Andhra Pradesh High Court - Amravati
Vandrasi Satyanarayana vs Banka Ammajamma on 19 November, 2024
APHC010325902009
IN THE HIGH COURT OF ANDHRA PRADESH
AT AMARAVATI [3369]
(Special Original Jurisdiction)
TUESDAY, THE NINETEENTH DAY OF NOVEMBER
TWO THOUSAND AND TWENTY
TWENTY-FOUR
PRESENT
THE HONOURABLE SRI JUSTICE T
T. MALLIKARJUNA RAO
APPEAL SUIT NO: 602/2009
Between:
Vandrasi Satyanarayana ...APPELLANT
AND
Banka Ammajamma and Others ...RESPONDENT(S)
Counsel for the Appellant:
1. NARASIMHA RAO GUDISEVA
Counsel for the Respondent(S):
1. VENKAT CHALLA
The Court made the following JUDGMENT:
1. The Appeal, under Section 96 of the Code of the Civil Procedure, 1908
(for short, 'C.P.C.'), is filed by the Appellant/
Appellant/Plaintiff challenging the decree
and Judgment, dated 09.06.2009 in O.S.No.05 of 2006 passed by the learned
IV Additional Senior Civil Judge (Fast Track Court), Vijayawada,, (for short, the
'trial court').
2. The appellant herein is the Plaintiff, who filed the suit in O.S.No.05
O.S.No. of
2006 for recovery of Rs.
Rs.3,67,333/- being the amounts due under four
promotes jointly executed by the defendants in fa
favour
vour of the Plaintiff for
Rs.50,000/- each and repay the same with interest at 24% per annum and for
costs of the suit and the defendants also created an equitable mortgage in
respect of the plaint schedule property on 22.06.2002.
3. Referring to the parties as they are initially arrayed in the suit is
expedient to mitigate any confusion and better comprehend the case.
4. The facts leading to the present Appeal, in a nutshell, are as under:
(a) The 1st defendant is the mother of defendants 2 to 4, and they
constitute a Hindu Joint family. The defendants jointly requested
the Plaintiff for a loan of Rs.2,00,000/- for family expenses, which
the Plaintiff agreed to provide at 24% compound interest per
annum, on the condition that immovable property free of
encumbrances would be offered as security. The Plaintiff
disbursed the loan in instalments, Rs.50,000/- on 21.02.2002,
Rs.50,000/- on 16.03.2002 and Rs.50,000/- on 16.05.2002 and
Rs.50,000/- on 19.06.2002. In return, the defendants executed
four separate demand promissory notes in favour of the Plaintiff.
On 19.06.2022, the defendants deposited documents relating to
their joint family property with the Plaintiff, intending to create an
equitable mortgage. On 22.06.2002, they executed a
memorandum of deposit of title deeds, confirming the loan and
the creation of the mortgage over the schedule property.
(b) On 16.11.2004, defendants 1 and 2, on behalf of themselves and
defendants 3 and 4, made a part payment of Rs. 2,000/- towards
the loan amount under the suit promissory notes. They
acknowledged the remaining mortgage debt by making part
payment endorsements on the reverse of the promissory notes.
Despite repeated demands, the defendants failed to repay the
balance. On 27.06.2005, the Plaintiff issued a legal notice for
repayment, but the defendants responded with a reply notice on
08.08.2005, making false and vexatious allegations instead of
settling the debt.
5. The 2nd defendant filed a written statement, which was adopted by
defendants 1, 3 and 4, refuted the plaint averments and contended that they
approached the Plaintiff for a loan. In response, the Plaintiff demanded the
defendants to execute promissory notes in his favour and deposit property title
deeds as security. The defendants claimed that they handed over the title
deeds following the Plaintiff's instructions, and the Plaintiff obtained their
signatures on several blank promissory notes and other papers. However, the
Plaintiff did not provide the loan amounts as agreed. Instead, Plaintiff told the
Defendants that he did not have the funds and would withdraw the money
from his bank account. The Defendants, believing the Plaintiff's version,
returned the next day to receive the loan, but the Plaintiff continued to delay
the payment. The Defendants also requested that the documents be returned,
but the Plaintiff refused.
6. Based on the above pleadings, the trial Court framed the following
issues:
(1) Whether the suit promotes are true, valid, supported by consideration
and binding on defendants?
(2) Whether the Plaintiff is entitled to recover the suit amount from the
defendants?
(3) To what relief?
7. During the trial, on behalf of the Plaintiff, P.Ws.1 to 3 were examined
and marked Exs.A.1 to A.20. On behalf of the Defendants, D.Ws.1 to 3 were
examined, and no documents were marked.
8. After completing the trial and hearing the arguments of both sides, the
trial Court dismissed the suit. Aggrieved the same, the Plaintiff preferred the
present Appeal.
9. During the pendency of the Appeal, the sole appellant died. As per the
order dated 16.09.2022 in I.A.No.1 of 2021, the Legal Representatives of the
1st appellant were brought on record as appellants 2 to 8.
10. Sri Narasimha Rao Gudiseva, learned counsel for the Appellant/
Plaintiff, asserts that the trial Court failed to correctly interpret the pleadings.
He pointed out that the defendants did not deny signing the exhibits but only
disputed the consideration. The trial Court's findings that Exs.A1, A2, A3, A5
and A7 were not true, valid and supported by consideration were incorrect. It
was the defendant's responsibility to prove that no consideration was passed
to them, as they admitted executing the promissory notes and making the
endorsements but denied the consideration. Further, he contended that the
trial Court wrongly held that the suit promissory notes were barred by
limitation. He emphasized that based on the pleadings, the only issue for
consideration was whether the consideration had been provided under the
promissory notes. Since the Defendants did not discharge their burden or
rebut the presumption of consideration, the trial Court erred in deciding the
issues against the Plaintiff, contrary to the well-established legal principles.
11. Per contra, Sri Venkata Challa, learned counsel appearing for the
Respondents/Defendants, contends that the trial Court correctly appreciated
the case facts and reached a correct conclusion. The reasons given by the
trial Court do not require any interference.
12. I have heard learned counsel appearing on behalf of the respective
parties at length and have gone through the Judgment and findings recorded
by the learned trial Court while dismissing the suit. I have also re-appreciated
all the evidence on record, including the deposition of relevant witnesses
examined by both sides.
13. Concerning the pleadings in the suit, the findings recorded by the Trial
Court and in light of the rival contentions and submissions made on either side
before this Court, the following points would arise for determination:
1) Is the Trial Court justified in dismissing the suit by holding
that the Plaintiff failed to establish the execution of the
promissory note by the defendants and the suit is barred
by limitation?
2) Whether the Plaintiff is entitled to claim interest at 24% per
annum with compound interest?
3) Does the trial Court judgment need any interference?
POINT NOs.1 to 3:
14. The trial court mistakenly treated the suit as one based solely on the
promissory note, overlooking that the Plaintiff's case also involved the creation
of an equitable mortgage on the plaint schedule property on 22.06.2002. The
trial court applied the incorrect limitation period of three years, which led to the
dismissal of the suit on the grounds of limitation. The trial court appears to
have overlooked the pleadings and documents presented by Plaintiff,
including admissions in the written statement and the evidence of D.W.1 and
D.W.3, who acknowledged their signatures on the promissory notes and part
payment endorsements. Instead, the trial court focused on minor
discrepancies in the Plaintiff's witnesses' evidence, wrongly placing the
burden on the Plaintiff to prove his case despite the defendants not disputing
their signatures on the promissory notes and endorsements.
15. The trial court failed to frame appropriate issues that addressed the key
points of contention raised by both parties. Despite this, both parties
presented evidence in support of their claims. However, the trial court
proceeded to determine the suit without fully understanding the nature of the
dispute, neglecting to consider the pleadings and documents submitted by
both parties.
16. By a series of decisions of the Hon'ble Supreme Court, it has been
settled that omission to frame an issue as required under Order XIV, Rule 1 of
CPC, would not vitiate the trial in a suit where the parties went to trial fully
knowing the rival case and led evidence in support of their respective
contentions and to refute the assertions of the other side vide Nedunuri
Kameswaramma V. Sampati Subba Rao 1 . In Sayeda Akhtar V. Abdul
Ahad 2, the Hon'ble Supreme Court held that even if no specific issue has
been framed, if the parties were aware of that issue and had provided
evidence, the Appellate Court should not interfere with the trial Court's
findings. A similar view was taken in Kali Prasad v. M/s. Bharat Coking Coal
Ltd.3, in para 18 that:
"It was, however, urged for the appellant that there is no proper
pleading or issue for determination of the aforesaid question and the
evidence let in should not be looked into. It is too late to raise this
contention. The parties went to trial knowing fully well what they
were required to prove. They have adduced evidence of their choice
in support of the respective claims. That evidence has been
considered by both Courts below. They cannot now turn round and
say that the evidence should not be looked into. This is a well
accepted principle."
17. Although the trial court failed to frame appropriate issues and decided
the case as if the suit was based solely on promissory note transactions,
without considering the creation of an equitable mortgage in favour of the
Plaintiff, both parties had adduced evidence with full knowledge of the nature
of the transaction.
18. In light of the principles established in the cited decision, I believe this
Court should avoid adopting an overly technical approach simply because the
trial court failed to frame appropriate issues. Taking such a technical view
would likely result in remitting the matter to the trial court for a fresh decision,
which would only cause unnecessary delays. Therefore, the matter is to be
decided based on the evidence presented by both sides, following the settled
legal position.
AIR 1963 SC 884
AIR 2003 SC 2985
AIR 1989 SC 1530
19. At this stage, it is essential to consider the pleas made in the written
statement. The 2nd defendant explicitly stated that the defendants
approached the Plaintiff to arrange a loan, and in response, the Plaintiff
required them to execute promissory notes in his favour and deposit their
property title deeds as security. The defendants handed over the title deeds,
and the Plaintiff obtained their signatures on several blank promissory notes
and papers. However, the Plaintiff did not disburse the agreed loan amount.
This admission in the written statement confirms that the defendants
acknowledged their signatures on the promissory notes and other documents
intended to create an equitable mortgage for the loan.
20. Furthermore, the relationship between the parties, as outlined in both
the plaint and written statement, remains undisputed. The 1st defendant, the
mother of defendants 2 to 4, constituted a Hindu Joint Family. To support his
claim, the Plaintiff (PW1, V. Satyanarayana) testified that the defendants
jointly borrowed a total of Rs. 2,00,000/- from him on different dates: Rs.
50,000/- on 21.02.2002, Rs. 50,000/- on 16.03.2002, Rs. 50,000/- on
16.05.2002, and Rs. 50,000/- on 19.06.2002. On each occasion, the
defendants executed the respective promissory notes (Exs.A1, A3, A5, A7).
PW1 further testified that the defendants deposited documents related to the
title of the schedule property to create an equitable mortgage. In support of
this, the Plaintiff relied on Ex.A9, a Patta in favour of Banka Guruvulu (father
of the 2nd defendant), Ex.A10 (Patta issued in favour of D.2), and Exs.A12
and A13 (ECs related to the schedule property). Additionally, the Plaintiff
stated that the defendants executed a Memorandum of Deposit of Title Deeds
in his favour. To prove that he sent a legal notice, Plaintiff submitted Ex.A15
(office copy of the notice), along with Ex.A16 to A19 (postal
acknowledgements showing service of the notice on defendants 1 to 4). The
Plaintiff also placed Ex.A20 on record, which is the defendant's reply notice.
21. PW1 testified that on 16.11.2004, the 1st and 2nd defendants, on
behalf of themselves and defendants 3 and 4, made a part payment of
Rs.2,000/- under each of the above-mentioned promissory notes. The part
payment endorsements were marked as Exs.A2, A4, A6, and A8. During
cross-examination of PW1, it was revealed that the part payment
endorsement was written by the 2nd defendant, with no corrections or
overwriting in the content. The endorsements were made at the house of B.
Appa Rao.
