Madras High Court
K.Vasantha vs S.Kalyani on 29 April, 2025
Author: G.R.Swaminathan
Bench: G.R.Swaminathan
1 A.S.(MD)NO.102 of 2024
BEFORE THE MADURAI BENCH OF MADRAS HIGH COURT
DATED : 29.04.2025
CORAM
THE HON'BLE MR.JUSTICE G.R.SWAMINATHAN
AND
THE HON'BLE MR.JUSTICE M.JOTHIRAMAN
A.S.(MD)No.102 of 2024 AND
C.M.P.(MD)No.5728 of 2024
K.Vasantha ... Appellant / Defendant
Vs.
S.Kalyani ... Respondent / Plaintiff
Prayer: Appeal suit filed under Section 96 CPC r/w. Order 41 Rule 1
CPC, to set aside the judgment and decree dated 21.12.2023 made in
O.S.No.75 of 2019 on the file of the learned Principal District Judge,
Dindigul and allow the appeal suit.
For Appellant : Mr.S.Srinivasa Raghavan
For Respondent : Mr.V.R.Shanmuganathan
***
1/19
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2 A.S.(MD)NO.102 of 2024
JUDGMENT
(Order of the Court was delivered by G.R.SWAMINATHAN, J.)
“O believers! Do not consume interest, multiplying it many
times over. And be mindful of Allah, so you may prosper” - Surah Al-
Imran (3:130).
The defendant in O.S.No.75 of 2019 on the file of the Principal
District Judge, Dindigul is the appellant herein. The respondent
herein filed the said suit for recovery of a sum of Rs.59,76,307/- with
interest. The plaintiff filed the said suit on the basis of three
promissory notes executed by the appellant for a total sum of
Rs.20,00,000/- (Ex.A.1 dated 31.08.2010, Ex.A.2 dated 01.09.2010
and Ex.A.3 dated 02.09.2010). As per the terms of the promissory
notes, the principal amounts were to be repayable with interest @
24% p.a. Since the appellant committed default, the plaintiff issued
Ex.A.4 legal notice dated 24.11.2016. The defendant replied vide
Ex.A.5 dated 22.12.2016 admitting the execution of the promissory
notes but took the stand that the agreed rate of interest was @ 18%
and not @ 24%.
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2.Since the demand set out in the legal notice was not complied
with, the suit came to be filed. The written statement reflected the
stand set out in the reply notice. Based on the rival pleadings, the
issues were framed. The plaintiff examined herself as P.W.1. Ex.A.1 to
Ex.A.7 were marked. The defendant examined herself as D.W.1 and
one Valliyappan who witnessed the transaction was examined as D.W.
2. Ex.B.1 was marked. After considering the evidence on record, the
trial Court vide judgment and decree dated 21.12.2023 directed the
defendant to pay a sum of Rs.59,76,307/- with interest @ 9% p.a. on
the principal sum of Rs.20,00,000/- with effect from 11.03.2018 till
the date of judgment and @ 6% p.a. from the date of judgment till
date of realization. In other words, interest @ 24% p.a. was to be the
applicable rate of interest from the date of execution of the
promissory notes till the date of filing of the suit and interest @ 9%
p.a. was to be applicable during the pendency of the suit and interest
@ 6% p.a. was to be the applicable rate on the decretal amount.
3.Challenging the same, this appeal has been filed.
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4.The learned counsel appearing for the appellant submitted
that notwithstanding the admission made by the defendant, the
applicable rate of interest fixed by the Government under Section 7 of
The Tamil Nadu Money-lenders Act, 1957 would be 12% p.a and not
24%. According to him, the provisions of the Tamil Nadu Prohibition
of Charging Exorbitant Interest Act, 2003 have to be applied.
