1. These two appeals arise out of the judgments and decrees passed by the learned Additional Subordinate Judge, Tirupathi, dated 31-08-1988 passed in OS No. 173 of 1984 and 207 of 1984 respectively.

2. One Mr. W.S. Sitaram, the Power of Attorney holder and the agent of the plaintiffs in the above suits filed and prosecuted the suits as against M/s Sri Laxmi Paradise (Leela Mahal), a partnership concern, and its partners the common defendants. The plaintiffs are the money lenders at Madras. The defendants for the purpose of construction of the 1st defendant theatre approached the plaintiffs on 9-11-1981 for a loan at Madras. The plaintiffs ultimately agreed to advance loans on short term basis on Hundis with interest at 2.5% per month as per the custom of lending loans at Madras. The defendantshad borrowed various amounts on various dates under different Hundis. The 2nd defendant on behalf of the firm deposited the title deeds with the plaintiffs and created an equitable mortgage in favour of the plaintiffs separately, as a security for the due repayment of the loan. As the defendants failed to repay the loan amounts despite several demands, the plaintiffs got issued registered notices through its advocate and also through its agent the said W.S, Sitaram and ultimately filed the above suits. According to the plaintiffs, the defendants are not agriculturists, therefore, they are not entitled to the benefits of Act 4 of 193 8 and Act 7 of 1977. The plea of the defendants in both the suits among various other contentions is that every subsequent Hundi was in respect of the original first transaction and whenever a renewal was made the previous one was not closed and the amount due under the first Hundi was also being added in the renewal documents, and therefore, the defendants are not liable to pay all the amounts mentioned in the plaints and are liable to pay only under the first transaction with reasonable interest at 12% per annum. The defendants denied of having created equitable mortgages.

3. The following identical issues have been framed in both the suits basing upon the respective pleadings.

1. Whether there is a privily of contract between the plaintiff and thedefendants?

2. Whether W.S. Sitaram is a proper and necessary party?

3. Whether the Hundis are not fully supported by consideration?

4. Whether there is no intention to create any equitable mortgage as a security for repayment of the suit amount?

5. Whether the defendants are not liable to pay the entire suit amount?

6. Whether the interest is exhorbitant?

7. Whether the defendants are entitled for two years time to discharge the suit debt?

8. To what relief?

At the time of trial two witnesses each were examined on this side of the plaintiffs and on the side of the defendants the third defendant was examined as DWJ in both the suits. The documents Exs.A1 to A94 and XI to X13 were marked in the first suit, and documents Exs.A1 to A118 and XI to X13 were marked in the second suit. But no documents were marked on the side of the defendants in either of the suits.

4. OS No.173 of 1984 was decreed for an amount of Rs. 1,47,700 with 24% simple interest per annum from the date of the original Hundis till the date of the suit after deducting the advance interest paid by the defendants and with subsequent interest at 6% per annum from the date of the suit till realisation. Similarly, OS No.207 of 1984 was decreed for an amount of Rs.2,54,600/- and with the same terms. A preliminary decree was passed for sale of the suit hypothecated for realisation of the amount.

5. Aggrieved by the judgments and decrees, insofar as the rate of interest is concerned, the plaintiffs-appellants filed these two appeals.

6. The leanred Counsel for the appellants contended before me that the rate of interest prevailing in the city of Madras at the relevant time as per evidence on record was 2.5% per annum. He further contended that the plaintiffs themselves borrowed the amounts at 18 to 24% interest locally so as to re-finance thesame to the defendants as reflected in the Income Tax returns. Finally, he contended that there was special circumstances that can be culled out from the facts and circumstances of the case which justify the rate of interest, and therefore, the interest is not at all usurious.

7. The learned Counsel for the respondents, on the other hand, contended that the circumstances emanating from the evidence on record would clearly show that the defendants were compelled to take the loans at 2.5% per month and therefore, the interest is excessive.

8. The points that arise for my determination in both the appeals are:

(1) Whether the transaction as between the parties thereto is substantially unfair?

(2) Whether there are special circumstances justifying the contract rate?

A common question of law and fact has been involved in both the appeals. The defendants are the same in both the matters, although the plaintiffs are different, their agent and power of attorney holder who prosecuted both the suits is the same person. Both appeals therefore can be disposed of by a common judgment.