22. Plaintiff also examined PW2 (P. Satyanarayana Rao), who corroborated
Plaintiff's version by testifying that the 1st and 2nd defendants made part
payments, as evidenced by the part payment endorsements. PW2 stated that
the 1st defendant affixed her thumb impression, and the 2nd defendant
signed the part payment endorsement. However, the part payment
endorsements do not indicate that the payments were made on behalf of the
other defendants as well.
23. PW3 (B. Srinivas Rao) supported the Plaintiff's case by confirming that
all the defendants jointly borrowed amounts covered by the promissory notes,
executed the promissory notes, and deposited the title deeds with the Plaintiff.
The testimonies of PWs.1 to 3 were consistent regarding the execution of the
promissory notes, part payment endorsements, and the Memorandum of
Deposit of Title Deeds. However, the trial court rejected the evidence of
PWs.1 to 3 based on minor discrepancies. For instance, PW3's evidence was
disbelieved on the ground, and though he clarified that the promissory notes
were typed, he could not recall the scribe's name. Similarly, the trial court
observed that PW2's evidence was inconsistent with that of PWs.1 and 3,
though it failed to specify the inconsistencies. Upon reviewing PW2's
testimony, this Court finds that his inability to recall the part payment
endorsements' date is insignificant. Given that PW2 was merely a witness to
the transaction and did not have custody of the documents, it is
understandable that he would not remember the dates, significantly as he
testified nearly five years after the transaction. Therefore, the discrepancy
regarding the dates should not detract from his credibility.
24. This Court views that normal discrepancies in the evidence are those
which are due to normal errors of observation and normal errors of memory
due to lapse of time. It must also be borne in mind that a parrot-like deposition
after a long lapse of time smacks of tutoring, and some differences, in fact,
advance the credibility of the witnesses. The witnesses are not expected to
remember every tiny detail of the transaction, and it is relevant to note that
PWs.1 to 3 had given evidence five years after the transaction under Ex.A.1.
The Court must cull out the nuggets of the truth from the evidence unless
there is a reason to believe that the discrepancies or inconsistencies are so
glaring as utterly to destroy the confidence in the witnesses.
25. No true witness can escape from making some discrepant details.
Perhaps, an untrue witness who is well tutored can successfully make his
testimony non-discrepant. However, courts should bear in mind that it is only
when discrepancies in the evidence of a witness are so incompatible with the
credibility of his version that the Court is justified in jettisoning his evidence. A
witness is usually considered independent unless he or she springs from
sources likely to be tainted. This generally means unless the witness has
cause, such as enmity against the other party. Nothing is elicited in the cross-
examination of PWs.2 and 3 to establish the existence of such enmity or
grudge against the defendants.
26. The evidence of PWs.1 to 3 is consistent regarding the execution of the
promissory notes by the defendants, the part payment endorsements made
by defendants 1 and 2, and the Memorandum of Deposit of Title Deeds
executed by the defendants. As noted earlier, the defendants have specifically
admitted that these documents bear their signatures, as claimed by the
Plaintiff. Therefore, the consistent testimony of PWs.1 to 3 supports the
Plaintiff's case regarding the execution and endorsement of the relevant
documents. As a result, the burden shifted to the defendants to prove the
circumstances under which they executed the promissory notes, including any
claims regarding the absence of consideration or other defences.
27. In Bharat Barrel and Drum Manufacturing Company, V. Amin
Chand Payrelal4, the Hon'ble Apex Court was held thus :
"Once execution of the promissory note is admitted, the
presumption under Section 118(a) would arise that it is supported
by consideration. Such a presumption is rebuttable. The defendant
can prove the non-existence of consideration by raising a probable
defence. If the defendant is proved to have discharged the initial
onus of proof showing that the existence of consideration was
improbable or doubtful or the same was illegal, the onus would shift
to the Plaintiff who will be obliged to prove it as a matter of fact and
upon its failure to prove would disentitle him to the grant of relief on
the basis of the negotiable instrument. The burden upon the
defendant of proving the non-existence of the consideration can be
either direct or by bringing on record the preponderance of
probabilities by reference to the circumstances upon which he
relies. In such an event, the Plaintiff is entitled under law to rely
upon all the evidence led in the case, including that of the Plaintiff
as well. In a case where the defendant fails to discharge the initial
onus of proof by showing the non-existence of the consideration,
the Plaintiff would invariably be held entitled to the benefit of
presumption arising under Section 118(a) in his favour. The Court
may not insist upon the defendant to disprove the existence of
consideration by leading direct evidence as the existence of
negative evidence is neither possible nor contemplated and, even if
led, is to be seen with doubt. The bare denial of the passing of the
consideration apparently does not appear to be any defence.
