Usurious Loans Act relief and RBI-directed bank interest: legal effect of compliance can rebut excessiveness claims.

An appeal was treated as raising a question of law because it concerned the legal effect of the Banking Regulation Act and the Usurious Loans Act on a nationalised bank's interest rate, so the objection based on Section 96(4) of the Civil Procedure Code did not apply. The text further states that the Usurious Loans Act does not control interest rates generally, but permits relief only where a transaction is excessive or substantially unfair. Compliance by a nationalised bank with binding Reserve Bank of India directives was treated as special circumstances rebutting any presumption of excessiveness, so the interest was not reopened or reduced.

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Issues: (i) Whether the appeal before the lower appellate court was incompetent under Section 96(4) of the Civil Procedure Code on the ground that no question of law arose; (ii) Whether interest charged by a nationalised bank in accordance with Reserve Bank of India directives can be reduced under the Usurious Loans Act, 1918 as a transaction of excessive interest or substantial unfairness.

Issue (i): Whether the appeal before the lower appellate court was incompetent under Section 96(4) of the Civil Procedure Code on the ground that no question of law arose.

Analysis: The challenge before the lower appellate court was not to facts alone but to the legal effect of the Banking Regulation Act, 1949 and the Usurious Loans Act, 1918 on the rate of interest charged by a nationalised bank. That question involved interpretation of law and was in fact argued as such before the courts below. The restriction under Section 96(4) of the Civil Procedure Code therefore did not bar the appeal.

Conclusion: The preliminary objection to maintainability was rejected.

Issue (ii): Whether interest charged by a nationalised bank in accordance with Reserve Bank of India directives can be reduced under the Usurious Loans Act, 1918 as a transaction of excessive interest or substantial unfairness.

Analysis: The Banking Regulation Act, 1949 places banking companies under the control of the Reserve Bank of India in respect of advances and the rate of interest on advances. The Usurious Loans Act, 1918 does not regulate interest rates but empowers courts to grant relief where a transaction is shown to be excessive or substantially unfair. In the case of loans to agriculturists, compound interest raises a rebuttable presumption of excessiveness, but that presumption can be displaced by special circumstances. Compliance with binding Reserve Bank of India circulars and directives, coupled with the statutory obligation to obey them and the penal consequences for breach, constituted special circumstances justifying the rate charged. Nationalised banks were therefore not to be treated like private moneylenders for this purpose.

Conclusion: The interest charged by the nationalised bank was not liable to be reopened or reduced under the Usurious Loans Act, 1918.

Final Conclusion: The revision succeeded, the concurrent reduction of interest was set aside, and the decree was restored in the amount claimed by the bank.

Ratio Decidendi: Interest charged by a nationalised bank in obedience to binding Reserve Bank of India directives constitutes special circumstances rebutting the presumption of excessiveness under the Usurious Loans Act, 1918.

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