9. Although the legal position is not new and no more res Integra, the problems In regard to the Usurious nature of loans have been cropping up time and again incessantly and are eluding any permanent criteria to be evolved, and have been baffling the minds of the Courts thereby, for they have to be decided with reference to the facts and circumstances of the individual case, it is expedient, therefore, to lay down guidelines to be followed to the extent possible with reference to the facts and circumstances of each case in order to help adjudicating the problems by the Courts effectively.

10. It necessitated the Parliament to pass the Usurious Loans Act, 1918 (for short 'the Act') so as to prevent the Civil Courts from being used for the purpose of enforcing harsh and unconscionable loans carrying interest at usurious rates. Power has been conferred on the Courts to reopen the transactions whenever the Courts had reason to believe that the rate of interest charged was excessive and consequently the transaction between the parties was substantially unfair. Section 3 of the Act envisages the reopening of the transaction and to scale down the interest. An amendment was brought to this Act by the State of Madras under Act 8 of 1937. The Madras amendment was made applicable to the State of Andhra Pradesh under Act 24 of 1961. It is apt here to extract Section 3 of the Act as applicable to the State of Andhra Pradesh for better understanding and appreciation of the point. Section 3 reads as under:

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

(i) re-open the transaction, taken 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 itconsiders to be repayable in respect thereof;

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

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

(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, injuries, fines, bonuses, premia, renewals or any other charges, and if compound interest is charged, the periods at which it is calculated and the total advantage which may reasonably be taken to have been expected from the transaction :

Provided that in the case of loans to agriculturists if compound interest is charged, the Court shall presume that the interest is excessive.

(c) In considering the question of risk, the Court shall take into account the presence or absence of security and the value thereof the financial condition of the debtor and the result of any previous transactions of the debtor, by way ofloan so far as the same were known, or must be taken to have been known, to the creditor.

(d) On 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 sofar as the same were known, or must be taken to have been known to the creditor.

Explanation :--Interest may of itself be sufficient evidence that the transaction was substantially unfair.

Section 3 of the Act as it stood unamended requires two conditions to be satisfied by the Court for reopening in a transaction, viz., (1) the interest is excessive, and (2) the transaction between the parties was substantially unfair. By reading the said provision injuxta position with the amended provision under the Madras amendment Act 8 of 1937, which is adopted by the State of Andhra Pradesh, it is obvious that the Madras Amendment has done away with the first requirement of the interest being excessive. It remains to be satisfied by the Court that the transaction being substantially unfair only in order to reopen the transaction. The explanation (1) appended to the section under the Madras Amendment incorporates a rule of evidence in the form of a presumption. If the rate of interest in the view of the Court is excessive, the Court shall presume that the transaction was substantially unfair, but such presumption may be rebutted by proof of special circumstances justifying the rate of interest. It is a presumption of law and the Court has no option but to draw the presumption. The creditor therefore must show the special circumstances for justifying the rate of interest. Sub-section (2)Clause (a) seeks to define the word 'excessive' meaning thereby the rate in excess of that rate which the Court deems it to be reasonable having regard to the risk incurred by the creditor. Clauses (b), (c) and (d) of sub-section (2) seeks to provide criteria as to when the rate of interest can be considered as excessive; as to when it can be considered that there is element of risk, and as to when it can be considered the transaction was substantially unfair. The explanation appended underneath subsection (2) says that the rate of interest may of itself be sufficient evidence that the transaction was substantially unfair. A perusal of the above provisions leave no doubt and makes it abundantly clear that it is now the obligation of the Court to consider a particular transaction as fair or unfair having regard to the criteria embodied in clauses (b), (c) and (d) the explanation appended thereunder under sub-section (2); and by drawing the presumption of law incorporated in explanation (1) appended to sub-section (1); notwithstanding the fact that the suit is heard ex parts. In other words, even though there is no contest on the side of the defendant it is the obligation of the Court to decide whether the rate of interest claimed by the plaintiffs is excessive or not. When the transaction in between the parties there to be believed to be substantially unfair is the crucial question. If the rate of interest is excessive, a presumption can be drawn that the transaction is substantially unfair. There is no hard and fast rule with reference to which the rate of interest can be said as excessive or not, it is to be decided having regard to the facts and circumstances of each case.

11. The precedents on the point laid down by various High Courts as well as the Apex Court may help in arriving at a reasonable criteria in this regard.