5.Per contra, the learned counsel for the plaintiff / respondent
submitted that the appellant cannot go back on what was originally
agreed by her. He pointed out that both in the reply notice as well as
in the written statement, the defendant had agreed to settle the loan
amount with interest @ 18% p.a. The learned counsel invoked the
principle of estoppel. He submitted that the impugned judgment is
well reasoned and that it does not call for interference. The Court
below had merely enforced the terms that were explicitly agreed
between the parties in writing. He pressed for dismissal of this
appeal.
6.We carefully considered the rival contentions and went
through the evidence on record. The only question that calls for
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consideration is whether the provisions of Tamil Nadu Act 38 of 2003
can be applied to the case on hand.
7.The learned counsel for the plaintiff / respondent drew our
attention to the decision reported in (2010) 2 LW 74 (Indiabulls
Financial Services Ltd v Jubilee Plots and Housing Pvt Ltd ) and the
decision reported in 2022 SCC OnLine Mad 960 (P.Sundareswar
Vs. Pinky Jain) and contended that since the loan was advanced on
the basis of negotiable instruments exceeding Rs. 10,000, Tamil Nadu
Act 38 of 2023 cannot be invoked at all.
8.On the other hand, the learned counsel for the appellant
submitted that a learned Judge of this Court in the decision reported
in 2022 (3) MWN (Civil) 201 (A.M.Gopalan vs M.Sivaram) had
taken the view that when the defendant had availed an unsecured
loan, the plaintiff can at best charge interest @ 12% p.a. and not
beyond that.
9.It is seen that in Indiabulls case, the learned Judge went by
the definition of the term “loan” found in Section 2(6)(vi) of the
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Tamil Nadu Money Lenders Act, 1957. The said provision is as
follows:
“ “loan” means an advance, whether of money or
in kind at interest; and includes any transaction which
the Court finds in substance to amount to such an
advance but does not include the advance made on the
basis of a negotiable instrument as defined in the
Negotiable Instruments Act, 1881 exceeding Rs.
10,000/-.”
It is not in dispute that Section 13 of the Negotiable Instruments Act,
1881 defines “negotiable instrument” as including a promissory note.
What we have to consider now is whether the suit transaction would
fall within the scope of the term “loan” as defined in the Tamil Nadu
Money Lenders Act, 1957.
10.Section 2(10) of the Tamil Nadu Act 38 of 2003 states that
the words and expressions used but not defined in that Act shall have
the meanings assigned to them in the Tamil Nadu Money Lenders
Act, 1957. It is pertinent to note that the term “loan” has been
defined in Tamil Nadu Act 38 of 2003. Section 2(6) of the said Act
defines loan as an advance of money for daily vatti, hourly vatti,
kandhu vatti, meter vatti or thandal. Each of these expressions have
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been defined in Section 2 itself. If a given transaction would
constitute loan within the meaning of Section 2(6) of Tamil Nadu Act
38 of 2003, the question of said transaction falling under Section 2(6)
(vi) of Tamil Nadu Money Lenders Act, 1957 would not arise.
11.Admittedly, the plaintiff is not a money-lender nor has she
advanced any loan for daily vatti, hourly vatti, meter vatti or thandal.
That gives rise to the issue if the plaintiff had advanced loan for
“kandhu vatti”. The expression “kandhu vatti” has been defined in
Section 2(5) of the Tamil Nadu Act 38 of 2003 as follows:-
“ “kandhu vatti” means an interest which
will work out to an interest rate more than that
fixed by the Government under Section 7 of the
Money-lenders Act; ”
Kandhu vatti thus refers to the interest that is charged above what
has been fixed by the Government under Section 7 of the Tamil Nadu
Money-Lenders Act, 1957. It is not in dispute that under Section 7 of
the Tamil Nadu Money Lenders Act, the Government had fixed 12%
as the chargeable interest for an unsecured loan and 9% for secured
loan. The interest charged in the case on hand falls within the
expression “kandhu vatti” as defined in Section 2(5) of the Tamil
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Nadu Act 38 of 2003. When the loan transaction between the parties
would fall within the scope of Section 2(5) of the Tamil Nadu
Prohibition of Charging Exorbitant Interest Act, 2003, the provisions
of the said Act will automatically kick in.