Something which is probable has to be brought on record for getting
the benefit of shifting the onus of proving to the Plaintiff. To
disprove the presumption, the defendant has to bring on record
such facts and circumstances, upon consideration of which the
Court may either believe that the consideration did not exist or its
non-existence was so probable that a prudent man would, under
the circumstances of the case, shall act upon the plea that it did not
exist."
28. The standard of proof evidentially is principles of preponderance of
probability. Inference of preponderance of probability can be drawn from the
materials on record and by references to the circumstances upon which
reliance is placed.
(1999) 3 SCC 35
29. At this stage, it is important to refer to the evidence of DW1, Banka
Appa Rao (2nd defendant), who, in his cross-examination, stated that all the
defendants, including his mother Anjamma (who affixed a thumb impression),
had signed the suit documents. He also testified that defendants 3 and 4
signed alongside him. However, he did not send any legal notice to the
Plaintiff requesting the return of the blank documents, nor did he identify the
elders who were present when the documents were executed. DW1 further
admitted to signing the part payment endorsements (Exs.A2, A4, A6, and A8).
He clarified that he signed any corrections made in the part payment
endorsements at the place of correction.
30. In the evidence of DW3, Banka Srinivasa Rao (3rd defendant) stated
that his mother's thumb impression, as well as the signatures of defendants 2
to 4, including himself, were on Exs.A1, A3, A5, A7, and A14. He confirmed
that all the documents related to the schedule property were taken along with
them. DW3 further testified that no notice was given to Plaintiff before the
issuance of Ex.A15, requesting the return of the blank papers they had
signed. He also stated that there was no hostility between the Plaintiff and the
defendants. Although the defendants claimed they requested the Plaintiff to
either arrange the loan amount or return the documents in the presence of
elders, DW3 and DW1 did not mention the names of these elders either in the
written statement or in their testimonies.
31. In civil cases, the preponderance of probability constitutes a sufficient
ground for decision if the facts and circumstances are such that no reasonable
man would draw a particular inference from them or if the degree of probability
in the case is such that as to include any hypothesis besides the one to be
proved then the party who relies on a particular theory cannot be said to have
discharged the onus of proof of establishing that theory. But, if the evidence
strongly preponders in favour of any of the two theories set up, the Court is
entitled to act on it. Trite, the proposition of law is that witnesses might lie, but
the circumstances would not do so.
32. Had the defendants' contentions been true, they would have taken legal
action when the Plaintiff refused to disburse the loan after obtaining their
signatures on the promissory notes. Furthermore, if the transaction had
indeed occurred in the presence of elders, the defendants could have easily
provided the names of these elders and called them witnesses to support their
case. Additionally, it is unlikely that the defendants would have signed such a
large number of promissory notes without actually receiving the loan amounts,
which further casts doubt on their version of events.
33. It is unclear why the trial court, despite marking title deeds and the
Memorandum of Deposit of Title Deeds on behalf of the Plaintiff, continued to
treat the suit as solely based on the promissory notes. When the trial court
found that the suit was not filed within three years of the promissory note
transactions, it failed to make any attempt to carefully review the pleadings
and documents submitted by both parties. Without properly examining these
materials, the trial court should not have disposed of the case based on its
own assumptions and presumptions. Such an approach is unjustified.