12. As early as in the year 1918 the Privy Council in Lala Balla Mal v. AhadShah, AIR 1918 PC 249, had an occasion to consider the prevailing rates of interest in India and held that two and half per cent per month is not unusual rate of interest in cases from India. In fact, the learned Counsel for the appellant relied upon this judgment in support of his contention that the interest as claimed by the appellants at 30% per annum is not excessive. In this judgment the provisions of Usurious Loans Act, more particularly as amended by the Madras Amendment Act have not been considered. The Court proceeded to consider Section 16 of the Indian Contract Act to see whether the contract is not necessarily unconscionable. The considerations available under Section 16 of the Contract Act are entirely different from the considerations enjoined under Section 3 of the Usurious Loans Act.

13. In Girwar Prasad v. Ganesh Lal Saraogi, AIR 1949 FC 57, it was held that in order to be entitled to the benefit ofthe Usurious Loans Act, the appellant must establish that the interest payable on the loan is excessive; and (2) that the transaction was, as between the parties thereto substantially unfair. On facts of that case it was confirmed at 12% compound rate of interest as it was not established that the rate of interest charged was in excess of the commercial rate prevailing at that time. The judgment has not considered the Madras Amendment Act.

14. The Madras High Court in Srinivasa Vardachariar v. Official Assignee, Madras, AIR 1955 NUC (Madras) 3151, was succinctly held as follows:

'The basis of jurisdiction of the Court when granting relief is that the interest is excessive and that the transaction was substantially unfair. The term excessive is a relative term. What may be excessive in one case may not be excessive in another. There is no standardrate of interest prescribed in regard to all types of loans. In considering the question of excessiveuess risk the Court must have regard to the element of risk in each case as well as the financial security or otherwise which is present in each case and the profit which the transaction would yield to the lender. It need not be pointed out that the rate of interest will be in inverse proportion to the risk and converse to the adequacy of the security. Remuneration is excessive when it goes beyond what is reasonable having regard to the risk and the circumstances generally.

Then as regards the transaction being substantially unfair, the Court must have regard to the entire admitted circumstances prevailing between the creditor and the debtor and has to find whether it is a freely negotiated contract or whether on account of taking all the necessities of the borrower, the creditor has imposed upon him harsh and unconscionable terms which the debtor had no option but to accept. In other words, was it a case of Hobson's choice with the debtor? Was it unreasonable and not in accordance with the ordinary risks of fair dealing?'

15. A Bench of this Court in V. Lakshmi Narasayajnma v. V. Achayya, AIR 1958 AP 207, for the first time considered the amended provisions of the Usurious Loans Act as applicable to the State of Andhra Pradesh. While reviewing the case law on the point it was held that no hard and fast rule could be made nor could be laid down as a broad proposition of law, as to what would be the reasonable rate of interest and what would be excessive. The Court further held that various circumstances have to be kept in view such as the facility for the creditor in realising the debt and the solvency of the debtor and other circumstances and above all the distinction has always be drawnbetween a secured loan and an unsecured loan.

16. Another Bench of this Court in G&C; Corporation v. Venkata Rama Rao, : AIR1959AP433 , again considered the effect of Madras Amendment to Section 3 of the Act and laid down the factors to be considered. This Court held that while deciding rate of interest is excessive or not, there can be no hard and fast rule, when each case has to be decided on its own merits taking into account the various factors, such as the security which the creditor obtained for the amount advanced by him, the pecuniary position of the debtor, the rate of interest prevailing at that time and the advantages which the debtor would derive from the loan. The stipulated rate of interest at 10% per annum with yearly rests held could not be regarded as an excessive one. The Court further held that before the explanation could be invoked it should be established that the interest is excessive.

17. The Apex Court in S. Varadachariar v. V. Gopala Menon, : [1967]1SCR721 , for the first time considered the provisions of Section 3 of the Act as amended by the Madras Amendment Act and held as follows:

'The net result of the above seems to be that the Court must go back to the date of the original transaction and form an opinion as to the rate of interest which would be reasonable after considering (a) the value of the security offered; (b) the financial condition of the debtor including the result of any prior transaction; (c) the known or probable risks in getting repayment; (d) whether compound interest was provided for and is so the frequency of the period of calculation of interest for being added to the principal amount of the loan.' The Apex Court ultimately confirmed the findings of the DivisionBench of the Madras High Court that 10% compound interest with yearly rests would not be excessive and the order scaling down the interest to 6% from the date of institution of suit was also upheld.

