Special statute status and usurious loan interest rules: nationalised bank treated as corporate, but compound interest found excessive.

A nationalised bank constituted under the banking nationalisation statute was treated as a body corporate created by special Indian law, so the agriculturists' debt relief enactment did not apply against it. The same decision noted that interest at 11 1/2 per cent per annum with half-yearly rests amounted to compound interest, and in agriculturists' loan matters the Usurious Loans Act raises a presumption that such charging is excessive unless rebutted by special circumstances. As no rebuttal evidence was produced, the compound interest was held excessive, and only simple interest at 11 1/2 per cent up to suit and 6 per cent thereafter was accepted.

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Issues: (i) Whether the nationalised bank was a corporation formed in pursuance of a special Indian law and therefore outside the protection of the agriculturists' debt relief enactment; (ii) whether the compound interest charged on agriculturists' loans was excessive under the Usurious Loans Act.

Issue (i): Whether the nationalised bank was a corporation formed in pursuance of a special Indian law and therefore outside the protection of the agriculturists' debt relief enactment.

Analysis: The relevant provisions of the banking nationalisation statute showed that corresponding new banks were constituted on the commencement of the Act, were made bodies corporate with perpetual succession and a common seal, and were vested with the undertaking of the existing banks. The statutory scheme also treated references to the existing bank as references to the corresponding new bank, and conferred powers of management, property holding, litigation, and controlled dissolution. These features established that the bank was created by the statute and not merely continued as the old pre-existing entity.

Conclusion: The bank was a corporation formed in pursuance of a special Indian law, and the agriculturists' debt relief benefit under that enactment was unavailable against it.

Issue (ii): Whether the compound interest charged on agriculturists' loans was excessive under the Usurious Loans Act.

Analysis: The loans carried interest at 11 1/2 per cent per annum with half-yearly rests, which amounted to compound interest. Under the Usurious Loans Act, as amended, compound interest charged to agriculturists raised a presumption of excessiveness and substantial unfairness. That presumption could be rebutted by proof of special circumstances, but no evidence was led by the bank to displace it. The Court therefore held the compound rate to be excessive and accepted 11 1/2 per cent simple interest as reasonable.

Conclusion: The compound interest was excessive, and the bank was entitled only to simple interest at 11 1/2 per cent from the date of borrowing until suit and at 6 per cent thereafter till realisation.

Final Conclusion: The appeals succeeded only to the extent of reducing the contractual interest and modifying the mortgage decrees accordingly, while the challenge to the agriculturists' relief defence failed.

Ratio Decidendi: A bank constituted as a body corporate by a special statute is a corporation formed in pursuance of a special Indian law, and in agriculturists' loan disputes compound interest charged without rebuttal evidence may be treated as excessive under the Usurious Loans Act.

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