34. Mortgage by deposit of title deeds is sanctioned by law under section
58(f) of the Transfer of Property Act, 1882 (for short, 'T.P. Act') in specified
towns; the same reads as follows:
58. "Mortgage", "mortgagor", "mortgagee", "mortgage-money" and
"mortgage-deed" defined:
(a) xxx xx
(e) xxx xx
(f) Mortgage by deposit of title-deeds: -- Where a person in any of
the following towns, namely, the towns of Calcutta, Madras, and
Bombay, and in any other towns which the State Government
concerned may, by notification in the Official Gazette, specify in
this behalf, delivers to a creditor or his agent documents of title to
immoveable property, with intent to create a security thereon, the
transaction is called a mortgage by deposit of title-deeds.
35. In the State of Haryana and Ors., V. Navir Singh and Ors.,5, the
Hon'ble Apex Court referred the decisions of Rachpal V. Bhagwandas6 and
United Bank of India V. LekharamSonaram and Co.,7 and observed that:
"..... In our opinion, it may be affected in a specified town by
the debtor delivering to his creditor documents of title to
immovable property with the intent to create a security thereon.
No instrument is required to be drawn for this purpose.
However, the parties may choose to have a memorandum
prepared only showing the deposit of the title deeds.
36. According to section 58 of the T.P. Act, such a mortgage occurs when a
person in any of the notified towns delivers to a creditor or his agent
documents of title to immovable property to create a security thereon. Still,
very often, some writing is obtained in the form of a memorandum or letter to
be a record that would evidence the transaction.
37. In light of the above settled legal position, this Court finds that the
evidence on record, coupled with the admissions made by the Defendants, is
sufficient to hold that the Defendants deposited the documents with the
Plaintiff with the intent to create security.
38. As previously noted, the evidence of PWs.1 to 3, along with the
admissions made by DWs.1 and 3 during cross-examination, clearly
establishes that the defendants executed the promissory notes, part payment
endorsements, and the Memorandum of Deposit of Title Deeds. The
defendants, however, failed to provide sufficient evidence to explain the
circumstances under which they executed these documents. Therefore, the
Plaintiff's claims stand substantiated, and the defendants have not
successfully rebutted the evidence presented.
39. In G. Venkata Rama Subbaiah Vs. D. Rasool Naik8, the composite
High Court of Andhra Pradesh held thus :
AIR 2014 SC 339
AIR 1950 SC 272
AIR 1965 SC 1591
"Once the execution of the promissory note is admitted or proved,
then it is presumed to be supported by consideration unless
contrary is proved. The burden is on the defendant to rebut the
same by adducing convincing evidence. Unless the defendant
rebuts the presumption by adducing convincing rebuttal evidence,
the evidential burden would not shift back to the Plaintiff who has
legal burden only after adducing such convincing rebuttal
evidence, it can be held that thereafter the presumption under
Section 118 does not come to the rescue of the Plaintiff."
40. In a decision Bonalaraju V. S. Sarupula Srinivas 9, the composite
High Court of Andhra Pradesh held that:
"once execution is proved the presumption under Section 118 of
N.I. Act that it is supported by consideration automatically applies
and the contention that the Plaintiff is not only to establish the
execution but also establish passing on the consideration is
rejected".
41. In a decision Abbisetti Krishnamoorthy V. Singasani
Raghuramaiah (died) per L.R.s 10 , the composite High Court of Andhra
Pradesh held that:
"Section 118 of the N.I Act shows that the presumption attached to
passage of consideration (as is the subject matter of this Appeal)
just like other presumption also is clearly rebuttable and it is for
the defendant to satisfy the Court that in a given case, the
presumption cannot be drawn".
42. The defendants have failed to show any valid reason or circumstance
to cast doubt on the testimonies of PWs.1 to 3 regarding the execution of the
promissory notes by the defendants and the passing of consideration. The
evidence of PWs.1 to 3 is consistent regarding the execution of the
promissory note by the defendants. Though PWs.1 to 3 were subjected to
lengthy cross-examination, nothing was elicited to discredit their evidence
regarding executing the promissory note by the defendants and passing of
consideration. The Plaintiff and his witness have no reason to fabricate the
promissory notes of the suit. PWs.2 and 3 have no conceivable incentive to
2003 (4) ALT 414
2006 (2) ALD 202
2011 (5) ALT 143
falsely testify against the defendants' interest, and it is implausible that they
would support the Plaintiff's case without a basis in truth. The defendants
have not asserted any enmity between themselves and PWs.2 and 3 that
would prompt the witnesses to provide false testimony against them.
