R. Bayapu Reddy, J.
1. This appeal is filed by the plaintiff in O.S. No. 74 of 1981 on the file of the Subordinate Judge, Bapatla, questioning the decree and Judgment dated 22-3-1983 to the extent the suit was dismissed.
2. The appellant is the Andhra bank at Bapatla and it had filed the suit against the defendants 1 & 2 seeking recovery of an amount of Rs. 21,344-60 Ps. from them on the basis of equitable mortgage with future interest and costs, contending that the first defendant who is the son of the second defendant approached the plaintiff-Bank for crop loan and the plaintiff Bank agreed to grant such loan on the creation of security and guarantee; that the first defendant was then granted a loan of Rs. 10,000/- and he executed the pronote dated 25-10-1976 along with his father who is the second defendant and who stood as guarantor; that the first defendant also executed an agreement hypothecating the existing and future crops to be raised in the land belonging to him and he also executed a mortgage deed dated 19-10-1976 and also crop hypothecation agreement dated 25-10-1976; that as per the pronote and the agreement, the defendants had to repay the loan with interest at 16% p.a. with quarterly rests; that the defendants, however, committed default in paying the loan inspite of demands; that by 27-8-1981 they became liable to pay an amount of Rs. 21,344-60 Ps. at the above said rate of interest and that the suit was filed seeking recovery of the suit amount from both the defendants with future interest and costs.
3. The defendants contested the suit contending that they are agriculturists and they borrowed the loan for agricultural purposes; that the interest claimed by the plaintiff-Bank is usurious and penal and hit by the provisions of the Usurious Loans Act; that the interest is also liable to be scaled down as per the provisions of Act IV of 1938; that the plaintiff is also not entitled for the amounts claimed towards incidental charges and that the suit amount is, therefore, liable to be calculated accordingly.
4. On the basis of the evidence adduced before him, the learned Subordinate Judge agreed with the contention of the defendants that the interest claimed by the plaintff-Bank at 16% p.a. with quarterly rests is usurious in nature and is hit by the provisions of the Usurious Loans Act; that the defendants who are agriculturists are entitled for scaling down of the debt as per the provisions of Act IV of 1938 and that the plaintiff will be entitled to claim simple interest only at 12% p.a. on the principal amount of Rs. 10,000/- from 25-10-1976 which is the date of contracting the loan till the date of the filing of the suit and also till the date of realisation. The lower Court also held that the plaintiff is not entitled to recover any amount towards incidental charges such as legal opinion fee, etc., which are included in the suit amount and that the plaintiff is not entitled to claim suit costs from the defendants and on the otherhand, it is liable to pay suit costs to them. Aggrieved by such findings given by the lower Court, the palintiff-Bank has chosen to file the present appeal contending that the lower Court went wrong in applying the provisions of the Usurious Loans Act treating the interest as usurious and also in scaling down the interest under the provisions of Act IV of 1938; that in view of the provisions of Section 21A of the Banking Regulation Act, 1949, which came into force with effect from 15-2-1984, it is not open to the Court to reopen the transaction and apply the provisions of the Usurious Loans Act even in the case of debtors who are agriculturists; that the lower Court also went wrong in scaling down the interest under the provisions of Act TV of 1938; that the lower Court is also not justified in neatening the claim of the plaintiff to recover incidental charges and suit costs and mat the decree and Judgment of the lower Court to that extent shall be modified. The respondents did not appear and contest the appeal.
5. The points that arise for consideration in the present appeal are:
1. Whether the respondents/defendants are entitled for scaling down of the debt under the provisions of Act IV of 1938?
2. Whether in view of the provisions of Section 21A of the Banking Regulation Act, 1949, the Court is prohibited from reopening the transactions entered into between the plaintiff and the defendants by invoking the provisions of the Usurious Loans Act, 1918 and whether the plaintiff-Bank is entitled to claim interest at the contract rate?
3. Whether the plaintiff-Bank is entitled for the amount claimed towards incidental charges and for suit costs and whether there are arty valid reasons to interfere with the decree and Judgment of the lower Court?
