THE HON'BLE SRI JUSTICE P.S.NARAYANA S.A.No.1337 of 2008 21st April, 2010 Between :- Bandlamudi Subbaiah & Sons Pvt.Ltd., Amaravathi Road, Guntur, Rep. by its Managing Director K.Lakshminarayana & others .. Appellants And Andhra Bank, Guntur Rep. by its Chief Manager, Principal Officer, P.Suryanarayana .. Respondent THE HON'BLE SRI JUSTICE P.S.NARAYANA S.A.No.1337 of 2008 JUDGMENT:- This Court on 6-2-2009 made the following Order:- “Having regard to the following substantial question of law raised in the memorandum of grounds of appeal, admit. When as per Ex.A.1/pronote dt.9-3-1987 and Ex.A.2/letter dt.9-3-87, the defendant agreed to pay interest at the rate of 17.5% or 19.5% p.a. with quarterly rests, whether the r/plaintiff is entitled to charge interest at the rate of 27% p.a. with quarterly rests as stated by P.W.1 in his cross- examination?” 2. Sri N.Sreerama Murthy, the learned Counsel representing the appellants had taken this Court through the substantial question of law on the strength of which the Second Appeal had been admitted and also further pointed out to other substantial questions of law raised in the grounds of Second Appeal and would maintain that the respondent-Andhra Bank had of the established the claim for discharge the burden and in fact the interest in the accounts also had not been produced to the satisfaction of the Court and the Trial Court after recording appropriate findings, ultimately dismissed the suit, but the Appellate Court without considering the crucial aspects involved in the matter after recording vague findings, reversed the well-considered Judgment of the Trial Court and hence the Second Appeal to be allowed. The learned Counsel also would maintain that when as per Ex.A.1 – promissory note dt.9-3-87 and Ex.A.2 – letter dt.9-3-87, the defendant agreed to pay interest at the rate of 17.5% or 19.5% per annum with quarterly rests, whether the respondent – plaintiff is entitled to charge interest at the rate of 27% per annum with quarterly rests as stated by P.W.1 in his cross-examination. The learned Counsel also further pointed out to the relevant portions of the findings of the Trial Court and the Appellate Court as well and placed strong reliance on several decisions on the aspect of the entries in the banker’s books of account and the burden to be discharged. The learned Counsel also further relied on certain decisions in relation to the scope, ambit and interference in a Second Appeal. While concluding, the learned Counsel also would maintain that at any rate the interest charged being on the higher side, the same to be reduced or modified and if the interest is to be reduced or modified, since this was a long pending account, the appellants would be entitled to some amount to be paid by the respondent-plaintiff – Andhra Bank. However, the learned Counsel would maintain that since no counter claim as such had been made, the appellants would be satisfied if the Second Appeal is allowed restoring the Decree and Judgment of the Appellate Court dismissing the suit. 3. Per contra, Smt. Dyumani, the learned Counsel representing respondent – plaintiff would maintain that it is not as though the entries in the accounts had not been placed before the Court at all, but the contention of the other side is that from the beginning these were not placed and the burden is on the plaintiff to establish that a particular entry placed before the Court is not the correct entry. The learned Counsel also relied on the relevant portions of the Bankers” Book Evidence Act, 1891. While further elaborating her submissions, the learned Counsel would maintain that this bank cannot charge the interest at the whims and fancies, they are bound by the terms and conditions and the RBI guidelines and the Circulars which would be issued from time to time and hence now to contend that the charging of interest @ 27% per annum with quarterly rests being usurious or on higher side, the same cannot be sustained, would not hold water. The learned Counsel, while further elaborating her submissions, had taken this Court through the reasons which had been recorded by the Appellate Court and would maintain that the learned Judge appreciated the oral and documentary evidence available on record and recorded appropriate findings and even otherwise even if the substantial questions of law on the strength of which the Second Appeal had been admitted to be carefully examined, this being not a substantial question of law, the Second Appeal deserves dismissal in the light of the scope and ambit of Section 100 of the Code of Civil Procedure. 4. Heard the Counsel. Perused the oral and documentary evidence available on record, the findings recorded by the Trial Court, the findings recorded by the Appellate Court as well. 5. The substantial question of law on the strength on which the Second Appeal had been admitted already referred to supra. The other questions which had been pointed out by Mr. Sreerama Murthy, the learned Counsel representing the appellants are as hereunder:- 1) Whether the defendant has paid Rs.30,209/- towards the entire amount due on 8-3-1990, whether the plaintiff is entitled to file the suit about 1 ½ years thereafter claiming the suit amount, even without filing the account copy showing the amount paid by the defendant? 2) When the defendant is contending that no amount is due to the r/plaintiff and when the same was found to be correct on the basis of Ex.A.11/account copy and also on the basis of the evidence of P.W.1, whether the lower Appellate Court is justified in setting aside the same and in decreeing the suit of ther/plaintiff? 3) Whether the lower Appellate Court is justified in not framing relevant points for consideration and in not relying on the oral and documentary evidence adduced by both the parties while setting aside the well considered and reasoned Judgment of the Trial Court? 4) Whether the Trial Court has held that Ex.B.11 account copy for the period 1-4-1990 to 2-11-1992 is incorrect and the interest claimed by the respondent-plaintiff is penal and usurious, whether the lower Appellate Court is justified in setting aside the Judgment and deree of the Trial Court without adverting to the said findings rendered by the Trial Court? 6. For the purpose of convenience the parties hereinafter would be referred to as plaintiff and defendants as shown in O.S.No.473/92 on the file of the Principal Senior Civil Judge, Guntur. The plaintiff filed the suit against the defendants for recovery of Rs.85,988-14 on the strength of the Cash Credit Loan and mortgage together with interest thereon at the rate of 17.5% per annum with costs. 7. It was pleaded in the plaint that the 1st defendant is a Company approached the plaintiff bank located at Jinnah Tower, Guntur for loan carrying on business in cotton at Amaravathi road, Guntur and it is registered under Companies Act and 2nd defendant is the Managing Director of 1st defendant company. The plaintiff further averred that previously one B.Subbaiah was the Managing Director of the 1st defendant company and the 1st defendant approached the plaintiff Bank for cash credit loan for its business purpose by offering necessary sureties. Having satisfied with the same, the plaintiff herein granted two separate limits of Rs.5,00,000/- each by way of Open Cash Credit and Key Cash Credit for business purpose of the 1st defendant. The said limits were duly availed by the 1st defendant company by executing necessary documents. So, also mortgaged the suit schedule property by depositing title deeds for the above said loan. The plaintiff further averred that the 1st defendant duly availed the Cash Credit Limit of Rs.5,00,000/- in February, 1987, the limits were renewed in February, 1988. The plaintiff further averred that the 1st defendant agreed to repay the said Cash Credit Loan together with interest thereon at 7.5% over and above the Reserve Bank of India rate with a minimum of 17.5% per annum with quarterly rests by executing letter dt.9-3-87. Later it undertakes to repay the loan together with interest thereon at the rate of 19.5% per annum with quarterly rests and also executed a letter agreeing for bank’s right to cancel the limits, modified terms or calling advance, agreement for cash credit. So also the 1st defendant hypothecated the movable machinery for the above said loan amount. The plaintiff further averred that the second defendant and later B.Subbaiah, the then Director, accepted personal, joint and several liability along with the 1st defendant for due repayment of all the amounts and executed the guarantee agreement besides the promissory note for the said loan. So also created mortgage deed by depositing title deeds dt.27-7-74. The plaintiff further averred that it opened an account for the 1st defendant and the said account continued regularly in due course of business. The plaintiff further averred that since the said Subbaiah died, his son – defendants 3 and 4 are liable to pay the amount due to the plaintiff and that they are added as parties to the suit. The plaintiff further averred that although Key Cash Credit limit was closed and brought to credit, balance due and outstanding in Open Cash Credit limit were not brought to credit inspite of demands. Such balances remained even after crediting sale proceeds of hypothecated goods. The defendants were acknowledging the liability for repayment of the amount by executing letters of acknowledgment. So also by letter dt.2-11-89. The plaintiff further averred that the defendants admitted their liability for outstanding balance due and payable in Open Cash Credit account through a letter dated 2-22-189 while making a request for waiver of penal interest. The plaintiff further averred that subsequently the defendants chose to send a refund voucher for Rs.26,527/- given by Income Tax Department along with a draft of Rs.2,682-08 ps., requesting the plaintiff to treat it by way of clearance of all dues. As the said amount is not enough, to clear the balance of loan amount, this plaintiff did not accept the said amount as full and final settlement of the loan amount. While the requests of the defendants for concessions and waiver of interest is pending, ultimately the request was negatived. It is further averred that it was maintaining the account of the 1st defendant in its day to day regular course of business. As per the account of the 1st defendant it is an outstanding due amount of Rs.85,988-14 ps., as the defendants failed to pay the said amount inspite of legal notice, he constrained to file the suit for recovery of the amount. 8. The 1st defendant filed written statement and defendants 2 to 4 filed a memo of adoption adopting the written statement of the 1st defendant. It was pleaded that the allegations made in the plaint are false and the suit is not maintainable. Further it is averred that the suit khata is incorrect and false. The plaintiff has to prove the correctness and validity of the same. He further averred that defendants 2 to 4 have no liability whatsoever to discharge any debt to the Bank personally and there was no agreement at anytime with the plaintiff Bank in that regard. The suit claim if any is hopelessly barred by time particularly against defendants 2 to 4. The suit is bad for non-joinder of parties. The interest charged is penal, usurious and excessive. The plaintiff took the signatures of the parties on blank printed forms only and the contents therein were never read over and explained to the parties concern. Hence, there is no proper execution of any of the documents. The 1st defendant has been demanding the plaintiff Bank to give the copy of the account. On being apprised orally by the plaintiff Bank about the amount due, he sent Rs.38,209/- in full and final settlement of the amount due on 8-3-90. A letter to that effect is also sent to the plaintiff Bank to close the account and send the full satisfaction receipt and return all the documents deposited with the plaintiff Bank. As the 1st defendant paid the total amount due to the plaintiff Bank with stipulated interest as full and final settlement of the amount due to the Bank and the plaintiff having accepted it nearly 1½ years back, cannot now demand the payment of money. The interest claimed is penal and usurious and is opposed to law. The rate of interest charged is not mentioned in the account. The plaintiff is not entitled to charge any penal interest. It is opposed to the provisions of Contract Act as it amounts to penalty. 9. On the strength of these pleadings, before the Trial Court the following issues had been settled:- 1) Whether the account copy is incorrect? 2) Whether the suit is barred by limitation against defendants 2 to 4? 3) Whether the suit is bad for non-joinder of parties? 4) Whether the defendants signatures were obtained by plaintiff in blank printed forms? 5) