Bank interest directives do not bar usury relief where compounding and ancillary charges make the loan oppressive.

Reserve Bank banking directives bound banks, but they did not authorise any interest structure the lender chose. Monthly rests on secured debt were not supported by proved banking practice, and quarterly rests were also unjustified on the facts. Under the Mysore Usurious Loans Act, the Court examined the whole transaction, including compounding and ancillary charges, and found 16.5 per cent interest with monthly or quarterly rests, penal interest and service charges to be unreasonable and oppressive. Relief was therefore available, penal interest was disallowed, and the interest burden had to be reduced with only limited processing charges permitted.

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Issues: (i) Whether the mortgage deed and related loan terms permitting interest at 16.5 per cent with monthly or quarterly rests were valid in the light of Reserve Bank directives and established banking practice; (ii) whether the interest, penal interest and service charges were excessive so as to attract relief under the Mysore Usurious Loans Act, 1923.

Issue (i): Whether the mortgage deed and related loan terms permitting interest at 16.5 per cent with monthly or quarterly rests were valid in the light of Reserve Bank directives and established banking practice.

Analysis: The banking directives issued under the Banking Regulation Act had statutory force and bound banks, but they could not be treated as authorising whatever interest structure the bank chose. The evidence did not establish any universal banking practice of charging monthly or quarterly rests on secured loans. The recognised practice was at best yearly or half-yearly rests, and the directives themselves were framed to secure uniformity rather than to recognise an existing universal custom. Monthly rests on the secured debt were therefore unsupported, and quarterly rests were also not justified on the facts.

Conclusion: The impugned interest structure was not validly sustained as a matter of banking practice, and monthly rests on the secured debt were impermissible.

Issue (ii): Whether the interest, penal interest and service charges were excessive so as to attract relief under the Mysore Usurious Loans Act, 1923.

Analysis: The Usurious Loans Act required the Court to examine the whole transaction, including the security, the risk assumed by the creditor, the periods of compounding, and all ancillary charges. The Reserve Bank directives did not, by themselves, furnish special circumstances sufficient to bar scrutiny under the usury law. On the facts, 16.5 per cent with monthly or quarterly rests on a secured debt, together with penal interest and service charges, was unreasonable and oppressive. Penal interest was unauthorised because there was no express stipulation for it, while service charges could be allowed only in the limited form indicated by the Reserve Bank circular.

Conclusion: The transaction was substantially unfair to the debtor, and relief under the Mysore Usurious Loans Act was available; the rate of interest required reduction and penal interest was disallowed.

Final Conclusion: The appellant was entitled to relief against the bank's excessive and unauthorized interest charges, and the matter required fresh disposal in accordance with the reduced interest basis and the limited allowance for processing fees.

Ratio Decidendi: Reserve Bank interest directives bind banks, but they do not oust the Court's power under usury law to reopen a transaction and grant relief where the total interest burden, including compounding and ancillary charges, is excessive or substantially unfair on the facts of the case.

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