In the Matter Of: State Bank of India, Eluru - Court Judgment

1. The facts:--

The plaintiff , the State bank of India, Eluru Branch is the appellant. It appeals against a judgment of the learned District Judge, Eluruwho in A.S.No. 151 of 1980 confirmed the judgment of the trial Court dismissing a suit filled byt he Bank for recovery of a sum of money advanced by the Bank as loan to an agriculturist. In O.S.No. 176 of 1979 on the fill of the district Munsif, Eluru for recovery of a sum of Rs. 8,260.20. That amount was made up of the principal and compounded interest due on the loan mius the part payments made bythe defendant agrkculturist from time to time .

2. The principal sum the defendant borrowedc from the plaintiff was only Rs. 7,200/- and that amount was secured by a mortgage. But that amount soared to be the suit amount even after the defendant had made part payments because of the stipulation of agreement providing for payment of compound interest. The loan agreement provided for the payment 11/2 of interest subject to a condition of the debtor paying a minmum of 81/2% per annum with quarterly rests on the borrowed amount. Thus the principal amount of loan earned every quarter interest which was added in that quarter to the pricnipal amount. The principal amount thus got geometerically swollen up. In telugu this would be described as (Vernacular omitted). This method of charging interest known as the method of charging compound interest is always condemeed. Lord Wright in Riches v. West Minster Bank Ltd. 1947 AC 390 refers to the saint-socialist scholar Prof. Tawney to say that money-lending was condemned by the medieval mind as usurious. In our country, charging of compound interest is partcularly condemned in relation to the loans advanced to the agriculturists. Many, reports of the famine and other commissions s appointed to look into the causes for the economic misery of the Indian farmer found agricultural indebtedness as one of the principal causes for the economic misery of the farmer and asked for enacting law a prohibiting charging of compound interest. From time to time, the laws enacted by the Legislatures had made several attempts to prohibit levying of compound interest on the llaons borrowed by the agriculturists and otherwise to relieve the framers of their economic burden of debts. The A.P. Agriculturists Relief Act of 1938 otherwise known as the Rajaji Act is one of the outstaning modern instances of such enactments. So is the Usurious Loans Act of 1918 as amended by the Madras Act VIII of 1937. A Full Bench of this Court in K. Purushottam v. K. Nageswara Rao, : AIR1979AP48 agreeing with an earlier Full benchs judgment of Subbarao, (1957) 2 Landh WR 53: (AIR 1957 Andh Pra 546 ) (FB) held that the object of S. 13 of the above A.P. Agriculturists Relief Act. 1938 is to give effect to the statutory rate of interest, if necessary even by disregarding the contractual rate of interest. Mode of fixing allowable rate of interest is settled by S. 13 of Agriculturists Relief Act. Under s. 13 of the A.P. Agricultursts Relief Act. 'In any proceeding for recovery of a debt, the Court. shall scale down all interest due on any debt, incurred by an agricultrist after the commecement of this Act, so as not to exceed a sum calculated at 61/4 % per annum. Simple interest, that is tosay, one pie per rupee per annum simple interest. Provided that the State Government may by notification in the Official Gazette, alter and fix any other rate of interest from time to time.' However, the amount for the recovery of which the Bank had sued the defendant agrriculturist in our present case was calculated on the basis of the contracted rate of compund interest. The defence of the agriculturist in the suit was twofold. He firstly objected to the mode of apporpriation adopted by the Bank. But on this point , both the Courts below upheld the method of apporpriation adopted by the bank and found against the dfendant. A the defendant had never made any grievance of that finding of the trialCourt either in the lower appellate Court or here in this Cour, that objection of the defendant survives for consideration. The defendant says that he was an agriculturist and that the contract between him and the Bank providing for charging of compound interest was contrary to the provisions of S. 13 of the above A.P. Agriculturists Relief Act 1938, and also to the Usurious Loans Act 10 of 1918 as amended by the Madras Amendment Act VIII of 1937. The second objection of the defendant was uhpheld by the Courts below giving rise to this second appeal filed by the plaintiff b ank.

The question :-----

3. The only question that afalls for consideration of this Court in this second appeal is whether the findisng of the Courts below uon the surviving point of the controversy between the parties should be upheld.

Previous judgment of this Court:---

4..In one or two recent judgments of this Court for which I spoke simialr questions of law were considered. In Indian Bank v. Krishnamurthy (1983) 1 Andh Lt 357: AIR 1983 Andh Pra 347 a Division Bench held that the Indian Bank constituted by the mandate of S. 3 of the Banking Companies (Acquisition and Transfer of Undertakings) Act was not a Corporation contituted by a special Indian law and that S.4(1)(e) of the A.P. kKAgriculturists Relief Act of 1938 to the extent it confers exemption from the applicability of the above A.P. kAgriculturists Relief Act of 1938 on any Corporation formed in pursuance of an act of the parliament of United Kinngdom or may special Indian Law or Royal Charter or Letters Patent is void, and that consequently the provisions of the A.P. Agriculturists Relief Act would apply to all the loans advanced by the Banks to the farmers. In that judgment, it was also held as a separate point of law that the provisions of the abovesaid Usurious Loans Act of 1918 as amended by the Madras Amendment Act of 1937 (Act No. VII of 1937) would apply to the loans advanced by these Banks to the agriculturists and would consequently render the Bank loan charing compound interest from a farmer a substantially unfair transaction without any special circumstances being shown justifying charging of such compound interest. In Indian Bank Adoni, In Re (1984) 1 Andh WR 127 the same view was reiterated with particular reference to the Usurious Loans Act of 1918 as amended by the Madras Amendament Act VIII of 1937 and the meaning of the special circumstances was further explained.

5. These judgments of this Court are clear authority for the following propositions of law. The Courts should not enforce against an agriculturist any contractual rate of interest over and above what was provided for by or under S. 13 of the A.P. Agriculturists Relief Act. (2) The Courts should not enforced an agreement providing for charging of compound interest against an agriculturist. (3) Under the provisions of the Usurious Loans Act of 1918 as amended by the Madras Amendment Act VIII of 1937 the Courts should treat a loan charging agriculturist to compound interest to be sustantially unfair transaction.

Effect of those previous judgments and the contention of the Bank:---

6. Judged by the ration of the above mentioned judgments of this Court, the judgment of the lower Court in this case must be upheld and this appeal filed by the plaintiff Bank should be dismissed. So much is not denied by the Bank even. But what is agrued by the appellant-Bank in this second appeal is that the above judgment of this Court following which the lower Court rendered their judgments are themselves rendered inapplicable to the loan transaction between the plaintiff-Bank and the defendant-agriculturist by S. 21-A of the Banking Companies Regulation Act (Act No.1 of 1984). The contention of the Bank in substance is that the above S. 21-A of the Banking Companies Regulation Act has the effect of interdicting the application of the A.P. Agriculturists Relief Act of 1938 and the Usurious Loans Act of 1918 as amended by Madras Amendment Act VII of 1937 to the loans given by the banks to the agriculturists.

The Banking Companies Regulation Act and its meaning:----

7. The Banking Companies Regulation Act No.1 of 1984 had been enacted by the Parliament subsequent to the rendering of the above judgments by this Court. This Court had, therefore, no occasion to condier earlier either the constitutional validity or the scope and meaning of the abovesaid S. 21-A of the Banking Companies Regulation Act. The question whether the abovesaid S. 21-A of the Banking Companies Regulation Act has taken away the applicability of the A.P. Agriculturits Relief Act of 1938 and the usurious Loans Act of 1918 as amended by Madras Amendament Act VIII of 1937 now falls for consideration. S. 21-A of the Banking Companies Regulation Act reas thus:

'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 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 company in respect of such trnasaction is excessive'.

For the present, I will not consider the question of constitutional Validity of S. 21-A of the Banking Companies Regulation Act, I assume for the purpose of this part of the discussion that S.21-A of the Banking Companies Regualtion Act is constitutionally valid. I only ask whether that section has taken away the efficacy and the applicability of the abovementioned judgments of this court which are based upon the abovementioned A.P. Agriculturists Relief Act of 1938 and the Usurious Loans Act of 1918 as amended by the Madras Amendment Act VIII of 1937. Sec. 21-A can interdict the above two acts only if S. 21-A is found to cover the same field covered by the above two Acts. In other words that question can be answered in favour of the appellant Bank only by holding that the field of operation of the abovesaid S. 21-A of the Ban king Companies Regulation Act is coneterminous with the areas of operation of the above two enactments. It must be admitted that S. 21-A A where it operates, forbids all courts from reopening a transaction between a banking company and its debotr on the ground that rate of interest charged is excessive. But it would be noted that this prohibition enacted by S.21-A is not general and univrsal and does not prevent the reopening of a loan transaction on grounds. Other that grounds of excessive interest. The prohibition is, therefore, applciable only to these select cases where the court finds interest rates charged by the Bank are excessive interest. The prohibition is, therefore, applicable only to those select cases where the court finds interest rates cahrged by the Bank are excessive and that the trnasactions are required by the defendants to be reopened for that reason. However, the powers of courts to reopen a loan are not confined oly to a single ground of excessive interest. There are other grounds which sre many and varried and are still available to the courts. On the ground that the rate of interest charged in a particular case is usurious, extortionate or penal or the trnasaction itself is unconscionable, or opposed to public policy, a court can still reopen a laon trnasaction. These grounds are not touched by S. 21-A at all. Of the various ground available for the courts to reopen transactions, S. 21-A picks up only one ground of excessive interest and makes that ground unavailable. In other words, S. 21-A of the Banking Companies Regulation Act cannot be read as forbidding the courts from reopeining a loan on any of those ground excepting the ground of excessive interet. The ground of excessive interest which alone is made by S.21-A unavailable to the courts to reopen the transaction does not bar the court jurisdiction to reopen the transaction on ther equally efficiacious grounds which are different in law from ground of excessive interest.

The meaning of excessive interest rate:--

8. Before we ascertain the legal meaning of the words 'interest being excvessive' we amy not that economic thought found justification for charging interest. Aristotle laid it down that all money was in its natue barren meaning thereby that money was not the source wealth. This deep insight into the economic nature and origin of the wealth of nations greatly influenced the climate of the logical opinion and classical economic opinion both of which condemned the institution of interest as one reaping a harvest without sowing. Adam Smith who extolled as the source of wealth could not justify on economic grounds charging of interest. But the running of an industrial, commercial economy demanded a pre-eminent place to be accorded to the institution of interest. Echoing this need of the industrial society its spokesman Bentham said that 'Interest as love and religion........ should be free' meaning thereby that law should lallow full freeedom for charing of market rates of interest. Law, however, has never wholly accepted these free market ideas in money-lending even in those days of laissez-faire. Law struck a via media between the classical and theological view on the one hand and the needs of the modern society on the other. Frank, the economist, who described interest as the compensation paid for the risk and uncertainty involed in lending money expressed that via media justification. Law basing itself upon this justification broadly defines interst as the return or compensation for the use or retention by one person of a sum of money belonging to or owned to another (Sec. Vol. 32 H.L.E. 4 th Ed. Para 106). This view impliedly jutified charging of interest . But courts as courts of equirty and justice enjoy wide powers to hold that the interest charged in a particular case is excessive as the amount collected is interest in that case is disproportionately higher than what would be the true and rightful compensation payable for the ue of retention of the borrowed money.

Compounding interest is inherently bad :---

9. Compound interest as different from simple interest is regarded as inherently objectionalble. Lord Cottenham said in Ferguson v. Fyffe, (1841) 8 C1 & F.121.

'Generally a contract or provision for compound interest is not available in English Law, as was decided by Lord Eldon in Ex Parte bavan (1803) 9 Ves. 223, except perhaps as to emrcantile accounts current for mutual transactions.'

F.K. Mann, the well known authority on 'Money' syas, that as a general rule compound interest is condemned by most counteries (Sec. Vo.. 101 LQR 30 at page-43). In the same article, Mann observes.

