1966 (10) TMI 163 - SC - Indian Laws

Supreme Court Affirms Interest Rate Reduction on Mortgages

SRINIVASAVARDACHARUR AND ORS Versus GOPALA MENON AND ORS.

SRINIVASAVARDACHARUR AND ORS Versus GOPALA MENON AND ORS. - 1967 AIR 412 1967 SCR (1) 721 Issues:1. Rate of interest payable in mortgages executed between 1936 and 1938.Detailed Analysis:The main issue in this appeal before the Supreme Court was the rate of interest payable in four mortgages executed between March 20, 1936, and January 2, 1938. The trial Judge and the Bench of two Judges in appeal both agreed that the interest provision in the mortgages needed to be reduced. The trial Judge reduced the rate to 15% compoundable with yearly rests, while the appellate Judges reduced it further to 10% compound interest with yearly rests, also scaling down the rate to 6% from the date of the suit's institution. The creditor appealed, arguing against the reduction of the interest rate by the Division Bench of the Madras High Court.The power of the court to reduce interest in such cases is derived from the Usurious Loans (Madras Amendment) Act VIII of 1937. The Act empowers the court to provide relief if the transaction is deemed substantially unfair. The court must consider various factors to determine if the interest is excessive, including the risk incurred by the creditor, security offered, financial condition of the debtor, and previous transactions. The court must assess the reasonableness of the interest rate based on these factors.The facts of the case revealed that the original mortgagor was in debt, and her properties were vested in the Official Assignee after being adjudicated insolvent. The appellate bench considered the risks faced by the creditor, the value of the security, and the circumstances of the loan transaction. They concluded that 15% compound interest was excessive and settled on 10% compound interest with yearly rests as justifiable. The Madras High Court's previous judgments indicated that interest rates above 12% per annum simple were considered excessive in similar cases.The Supreme Court upheld the Division Bench's decision, agreeing that 10% compound interest with yearly rests was fair given the circumstances. The security was deemed adequate, and the threat of a lawsuit by the debtor's brother was not considered significant. The court also upheld the scaling down of the interest rate to 6% from the date of the suit's filing, exercising discretion regarding interest pendente lite. The Court refused to interfere with the High Court's decision, considering the substantial interest already accrued on the loans since their execution in the 1930s.In conclusion, the Supreme Court dismissed the appeal, affirming the Madras High Court's judgment on the interest rates in the mortgages and the scaling down of the rates, with costs awarded to the respondents.