1959 (9) TMI 61 - HC - Indian Laws

Summary

Issues Involved:
1. Excessive interest under the Usurious Loans Act.
2. Relief to the appellant under the Usurious Loans Act.
3. Validity of compound interest with quarterly rests.

Detailed Analysis:

Excessive Interest under the Usurious Loans Act
The primary issue in the appeal was whether the interest rate stipulated in the mortgage deeds was excessive and thus subject to relief under the Usurious Loans Act. The appellant argued that the interest rate of 15% per annum, compounded quarterly, was usurious and should be reduced to 12% simple interest. The court referred to Section 3 of the Usurious Loans Act, which empowers the court to reopen transactions and relieve the debtor from excessive interest if the transaction is deemed substantially unfair. The explanation provided in the Act presumes a transaction to be unfair if the interest is excessive, though this presumption can be rebutted by special circumstances.

Relief to the Appellant under the Usurious Loans Act
The court examined whether the interest rate in the mortgages was excessive by considering factors outlined in Section 3(2) of the Act, such as the risk to the creditor, the presence and value of security, and the financial condition of the debtor. The court noted that the properties mortgaged were not highly valuable at the time of the loan and there was ongoing litigation affecting the title of the mortgagor, which increased the risk for the creditor. Despite these risks, the court found that compound interest with quarterly rests was excessive.

Validity of Compound Interest with Quarterly Rests
The court held that compound interest calculated with quarterly rests was excessive. It emphasized that the presence of security and its value, though not inadequate, did not justify such frequent compounding. The court concluded that while compound interest itself is not inherently usurious, the frequency of compounding is a critical factor. The court decided that 15% compound interest with quarterly rests was excessive and should be reduced.

Conclusion
The court allowed the appeal to the extent of reducing the interest rate. It held that 10% compound interest with yearly rests would not be excessive, considering the circumstances of the case. From the date of the plaint, the interest was to be calculated at 6% per annum. The court also noted that an alleged agreement between the appellant and the plaintiff regarding the discharge of the mortgages was not acted upon and did not influence the decision. The court affirmed that the provisions of the Usurious Loans Act could be availed by a transferee of the equity of redemption, a point not contested by the respondent. The appeal was allowed with no order as to costs, and a six-month period for redemption was granted.