6. Point No. 1: It is now admitted that the defendants 1 & 2 are agriculturists and the loan was borrowed for agricultural purposes as crop loan. The defendants had contended in the suit that they are agriculturists and the loan was borrowed for agricultural purpose and as such, they are entitled to the benefits of Act IV of 1938 by scaling down the interest. The interest claimed by the plaintiff-Bank as per the pronote and the hypothecation agreement entered into between the plaintiff-Bank and the defendants is at 16% p.a. with quarterly rests. The lower Court agreed with the contention of the defendants and granted simple interest at 12% p.a. by scaling down the debt on the ground that the defendants are agriculturists and that, therefore, they are entitled for the benefits of Act IV of 1938. But such view of the lower Court cannot be accepted in view of the prevailing law as held by various courts including this court and the Supreme Court. It is sufficient in this regard to refer to the recentt full Bench decision of this Court reported in State Bank Hyderabad v. Advath Sakru, : AIR1994AP170 (F.B.). It is observed in the said full Bench decision. of this Corts after referring to the decision of the Supreme Court reported in Bank of India v. yijay transport, : [1988]1SCR961 and various other decisions on the subject, that Banking Companies Act is a special Indian law and the provisions of Section 4(c) of Act IV of 1938 are applicable to Banks which are nationalized under the banking Companies Act; that consequently, in view of Section 4(e)of 1938, the Question of scaling down the debts due to the Banks which are nationalised under the Banking Companies Actdoesnotarise All the earlier decisions of this Court which were contra to the abovesaid view were overruled by the above said. Full Bench decision of this Court. Therefory, the debt due to the plaintiff-Bank by the defendants in the present case cannot be scaled down by applying the cannot be scaled down by applying the provisions of Act IV of 1938.
7. Point No. 2: The contention of the defendants is that the interest charged by the plaintiff-Bank at 16% p.a. with quarterly rests amounts to compound interest and is excessive, penal and usurious in nature and that in view of the provisions of the Usurious Loans Act, the plaintiff cannot be permitted to claim interest at such excessive rate, The lower Court agreed with such contention of the defendants and applied the provision of the Usurious Loans Act by relying upon the decision of this Court reputed in Union Bank of India v. Dhanakula Koteswara Rao and Ors., 1979 (1) APLJ 87 = 1978 (2) ALT 87 (NRC), wherein it was observed that where compound rate of interest is charged in the case agriculturists, it has to be presumed that the interest is excessive and penal in view of the provisions of Section 3 of the serious Loans Act. the Judgment of the lower Court was delivered on 22-03-1983. It is to be seen in this connection that Section 21 of the Banking Regulation Act, 1949 was subsequently enacted and it came into force with effect from 15-2-1984. The plaintiff-Bank now contends in view of the said provision of Section 21A of the Banking Regulation Act, that the Courts are now prohibited from reopening the transactions entered into between the banking company and its debtors invoking the provisions of the' Usurious Loans Act irrespective of the fact whether the debtor is. an agriculturist or not Number of decisions were required by different Courts with regard to the applicability of Section 21A of the Banking Regulation Act, 1949 especially to the case of a debtor who is an agriculturist giving conflict opinions. The said question regarding the applicability of the, provisions of the Usurious Loans Act in view of the introduction of Section 21A of the Banking Regulation Act specifically for consideration in the above cited Full bench decision of this Court reported in State Bank of Hyderabad v. Advath Sakru, : AIR1994AP170 (F.B.). After considering the views expressed by this Court in various decisions and the decisions of the other High Courts as well as the Supreme Court, their Lordships have held in the above cited Full Bench decision that in view of the provisions of Section 21A of the Banking Regulation Act, the Courts are prohibited from reopening the transactions entered into between the banking company and its debtor even though the debtor is an agriculturist by invoking the provisions of the Ususrious Loans Act. Various questions were referred to the Full Bench in that case by the Division Bench in view of the conflicting decisions rendered by this Court on various prior occasions and such questions which were referred to the Full Bench are:
'1. Whether Section 21A of the Banking Regulation Act, 1949 applies to transactions which were entered into prior to its commencement, even though suits were instituted subsequent thereto?
2. Whether it applies only to transactions entered into after the commencement of Central Act 1 of 1984?
3. Whether it applies only to suits which were pending on the date of commencement of Central Act 1 of 1984?
4. Whether it applies to suits instituted and in which decrees were passed before the commencement of the Act?
5. Whether it applies only to suits instituted after the commencement of the Act irrespective of the date of the transaction?