However, even the rebuttal could be given by direct evidence or by proving
the preponderance of probabilities on record. In the present case, the
defendants have not rebutted the presumption, even by the preponderance
of probabilities.
43. For the reasons stated above, this Court believes that the Plaintiff is
able to establish the execution of the suit promissory notes, and they were
supported by consideration, and the Plaintiff is able to establish part
payments vide Exs.A2, A4, A6 and A.8 endorsements and also execution of
Memorandum of Deposit of Title Deeds in his favour by the defendants.
44. Regarding the interest rate, Plaintiff calculated the interest on the
loan amount at 24% per annum, compounded annually, per the terms of the
promissory notes, from the date of the transaction until the filing of the suit.
The learned counsel for the appellants specifically challenged the Plaintiff's
entitlement to claim such a high rate of interest. It was argued that the
defendants are agriculturists, as evidenced by the documents submitted by
the Plaintiff. Therefore, the defendants contend that the Plaintiff should not
be entitled to claim interest at the rate of 24% per annum, compounded.
45. In considering the excessive nature of interest, the Court has to keep
in view the amounts charged or paid and the nature of the transaction, the
absence of security and the value thereof, the financial condition of the
debtor and the result in previous transactions of the debtor and whether it is
substantially unfair. This Court views that it has only a limited power of
consideration, where the interest contracted for between the parties, as in
each case, is usurious or unconscionable or excessive and therefore liable to
be reduced.
46. At this stage, it is profitable to refer a case in Sri Balasaraswathi Ltd.,
Tirunelveli V. A.Parameswara Aiyar and another 11 , the High Court of
Madras held that:
No absolute maximum rate of interest, beyond which it will automatically
become usurious or unconscionable, can be laid down, even after the
coming into operation of the Constitution of India. Courts will have to see
the circumstances of each case and judge whether the rates in those
circumstances will be penal, usurious and unconscionable.
Of course, there may be some cases where the rate is so excessive that
there may be a conclusive presumption that it is penal, usurious or
unconscionable, as where the rate is 100 per cent per annum, or it is
compound interest at even 10 per cent per annum with daily rests.
It cannot be said that compound interest, without more, by itself will be
presumed to be penal, usurious and unconscionable, either regarding
secured or unsecured debts, even after the coming into operation of the
Constitution of India. It is evident that three per cent compound interest,
with yearly rests for a loan ensuring for three or four years, will be more
advantageous to the borrower than 12 per cent simple interest.
47. In General and Credit Corporation (India) Ltd., V. Sri Raja Inuganti
Venkata Rama Rao Bahadur Garu and others12, the composite High Court
of Andhra Pradesh held that:
There can be no hard and fast rule in deciding whether the interest rate is
excessive. Each case has to be decided on its own merits, taking into
account the various factors, such as the security which the creditor
obtained for the amount advanced by him, the pecuniary position of the
debtor, the rate of interest prevailing at that time and the advantages
which the debtor would derive from the loan. A debtor would get relief
under the Usurious Loans Act only if it is established that the transaction is
substantially unfair. It is true that the Explanation introduced by the
Madras amendment has laid down that if the interest is excessive, the
Court shall presume that the transaction was substantially unfair, but such
a presumption may be rebutted by proof of special circumstances
justifying the rate of interest.
AIR 1957 MADRAS 122 (V 44 C 40 FEB.)