12.Debtors have always faced exploitation at the hands of the
lenders on account of charging of usurious rates of interest.
Legislations have been periodically introduced to provide relief to
borrowers. The enactment of Tamil Nadu Act XXVI of 1957 was one
such instance. The Tamil Nadu Money-Lenders Act, 1957 was
enacted with an aim to regulate and control the business of money-
lenders in the State of Tamil Nadu. The Statement of Object and
Reasons read as follows:
“ .... It has since been found that these provisions are not
adequate. The Government, therefore, considers that legislation
should be undertaken to regulate and control the business of money-
lenders, other than pawnbrokers, mainly with a view to control the
activities of a class of unscrupulous money-lenders who threaten
and molest borrowers.”
13.Even the provisions of this Act proved to be inadequate.
When G.Venkateswaran, a popular film producer, committed suicide
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on 3rd May 2003, unable to bear the harassment of the money-
lenders, it provoked widespread outrage. The Tamil Nadu
Government, recognizing the urgent need to offer protection to
borrowers, brought out an Ordinance on 9th June 2003 itself to check
the menace of charging of exorbitant interest. This culminated into
passing of Tamil Nadu Prohibition of Charging Exorbitant Interest
Act, 2003. The purpose of the enactment cannot be lost sight of. The
statement of objects and reasons leading to the enactment of the Act
38 of 2003 is as follows :
"In order to obviate the difficulties experienced by
the public at large, falling prey to any person
charging exorbitant interest like daily vatti, hourly
vatti, kandhu vatti, meter vatti and thandal, the
Government have decided to prohibit lending money
for such exorbitant interest and to provide for
stringent punishment therefor and decided to enact a
new legislation for the purpose...”
This special enactment is undoubtedly a beneficial piece of
legislation. It is well settled that in construing such legislations,
courts should adopt a beneficent rule of construction (vide Alembic
Chemical Works Ltd vs The Workmen reported in AIR 1961 SC
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647). The 2003 Act should therefore be interpreted in an expansive
manner so as to effectuate the legislative object. In M/S New India
Sugar Mills Ltd vs Commissioner Of Sales Tax, Bihar reported in
AIR 1963 SC 1207, the Hon'ble Supreme Court held that it is a
recognized rule of interpretation of statutes that expressions should
be ordinarily understood in a sense in which they best harmonise
with the object of the statute, and which effectuate the object of the
legislature. If an expression is susceptible of a narrow or technical
meaning, as well as a popular meaning, the Court would be justified
in assuming that the legislature used the expression in the sense
which would carry out its object.
14.The Hon'ble Supreme Court in the decision reported in
2007 14 SCC 297 (vide M/S. P.Vaikunta Shenoy & Co vs P. Hari
Sharma) while interpreting the provisions of The Karnataka Money-
lenders Act, 1961 held that a purposive construction has to be
adopted having regard to the object of the statute. In Aharon
Barak's (a jurist and former President of the Supreme Court of
Israel) seminal work on “Purposive Interpretation in Law”, the
author emphasises the ultimate purpose of a statute in the following
terms:
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“Judges interpret a statute according to the purpose it is
designed to achieve. The purpose of a statute is the interests,
objectives, values, policy and social function that the statute is
designed to actualize. It is the social change that the statute
visits on existing law. It is the ratio legis...”
15.The author also places considerable importance on taking
the pre-legislative history and social and legal background of a
statute into account while construing its purpose. In Indiabulls, it
was observed that Section 2(6)(vi) of the Tamil Nadu Money-lenders
Act, 1957 was enacted to obviate the lower middle class people,
particularly the salaried servants and wage earners from the
exploitation of the money lenders. The learned Judge held that
neither the Tamil Nadu Money Lenders Act, 1957 nor the Tamil Nadu
Prohibition of Charging Exorbitant Interest Act, 2003 have any
application to the mammoth loan transactions based on negotiable
instruments but only seek to address the grievance of the gullible
public who borrow small loan on usurious interest slapped on them.
