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S.S.Rajalinga Raja v. A.R.M.S.Somasundara Mudaliar - S.A.(MD).No.190 of 1997  RD-TN 2761 (22 August 2007)
BEFORE THE MADURAI BENCH OF MADRAS HIGH COURT
DATED : 22/08/2007
THE HONOURABLE MR.JUSTICE P.R.SHIVAKUMAR
S.A.(MD).No.190 of 1997
S.S.Rajalinga Raja ... Appellant Vs.
A.R.M.S.Somasundara Mudaliar ... Respondent Prayer
Second Appeal filed under Section 100 of the Code of Civil Procedure against the judgment and decree dated 05.02.1996 made in A.S.No.191 of 1992 on the file of the Sub Court, Ambasamudram, confirming the judgment and decree dated 15.02.1990 made in O.S.No.355 of 1986 on the file of the Principal District Munsif Court, Ambasamudram.
For Appellant ... Mr.K.Chandrasekaran For Respondent ... Mr.P.Senthur Pandian :JUDGMENT
The defendant in the Original suit is the appellant in the second appeal. He had purchased 1.50 acres of wet land from the respondent/plaintiff on credit for a sale consideration of Rs.36,000/- in and by a Sale Deed dated 1.6.1981. As the entire sale consideration remained unpaid, on the date of sale itself, the appellant/defendant entered into an agreement with the respondent/plaintiff for the payment of the said amount with interest at the rate of 18 p.a. Some payments were made towards the discharge of the above said debt for which entries were made in the Passbook maintained by the respondent/plaintiff marked as Ex.A-1 in the suit. Since the debt was not fully discharged before 17.08.1982, a supplementary agreement came to be entered into between the parties for payment of interest at the rate of 24 p.a. from the said date. Subsequently several payments were made which are also found noted in the above said passbook. At last, claiming a sum of Rs.5,015.25 to be due as on the date of filing of the suit, the respondent/plaintiff instituted O.S.No.355 of 1986 on the file of the District Munsif Court, Ambasamudhram, praying for a decree for recovery of the said amount with subsequent interest and costs.
2. The said suit was resisted by the appellant herein/defendant claiming benefit under Usurious Loans Act, 1918 and also contending that the respondent/plaintiff was not entitled to collect compound interest and that the appellant/defendant had paid more than the amount payable even as per the contract. The appellant/defendant also made a counter claim for the recovery of a sum of Rs.7,273.82 as the amount paid by him over and above than the amount that could have been legally recovered by the respondent/defendant and interest for the excess payment. Court fee was also paid for the counter claim.
3. The learned District Munsif after framing necessary issues conducted trial, in which one witness was examined and eight documents were marked as Exs.A-1 to A-8 on the side of the plaintiff and one witness was examined and eight documents were marked as Exs.B-1 to B-8 on the side of the defendant. At the conclusion of trial, the learned trial Judge decreed the suit as prayed for and dismissed the counter claim made by the defendant by its judgment dated 15.02.1990.
4. As against the judgement and decree of the trial court, the appellant herein/defendant filed an appeal on the file of the Subordinate Judge, Ambasamudhram in A.S.No.191/1992. The learned Subordinate Judge, after hearing both sides, confirmed the judgement and decree passed by the trial Court and dismissed the appeal with costs. Hence the appellant herein/defendant is before this Court challenging the judgement of the lower appellate Court by which the judgement and decree of the trial Court stand confirmed.
5. This Court heard the arguments advanced by Mr.K.Chandrasekaran, learned counsel for the appellant and by Mr.P.Senthur Pandian, learned counsel for the respondent and paid its consideration to the same. The relevant records were also perused.
6. The appellant whose claim for scaling down in respect of the suit debt and counter claim for the refund of the amount paid, according to him, in excess of what could have been legally recovered by the respondent, were rejected by the Courts below has brought forth the second appeal. At the time of admission, two substantial questions of law were framed. They are: (1) Whether the Court below is right in coming to the conclusion that the debtor viz., the appellant, should be an agriculturist as defined under Tamil Nadu Agriculturists Relief Act to claim the benefits of Usurious Loans Act as amended by Tamil Nadu Act, 8/1937, especially when there is no such clarification prescribed under the said Act?
