an a loan obtained. With effect from September 1, 1956, the Life Insurance Corporation came into being. It took over the Andhra Insurance Co. along with several other insurance companies. Under section 7(1) of the Life Insurance Corporation Act, 1956, all assets and liabilities of the insurers (insurance companies), relating to their life insurance business, vested in the Corporation. In 1961, the Life Insurance Corporation filed a suit for recovery of a sum of about Rs. 17,000 due under the mortgage. The defendant-mortgagor claimed that the debt should be scaled down in accordance with the provisions of the Madras Agriculturists' Relief Act (Madras Act No. 4 of 1938). His claim was upheld by the trial court, as also by the High Court, and the debt was scaled down. Before the Supreme Court, it was contended that the debt could not have been scaled down, because of the provision contained in clause (e) of section 4 of the said Madras Act, which is analogous to section 21A of the Banking Regulation Act. Section 4(e) reads as follows :
'4. Nothing in this Act shall affect debts and liabilities of an agriculturist falling under the following heads :....
(e) any liability in respect of any sum due to any co-operative society, including a land mortgage bank, registered or deemed to be registered under the Madras Co-operative Societies Act, 1932, or any debt due to any corporation formed in pursuance of an Act of Parliament (of the United Kingdom) or of any special Indian Law or Royal Charter or Letters Patent.'
37. The contention of the LIC was that it is a Corporation formed in pursuance of 'any special Indian law', and hence the debt due to it cannot be scaled down. The Supreme Court observed that, while there can be no dispute that the Life Insurance Corporation is a 'corporation' contemplated by section 4(e), it is not entitled to take advantage of the same. It was observed (at page 680) :
'The debts due to the insurers in these two cases were liable to be scaled down in accordance with the provisions of the Madras Act which was a liability or obligation appertaining to the debts on September 1, 1956, the appointed day. This liability or obligation annexed to the debts must be held to have been transferred to and vested in the Corporation along with the assets of the insurers under section 7 of the Act, and the Corporation in seeking to recover the mortgage dues cannot ignore the obligations of the insurers in respect of the transactions.'
38. It was observed that, under section 7(1), all assets and liabilities of the insurers, relating to their life insurance business vested in the corporation on the appointed day, and that, according to sub-section (2) of section 7, the liabilities include obligations of whatever kind existing on the appointed day. It was observed that, if the Andhra Insurance Co. was subject to the said Madras Act, the Corporation was equally subject to the said Act. It was also observed that section 9(1) merely provides that contracts or other instruments subsisting immediately before the vesting may be enforced and acted upon by the Corporation after vesting, and nothing more, and that it cannot be said that the contract or debt itself has been entered into with, or issued in favour of, the Corporation. It may be noticed that, in this case, even the suit was instituted subsequent to September 1, 1956, i.e., after the formation of the Corporation; yet it was held that the 'liability or obligation annexed to the debt' subsists and cannot be taken away because on September 1, 1956, the Corporation took over the assets and liabilities of the Andhra Insurance Co. Applying the principle of this decision to the facts of the case before us, we must hold that the interest on the debt advanced by the plaintiff bank to the first defendant was subject to the liability or obligation of being scaled down in accordance with the provisions of the Usurious Loans Act, as amended by the Madras (Amendment) Act, and that the said right cannot be taken away by section 21A. In any event, in the case before us, not only the suit, but also the decree of the trial court is earlier to the date of coming into force of section 21A.