'In Roman law, enatocism' was absolutely prohibited and under its influence the prohibition continued for many centuries on the continent. In France the Corde Civil demands a special agreement and limits compound interest to yearly rests (Art. 1154 of Code Civil) no restriction applies in case of current accounts or where in case of other monetary obligations no payment of a specific principal sum od (ius0 in issue (Art .1155), In Germany the payment of compound interestcannot be agreed in advance, but numerious exceptions apply, particularly in the case of banking institutions and current accounts (Art. 248 of the Civil Code, Art, 355 of the Commercial Code). In Switzerland (Art. 314) the law is similar, and the same seems to apply to Scotland. In the United States of America the broad rule is that contracts to pay compound interest are void.'

Reverting Back to excessive interest:---

10. In deciding whether rate of interest is excessive or not, courts will have regard to the particular facts of a case before them. Such an enquiry will be conducted by the courts primarily on the basis of the security given by the debtor for the repayment of the loan and the solvency of the debotr and the market rate of interest prevailing. Normally where security offered by the debotr is good and adequate as it is in a case of mortgage of property the courts will hold charging of compound interest to be excessive. Rate of interest, which may not be excessive on an unsecured loan may, therefore, be found to be excessive by the Courts whete there is good security. See Kruse v. Seeley (1924) 1 Ch. 136. Even rates of simple interest may be found to be excessive in particular cases. Thus the question of excess rate of interest cahrged in a case normally turns out to be essentially a question of fact which the courts can decide only by attending to the proved facts in each individual case. (See Carringtons Ltd. V. Smith (1906) 1 KB 79. Those facts like any other facts should be proved to the satisfaction of the courts in each individual case. These are all cases which are not basically different from those which are not basically different courts for decision on the defence plea that a particular contract is voidble on the ground that it is unconscionalble or harsh or opposed to public policy.

The Scope of S. 21-A :--

11. Section 21-A strikes agianst one of those pleas of the defendant. Sec. 21-A of the Banking Companies Regulation Act takes awaky that particular power of the court to reopen the transaction on the ground of excessive rates of interst. Sec. 21-A belongs to that genera of legislations which deals with a dispute between two parties before the court which is called upon to settle a dispute on the peculiar facts of that case and one the defendant's plea that the transaction cannot be enforced because it is harsh etc. In those classes of cease courts enjoy wt's plea that the transaction cannot be enforced because it is harsh etc. In those classes of cases courts enjoy wide discretion though judicial in applying their powers to the varying facts. What S. 21-A of the Banking Companies Regualation Act does is to cut into the width of itsw powers of reopeining ejoyed by the courts and to prevent the courts from holding invetigation into the relevant facts necessary to find out whether ther is or not excessive interest charged. In other words the effect of S. 21-A is to render the defneces that might be set up by the defedants on the ground that the rates of interest charged is exvcessive unavailable to him. LIn each individual case of that nature, the court applying S. 21-A of the Banking Companies Regulation Act will refuse to entertain such defence and consequently refuses to go into the question of the nature of security accepted, the risk involved in lending and the prevailing market rate etc. The courts which would have normally decided the questions relating to rates of interest will now lfefuse by reason of S. 21-A of the Banking Companies Regulation Act to decide that issued. Sec. 21A of the Banking Companies Regulation Act is, therefore, applicable only to individual cases, Its purpose is to forbid the courts from amking an individual investigation and to orbid the courts enteraining a particular defence of the defendant. The legal effect of S. 21-A of the Banking Companies Regulation Act is nothing more and nothing less and is nothing else, than to prevent the courts from investigating into one type of defence that might be set up by the defendants and which would require a composite inquiry into that question.