2) Whether the lower Court is right in refusing to reopen the transaction between the parties under Section 3 of Usurious Loans Act, 1918 applying the legal presumptions that arose under Tamil Nadu Amending Act 8/1937?
7. Admittedly, the appellant/defendant owed a sum of Rs.36,000/- being the unpaid price of the agricultural land purchased by him on 01.06.1981 from the respondent/plaintiff. On the same date they entered into an agreement for the payment of the said amount with an interest at 18 p.a. The agreement and the entries regarding payments made towards the discharge of the debt are found in the pass-book marked as Ex.A.1. As the debt was not fully discharged, a new agreement came to be entered into between the parties on 17.08.1982 for payment of interest at the rate of 24 p.a., thereafter. The above said agreements between the parties are not denied by either of them. On the other hand, it is the contention of the appellant/defendant that the contract between the parties for payment of interest at 24 p.a., is affected by the provisions of Usurious Loans Act, 1918; that the transaction should be reopened under Section 3(1) of the said Act and that the appellant should be relieved of the liability to pay interest in excess of the reasonable interest to be fixed by the Court. The further case of the appellant is that the payments already made by him exceeded the amount that could have been legally recovered by the respondent and hence the excess amount paid by him should be directed to be refunded with interest.
8. The interest is challenged as usurious on the following grounds: (i) As per Section 3(1) of the Usurious Loans Act, 1918, interest shall be presumed to be excessive because the rate of interest for unsecured debt has exceeded 18 p.a.;
(ii) As the appellant is an agriculturist, levy of compound interest itself gives rise to a presumption that the transaction is substantially unfair.
9. The appellant's contention is sought to be resisted by the respondent on the ground that the presumption to be drawn under Section 3(2) is rebuttable; that the respondent could prove all attending facts and circumstances to justify the levy of interest initially at 18 p.a. and subsequently at 24% p.a., and that the presumption in respect of agriculturists will be inapplicable in this case because, the appellant/defendant is proved to have many business other than agriculture and is deriving more income from business. In the light of the above said contentions made by either of the parties to the suit, the question: "Whether the appellant/defendant was an agriculturist and whether he could be held entitled to the benefits of the provision of Usurious Loans Act 1918?" - was framed as an issue in the suit. The learned trial Judge negatived the contention of the respondent/plaintiff that the debtor should be an agriculturist to avail the benefit of the provisions of Usurious Loans Act, 1918. However, the trial Court, on merit, held that the transaction between the appellant/defendant and respondent/plaintiff could not be reopened under Section 3 of the Usurious Loans Act, 1918 as the same, in the opinion of the trial Court, was not substantially unfair in the light of the special circumstances, even though the interest for an unsecured debt exceeded 18 per annum. But in the appeal, the learned lower appellate Judge disagreed with the said view of the trial Court and held that the debtor should be an agriculturist to avail the benefits of the provisions of Usurious Loans Act, 1918. For coming to the above said conclusion, the learned lower appellate Judge has relied on the judgment of a Division Bench of Madras High Court in "Venkataramanan and Co. Sri vs. Indian Overseas Bank" reported in 1989(2) LW 6 and cited as a precedent on behalf of the respondent/plaintiff.
10. The learned counsel for the appellant/defendant, pointing out the above said view expressed by the learned lower appellate Judge, contended that the said view was erroneous and unsustainable in law. According to the submissions made by the learned counsel for the appellant/defendant, the proviso introduced by Tamil Nadu Act VIII of 1937 amending Section 3 of the Usurious Loans Act 1918, simply makes it obligatory for the Court to presume the interest to be excessive, if compound interest is levied in case the debtor happens to be an agriculturist and the introduction of the said proviso by the amending Act could not be interpreted to mean exclusion of all other debtors from the purview of Usurious Loans Act, 1918. As rightly pointed out by the learned counsel for the appellant, the lower appellate Judge misinterpreted the judgment of the Division Bench of Madras High Court, cited supra, and thus came to an erroneous conclusion that a debtor should be an agriculturist to avail the benefits of the provisions of Usurious Loans Act, 1918. The Act is not restricted in its application to agriculturists alone. Any debtor can invoke the provision of the Act, prove the transaction to be substantially unfair and seek reopening of the transaction. The amendment introduced to Usurious Loans Act, 1918 by Tamil Nadu Act 8 of 1937 simply makes it obligatory for the Courts to presume the transaction to be substantially unfair if compound interest is levied against a debtor who is an agriculturist.
