Course of dealing can prove compound interest, and a bank may refuse cheques when an overdraft is inadequately secured.

A settled course of dealing in an overdraft account can evidence agreement to charge compound interest with monthly rests, and section 92 of the Indian Evidence Act does not exclude proof of that agreement. On the facts, the bank's long-standing practice of striking monthly balances, adding interest, and carrying forward the resulting balance supported the charge, so the decree on that claim was sustained. The bank was also justified in dishonouring two cheques because the overdraft was already insufficiently secured, the security had sharply declined in value, and payment would have improperly enlarged the bank's exposure. The counter-claim therefore failed and the decree in favour of the bank was affirmed.

---

---

Issues: (i) whether the bank was entitled to charge compound interest with monthly rests on the overdraft account; (ii) whether the bank was justified in refusing to honour the two cheques drawn by the defendants.

Issue (i): whether the bank was entitled to charge compound interest with monthly rests on the overdraft account.

Analysis: The account had for years been conducted on the basis that monthly balances were struck, interest was added, and the resulting balance was carried forward. The defendants had repeatedly accepted this course of business without objection. That conduct furnished sufficient evidence of agreement to compound interest with monthly rests. Section 92 of the Indian Evidence Act, 1872 did not bar proof of that agreement.

Conclusion: The bank was entitled to charge compound interest with monthly rests, and the decree on this part of the claim was sustained.

Issue (ii): whether the bank was justified in refusing to honour the two cheques drawn by the defendants.

Analysis: On the relevant date the overdraft was already heavily secured only by cotton whose realisable value had fallen sharply, there was practically no market, and the available security was insufficient to cover the existing overdraft. In those circumstances the bank was justified in refusing to increase its exposure by paying the cheques, particularly when it could demand repayment of the whole overdraft at any time.

Conclusion: The bank was justified in dishonouring the cheques, and the counter-claim failed.

Final Conclusion: The appeal failed in entirety, the decree in favour of the bank was affirmed, and the counter-claim remained dismissed.

Ratio Decidendi: A settled and accepted course of dealing may prove an agreement to charge compound interest, and a banker may refuse payment of cheques where honouring them would improperly enlarge an already insufficiently secured overdraft.

---