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TMI Blog1975 (3) TMI 147X X X X Extracts X X X X X X X X Extracts X X X X ..... nd maintenance of the rubber trees and for payment of jenmi dues and interest to the Chaldean Syrian Bank. The balance ₹ 90/- was to be paid as purappad. Interest at the rate of 9% per annum was fixed for arrears of purappad, if any. F. C. George transferred the rights under Exts. A-2 and A-3 to the Chaldean Syrian Bank as per Ext. A-4 dated 10-1-1951. The bank was maintaining separate accounts for the two transactions. Exts. A-5 and A-6 are the copies of the accounts. On 18-3-1965, the bank issued Ext. A-10 notice stating that consequent on the rise in Bank rate, interest would be charged at 12% per annum from 1-3-1965, in case the amount under the loan account was not paid before 31-3-1965. The assets and liabilities of the Chaldean Syrian Bank became merged in the appellant-bank with effect from 1-10-1965 as per the order, Ext. A-11 issued by the Director of Banking under Sub-sections (2) and (3) of Section 38 of the State Bank of India (Subsidiary Banks) Act of 1959. The first respondent was called upon by the appellant-bank to confirm the correctness of the amount entered in the bank accounts and the balance due on 1-10-1965 under the two transactions. Exts. A-13 and A-1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 3. (1) Notwithstanding anything in the Usury Laws Repeal Act, 1855, where, in any suit to which this Act applies, whether heard ex parte or otherwise, the Court has reason to believe,-- (a) that the interest is excessive: and (b) that the transaction was, as between the parties thereto, substantially unfair, The court may exercise all or any of the following powers, namely, may,-- (i) re-open the transaction, take an account between the parties, and relieve the debtor of all liability in respect of any excessive interest, (ii) notwithstanding any agreement, purporting to close previous dealings and to create a new obligation, re-open any account already taken between them and relieve the debtor of all liability in respect of any excessive interest, and if anything has been paid or allowed in account in respect of such liability, order the creditor to repay any sum which it considers to be repayable in respect thereof; (iii) set aside either wholly or in part or revise or alter any security given or agreement made in respect of any loan, and if the creditor has parted with the security, order him to indemnify the debtor in such manner and to su ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... turist in the Madras Amendment extracted above, is used in its ordinary dictionary sense of a person who actually follows the calling of agriculture. The case Venkata Ramanayya v. Mallikharjanadu MANU/TN/0272/1942MANU/TN/0272/1942 : AIR 1942 Mad 533 is a decision on the point. If a person has agricultural lands and looks after their cultivation, the fact that he conducts agricultural operations on a commercial scale or that he owns a rice mill will not disentitle him from claiming relief under the Usurious Loans Act and getting over the liability to pay compound interest. See Venkanna v. Muhammad Rowthar MANU/TN/0182/1943MANU/TN/0182/1943 : AIR 1944 Mad 105 and Rajayya v. Ramachandra Rao, AIR 1954 Mad 488. Though the first respondent in the instant case is described as a banker in Ext. A-1, there is no case that he was conducting banking business on the date of the document or on any subsequent date. On the other hand, Ext. A-1 to Ext. A-3 would show that the first respondent was having agricultural lands and was attending to agricultural operations. There is, therefore, no doubt that he is an agriculturist entitled to relief under the Usurious Loans Act as amended by Madras Act 8 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h is applicable to the Malabar area, the Court should presume that the interest stipulated in Ext. A-1 is excessive. 6. It is, however, argued on behalf of the appellant that the provision relating to interest in Ext. A-1 does not amount to an agreement to pay compound interest and that it is a term in consonance with the practice which prevails in banks under which to enable payment of interest on the due dates the banks would make advances to the debtor and add the sums so advanced to the principal. Reference has been made in this connection to Pazhaniappa Mudaliar v. Narayana Ayyar, MANU/TN/0210/1942MANU/TN/0210/1942 : AIR 1943 Mad 157 decided under the Madras Agriculturists' Relief Act, 4 of 1938. In that case, there was a course of dealings following an account opened in the name of the appellants-firm. Payments were made to the firm. There were both debit and credit entries each year-Interest was calculated at the rate of 12% per annum on the appellant's overdraft and deducting counter-interest at the same rate on the payments made by the appellants, the amount of the interest was entered on the debit side of the account and a balance was then struck, such balance ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ning and also the principles involved, reference may have to be made to some of the cases wherein the above referred practice has been recognised by the Courts in England. The case Inland Revenue Commrs. v. Holder (1931 (2) KB 81) arose in connection with the Income Tax Act. Under Section 36 of the Income Tax Act of 1918, a claim could be made for repayment of Income Tax upon sums paid to banks in respect of interest out of taxed profits without deduction of tax. The person by whom interest was paid was entitled to on proof of the facts to the satisfaction of the Special Commissioners, payment of tax on the amount of the interest. In the case under reference the appellants were interested in a company which had been for many years indebted to its bankers. The appellants gave guarantees to the bank to secure the company's indebtedness. In accordance with the usual custom of the bankers, interest on the amounts owing to the bank from time to time was debited half-yearly to the company's capital account with bank. Payments were made by the company into the account from time to time. On an examination of the bank accounts, it was found that interest was added at half-yearly res ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ) that is legal.On this principle, it was held in Eaton v. Bell (1821) 5 B A 34 : 3 Digest 245, 706 that bankers who, with the knowledge of, and without objection by their customers, debited them with interest with half-yearly rests in accordance with their general practice did not offend against the usury laws. This method of dealing with loan accounts, which became common from among bankers, survived the abolition of the usury laws, and is well established as the ordinary usage prevailing between bankers and customers who borrow from them and do not pay the interest as it accrues . 10. The decision in Holder's case proceeded on the footing that periodical interest must be held to have been paid when placed to the debit of the account as an additional advance by the bank for the convenience of the pbligants. This view was not accepted in Baton's case (1938) 1 All ER 786 -- Lord Maugham observed at page 799; In accordance with the usual practice of bankers in this country, the system adopted by the bank was that each half-year the accrued interest was added to the amount advanced (including therein any interest previously added to the original amount), and the total ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... than 5 per cent, per annum. It does not appear from the report what was the nature of the debt or what were the occupations of either petitioner or debtor. Lord Eldon, L.C., said, at page 224: As to the question of compound interest, it is clear, you cannot a priori agree to let a man have money for twelve months, settling the balance at the end of six months; and that the interest shall carry interest for the subsequent six months; that is, you cannot contract for more than 5 per cent; agreeing to forbear for six months. But, if you agree to settle accounts at the end of six months, that not being part of the prior contract, and then stipulate, that you will forbear for six months upon those terms, that is legal. There is here not a suggestion of payment The only question for Lord Eldon, L.C., was the supposed illegality. An antecedent (a priori) agreement for half-yearly rests and interest upon the balance would be void, but if one settles, i.e., agrees, the balance at the end of 8 months, there is nothing to prevent one from making a fresh start with the total debt, which no doubt includes interest, and agreeing to forbear from suing for the whole debt at a rate of in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ence a realisation of principal and interest. In Antony v. Mala Catholic Union Bank. (35 Cochin 542), a document stipulating for interest on lines similar to Ext. A-1 came up for consideration. The theory of an implied agreement that the bank should be considered to have made an advance to the customer at the end of each quarter, of a sum equivalent to the interest accrued within that quarter so as to enable the customer to discharge the interest pertaining to that period was not accepted. The Court remarked: That is an absolute fallacy. There is no such implied term nor is there evidence of the existence of such a term. The terms of the agreement are quite clear. What the relevant terms in the agreement amount to is this. The bank is allowed to charge compound interest with a rest of three months period. The same is the position with regard to Ext. A-1 in this case. 15. It is then argued that the first respondent having signed Exts. A-13 and A-14 confirming the correctness of the amounts as entered in the accounts of the bank has admitted his liability to pay interest at the rate stipulated in Ext. A-1 and there has been a waiver of the right if any under the Usurious L ..... X X X X Extracts X X X X X X X X Extracts X X X X
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