11. It is pertinent to note that it was contended before the Division Bench in "Venkataramanan and Co. Sri vs. Indian Overseas Bank" referred supra, that the debtor therein was an agriculturist and levy of compound interest by the Bank would give rise to the presumption that the transaction was substantially unfair. On facts, the Division Bench came to the conclusion that the debtor therein was not an agriculturist as defined in Tamil Nadu Agriculturists Relief Act, 1938 and hence there could be no presumption of substantial unfairness of the transaction. Of course the term "agriculturist" has not been defined in Usurious Loans Act. Hence the Division Bench applied the definition of the said term found in Tamil Nadu Agriculturist Relief Act, 1938. Only for the limited purpose of finding out whether a presumption as per the proviso/explanation could be drawn, the Division Bench has observed that the debtor should be an agriculturist. The said observation cannot be interpreted to give wider meaning to the same, say, as if it was opined that Usurious Loans Act itself was intended to be applied to the agriculturists exclusively. The view expressed by the learned lower appellate Judge that the provisions of Usurious Loans Act, 1918 were not applicable to the appellant/defendant as he was not an agriculturist as defined in Tamil Nadu Agriculturists Relief Act, 1938 (Act IV of 1938), according to the opinion of this Court, is not sound. The said view of the lower appellate Judge does not reflect correct proposition of law in this regard.
12. For all the reasons stated above, this Court hereby holds that a debtor, for invoking the provisions of Usurious Loans Act, 1918 as amended by Tamil Nadu Act 8 of 1937 need not be an agriculturist and hence the first substantial question of law framed at the time of admission of the second appeal is accordingly answered in favour of the appellant.
13. Admittedly the appellant purchased an extent of 1.50 acres of wet land from the respondent on 01.06.1981 for Rs.36,000/-. No amount was paid either before or at the time of execution of the sale deed towards sale consideration. Instead, the entire sale consideration was agreed to be paid subsequently with an interest at the rate of 18 per annum. Though fragmental payments were made upto 17.08.1982, the debt was not fully discharged by then and hence the appellant/defendant and the respondent/plaintiff entered into a further agreement for repayment of the outstanding portion of the above said debt along with an interest at the rate of 24 for the subsequent period from 17.08.1982. On seven different dates a total sum of Rs.62,000/- was paid by the appellant/defendant towards interest and principal. The details of payments are as under:
Date of Payment
Total amount paid
The payment of the above said amount is not disputed. In spite of the payment of the above said amount, the respondent/plaintiff, claiming that a sum of Rs.5,015.25 was due as on the date of plaint, filed the suit for the recovery of the said amount together with future interest and cost. The appellant/defendant resisted the suit making the following contentions: (i) The appellant/defendant, being an agriculturist, levy of compound interest by the respondent/plaintiff is per se usurious as per explanation 1 to Section 3(1) of the Usurious Loans Act, 1918 as amended by Tamil Nadu Act 8 of 1937;
(ii) Even assuming that the appellant/defendant is not an agriculturist, the provisions of Usurious Loans Act, 1918 will be applicable to him, the interest charged at the rate of 24, that too cumulative interest, should be taken as a ground for holding the transaction substantially unfair and hence he is entitled to the benefit of the provisions of the Act; (iii) Even assuming that the appellant/defendant is not entitled to the scaling down of the interest as claimed by him, the levy of compound interest by the respondent/plaintiff is against the agreed terms of the transaction; and (iv) The suit should be dismissed and his counter claim should be allowed since, according to the appellant/defendant he has paid more amount than what could have been legally recovered by the respondent from him.