Sec.21-A compared with Agriculturists Relief Act :--

12. Now, the question is, is the purpose of the A.P. Agriculturists Relief Act of 1938 the same as that of S. 21-A of the Banking Companies Regulation Act of 1938. It appears to me that it is not. On the other hand, the legal effect of the A.P. Agricultrists Relief Act is totally different from the legal effect of S. 21-A of the Banking Companies Regulation Act The questions tried and the isssues decided under the A.P. Agriculturists Relief Act are not the same as those under S. 21-A of the Banking Compan ies Regulation Act. The A.P. Agriculturists Relief Act is more like the Frazier and Lemke Act of the famous American New Deal Administration or the rule in Roman Law prohibiting 'Anatocism' or the American Rule that contracts to pay compound interest are void. This type of cases do not depend much upon the individual features and merits of the cases for the grant of relief. Agriculturists Debt Relief Legislation is a class legislation enacted for the benefits of farmers who belong to that class. The rule against excesive interest now excluded b y S. 21-A depends for its application on individual facts and features, that canvary from case to case. KLThe statement of objects and reasons of the Agriculturists Relief Bill shows that the purpose of the A.P. Agriculturists Relief Act is to rehabilitate the agriculture. Treating agriculture as a basic industry of this province and holding that on its prosperity depends the properity of all other sections of the people in the province, the A.P. Agriculturists Relief Act seeks to relieve the agriculturists of their burden of debts by wiping out existing debts in some cases and fixing ceilings on future rates of interest in all cases and forbidding charging of compound interest altogether. Its object cannot be said to be to grant relief to individual farmers on the basis of excessive rate of interest found charged in each individual loan transactions. The relief under the A.P. Agriculturists Relief Act cannot be refused even by accepting rates of interest, to be not excessive. The policy of the A.P. Agriculturists Relief Act is to grant debt relief to all the farmers as a class with respect to thier loan transactionk irrespective of the varying rates of interest charged in individual cases and the nature of security accepted in those cases. For this purpose S. 13 of the A.P. Agriculturists Relief Act prevents the courts for granting decress for the collection of interest rates over and above what is fixed by or permitted by S.13 of the A.P. Agriculturists Relief Act. In effect, though not by expression the A.P. Agriculturists Relief Act renders charging of interest over and above what is fixed by S.13 of the A.P. Agriculturists Relief Act of 1938 unlawful without any reference to other relevant factors which should go into a decision that a particular rate of interest is or is not excessive. Thus the A.P. Agriculturists Relief Act of 1938 has nothing to do with the individual merits or demerits of a particular case . In fact, it is conceivable for a court of law to find 15% of simple interest charged to an agriculturist in a partic ular case is not excessive, but even in such a cases the court would be without liberty to grant a decree for the suit amount because the courts under S. 13 of the A.P. Agriculturists Relief Act cannot pass adecree for the suit amount because the courts under S. 13 of the A.P. Agriculturists Relief Act cannot pass a decree for 15% interest. Because passing of a decree for 15% interest would be contrary to the above S. 13 of the A.P. Agriculturists Relief Act of 1938 and not because the court finds it an excessive rate of interest the courts refuse to grant a decree at 15% . In other words, the grounds for granting of relief to a farmer under the provisions of the A.P. Agriculturists Relief Act are general statutory prohibition which are qualitatively diffferent from the ground of excess interest which is mentioned in S.21-A of the Banking Companies Regulation Act. In implementing S.13 of the A.P. Agriculturists Relief Act, it is not at all the concern of the courts tofind out whether the rate of interest is excessive or not. Such an enquiry will be wholly outside the scope of the Agriculturists Act. On the proof of the fact that the rate of interest was not simple interest or that the rate of interest was more than what the Legislature had prescribed under S.13 of the A.P. Agriculturists Relief Lact, 1938 and that the debtor was an agriculturist, the court acting under S.13 of the A.P. Agriculturists Relief Act is bound to grant relief to the farmers. The court enofrcing the provisions of A.P. Agriculturists Relief Act will not inquire into the nature of security offered or the prevailing rate of interest or the solvency of the debotr, etc. Without which the question of excess rate of interest cannot be determined. It must, therefore, be held that the area of operation of S. 21-A of the Banking Companies Regulation Act is far different and remover from the area of operation of the A.P. Agriculturists Relief Act of 1938 and that particularly S. 13 of that Act which was enacted to relieve the agriculturists as a class of their burden of paying interest over and above what is fixed by or under S.13 is not in any way, constricted or countermanded by the obligation of the courts flowing from S.21-A of the Banking Companies Regulation Act. Enacted for the purpose of forbidding the courts from considering and accepting the defence of excessive interest in suits filed by the bank for the collection of their loans and dealing with the individual cases, S.21-A of the Banking Companies Regulation Act is not conterminous in its operation with the above two State Acts. The A.P. Agriculturists Relief Act of 1938 deals with a general classes of the society. The grounds of relief permitted and prohibited to the courts by the two Act are different . The method of enquiry contemplated to be adopted by the courts is different. The purpose , operation and the effect of S.21-A of the Banking Companies Regulation Act is not even remotely connected with the purpose, operation and the effect of the A.P. Agriculturists Relief Act of 1938. It, therefore, follows that even after the enactment of S.21-A of the Banking Companie Regulation Act by the parliament, the courts are bound to give effect to the above mentions judgerments of this court which are based on the interpreted scope, meaning and applicability of the A.P. Agriculturists Relief Act of 1938.

The 'Debtor' in S. 21-A is not an agriculturist:--

13. Further as a matter of construction, it is not easy for me to hold that by the use of the generic word 'debtor' S.21-A of the Banking Companies Regulation Act inteds to refer to the agriculturits. Agriculturists constitute a special and particular economic segment of the society found to be in dire need of statutory relief from their agricultural indebtedness. Only a smalll fraction of Bank loans are advanced to agriculturists. They are largely given to industrialists, consumers and even to speculators. The A.P. Agriculturists Relief Act 1938 is a special law enacted to relieve the State Economy of a particular ailement found by the elected representatives to be afflicing it. That Act is therefore made applicable only to agruclturists. By the time S. 21-A of the Banking Companies Reguklation Act has come to be enacted, the law is that the Agriculturists Relief Act covers the Bank loans advanced to agriculturists. LkParliament which must have been aware of the applicability of the A.P. Agriculturists Act to the Bank loans did not specifically refer to the Bank loans advanced to the agriculturists and deny the farmers, relief to which they are found by the State Legislature to be in need of. One would expect the Parliamnet to use specific language tothat effect if that were the intention of the Parliament. S. 21-A does not use any such specific language. In the absence of any such language in S.21-A of the Banking Companies Requlation Act. I find it difficult to hold that the general langualge of S.21-A is enough to cover the bank loans advanced to the agriculturists also.

Section 21-A and the usurious Loans Act:---

14. It must be admitted that on first looks S. 21-A of the Banking Companies Requlation Act bears some similarity to the provisions of the Usurious Loans Act of 1918 as amended by the Madras Amendment Act VIII of 1937. But these first appearances are more deceptive than real. Both the Usurious Loans Act as well as S. 21-A are, no doubt, applicable to individual cases and that courts, before relieving the debotrs of their burden of debt under these Acts, must exercise their jurisdiction and find out in each individual case whether the assailed transaction to be usurious. But beyond that point, the two Acts in their application part company with one another. Under the provisions of the Usurious Loans Act of 1918 as amended by the Madras Amendment Act No. VIII of 1937 the ground for the grant of relief is different from the ground denying relief under the plrovisions of S. 21-A of the banking Companies Regulation Act. We have already seen that S.21-A of the Banking Companies Regulation Act forbids the reopening of transactions only on the ground of excessive interest rates. But after the Madras Amending Act No. VIII of 1937, that ground of excessive interest no longer remains relevant for the application of the Usurious Loans Act of 1918. Before the amendment, under S. 3 of the Usurious Loans Act of 1918 the court's power to reopen a transaction is based upon its reasonable belief that the interest charged was excessive and that the transaction was substantially unfair. But now the Madras Amendment Act VIII of 1937 has amended S. 3 of the Usurious Loans Act of 1918 to say that the court can reopen the transaction where the courts have reason to believe that the transaction was substantially unfair. Thus the ground of charging excessive interest was deleted by the madras Amendment Act and is no longer relevant for reopening the transactions. To that amendment, Explanation I was added.