6. Whether it makes any difference if the loan was an agricultural and not a commercial loan?'
8. After referring to various decisions rendered by this Court as well as the other Courts and also the Supreme Court, their Lordships in the above cited Full Bench decision have finally answered the said questions in para 81 of the Judgment as follows:-
'(1) Section 21A of the Banking Regulation Act, 1949 applies to all transactions entered into between the banking company and its debtor whether the transaction was entered into prior to its commencement or after.
(2) Section 21A of the Banking Regulation Act, 1949 applies to suits pending on the date of coming into force of the said Section.
(3) Section 21A applies to pending appeals irrespective of the fact whether a decree was passed giving relief to the debtor or not.
(4) Section 21A makes no distinction between an advance made for agricultural purpose or for commercial purpose and it equally applies to both.'
It is clear from such view expressed in the Full Bench decision of this Court that in view of the provisions of Section 21A of the Banking Regulation Act, it is not open for the Court to reopen the transaction regarding the rate of interest by applying the provisions of the Usurious Loans Act even in the present case even though the defendants are agriculturists. As already stated above, the provisions of Section 21A of the Banking Regulation Act were not on the statute by the date of Judgment of the lower Court. Therefore, the finding of the lower Court that the rate of interest claimed by the plaintiff-bank Is usurious, cannot be sustained.
9. The learned Counsel for the appellant has further tried to contend that the Contract rate of interest in the present case is 16% p.a. with quarterly rests and that the plaintiff-Bank is entitled to claim such interest on the entire suit amount upto the date of suit as well as subsequently till the date of realisation. He has also tried to rely upon the decision of the Supreme Court reported in Corporation Bank v. D.S. Gowda, 1994 (3) SCALE 46 in this connection. It is seen from a perusal of the said decision of the Supreme Court that after referring to the various circulars and directions issued from time to time by the Reserve Bank, of India relating to charging of interest on advances, their Lordships observed in para 12 of the Judgment that it is evident that the procedure for charging interest on loans advanced to agriculture its, be they short term or middle term loans, is different from loans advanced to other borrowers. It is observed by their Lordships in para 12 at page 56:
'It is, therefore, quite clear that agricultural loans stand on a different footing from other loans including a loan or advance secured for construction of flats, as in the case of D.S. Gowda. So far as agricultural loans are concerned, having regard to its special characteristics and the time factor relating to the farmer's capacity to meet his financial obligations, it was realised that farmers would not be in a position to pay interest at short periodical rests and if their inability to do so is visited with compounding of interest it would be too harsh and unjust on the farmers. The Reserve Bank, conscious of this difficulty of the farmers, directed the banks that their repayment period should be so fixed as to coincide with the period when the farmer is fluid and payment of interest should also be insisted upon only at the time of repayment of the loan or instalment. Further it directed that interest on current dues should not be compounded, but if and when the crop loans or medium term loans become overdue, interest outstanding to the principal amount may be added and compounded.'
Their Lordships subsequently referred to the facts of the case in the decision reported in Krishna Reddy v. Canara Bank, : AIR1985Kant228 against which Civil Appeal No. 544 of 1986 was filed and which was also the subject matter for consideration in the said decision of the Supreme Court. The question that arose for consideration in the case in Krishna Reddy v. Canara Bank, : AIR1985Kant228 related to the Bank's right to charge compound interest i.e., interest with periodical rests on agricultural advances The Canara Bank in that particular case claimed interest at the rate of 33% p.a. with quarterly rests regarding an agricultural loan. The Karnataka High Court after referring to the provisions of Section 21A of the Banking Regulation Act and the various circulars issued by the Reserve Bank of India from time to time, came to the conclusion that the loan in that case was for agricultural purposes and under the Reserve Bank's circulars, the Bank was precluded from recovering interest with quarterly rests and that the Bank cannot, therefore, recover Interest at the contractual rate of 13% p.a. with quarterly rests as It is excessive as the loan was borrowed for agricultural purposes. It was observed by the Karnataka High Court in that decision that if in any case it is shown that the banks had charged interest in disobedience of the Reserve Bank directive, the Court would be justified in granting relief to the borrower notwithstanding Section 21A of the Banking Regulation Act. The observations made by the Karnataka High Court in the said decision which was the subject matter of appeal in the above cited decision of the Supreme Court, are extracted at page 63 of the above cited decision of the Supreme Court. The said observations made by the Karnataka High Court with reference to the provisions of Section 21A of the Banking Regulation Act are as follows:-
'The mandate of this Section is that Court cannot re-open the account relating to a transaction between a Banking Company and its customer on the ground that the rate of interest charged, in the opinion of the Courts, is excessive or unreasonable. The Courts, in other words, cannot exercise jurisdiction under the Usurious Loans Act or any other law relating to indebtedness for the purpose of giving relief to any party. This appears to be the interest of the Legislature in enacting the Banking Laws (Amendment) Act, 1983.