18. A Division Bench of this High Court in Godugula Lakshmi Narasimh Murthy v. Muthu Kumalli Venkala Subba Rao, 1971 (I) ALT 322, held that no hard and fast rule can be laid down as to what is a reasonable or excessive rate without reference to the several circumstances enumerated in clauses (a), (b) and (c) of sub-section (2) of Section 3 of the Act. The Bench proceeded to laid down certain test which are nothing but the reiteration of the tests as laid down by the Apex Court in Srinivasa Vardachariar v. Official Assignee's case (supra). Considering the facts of that case ultimately it was held as follows:

'The security was ample compared to the loan amounts borrowed under the several mortgages, that the creditor ran no risk at all in recovering the amounts, that no particular advantage was expected to be derived by the debtor and that the suits debts were borrowed purely for meeting the family expense, it appears that the contract rate of interest at 0-12-6 per annum with triennial rests in the case of the first and third mortgage, are excessive...'

19. Again in K. Venkata Satyanarayana v. State Bank of India, 1974 (2) APLJ 85, another Bench of this Court following the Godugula Lakshmi Narasimhamurthy v. Muthu Kumalli Venkata Subba Rao's case (supra), laid down the tests which are nothing but reiteration from its earlier judgment and that of the Apex Court. The Court proceeded further and held as follows:

'The presumption under explanation 1 to Section 3(1) arises if it is first establishedthat the interest is excessive, there can be no presumption in law that the interest charged is excessive. Before the Court can come to the conclusion that the interest is excessive it should be established that ex facie the rate of interest is excessive or that in the particular circumstances and facts of the case, the interest charged is excessive and unconscionable. The burden of establishing that the interest is excessive is on the debtor who sets up such a plea.'

20. In an unreported judgment in Garuda Shakunthala v. M/s Muppidi Automobiles, AS No.489 of 1983 and Cross-Objections dated 21-08-1985, a single Judge of this Court held as follows:

'If 36% simple interest is allowed, he more than doubles his capital within three years. In my opinion, if the rate of interest is such that becomes equal to the principal in less than five years, the rate of interest must be dubbed as unfair, leaving margin to the risk involved in that transaction. That being the case, normally interest should not be allowed to exceed 20% per annum, which means, the capital can be allowed to double in five years. Since an element of risk will be there, the maximum can be 24%. Anything more than 24% simple interest in our polity should be considered and dubbed as excessive and unfair, in my opinion.'

21. In P. Samba Murthy & Sons v. M. Krishna Rao, : AIR1981AP77 , a single Judge of this Court held as follows:

'Where the contract stipulates a particular rate of interest but provides that interest at a higher rate is payable in case of default, it can be held to be penal and not enforceable, but where the contract provides for simple interest at a particular rate and alsoprovided that, in case of default in paying the interest, compound interest is payable at the same rate from the date of default, it cannot be held to be per sepenal.'

As the defendant in that suit had failed to lead any evidence in support of the plea that the rate of interest agreed was usurious, excessive or unfair, ultimately the Court upheld the rate of interest at 12% com pound.

22. In Kanigalla Prakasa Rao v. Nanduri Ramakrishna Rao, : AIR1982AP272 , this Court held as follows:

'Having regard to the number of encumbrances on the property, viz., the charge decree in favour of the 3rd defendant and the amount to the bank from defendants 1 and 2, the learned Sub-Judge has properly invoked the provisions of the Usurious Loans Act in providing for interest at 12% till date of suit and thereafter at 6% per annum from the date of suit.'

23. In Chilamkuri Gowri ShankarRao v. Bhurugumalla Venkatappayya Sons and Company, : AIR1983AP310 , reviewing the entire case law held as follows:

'In our considered view compound interest at the rate of 12% with monthly rests stipulated under Ex.A1 is excessive and compound interest at the rate of 12% per annum on the principal sum of money borrowed under Ex.A1 from the date of execution of Ex.A1 upto the date of the suit and simple interest at the rate of 12% per annum on the principal sum of money from the date of the suit till the date of redemption as fixed by the Court with subsequent interest at the rate of 6% per annum on the principal sum of money from the date of redemption till the date of realisation would be reasonable.'