39. In Workmen of Firestone Tyre and Rubber Co. of India P. Ltd. v. Their Management : (1973)ILLJ278SC , the question arose whether section 11A of the Industrial Disputes Act, which was introduced by the 1971 Amendment Act with effect from December 15, 1971, applies to a reference made to a Labour Court, prior to the said date Section 11A confers a new power upon the Labour Court. It says, where in any industrial dispute referred to it, the Labour Court is satisfied that the order of dismissal or discharge was not justified, it may set aside the same and direct the reinstatement of the workman on such terms and conditions, if any, as it thinks fit, or give such other relief to the workman, including the award of any lesser punishment, as it thinks appropriate in the circumstances of the case. The power so conferred upon the Labour Court was likened to the power of an appellate court and a power which abridges the rights of employers hitherto inhering in them. Paragraph 58 of the judgment brings out the reasoning in support of the court's opinion that section 11A has no application to references made before December 15, 1971, and that it applies only to disputes referred on or after the said date. The paragraph reads thus : (1973)ILLJ278SC :
'We have already expressed our view regarding the interpretation of section 11A. We have held that the previous law, according to the decisions of this court, in cases where a proper domestic enquiry had been held, was that the Tribunal had no jurisdiction to interfere with the finding of misconduct except under certain circumstances. The position further was that the Tribunal had no jurisdiction to interfere with the punishment imposed by an employer both in cases where the misconduct is established in a proper domestic enquiry as also in cases where the Tribunal finds such misconduct proved on the basis of evidence adduced before it. These limitation on the powers of the Tribunals were recognized by this court mainly on the basis that the power to take disciplinary action and impose punishment was part of the managerial functions. That means that the law, as laid down by this court over a period of years, had recognized certain managerial rights in an employer. We have pointed out that this position has now been changed by section 11A. The section has the effect of altering the law by abridging the rights of the employer inasmuch as it gives power to the Tribunal for the first time to differ both on a finding of misconduct arrived at by an employer as well as the punishment imposed by him. Hence, in order to make the section applicable even to disputes which had been referred prior to the coming into force of the section, there should be such a clear, express and manifest indication in this section. There is no such express indication. An inference that the section applies to proceedings which are already pending, can also be gathered by necessary intendment. In the case on hand, no such inference can be drawn as the indications are to the contrary. We have already referred to the proviso to section 11A which states `in any proceedings under this section'. A proceeding under the section can only be after the section has come into force. Further, the section itself was brought into force some time after the Amendment Act was passed. These circumstances as well as the scheme of the section and particularly the wording of the proviso indicate that section 11A does not apply to disputes which had been referred prior to December 15, 1971. The section applies only to disputes which are referred for adjudication on or after December 15, 1971. To conclude, in our opinion, section 11A has no application to disputes referred prior to December 15, 1971. Such disputes have to be dealt with according to the decisions of this court already referred to.'
40. This decision was followed in East India Hotels v. Their Workmen : (1974)ILLJ282SC . The principle of these two decisions is also relevant herein, if we treat section Usurious Loa of the Usurious Loans Act as a power conferred upon the court, which power is being taken away by section 21A.
41. We must, however, refer to certain decisions rendered with reference to the provisions relating to eviction in the various State Rent Control laws which appear to strike a different note. The various State Rent Control Acts provide that no tenant shall be evicted, except under an order of a Rent Controller, who shall make such order on being satisfied about one or more of the grounds specified in the Act. These Acts also say that they do not apply to buildings reconstructed or newly constructed as the case may be, for a period of 10/15 years from the date of their construction/reconstruction. Cases arose where a suit was instituted by the landlord after giving a notice under section 106 of the Transfer of Property Act, for eviction of the tenant, in a civil court. He also obtained a decree for eviction. Then the tenant appealed, and pending such appeal in the appellate court, the 10-year period or 15-year period, as the case may be, expired, with the result that the building came within the purview of the Rent Control Act. The question arose, what should happen in such a case : Whether the suit in the civil court should fail,or whether the suit should proceed unaffected by the application of the Rent Control Act to such building It was decided in more than one case by the Supreme Court that once the Act becomes applicable to the building, no eviction can be ordered, except in accordance with the provisions of the Rent Control Act, and that the suit instituted already must fail, notwithstanding that it was instituted prior to the Act applying to the building even in a case where the civil court has already passed a decree of eviction. We shall briefly refer to these cases.