Section 21A has, however, no bearing on the jurisdiction of Courts to give relief to an aggrieved party when it is established that the Bank in a particular case has charged interest in excess of the limit prescribed by the Reserve Bank of India.'
After extracting the said observations of the Karnataka High Court, their Lordships of the Supreme Court have observed that according to the High Court of Karnataka, if in any case, it is shown that the Bank was claiming interest in excess of that permitted by the circulars of the Reserve Bank of India, the Court could give relief to the aggrieved party notwithstanding Section 21A of the Banking Regulation Act to the extent of interest charged in excess of the rate prescribed by the Reserve Bank. It Was further observed by their Lordships of the Supreme Court that a distinction must be drawn between the Court's interference on the premise that the interest charged is excessive and Court's interference on the premise that the interest charged is in contravention of the circulars issued by the Reserve Bank and that the circulars having been issued Under Section 21/35A of the Banking Regulation Act would have statutory flavour.' Thereupon the Supreme Court has again extracted another passage from the impugned Judgment of the Karnataka High Court in Krishna Reddy v. Canara Bank (5 supra) which is to the following effect:
'The Courts cannot re-open any account maintained by Banks relating to transaction with its customers on the ground that the rate of interest charged, in the opinion of the Courts, is excessive or unreasonable. Section 21A of the Banking Regulation Act is a restraint on such power of, Courts. However, in any case, if it is proved that the interest charged by Banks on loans advanced is not in conformity with the rate prescribed by the Reserve Bank, then the Court could disallow such excess interest and give relief to the party not with standing the provisions of Section 21A. Banks are bound to follow the directives or circulars issued by the Reserve Bank prescribing the structure of interest to be charged on loans and any interest charged by Banks in excess of the prescribed limit would be illegal and void. Banks cannot charge compound interest with quarterly rests on agricultural advances.'
After extracting the above said observations of the Karnataka High Court, their Lordships of the Supreme Court had observed that they are in respectful agreement with the above interpretation placed by the Karnataka High Court in that decision on Section 21A of the Banking Regulation Act. Their Lordships have further observed in para-23 of their judgment that in case of agricultural loans the position has been made amply clear by the circulars referred to earlier which do not permit Banks to charge compound interest with quarterly rests and that in such cases, the interest can be fixed with annual rests coinciding with the time when the farmer, is fluid and if thereafter the farmer fails to pay the interest it would be open to compound the interest on the crop loan or instilments upon the term loans becoming overdue. Therefore, in view of such circulars and directions issued by the Reserve Bank of India from time to time the plaintiff-bank in the present case is also not justified in charging interest at 16%p.a.with quarterly rests as the defendants are agriculturists and as the loan was borrowed for agricultural purposes.
10. The learned counsel for the appellant-bank also contends that the lower. Court was not justified in granting interest only on the amount borrowed and not on the adjudged suit amount on the ground that interest cannot be granted on interest as it amounts to charging compound interest. He has also tried to rely, upon the decisions of the Supreme Court in support of his contention.. It is already found above that charging of compound interest even in the case of loan granted to the agriculturists cannot per se be considered as illegal and impermissible. In the decision of the Supreme Court reported in Rensagar Power Co Ltd. v. General Electric Co., : AIR1994SC860 it is observed by their Lordships that it cannot be said that award of interest on interest i.e., compound interest is against public policy of India. In a recent reported decision of the Supreme Court rendered in Civil Appeal No. 2785 of 1987 dated 21-9-1994 also it was observed, by referring to the above cited earlier decision of the Supreme Court reported in Corporation Bank v. D.5. Gowda (4 supra), that future interest can be granted on, the principal sum adjudged which is the suit amount. Therefore, in the present case also, the plaintiff-bank is entitled for future interest on the principal sum adjudged as already stated above.