14. While dealing with the first substantial question of law, this Court has held that a debtor need not be an agriculturist for availing the benefits of the provisions of Usurious Loans Act, 1918 and that for the purpose of drawing a presumption under the explanation to Section 3(2) alone, the debtor should be proved to be an agriculturist. Admittedly, the term "agriculturist" is not defined in Usurious Loans Act, 1918. The Division Bench of Madras High Court in Venkataramanan and Co. Sri's case cited supra has clearly observed that the definition of agriculturist found in Tamil Nadu Act 4/1938 should be adopted. The learned counsel for the appellant has not disputed the applicability of the said judgment to the case on hand in this regard. Therefore, it must be ascertained whether the appellant comes within the definition of agriculturist, in the light of the above said decision, so that a presumption regarding unreasonableness of the levy of interest can be drawn. Admittedly the appellant is an income tax assessee for several years. In fact income tax assessment orders for the assessment years 1977-1978 to 1981-1982 have been produced and marked as Exs.B-1 to B-4. Order of assessment of agricultural income tax for the assessment years 1981-1982, 1982-1983, 1983-1984 and 1989-1990 have been produced and marked as Exs.B-5 to B-8. D.W.1 has also admitted that the appellant was having an annual income of more than Rs.2,00,000/- from agriculture alone. The appellant also owns a market in Ambasamudram having 200 stalls. Besides, he owns a permanent cinema theatre and buildings leased out to State Bank of India and Post office. He is also a timber merchant and has got a rice mill coupe contract from 1955. As per the admission made by D.W.1, the appellant owns properties worth more than rupees sixty lakhs. Therefore, the finding of the lower appellate Court that the appellant was not an agriculturist as defined under the provisions of Tamil Nadu Act 4 of 1938, which is based on valid materials cannot be interfered with. As such, the question of drawing a presumption by virtue of the explanation appended to Section 3(2) of Usurious Loans Act, 1918 does not arise.
15. Even though a presumption under the explanation to Section 3(2) cannot be drawn in favour of the appellant, as he is not an agriculturist as defined in Tamil Nadu Act 4 of 1938, the transaction between the appellant and respondent can be subjected to a test to find out whether the same is substantially unfair capable of being reopened under Section 3(1) of Usurious Loans Act, 1918. The learned counsel for the appellant argued that the levy of interest at more than 18, that too levy of compound interest, per se amounted to substantial unfairness of the transaction. The rate of interest or the fact that compound interest was agreed to be paid alone is not enough to stamp the transaction unfair. The risk factor and all the attending circumstances also should be taken into consideration. In this case, the appellant purchased a wet land from the respondent without paying any amount in cash towards consideration. Instead he promised to pay the same with interest at the rate of 18. Subsequently since the debt was not discharged, he made a further promise to pay the same with 24 interest from 17.08.1982. Admittedly, in the land purchased by the appellant from the respondent crops can be raised twice a year. On the date of sale itself, the appellant got possession and thereafter he was deriving substantial income from the said land. Therefore, as rightly pointed out by the counsel for the respondent, the said aspect coupled with the fact that the appellant is a businessman should be taken as special circumstances justifying the transaction in which he has agreed to pay interest at more than 18 p.a. Hence the agreement between the parties for payment of interest (either simple or compound) at 24 p.a. cannot be termed substantially unfair.
16. On the other hand, the learned counsel for the appellant contended that what was agreed to between the parties was for payment of simple interest and not compound interest and that as against the agreed terms of the contract, the respondent was appropriating the payments made by the appellant towards compound interest. It is quite surprising to hear the arguments advanced by the learned counsel for the respondent that only simple interest and no compound interest was collected from the appellant as per the accounts submitted by the respondent. In fact, the right of the respondent to collect compound interest was put in issue in the suit as well as the first appeal before the Courts below and the said Courts have come to the conclusion that the appellant agreed for payment of compound interest. Despite the said fact, the learned counsel for the respondent has ventured to make such a submission in his argument before this Court. The said submission made by the learned counsel for the respondent can even be taken as an admission made on behalf of the respondent across the bar. It is true that questions of fact decided by the Courts below normally should not be disturbed by the High Court in second appeal. At the same time, when the decision of the lower Courts on the question of fact is based on misinterpretation of a document, the same will assume the character of a substantial question of law capable of being set at right in the second appeal. Reference can be made in support of the said proposition to the judgements