42. In Mst. Rafiquennessa v. Lal Bahadur Chetri : [1964]6SCR876 , the facts are these : a lease was executed between in landlord and the tenant, which was due to expire on February 12, 1952. Notice to quit was served upon the tenant before that date, and the suit for eviction filed in the same year. The trial court decreed to suit; the appeal filed by the lessee was pending. Pending the said appeal, the Assam Tenancy Act was passed by the Assam Legislature and it came into force with effect from July 6, 1955. The appellate court allowed the appeal and dismissed the suit which was questioned in appeal before the High Court, which too dismissed the appeal summarily. The matter was then carried to the Supreme Court. While dismissing the appeal preferred by the landlord, the Supreme Court noticed that section 5(1) of the Assam Act provided that no tenant shall be evicted, except on the grounds mentioned in the Act. While rejecting the argument that the Act is not retrospective, Gajendragadkar C. J., speaking for the Constitution Bench, observed (at p. 1514):
'...We ought to add that retrospective operation of a statutory provision can be inferred even in cases where such retrospective operation appears to be clearly implicit in the provision constructed in the context where it occurs.'
43. It was observed (at page 1514): ' If the Legislature had intended that this protection should operate prospectively, it would have been easy to say that the tenant shall not be sued in ejectment. Such an expression would have indicated that the protection is afforded to the suits brought after the Act came into force and that might have introduced the element of prospective operation; instead, what is prohibited by section 5(1)(a) is the eviction of the tenant, and so, inevitably, the section must come into play for the protection of the tenant even at the appellate stage when it is clear that by the proceedings pending before the appellate court, the landlord is seeking to evict the tenant, and that obviously indicates that the pending proceedings are governed by section 5(1)(a), through they may have been initially instituted before the Act came into force.'
44. Similarly, in Lakshmi Narayan Guin v. Niranjan Modak : [1985]2SCR202 , notice to quit was issued and the suit filed on June 12, 1967. The trial court decreed the suit on February 17, 1969; that decree was confirmed in appeal. But, on second appeal, the High Court allowed the appeal on the ground that, during the pendency of the first appeal, the West Bengal Premises Tenancy Act of 1956 was extended by a notification to the town in question. The High Court found that the notice to quit issued by the landlord was not in compliance with section 13(6) of the West Bengal Premises Tenancy Act. The matter was then carried to the Supreme Court. The court noticed section 13(1) of the Act, which provided that, notwithstanding anything to the contrary in any other law, no order or decree for recovery of possession of any premises shall be made by any court in favour of the landlord against a tenant, except on one or more of the grounds mentioned therein. Pathak J., speaking for the Bench, observed thus (at page 112) :
'Does the decree here refer to the decree of the trial court or, where an appeal has been preferred, to the appellate decree Plainly, reference is intended to the decree which disposes to the suit finally. It is well settled that when a trial court decrees a suit and the decree is challenged by a competent appeal, the appeal is considered as a continuation of the suit, and when the appellate decree affirms, modifies or reverses the decree on the merits, the trial court decree is said in law to merge in the appellate decree and it is the appellate decree which rules...to our mind, therefore, sub-section (1) of section 13 of the Act can be invoked by a tenant during the pendency of an appeal against a trial court decree.
45. The learned judge further observed that a change in law, during the pendency of an appeal, is bound to be taken into account by the appelate court, and that the rights of the parties must be modulated accordingly. The appeal of the landlord was thus dismissed.
46. It can be argued that the language of section 21A is akin to that of section 13(1) of the West Bengal Premises Tenancy Act and section 5(1)(a) of the Assam Act, and hence the change in law pending the appeal should be taken into account and given effect to. We are, however, of the opinion that, having regard to the object and the purpose underlying the Rent Control enactment, the Supreme Court placed the said interpretation upon the said provision, and that it cannot be said as a general rule that a change of law pending the suit should always be given effect to. Having regard to the object and purpose underlying the Usurious Loans Act and the Madras amendment thereto, we are of the opinion that the court should be inclined to sustain and continue the said relief, unless the statute says to the contrary, either expressly or by necessary implication. We may also mention in this behalf that the percentage of loans granted to agriculturists in this country is very small compared to the loans granted to industrial and business concerns. In any event, it is not as if the entire interest is being deleted. All that it means is that, if the interest stipulated is found to be excessive, the court will reopen the transaction and grant such interest as it thinks reasonable in the circumstances of the case.