If the interest is excessive, the court shall presume that the transaction was substantilly unfair, but such presumption may be rebutted by proof of special circumstance justifying the rate of interest.'

15. To the above, a proviso was added 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. It would be noted that even the above amendments do not make the power of reopening turn upon excessive rate of interest. The power of reopening a loan transaction can be execcised under the amended Usurious Loans Act only on the ground that the transaction between the parties is substantially unfair. It is true that in reaching that conclusion, the Amending Act directs the court to presume that in all cases where compound interest is charged to farmers, interest is excessive and that, therefore, the transaction was substantially unfair between the parties unless special circumsstances justifying the charging of compound interest were shown to exist. LThat direction merely adds a rebuttable presumption made by the statute in holding that the transaction is substantially unfair. But it does not alter the grounds contained in the enacting clauses of the amended usurious Loans Act for the court to avoid a transaction on the ground that the rate of interest is excessive. The statute though that coceivably there can be cases of excessive interest without the transaction being substantially unfair. LThat must have been the reason why the unamended Usurious Loans Act of 1918 mentions both the grounds as available for reopening a transaction. Now, of the two grounds, the Amending Act reatins only the ground of substantiallky unfair transaction. In my opinion, there would be no justification for mixing up both the grounds . The two grounds should be kept separtae. As S. 21-A of the Banking Companies Regulation Act deals only with the ground of excessive interest and did not deal with the ground of substantially unfair transaction with which alone the Usurious Loans Act as amended dealt with the applicability of Usurious Loans Act of 1918 as amended by the Madras Amendment Act VIII of 1937 cannot be taken to have been overriden by S. 21-A of the Banking Companies Regualtion Act. To that extent, I am of the opinion that the law laid down by the baove mentioned Krishnamurthy's case (AIR 1983 Andh Pra 347) and as elaborated by Indian Bank, Adoni, In Re (1984) 1 Andh Pra WR 127 stil governs the transactions of debts incurred by the Agriculturists on their loans from the banks. For that reason, I hold that S. 21-A of the Banking Companies Regulation Act cannot be constured as overriding the operation of the usurious Loans Act of 1918 as amended by the Madras Amendment Act VIII of 1937 in their application to farmers. Considering the Scope of S. 21-A would not interdict the applicability of even the Usurious Loans Act of 1918 as amended by the Madras Lamendment Act NoVIII of 1937 and that according to the interpretation palced by this court by the above mentioned decisions on the usurious Loans Act of 1918 No. VIII of 1937 still applies to the loan transactions entered by the Banks with the farmers.

Federal Distribution of Legislative Powers:-

16. So long, we have not touched upon the question of constitutional validity of S. 21-A of the Banking Companies Regulation Act. KS. 21-A is a parliamentary law. Such a law can be constitutionally valid only so long it is a law within the ambit of the leigialtive capacity of the Parliament and so long it did not violate the constitutional injuncitions conatined in the chapter on fundamental rights. So far, I have assumed that S.21-A of the Parliamentary law is constituionally valid in both respects and could therefore override the operation of the A.P. Agriculturists' Relief act of 1938 and Usurious Loans Act of 1918 with its Madras amendment. We will now have to test that assumptiuon and see whether S.21-A of the Banking Companies Regulation Act enacted by the parliament can, while carrying the meaning which the appellant Bank attributes to it as forbiddding the courts not to scale down the debts owed by the agriculturists to the banks on the ground of excessive interest, be regarded as intra vires of the legislative powers of the Parliamnet. Fundamental rights apart, S. 21-A. A can be upheld only if that section is found to be a law with respect to one of the items in List I of the seventh schedule.

17. Under our constitutional system of distribution of Legislative powers between the Union on the one hand and the States on the other, about 97 matter are listed in the Union list, also called list I, with respect to which laws can be made only by the Parliament. This legislative power of the Parliament is exclusive and paramount to the legislative power given by the Constitution to the States with respect to some 66 matters listed in the State List also called List II. Thus, notwithstanding the fact that the legislative power of the State is called 'exclusive' and extends to those 66 matters , in case of any conflict or collision between a law made by the Parliament with respect to any one or more of items enumerated in List I and any State law made with respect to any one or more of those 66 matters above mentioned, the parliamentary law will be treated as paramount. Thus any finding that S.21-A is alw iwth respect to a Union matter automatically established the supermacy of sthat law and overrides the operation of the State Law. In deciding the federal question of distribution of legislative pwoers one cannot forget this crucial fact.

18. Now in examining whether S. 21-A of Banking Companies Regulation Act is a law made with respect to any one of the matters which are listed in the Union List, we need notice only items 43, 45 and 46 of the Union List. As S.21-A does not deal even remotely with the incorporation or widing up of any banking corporation, constitutional justification of S.21-A on the basis that it was a law made with respect to Item 43 of the Union List can neither be offere nor accepted. The above observatin would apply with equal force to what I have to say on the inapplicability of Item 46 of the Union list, which authorises the Union parliament to make law with respect to Bills of exchange or promissory note or any other negotiable insturments. Sec.21-A cannot be argued, with any degree of plausibility to be a law with respect to any of the matter in the above item 46 of the Union List. These items 43 and 46 of the Union list do not fall for further consideration. The argument that s. 21-AS may be regarded as a law with respect to items 45 of the Union list cannot, in may opinion, be so summarily dismissed. Item 45 of the Union List mentions the subject matter of baking. Now the question is whether S.21-A the subject matter of which is denial of relief of agricultural in debtedness can be said to be a law with respect to Banking. 'Bankig' connotes the carrying on of an activity. In its strict and primary sense, that activity of Banking covers only receiving of moneys on current or deposit account and payment of cheques paid in by a customer. Without doubt it can be asserted that neither money lending in general nor denial of grant of relief of agricultural indebtedness in particular which is the substance of S.21-A will come within the scope of the basic meaning of the word 'Banking' in Iterm 45 of the Union list.(See Vol. 2 H.L.E. 4th Edn. And also ghe judgement of the court of appeal in United Dominious Trust v. Kirkwood (1966) 1 All ER 968). If that were all, S.21-A would not be characterised as a law with respect to the item of Banking in Union List. But the courts have attributed to the word 'Banking' an extended meaning which goes far beyond its primary meaning. Interpreting the head 15 of the enumerated classes of the exclusive federal subjects in the British North America Act, the Privy Council laid down in Attorney General for Alberta v. Attorney General for Canada 1947 AC 503: (AIR 1948 PC 194) that the word 'Banking' in that entry carried an extended meaning including grant of credit by Banks to its customers. It was on that basis the Privy Council in that case struck down 'the Alberta Bill of Rights Act' as ultra vires of the powers of the province of Alberta to enact. KThere is a similar legislative entry in S. 51(Xiii) of the Australian Constitution. The word 'Banking' int eh Australian Constitution had also received similar meaning in its extended sense. These case can be taken as authority for holding that the extended meaning of the worde Banking is accepted by courts. But the question still remains whether under our Constitution the Union Legislative entry of Banking in Item 45 can be so expansively interpreted as it was done in Canada and Australia. This question is crucial for any discussion because S. 21-A of the Banking Companies Regulation Act can be upheld as a law with respect to the Union Subject only if such a wide meaning isd given to the word 'Banking'.