We are of the view that such an approach fails to take into account
the background in which the law was made. As already mentioned,
the suicide of a film producer triggered the legal developments.
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Obviously, G. Venkateswaran did not borrow a small amount from a
loan shark. He was neither a person belonging to “lower middle
class” nor a member of the “gullible public” but a renowned producer
who would not have borrowed an amount less than Rs.10,000. This is
the legislative history that cannot be overlooked. In the Money
Lenders Act, an unnaturally low ceiling of Rs.10,000/- had been fixed.
The Act also lacked teeth. There were no strong penal provisions.
The Government could have amended the Money Lenders Act.
Instead, it thought it fit to bring in a new legislation altogether. That
is how, Tamil Nadu Act 38 of 2003 came to be born. If Tamil Nadu Act
No 38 of 2003 is to be held inapplicable on the ground that the loan
was given on the basis of promissory note for a sum exceeding
Rs. 10,000, the laudable object of the legislation would be frustrated
and defeated. If in every case we apply the definition found in Section
2(6)(vi) of the Tamil Nadu Money Lenders Act, the Tamil Nadu Act
38 of 2003 can be very easily circumvented. All that a lender has to
take from the borrower is a promissory note for a sum in excess of
Rs.10,000/-.
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16.In view of the discussion above, we hold that the
proposition laid down in Indiabulls Financial Services Ltd v Jubilee
Plots and Housing Pvt Ltd (2010) 2 LW 75) that a money-lender
who advances loan on the basis of a negotiable instrument exceeding
Rs.10,000/- is not a person referred to in Section 3 of Tamil Nadu
Prohibition of Charging Exorbitant Interest Act, 2003 is not correct.
We notice that this proposition has been followed in a number of
subsequent judgements such as P.Sundareswar Vs. Pinky Jain. We
hold that all of them have been incorrectly decided.
17.A learned Judge of this Court in W.P No. 28536 of 2023 vide
order dated 30.11.2023 (vide S. Mohan Kumar vs State of Tamil
Nadu) observed as follows:
8..(ii) Further, it is relevant to note that the legislators were
not oblivious of the Money Lenders Act, of 1957 when the
later Act, i.e., Tamilnadu Prohibition of Charging Exorbitant
Interest Act in the year 2003 was enacted. In section 3 of
the Act, there is a reference to Money Lending Act
and section 2(1) defines “daily vatti” as collection of
interest on daily basis which will work out to an interest
rate more than that fixed by the Government under section
7 of the Money-Lenders Act. Likewise, in Section
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2(5) “Kanthu vatti” is defined as interest which will work
out to an interest rate more than that fixed by the
Government under Section 7 of the Money-Lender Act.
(iv) When the later legislation having considered the
earlier legislation and employ ‘non-obstante clause’, there
is no sense in contending that the petitioner with
Money Lenders license fall outside the purview of
Tamilnadu Prohibition of charging Exorbitant interest
Act. The definition of 'Kanthu vatti' covers all sort of
money transaction which will work out to an interest rate
more than the government fixed rate of interest under the
Money Lender’s Act. The later Act does not prescribe
any lower or upper limit regarding money involved
like Rs.10,000/- and above or less than Rs.10,000/-
meaning to restrict its application for transactions
involving huge amount running to lakhs or crores. The
Act also neither specifies any restrictions about its
application to any particular mode of payment nor
collection like negotiable instruments.
(vi) The definition of 'Loan' in the Money Lending Act,
1957 and in the Tamilnadu Prohibition of Charging
Exorbitant Interest Act, 2003 are not one and the same.
While in the earlier Act the definition is wider and it
relates to advancing of money for interest, in the later Act
the definition of 'loan' is restricted to the advance of money
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for interest by any name charged over and above the
interest fixed by the Government as per Section 7 of the
money lending Act.