The Court further held as a principle that it cannot be laid down as a rule of law that interest above a particular rate per se was penal or excessive and whether interest is penal or excessive is always a question of fact, to be decided on the facts and circumstances of a given case.

24. In Lakshmi Narasayamma v. Bonu Satyavalhi, 1986 (1) APLJ 353, a Bench of this Court again reviewed the case law held by the Madras High Court and the Bench of this Court in K. Venkata Satyanarayan v. SBI's case (supra) and held as follows:

'It is true that the dicta in Venkata Rao v. Venkatratnam, : AIR1952Mad872 , that any rate above 12% per annum simple interest is excessive is not accepted in subsequent judgments considering the change in the market conditions and economy. We have gone through the evidence and it is not correct to say that the transaction is a commercial transaction ... and taking into account all the surrounding circumstances and the evidence on both sides and also the prevailing bank rate of interest of 17% on the date of the transaction, we are of the opinion that 20% simple interest is reasonable for the suit debt. Hence, we direct that the plaintiff is entitled to 20% simple interest from the date of contract till the date of suit and 15% simple interest from the date of suit till the date of decree and 6% simple interest from the date of decree till the date of realisation.'

25. In M. Ramachandra Reddy v. S. Rajaratnam Naidu, 1989 (1) ALT 265, a Bench of this Court again reviewed the entire case law and held as follows:

'We are, therefore, of the opinion that the award of interest @ 18% per annum compound with annual rests is usurious in the facts and circumstances of this case. The loan is a secured one. Themortgaged property is situated in Tirupathi Town, and its value has been going up enormously over the years. The plaintiff was aware of the difficult situation the 1st defendant was in... The mere circumstance that another finance firm in Tirupathi, run by 1st defendant's brother family, is charging interest at 24% compound, is no answer or justification. It is also no proof that Courts have recognised or permitted such rate of interest. Even if we agree that at the relevant time the rate of interest charged in Tirupathi Town was 18% compound with yearly rests, still it is no answer. As pointed out by the Bench of the Madras High Court, if we are to respect the clause in the contract, the very object underlying the Usurious Loans Act disappears. The facts of this case speak for themselves ... we have examined the question de nova, and we think that having regard to the facts and circumstances of the case, and having regard to the trend and the principles of the decisions of this Court and Supreme Court in the last 3 to 4 decades, the stipulated rate of interest cannot be allowed.... We direct that the plaintiff shall be entitled to interest on the principal amount at the rate of 18% per annum simple, from the dale of transaction till the date of suit. Again, from the date of suit till the date of redemption, the plaintiff shall be entitled to interest at the same rate. Subsequent to the date of redemption, however, the interest payable shall be 6% per annum on the principal amount.'

Although it has been held in some of the judgments of this Court had the burden is upon the debtor to show that the stipulated rate of interest is excessive having regard to the amended provisions of Section 3 of the Usurious Loans Act, the position seems to be otherwise. The words embodied in Section 3 'whether heard ex parte or otherwise, the Court has reason to believethat the transaction was as between the parties there to substantially unfair' make it amply clear that it is the plain obligation of the Court. Despite the fact that the defendant remained ex parts, the Court has to consider whether the rate of interest stipulated is usurious or not, having regard to he criteria embodied in sub-section (2)(a) to (d) and the explanation appended thereunder and by raising the necessary presumption under explanation I to subsection (1) of the Act. Further more, the explanation added underneath sub-section (2) shows that the interest may of itself be sufficient evidence that the transaction was substantially unfair. A perusal of the judgment of the Apex Court which says that the Court must go back to the date of original transaction and form an opinion, as to the rate of interest which would be reasonable after considering the criteria laid down therein is suggestive of the proposition that it is the obligation of the Court. At any rate, the Supreme Court did not lay down as a principle that the burden is upon the debtor to show the excessive nature of the interest. Therefore, the Court has to consider primarily the stipulated rate of interest so as to come to the necessary conclusion subsequently that rate of interest is excessive or not. White doing so, the Court has to consider the prevailing rate of interest at the relevant time and the amounts charged or paid whether in money or in kind towards expenses, renewals or any other charges etc., and if compound interest is charged, the periods at which it is calculated and simultaneously the Court should also consider the risk factor in the point of view of the creditor and the presence or absence of the adequate security for the due repayment of the loan. The Court should further consider the circumstances that materially effect the relations of the parties at the relevant time of the loan including the necessities of the debtor at the relevant time, known to the creditor.