19. As was said in his Modern Cosntitutions quoting Bolingbroke, 'Constitution is an assemlage of laws, institutions and customs...... that composedthe general system according to which the community has agreed to be governed'. Our Contitution has set up institutions which are appropriate for a welfare State under a socilist Republic. We have agreed to be governed by a system of federal polity. The legislative powers which have been given under that polity either to the Parliament or to the States are more in the nature of duties imposed upon the representative institutions to enact laws the people and meeting their needs. Under that system of laws and Government, the Authority to legislate upon money lending and money lenders in general and grant of relief of agricultgural indebtedness in particular is made by the Constitution as the exclusive prerogative and power and concern and responsibility of the States. To that extent, the Constitution has deliberatelyk denied power to the subject of relief of agricultural indebtedness. According to that system of distribution of legislative powers S.21-A cannot be upheld to be a law with respect to a federal subject. The fact that the word Banking recieved a wider meaning under certain constitutional systems such as Canada or Australia cannot detract from the fact that indetedness is not treated as a part of federal powers of Banking. It can be said with certainty, so far as our Constitution is concerned, that the legislative subject of agricultural indebtedness is laways treated as separate and distinct from Banking and is allotted to the exclusive jurisdiction of the reginal governments while the subject of Banking is always allotted to the Union. The unimpeachable eivdence of our Constitutional history and the relevant constitutional texts furnish convincing support for this view. Both under the 1935 Act as well as under the present Constitution, Banking is treated as a federal subject to blegislated upon by the Parliament alone. Under the 1935 Act, there was no specific item of relief of agricultural indebtedness. Under the 1935 Act there was only money-lending and money lenders as a part of item 27 of the Provincial List. Under the Draft Constitution, while retaining the item of money-lending and money lenders as a State but an independent subject of legislation it is proposed that a separate and distinct legislative item namely 'Relief of Lagriculturial indebtedness' should be added to the exclusive State list in item 34. According to that draft proposal, item 34 read as 'Money-lending and Money lenders, relief of agricultural indebtedness'. By menas of that proposal of the draft Constitution and particularly by addition of the words relief of agriculutral indebtedness the State jurisdiction to make exclusive laws on the subject of agricultural indebtedness was largely enlarged and was given a vastly enhanced status. The Idea of the amendment was to preculded the possibility of any argument being advanced to the effect that the exculsive State subject of agricultural indebtedness could be effected or touched ukpon by the excercisepf federa; power within its domain. No one in the constitutent Assembly had ever opposed this draft scheme of item 34 granting relief of agricultural indebtedness or making the States solely responsible for that. The need for wiping out agricultural indebtedness is universally accepted. The only amendment proposed by Prof. Shibbanlal Saxena sought to transfer this draft items 34 from the exclusive state list to the concurrent list so that both the Union Parliament and the State Legislatures can be held responsbile and accountable for wiping out of agricultural indebtedness. That amendment of Proof. Saxena was based on the availability of superior resources with the centre. If we thought that the task of granting relief of agricultural indebtedness is so gigantic and urgent that its tackling would require the conjoint efforts of both the national legislatures and the regional legislatures. Pof. Saxena, moving his amendment on 2nd September, 1949 said:

'This is an important amendment, I would like the House to realise the magnitude of the problem. We all want to wipe out rural indebtedness. Sir, in this connection I would like to read an extract from the people's plan for economic development of India, which runs as follow:- The other problem that will have to be tackeled along with this problem of the outmoded land tenure system, will be the problem of rural indebtedness. The toal rural indeptedness was estimated by the Central Banking Inquiry Committee, in the year 1928, at about 900 crores of rupees. Subsequent estimates have however, put the figure at a much higher level. The estimate according to the report of the Agricultural Credit Department of the Reserve bank of India in the year 1937 is about 1800 crores of rupees. It is not possible that this might have reduced to any significant extent since the year 1937, nor can the so-called agricultual boom at present be said to have prodcued very substantial reductions. The money-lender in the country dominates more in that strata of the agriculutral population which is relatively worse off.

The boom can hardly be said to have benefited that strata. On the other hand, the debt represents accumalations of decades. The debt legislation in the various province has not, admittedly, been able to touch even the firnge of the problem. We feel it necessary, therefore, that the debt should be compulsorily scaled down and then taken over by the State. Experiments made in this direction in the Province of Madras, for example, serve as a useful pointer. Under the working of the Madras Agriculturists'Relief Act of 1938 debts were scaled down by about 47 per cent and the provions of the Act an, by no logic, be characteried as drastic. In the Punjab under the operation of the Debt Conciliation Boards, debts amounting to 40 lakhs were settled for about 14 lakhs. It should, therefore, be possible and must be considere as necessary to scale down the present debts to about 25 per cent, before they are taken over by the State. Assuming the present indebtedness to amount to about Rs.1,000/- crores the debt to be taken over by the State will come to about Rs. 250/- crores.