11. The learned counsel for the appellant-bank has also tried to contend referring to some observations of the Supreme Court in the above cited decision reported in Corporation Bank v. D.S. Gowda (4 supra) that inasmuch as the defendants committed default in paying the instalments as agreed upon charging of compound interest at the contract rate of 16% p.a. with quarterly rests is permissible. But, such contention cannot, however, be accepted as no such proposition was laid down by the Supreme Court in the said decision What was observed by their Lordships in the said decision, by referring to various circulars/directions issued from time to time by the Reserve Bank of India, is that in the case of agricultural loans the interest can be fixed with annual rests coinciding with the time when the farmer is fluid and if thereafter the farmer fails to pay the interest, it would be open to compound the interest on the crop loan or instalments upon the term loan becoming overdue. It cannot be inferred from such observations made by their Lordships that the Bank will be entitled to claim compound interest with quarterly rests even in case of any default committed by the borrower in paying the instalments. It can only be said from such observations of their Lordships that in case default is committed in paying the instalments by the agriculturists, compound interest can be charged but such compound interest can only be with annual rests and not with quarterly rests inasmuch as it is specifically held by their Lordships that in the case of agricultural loans, the position is made clear by the various circulars of the Reserve Bank of India referred to in the Judgment, compound interest with quarterly rests is not permissible and that such interest can be fixed only with annual rests coinciding with the time when the farmer is fluid. Therefore, in the present case also the plaintiff-Bank will be entitled to claim compound interest only with annual rests at the contract rate of 16% as already stated above inasmuch as there was default committed by the defendants in paying the instalments. Therefore, in view of such circumstances and in view of the observations of the Supreme Court in the above cited decision reported in Corporation Bank v. D.S. Gowda (4 supra), the plaintiff bank will be entitled to claim interest at the contract rate of 16% p.a. but with annual rests from the date of borrowing till the date of suit on the amount borrowed and at the same rate from the date of suit till the date of decree on the adjudged suit amount and at 6% p.a. from the date of decree till the date of realisation as the loan transaction was not a commercial transaction.
12. Point No. 3: The suit amount claimed by the Plaintiff in the plaint as per Ex.A-12 ledger extract includes incidental charges such as legal-opinion fee, credit guarantee corporation fee, etc. The contention of the defendants in the suit is that such incidental charges cannot be levied against them and they are not liable to pay any such charges to the plaintiff-Bank as there was no contract between the parties to collect such charges. Such contention was accepted by the lower Court. The learned Counsel for the appellant bank however, contends that in view of the circulars and directions given by the central office of the plaintiff-bank marked as Exs.A-14 to A-17and in view of the subsequent default committed by the defendants in discharging the loan as agreed upon, the plaintiff is entitled to collect such incidental charges from them. It is now clear that having borrowed the loan amount the defendants failed to discharge such loan and as such, the plaintiff-bank was obliged to seek legal opinion for taking necessary steps to collect the loan and other incidental charges were also incurred by it. In view of the circulars and directions, such as, Exs.A-14 to A-17, and in view of the facts and circumstances of the case, the plaintiff-bank is entitled to collect such incidental charges from the defendants who have committed default in discharging the debt and as such, the orders of the lower Court in this regard cannot be sustained.
13. In view of the above said findings, the appeal is allowed with costs and the Decree and Judgment of the lower Court are modified and it is held that the appellant-plaintiff bank will be entitled for the amount that will be found due by calculating the interest at the contract rate of 16% p.a. with annual rests from the date of borrowing till the date of suit on the amount borrowed and it will also be entitled for future interest at the same rate from the date of suit till the date of decree on the adjudged suit amount and at 6% p.a. from the date of decree till the date of realisation, and a preliminary decree shall accordingly be passed with proportionate costs to be paid to the plaintiff-Bank.