18.In the decisions relied on by the learned counsel for the
plaintiff, Section 12 of the Tamil Nadu Act 38 of 2003 was not fully
appreciated. Section 12 of the Act reads as follows:-
“12. Applicability of provisions of Money-lenders
Act.
- Subject to the provisions of the Act, the provisions
of the Money-lenders Act, in so far as they are applicable to
money-lenders shall mutatis mutandis apply to a person
referred to in Section 3 of this Act”
The expression “subject to” has been interpreted in the decision
reported in AIR 2007 SC 1984 (S.P. Industries Co. Ltd vs Electricity
Inspector and E.T.I.O) as conveying the idea of a provision yielding
place to another provision or other provisions subject to which it has
been made. A Four Judges Bench of the Hon'ble Supreme Court in the
decision reported in AIR 1966 SC 1318 (vide Punjab Sikh Regular
Motor Service vs Regional Transport Authority) held that when
Provision A is subject to Provision B, a case falling under Provision B
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is taken out of Provision A. The phrase “subject to” is a simple
provision which merely subjects the provisions of the subject section
to the provisions of the master section. When there is no clash, the
phrase does nothing ; if there is collision, the phrase shows what is to
prevail (vide Ram Gopal Sharma v Madhya Pradesh State Road
Transportation (1978 SCC OnLine MP 151)). Section 12 opens with
“Subject to”. Therefore, the provisions of the Tamil Nadu Money
Lenders Act, 1957 cannot prevail over the provisions of the Tamil
Nadu Act 38 of 2003. Section 3 of the 2003 Act states that no person
shall charge exorbitant interest on any loan advanced by him. The
word “person” has to be interpreted expansively and not in a narrow
sense. It would include a money lender or any person advancing a
loan. There can be only one qualification. The loan transaction has to
fall within the scope of Section 2(6) of the 2003 Act. It is only this
interpretation that will further the object of the Tamil Nadu
Prohibition of Charging Exorbitant Interest Act, 2003.
19. Since the borrower is in desperate need of funds, he would
definitely be signing on the dotted lines. It is well settled that there
can be no estoppel against the statute. Giving precedence to the
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contract entered into between the parties over the statutorily
stipulated percentage of interest is definitely not contemplated by
the legislature. In other words, what is impermissible on account of a
statutory limitation cannot be resorted to by taking shelter under the
terms of the contract. We are therefore of the view that the
judgments that had concluded that if a loan is given on the basis of a
negotiable instrument for a sum in excess of Rs.10,000/-, it would
fall outside the purview of Tamil Nadu Act No.38 of 2003 and that the
contract would prevail, do not lay down the correct law. We overrule
the same.
20.The plaintiff in this case would fall within the expression
“person” occurring in Section 3 of the 2003 Act. The loan advanced
by her attracts the definition set out in Section 2(6) of the said Act.
Once these two ingredients are fulfilled, the transaction will fall
within the prohibitory sweep of the 2003 Act. It is well settled that
there can be no estoppel against statute. Even if the borrower had
agreed to pay in excess of the ceiling set out in the Act, the lender
cannot enforce the same.
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21.In this view of the matter, we hold that the principal sum
stated in the plaint can only be Rs.20,00,000/- + interest @ 12% p.a.
In the deeds mentioned in Ex.A.1 to Ex.A.3 (Rs.40 Lakhs), the plaintiff
would be entitled to charge interest @ 9% p.a. during the pendency
of the suit and 6% p.a. on the decree amount. Accordingly, the
impugned judgment and decree are modified.
22.This appeal suit is partly allowed. No costs. Consequently,
connected miscellaneous petition is closed.
(G.R.SWAMINATHAN, J.) & (M.JOTHIRAMAN, J.)
29th April 2025
NCC : Yes / No
Index : Yes / No
Internet : Yes/ No
PMU
To:
The Principal District Judge, Dindigul.
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G.R.SWAMINATHAN, J.
AND
M.JOTHIRAMAN, J.
PMU
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29.04.2025
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