The compensation to be paid to the rent-receiver as well as tothe usurers will thus amount to Rs.1985 crores. This should be paid in the form of self-liquidating bonds issued by the State . These should be for a period of 40 years at the rate of interest of 3 per cent and should be compulsorily retained by the State to its possession. The annual payments to be made by the State for these bonds will come to about Rs.60 crores.

On the carrying out of these initial measures will depend the success of the planned economy for raising the productivity of agriculture in the interests of the cultivators. Unless the status quo is changed in this manner there can be no hope of improvisng the standard of living of the vast bulk of our peasantry, and therefore, no hope of building up an industrial structure in the country on sound, stable and secure foundations. We are aware of the difficulties in the way of carrying out the above measures, but we are unable to see any alterantive to them whatsoever.'

It is thus obvious that if we really want to remover agricultural indebtedness, the problems cannot be solved merly by action taken by individual States. Only a comprehensive plan and its bold execution with the fullest co-operation of the Union Government with the Government of the States can solve these problems. It is therefore that I have suggested that this entry shoul be transferred to lit III.

Sir, I have tabled my amendment only with this purpose in view. I feel and I am quite convinced that we cannot change the face of our country and we cannot realise the 'India' of our dreams unless we adopt a comprehensive plan and have powers to co-ordinate the activities of the centre and the provinces. I therefore commend my amendment for the earnest consideration of the House'.

20. It is common knowledge of Indian Economic History that the burden of the witeman (which is not the same as whiteman's burden) in this country was borne principally by our agriculturists who produce the primary goods. The colonial exploitation of our country was carried on by the British mainly at their cost and expense. KSeveral official reports including those submitted by famine commissions and unofficial publications of reputed economists bear eloquent testimony to those economic facts. One of the major, pledges of the Indian National Movement is to eradicate this economic State of helplessness of the Indian agriculturists. But none had ever more forcibly described this economic tragedy of the Indian farmer than Mahatma Gandhi who in his famous statement made to an Indian Criminal court trying him for sedition. The Mahatma said:

'No sophistry, no jugglery in figures can explain away evidence that the skeletons in many villages present to a naked eye. I have no doubt whatsoever that both England and the town-dwellers of India will have to answer, if there is a God above, for this crime against humanity, which is perhaps unequalled in human history.'

21. The Constitutent Assembly rejected Prof. Saxena's amendment to transfer the item 34 to the concurrent list. The rejection of Proof. Saxena's amendment to transfer the item of relief of agricultural indebtedness to the concurrent list is a clear proof of the fact that in the view of the Constitution, the power, the responsibility and accountability for solving the problem of agricultural indtedness should not be shared by the States with the Parliament and that it should exclusively belong to the States alone. This exclusion of the subject of relief of agricultural indebtedness from the jurisdiction of Parliament must be taken to have been based upon the principle that the grant of relief of agricultural indebtedness calls for different approaches at State level. To uphold the authority of the Parliament to legislate upon the subject of grant of dennial of relief of agricultural indebtedness on the ground that the word 'Banking' would include grant of credit also would amount to destroying the above federal scheme of distribution of legislative powers carefully drawn by our Constitution. The responsibility of the State to alleviate the misery of agriculturists would be whittled down and would almost be wiped out, So long as the State laws are alllowed to be overridden by the paramount Union laws made on Banking, no State legislation enacted for the purpose of granting relief of agricultural indebtedness can either be effective or complete. It would be illogical to hold that the same Constitution which deliberately made the State responsible and accountable to relieve agricultural indebtedness has denied them the exercise of the necessary and plenary powers to legislate upon that subject of relief of agricultural indebtedness arising out of the bank loans. The Constitution could not have intended for providing for a scheme of maimed, motheaten and truncated relief of agricultural indebtedness. With the rapid changeds in the methods of agricultural operations, carrying on agriculture is becoming more and dependent upon the use of costly machinery and costlier chemical inputs and pesticides and less and less on the direct support of the mother earth and monsoon. These changes, coupled with the drastic reductions in extents of individual agricultural holdings brought about by social legislation drive the agriculturists to lean more and more on the support of the bank loans for carrying on his occupation. These considerations induce me to hold that denial of relief of agricultural indebtedness to the farmers by the Parliament would be beyond the legislative competence of the Parliament.

22. These constitutional entries intended for achieving a great social object cannot be read as if they are contained in the last will and testament of the Constitution-maker. The correct constitutional perspective is sure to elude the grasp of best of minds which, though strong in concept, are weak in vision and slow in capturing the historical truths. Our history is full of evidence of the British colonial exploitation of this country which necessitated taking of measures for providing relief of agricultural indebtedness. Examining the matter from that angle, I am led to the conclusion that the legislative subject of grant of credit to the agriculturists is treated by the Constitution to be an exclusive State subject with which the Union has no concern.

23. The Schemes of the Canadian Constitution and the Austrialian Constitution are not at all identical without constitutional scheme. No famine, no pestilence, no disease did hit the Canadian farmer or Australian farmer with the same force or frequency as they hit theIndian farmers nor did they hit them with on such a gigantic scale. The absence of the item of relief of agricultural indebtedness being mentioned as a separate and distinct item of regional jurisdiction, in those Constitutions is understandable. In the absence of such a separate enumeration in those conditions the need to subtract from the general meaning of the word 'Banking' in the federal list the specific meaning of the word's 'Relief of agricultural indebtedness' was never felt. The above mentioned Canadian and Australian decisions cannnot, therefore, in may opinion, be applied to the soultion of our constitutional problems. Although Maitland condemned unorthodox law and orthodox history, a constitutional lawyer cannot but be contemporaneous. The list derived from one page of the history of our national moverment about which our Constitution makes a speicific mention in Lart. 51-A might illumine more brightly the meaning, the purpose, the scope and the scheme of our Constitution than the entire case law of the Canadian and Australian Constitutions. Constitutional law is neither metaphysics for the constitutional scholars to dispute learnedly about nor is it revelation for the constitutional priests to gloss and annotate, Constitutional law deals with the live problems of the nation.