26. Having regard to the plethora of decisions, some of which are referred to supra, the following guidelines are discernible from the conspectus of the above precedents for the guidance of the Courts, thus:

(1) The Court must go back to the date of the original transaction and form an opinion as to the reasonable rate of interest;

(2) The Court should consider as to whether the stipulated rate of interest in a given case is excessive;

(3) The Court shall take into account any amounts charged or paid whether in cash or in kind towards expenses, renewals, enquiries or any othercharges, etc.;

(4) If the compound interest is charged the Court shall consider the frequency of the charge of calculation of interest for being added to the principalamount of the loan;

(5) Whether it is a secured or unsecureddebt;

(6) The adequacy of the security offered;

(7) The financial condition of the debtor including the result of any prior transaction;

(8) the known or probable risks in getting repayment of the debt, in the point of view of the creditor;

(9) The purpose for which the loan was contracted viz., whether it is commercial or personal purposes or for discharging the other earlier debts;

(10) The relation in which the creditor stood to the debtor and the necessities of the borrower known to the creditor.

(11) The cumulative effect of these and other circumstances emanating from the evidence on record in a given case to enable the Court to come to a conclusion that the rate of interest charged is excessive, and consequently the transaction between the parties is substantially unfair;

27. Although the issue regarding the transaction being substantially unfair is a question of fact and no hard and fast rule can be laid down in regard thereto, there is nothing wrong in giving certain plausible guidelines with reference to which the Court can arrive at an effective conclusion. Ultimately to come to a conclusion about the reasonable rate of interest, the Court shall consider the criteria as reflected in Clauses (a) to (d) of sub-section (2) of Section 3 of the Act with reference to circumstances of a given case. If the Court is able to assess the reasonable rate of interest having regard to the facts and circumstances of a given case, the Court can draw the necessary presumption of substantially unfair nature of the transaction. To rebut the said presumption, the creditor has to show special circumstances and those special circumstances must be such as reflected in Section 3 of the Act. The Court shall also draw the necessary presumption that in case of loans to agriculturists if compound interest is charged that the interest is excessive. The guidelines enumerated above are the outcome of the various judgments which elucidated the relevant provisions embodied in Section 3 of the Act.

28. Keeping in view the criteria emerging out the above discussion, the evidence on record is to be appreciated. The appellants have been carrying on money lending business at Madras. The respondents for the purpose of constructing a Cinema theatre at Tirupathi had to borrow various amounts from the appellants. The respondents could not secure any loanat Tirupathi and therefore they had to approach the appellants at Madras. The respondents borrowed the amounts under various hundis and used to renew the debts after taking return of the cancelled hundis. The contract rate of interest is 2.5% per month. The prevailing rate of interest at Madras at the relevant time was 2.40% per month. The respondents used to pay the interest at the time of renewal of the debts at the contract rate of interest of 2.50% per month. The respondents borrowed several amounts for the same purpose and several suits were filed against them for realisation of the amounts in OS Nos.116 of 1984, 170 of 1984, 172 of 1984, 174 of 1984, 205 of 194, 207 of 1984, 173 of 1984, 206 of 1984 and 111 of 1985 in various Courts at Tirupathi. These facts are clearly discernible from the oral evidence on records. Although several pleas were taken by the respondents while resisting the claims of the appellants, the controversy seems to have boiled down ultimately to the rate of interest payable alone.

29. The purpose for which, the loan was taken was for constructing a Cinema theatre. It is obvious, therefore, the respondents wanted to run business by screening motion pictures and therefore the transaction is commercial in nature. Now, in view of the findings of the Court below an equitable mortgage has been created by depositing title deeds. Therefore, the debt of the plaintiff/appellants has been adequately secured. The rate of interest as stipulated is 30% per annum. By the time of transaction i.e., during year 1984 the Courts have not upheld such rate of interest even in cases of unsecured debts. Since the debt in this case is a secured debt more so adequately under an equitable mortgage the risk involved is less. The learned Counsel for the appellants submitted at this juncture, that the respondents have no creditworthiness at Tirupathi, the place of their residence, and therefore they had to approach the plaintiffs/appellantsat Madras. It is his further contention that the respondents are in full of debts and number of suits have been filed against them. But the evidence of DW1 shows that they have entered into an agreement of sale for the sale of theatre for Rs,27.25 lakhs. It has been suggested to him in the cross-examination that the theatre with its equipment was estimated at more than 91 lakhs by the Income Tax Department. Having regard to the value of this asset and having regard to other properties which are under equitable mortgage it cannot be said, despite the fact that number of suits have been filed against the respondents for realisation of the loan amounts, that the respondents have been in financial troubles. The element of risk can, therefore, safely be excluded. All this is without considering liquid assets.