of the Honourable Apex Court in Rev.Fr. M.S.Poulose .vs. Varghese reported in 1995 Supp (2)SCC 294 and in P.Chandrasekharan .vs. S.Kakakarajan repoted in (2007) 5 SCC 669. So also, when such a finding is perverse, the same can be interfered with in the second appeal. To say a finding perverse, it must be either based on no legally admissible evidence or that on the available evidence, no reasonable person would have arrived at such a conclusion. In this case, the contract for payment of interest is found in Exs.A-1 and A-3. It will be better to extract the relevant clause in the vernacular language itself to ascertain the intention of the parties. In Ex.A-1, the following clause is found:- "khjk; xd;Wf;F U:gha; E}w;Wf;F tl;o 1-50 (xd;W igrh Ik;gJ) tPjk; tl;o Tl;o Toa tl;oa[k; KjYk; jq;fSf;fhtJ jq;fs; Mh;lh; bgw;wtUf;fhtJ ntz;Lk; nghJ buhf;fk; je;J". The recital found in Ex.A-3 is as follows:- "U:gha; E}w;Wf;F tl;o U:.2/- ,uz;L tPjk; tl;o Tl;o Toa tl;loa[k; KjYk; nrh;j;J jq;fSf;fhtJ my;yJ jq;fs; Mh;lh; bgw;wth;f;fhtJ ntz;Lk;nghJ buhf;fk; je;J". The appropriate interpretation to be given to the above said clause shall be that the appellant had promised to repay the principal along with interest calculated at a particular rate. There is no indication in the said clause that compound interest should be paid or that the interest shall be compounded at specified intervals. Stipulation of the period of interval at which interest is to be compounded with the principal is the sine qua non of the agreement for payment of compound interest. In this case, such a stipulation is conspicuously absent.
17. Under these circumstances, this Court finds substance in the argument advanced by the learned counsel for the appellant to the effect that the Courts below misinterpreted Exs.A-1 and A-3 and thus came to the conclusion; that the agreement was for payment of compound interest and that the said finding of the Courts below is perverse, as no reasonable person would have arrived at such a conclusion in the absence of stipulation of the period of interval at which the interest is to be compounded with the principal. The said argument has got to be countenanced.
18. For all the reasons stated above, this Court comes to the conclusion that the finding of the Courts below to the effect that the contract between the appellant and the respondent was for payment of compound interest is infirm, discrepant, perverse and hence liable to be interfered with and reversed by this Court in this second appeal.
19. In view of the conclusion arrived at supra that the transaction between the parties in which the appellant had agreed to pay an interest at 18 upto a particular date and thereafter at 24 per annum, was not substantially unfair and that the contract was for payment of simple interest and not for compound interest, the statement of accounts furnished by the appellant/defendant as annexure-I to his written statement and the counter claim for the recovery of Rs.6,138.25 as excess payment with interest could not be sustained as interest. At the same time, the alternative statement of account furnished by the appellant/defendant as annexure-II to written statement has got to be accepted and sustained, as the calculation of simple interest therein is in accordance with the contract between the parties for the payment of interest. As per the alternative statement of account shown as annexure-II to the written statement, a sum of Rs.937.25 was paid in excess of what could have been legally recovered from him by the respondent. The last payment was made on 13.06.1985. From the statement of accounts furnished by the respondent/plaintiff, it is found that compound interest was calculated which is against the agreed term of the contract.
20. It is quite clear from the above said discussion that the appellant has paid and the respondent has received a sum of Rs.937.25 over and above what was legally due from the appellant/defendant. Hence the respondent/plaintiff should be non-suited for the relief of recovery of the amount claimed in the plaint. On the other hand, the counter claim made by the appellant/defendant as per the statement of accounts found in annexure-II of the written statement has got to be sustained and the appellant is to be held entitled to a decree for the recovery of the said amount. From the date of last payment, that is 13.06.1985, till the date of filing of the suit, the appellant/defendant has claimed interest at 24 (the contractual rate of interest at which interest was collected from him) which is not only reasonable but also legally sustainable. So far as the subsequent interest is concerned, this Court feels that it shall be only 6 per annum.
21. For all the reasons stated above, the second appeal succeeds. Accordingly, the second appeal is allowed and the judgments and decrees passed by the lower Courts are set aside and the original suit is dismissed. The counter claim made by the appellant/defendant is partly allowed and a decree is granted in favour of the appellant/defendant, directing the respondent/plaintiff to pay a sum of Rs.1168.38 along with the future interest on the principal sum of Rs.937.25 at the rate of 6 per annum from the date of suit till realisation. Taking into account the peculiar facts and circumstances of the case, the parties are directed to bear their respective costs.
1.The Sub Court,
2.The Principal District Munsif Court,
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