24. The Interpretation that might be appropriate to a statute cannot be appropriate for the interpretation of a dynamic document like the Constitution, Pfor. Powell said commenting on the decisions of the American Supreme Court on commerce, clause, 'The court has drawn its lines where it has drawn them because it has thought it wise to draw them there. The wisdom of its wisdom depends upon a judgement about practical matters and not upon a knowleged of the Constitution'. Sec. 36 H.L.R. at P. 914 where Powell was quoted by Prof. Frankfurter. I am therefore of the opinion that S. 21-A of the Banking Companies Regulation Act cannot be considered as a law with respect to the item of 'Banking' in the Union List.

25. I cannot even consider that Sec.21A can be upheld by the application of the talismanic doctrine of pith and substance. The piths and marrow of S. 21-A is denial of relief of Agricultural indebtedness. It is a direct invasion of Item 30 of the State List. To such a situation the doctrine of pith and substance can have no application. For that reason I hold that doctrine of pith and substance cannot be applied to the present discussion.

26. The right rule, in my opinion, which should be applied for the interpretation of the federal power of banking is the one laid down by the Privy Council in John Deeri Plow v. Wharton, 1915 AC 330 and Great West Saddlery v. King (1921) 2 AC 91: (AIR 1921 PC 148) preventing federal law from sterilizing or destroying the capacities and powers of the State Legislatures to grant relief of agricultural indebtedness. In that view, I am in most respectful agreement of the judgement of the Full Bench of the Madras High Court in Nagaratnam v. Seshayya, AIR 1939 Mad 361.

27. Our Supreme Court in Fatechand v. State of Maharashtra, : [1977]2SCR828 categorically declared that money lending and debt liquidation are within the State's legislative competence. It said:

'Entry 30 in List II is 'Money-lending and money-lenders, Relief of Agricultural indebtedness'. If common sense and common Enlgish are compenents of constitutional construction, relief against loand by scaling down, discharging, reducing interest on principal and staying the realisation of debts will, among other things, fall squarely within the topic. The whole gamout of money-lending and debt-liquidation is thus within the State's legislative competence.'

28. In Pathumma v. State of Kerala, : [1978]2SCR537 our Supreme Court had reiterated the above view of the item No.30 of List II.

29. Considering the fact that grant of debt relief has always been treated in our country as a 'legislative subject to be passed upon by the regional lkGovernment alone and that the words 'Relief of agricultural indebtedness' were specially added by our Constiution to enable the State Legislature to alleviate the suffering of the farmers from their agricutlural indebtedness and that the Constitutent Assembly had deliberately rejected an amendment moverd seeking to transfer this item to the concurrent list, I hold that S. 21-A of the banking Companies Regulation Act which forbide the courts from reopining the bank loans on the ground of excessive interest is not a law enacted by the Parliament with respect to the item of Banking.

In that view I consider it not necessary to discusss the doctrine of reading down.

30. I am also of te opinion that S.21-A is not consistent with the constitutional mandate of Article 14. I am of the opinion that it will not be constitutionally open for our Parliament working in a democratic socilist Republic like ours to compel the judicial organs of the State to supply unfailingly in all cases public force to collect interest on the loans advanced by money-lenders to their debtors by completely disregarding the questions relating to the harsh or unconsionable nature of the loan transaction or the excessive or extortionate rate of interest charged. This limitation would apply in particular to monopoly State institutions like the Banks. Such a law takes away some of the age-old defences open to a debtor to show that legal action instituted by creditor for the enforcement of his loan trnasaction should fail on the ground that the interest charged is usurious or excessive. It appears to me that supplying public force by the Courts for enforcing all private agrements is permissible only on the condition that the transactions sought to be enforced are basically just. Otherwise economic might will be truned with the support of State authority into jurisprudential right. In a constituional democracy, the State cannot be turned into an executive committee for the managements of the rapacious interest of the rich. An unjust transaction is often enough an unlawful transaction. Law requiring courts to enforce harsh. Unequal or unconscionable bargains providing for payment of compound interest or usurious rates of interest by depriving the debtors their right to set up traditional defences which are recognisted as available to them directly offends the mandate of Art. 14 of the Constitution. Such a law would violently disccriminate against the hapless borrowers. Law cannot, in its majestic abstraction, forget the social realities that those who are compelled to sleep under the bridges cannot be treated as equal to those who can live in palaces and that it is always necessary for our law to adopt a realistic policy of protective discrimination of the weak, the helpeless and the hapless for realising the egalitarian goals of our constitutional directives and fundamental rights. Sec. 21-A of the Banking Companies Regulation Act does not merely wink at inequality. By withdrawing legal defences traditionality. By withdrawing legal defences traditinally available to the debtores from the arena of court litigation S. 21-A actively enforces inequality. The fact that ours is the world's longest Constitution with express powers of judicial review conferred on the superior courts has heightened the responsibility of the courts for social, polictica and economic transformation of our society. Clearly the elaboration of the details in our Constitution shows that the courts are intedned to be ative vehciles of social transformation in several areas. It is for this purpose the Constitution directly confers fthe powers of judicial review on our superior courts. In may humble opinion, Parlimanent cannot derogate from this constitutional grant given to the superior courts by compelling them to enforce even unjest claims. The power to do justice is an inalienable and inserparable insignia of our constitutional courts.

31. It appears to me that a law totally banning all the courts including the constitutional courts from garanting relief to all debtors under all circumstances by disregarding the nature of the loan transactions would no, more be acceptable to our Constitution than a similar law would do to Portia's sense of justice. In this very case the debt is secured by a mortgage an yet carries a stipulation for payment of compound interest. But the transactgion cannot be reopened if S.21-A of the banking Companies Regulation act is valid and applicable. I consider such a provision of law to be nakedly arbitrary and partisan and offensive to the sense of equity and equlaity of Article 14 of the Constitution.

32. For the above reason, I dismiss this second appeal. But in the circumstances, I make no order as to costs.

33. Appeal dismissed.