47. Counsel for the respondent bank then brought to out notice the decision of a Bench of the Madras High Court in Indian Bank v. V. A. Balasubramania Gurukkal . This decision was rendered prior to the introduction of section 21A. The following reasoning of the Bench is relied upon by learned counsel for the respondent. The Bench held that charging of compound rate of interest to agriculturists by a nationalized bank, as per the directions of the Reserve Bank of India, must be treated as a special circumstance and must be affirmed, notwithstanding the provisions of the Usurious Loans Act. In that case, there was evidence to show that the Reserve Bank of India had directed the nationalised banks, in exercise of its power to give direction under section 21(e), that they should charge a particular rate of interest in respect of loans advanced by them. Violation of such direction is punishable as provided in section 46(4) of the Banking Regulation Act. It was observed that the provisions of the Usurious Loans Act enacted with a view to protect the needy agriculturists from the ordinary money- lenders cannot be ipso facto made applicable to nationalised banks, which are in the nature of representative institutions governed by rules and regulations, which do not change from debtor to debtor. Accordingly, the compound rate of interest stipulated by the bank was upheld and affirmed by the Bench. It is not necessary to examine this case at length for more than one reason. Firstly, this decision has been expressly dissented from by a Bench of this court in Indian Bank v. Muddana Krishna Murthy, AIR 1983 AP 347. Secondly, no evidence has been adduced in this case that there were any such directions in force given by the Reserve Bank to the plaintiff-bank at the time the loans in question were advanced to the first defendant asking the plaintiff-bank to charge a particular rate of interest.
48. Once we hold that section 21A of the Banking Regulation Act is not applicable, and that the first defendant is entitled to take advantage of section Usurious Loa of the Usurious Loans Act, as amended by the Madras Amendment aforesaid, the question arises whether the interest charged herein is excessive and whether the first defendant should be given relief on that account. As we have already stated, the interest charged by the plaintiff-bank up to the date of suit is 1 1/2 per cent. over and above the State Bank of India advance rate subject to a minimum of 10%. In the case of cash credit crop loan, monthly rests are also provided. In view of the proviso to clause (b) of sub-section 92) of section Usurious Loa of the Usurious Loans Act, we must presume that the charging of compound interest is excessive. The question is whether there is any material placed by the plaintiff-bank before us to hold that it is not There is none. In such a situation, the presumption raised by the said proviso must be affirmed and it must be held that charging of compound interest is excessive. Even apart from the Madras Amendment, we are of the opinion that the interest charged is excessive in the circumstances. The question then arises : what is the reasonable interest that should be allowed Decided cases show that courts have awarded interest ranging from 12% simple to 18% or even 20%. In this connection, we may note that the Madras Act (No. 4 of 1938) has recently been amended and now the rate of interest provided thereunder is 12 1/2% per annum, simple. Another and more relevant factor in this behalf is that, in this very suit, the plaintiff has asked for interest at the rate of 14% per annum from the date of the suit. Having regard to all the circumstances of the case, we are of the opinion that interest should be awarded to the plaintiff uniformly at the rate of 14% per annum, i.e., both before and after the date of institution of the suit. The matter has to be remitted to the trial court to determine the exact amount due in the suit on the said basis. The trial court shall reopen the transaction as contemplated by section Usurious Loa and applying the said rate of interest recalculate the amount due from the defendants to the plaintiff. It is obvious that amounts paid, if any, by the defendants shall be given credit to while calculating the amount due from them.
49. Appeal allowed in the above terms. There shall be no order as to costs in this appeal.
50. Counsel for the respondent-bank makes an oral application for grant of leave to appeal to the Supreme Court under article 133 of the Constitution. We do not, however, think that this case involves any substantial questions of law of general importance which require to be considered by the Supreme Court. The oral application for leave is rejected.