AIR 1959 ANDHRA PRADESH 433 (Vol. 46, C.124)
48. In Sethmal & company rep. by Power of Attorney Agent, Mr
W.S.Seetharam and another V. M/s. Sri Laxmi Paradise (Leela Mahal) rep.
by its Partners13, the composite High Court of Andhra Pradesh held that:
The following guidelines are discernible from the conspectus of the above
precedents for the guidance of the Courts:
(1) The Court must go back to the date of the original transaction and form
an opinion as to the reasonable rate of interest;
(2) The Court should consider as to whether the stipulated rate of interest
in a given case is excessive;
(3) The Court shall take into account any amounts charged or paid,
whether in cash or kind, towards expenses, renewals, enquiries or any
other charges, etc.;
(4) If the compound interest is charged, the Court shall consider the
frequency of the charge of calculation of interest for being added to the
principal amount of the loan;
(5) Whether it is a secured or unsecured debt;
(6) The adequacy of the security offered;
(7) The financial condition of the debtor, including the result of any prior
transaction;
(8) the known or probable risks in getting repayment of the debt from the
point of view of the creditor;
(9) The purpose for which the loan was contracted, viz., whether it is
commercial or personal purposes or for discharging the other earlier
debts;
(10) The relation in which the creditor stood to the debtor and the
necessities of the borrower known to the creditor.
(11) The cumulative effect of these and other circumstances emanating
from the evidence on record in a given case to enable the Court to
conclude that the rate of interest charged is excessive, and consequently,
the transaction between the parties is substantially unfair;
49. In State Bank of India V. unknown 14, the composite High Court of
Andhra Pradesh held that:
"In deciding whether a rate of interest is excessive or not, courts will have
regard to the particular facts of a case before them. Such an enquiry will
be conducted by the courts primarily on the basis of the security given by
the debtor for the repayment of the loan and the solvency of the debtor
and the market rate of interest prevailing. Normally, whether the security
offered by the debtor is good and adequate as it is in a case of mortgage
of property, the courts will hold the charging of compound interest to be
1999 (5) ALT 186
AIR 1986 AP 291
excessive. The rate of interest, which may not be excessive on an
unsecured loan, may, therefore, be found to be excessive by the courts
where there is good security."
50. After reviewing the material on record, this Court finds that the
cumulative effect of the evidence suggests the stipulated interest rate is
excessive, rendering the transaction substantially unfair. Therefore, the
presumption of unfairness is warranted. In determining the appropriate rate of
interest, Courts may take judicial notice of factors such as inflation and the
decline in bank lending rates. The significant reduction in bank lending rates is
a key factor in adjusting pre-litigation interest. This Court holds that if the
interest rate is found to be unconscionable or usurious, it has the authority to
intervene. Consequently, the claim made by the Plaintiff at 24% per annum
compound interest from the date of the transaction to the filing of the suit is
erroneous. Considering the nature of the loan, which the Defendants took for
family necessities, an interest rate of 24% per annum with compound interest
is excessive and inconsistent with established standards.
51. After considering relevant case law, this Court finds it appropriate to
reduce the compounding interest rate of 24% to a simple interest rate of 24%
per annum from the date of the suit transaction until the filing of the suit, which
is just and reasonable.
52. In light of the preceding discussions, this Court views that the findings
and conclusions recorded by the trial court are based on something other than
a proper appreciation of the evidence on record. The Trial Court Judgment is
erroneous, cannot be sustained, and is liable to be set aside, and the Appeal
deserves to be allowed.
53. As a result, the Appeal is allowed in part, without costs. The
Judgment and decree passed in O.S.No. 5 of 2006, dated 09.06.2009, which
dismissed the suit, is hereby set aside. The suit is now preliminarily decreed
for a sum of Rs. 2,00,000/- with interest at the rate of 24% per annum from the
date of the suit transaction until the filing of the suit. The Plaintiff is entitled to
interest at 12% per annum from the date of the suit until the trial court's
Judgment and further interest at 6% per annum until the realization of the
principal amount of Rs.2,00,000/-. The part payments made by the
defendants, as evidenced by Exs.A2, A4, A6, and A8 shall be deducted from
the decretal amount. The defendants are allowed three months for
redemption.
Miscellaneous petitions pending, if any, in this Appeal shall stand
closed.
___________________________
JUSTICE T. MALLIKARJUNA RAO
Date: 19.11.2024
MS / SAK
THE HON'BLE SRI JUSTICE T.MALLIKARJUNA RAO
APPEAL SUIT NO. 602 OF 2009
Date: 19.11.2024
SAK