30. The necessity for obtaining the loan can be seen from the very fact that the respondents wanted to construct a cinema theatre and the construction was half way and the equipment for the theatre was to be acquired. The fact that they had to rush to Madras itself is an indicia of the dire necessity. The respondents had been paying the interest periodically every time when they were renewing Hundis at the rate of 30 per cent. The evidence discloses that each Hundi has been renewed three or four times. The interest claimed in the suit as part of the suit amount is after deducting the interest amount already paid time to time by the respondents. The circumstances that led to renew the Hundis time and again, which varies from two to four times, show that the respondents were in need of the amounts and as the construction of the theatre was not completed and it did not yield any dividends, repayment of the loan could not be made and that forced the respondents to oblige to pay the interest at the stipulated rate. That will also show the relation in which the plaintiffs stood to the defendants, in other words, the dominating position of the creditors qua the debtors. Asdiscussed by me supra, the risk point has been taken care of by the creditors by obtaining equitable mortgage of the site under which the cinema theatre was constructed and the house property of the second respondent. The rate of interest being 30% was unusual in the year, 1980 or 1981. It might be, that in Madras, the prevailing rate was 2.40% at the relevant time on Hundis, but it has not been uniform through out the country. This rate of interest per se attributes unfairness. The circumstance that when the respondents requested for a long term loan the appellants advanced only short term loan and that too collecting the interest in the first instance shows the dominating position of the creditors and excludes at the same time the element of risk. The cumulative effect of all these considerations would reasonably tend to show that the stipulated rate of interest is 'excessive' and consequently the transaction was substantially unfair and it is a fair case where the presumption can be drawn. To rebut this presumption the special circumstances are needed to be shown. The learned Counsel for the appellants has sought to contend that the fact that the respondents could not raise any loan at Tirupathi and had to rush to Madras, the fact that the prevailing customary rate of interest at Madras at the relevant time was 30% per annum, the fact that the respondents were in need of money for construction of theatre are sufficient enough to show that the transaction was not substantially unfair. But the said contention cannot be countenanced for the reasons already discussed supra.

31. The learned Counsel for the appellants further submitted that the rate of interest being a contractual rate, and the nature of the transaction between the parties is commercial in nature and as the debts have been contracted upon various hundis which are coming within the purview of Bills of Exchange, Section 79 of the Negotiable Instruments Act applies and therate is payable on the principal amount under that section as per the contract rate. The provisions of Negotiable Instruments Act cannot have any overriding effect over the provisions of Usurious Loans Act. On the other hand, the provisions of the Act have the over riding effect and apply to any transaction. The learned Counsel for the respondents relied upon a judgment of the Allahabad High Court in Sheobans Rai v. Shah Madho Lai, AIR 1931 All. 662, says that Section 79 of the Negotiable Instruments Act does not exclude the jurisdiction of Court under Usurious Loans Act, 1918. Perse the stipulated rate of interest at 30% per annum appears to be excessive having regard to the period at which the loan was taken i.e., in the year 1981. As per the explanation under sub-section (2) of Section 3 of the Usurious Loans Act this rate affords sufficient evidence to come to a conclusion that the rate of interest is excessive. Aforliori, given the peculiar circumstances emanating from the record, as discussed by me supra, the interest can certainly be concluded as excessive. It is a clear case, therefore, the presumption that the transaction was substantially unfair can be drawn. No special circumstances as reflected from the provisions of Section 3 of the Act can validly be culled out in this case so as to rebut the presumption. For the above reasons it cannot be said that the judgment and decree passed by the Court below are erroneous and warrant interference.

32. In the result, both the appeals fail and they are dismissed accordingly. Under the circumstances, no order as to costs.