1982 (3) TMI 271 - HC - Companies Law

Court rules nationalized bank's interest rates justified under Usurious Loans Act, grants relief

The court ruled in favor of the nationalized bank, holding that the civil revision petition was maintainable as it involved a question of law regarding ... - Issues Involved:1. Maintainability of the civil revision petition.2. Applicability of the Usurious Loans Act to nationalized banks.3. Interpretation of the provisions of the Banking Regulation Act, 1949.4. Rebuttal of the presumption of excessive interest under the Usurious Loans Act.5. Impact of Reserve Bank of India directives on interest rates.Detailed Analysis:1. Maintainability of the Civil Revision Petition:The preliminary objection raised by the respondents' counsel regarding the maintainability of the civil revision petition was addressed. The respondents argued that the suit, being for an amount not exceeding Rs. 3,000, should be cognizable by a Court of Small Causes and that the appeal did not involve a question of law. The court, however, found that the appeal did involve a question of law, namely, the applicability of the Usurious Loans Act to nationalized banks, which justified the appeal under Section 96(4) of the Civil Procedure Code (CPC). The court held that the appeal was rightly entertained and overruled the preliminary objection.2. Applicability of the Usurious Loans Act to Nationalized Banks:The court examined whether the provisions of the Usurious Loans Act, 1918, as amended by Tamil Nadu Act 8 of 1937, applied to nationalized banks. The Usurious Loans Act allows courts to provide relief to debtors if the interest charged is excessive or the transaction is substantially unfair. The court noted that while the Act presumes compound interest charged to agriculturists as excessive, this presumption can be rebutted by proof of special circumstances justifying the rate of interest.3. Interpretation of the Provisions of the Banking Regulation Act, 1949:The court considered the provisions of the Banking Regulation Act, 1949, which regulate the business of banking, including the rates of interest on advances. Section 21 of the Act empowers the Reserve Bank of India (RBI) to control the rates of interest charged by banking companies. The court found no inconsistency between the Banking Regulation Act and the Usurious Loans Act, as the former regulates the rate of interest on advances, while the latter provides relief from excessive interest claims.4. Rebuttal of the Presumption of Excessive Interest Under the Usurious Loans Act:The court addressed the presumption that the interest is excessive if compound interest is charged to agriculturists. This presumption is rebuttable by proof of special circumstances. In this case, the petitioner, a nationalized bank, charged interest rates as directed by the RBI. The court held that the directives and circulars issued by the RBI constitute special circumstances justifying the rate of interest charged by nationalized banks. Therefore, the presumption of excessive interest was rebutted.5. Impact of Reserve Bank of India Directives on Interest Rates:The court emphasized that nationalized banks are bound by the directives of the RBI regarding interest rates. Any deviation from these directives would attract penalties under the Banking Regulation Act. The court noted that the rates of interest charged by the petitioner bank were in accordance with the RBI's directives, which justified the rates as not being excessive or unfair. The court concluded that the Usurious Loans Act did not contemplate nationalized banks charging rates of interest as per RBI directives to be unfair.Conclusion:The court modified the decree of the lower courts and granted a decree as prayed for by the petitioner bank. The civil revision petition was allowed with costs, and the court held that the rates of interest charged by the nationalized bank, as per RBI directives, were justified and not subject to the provisions of the Usurious Loans Act.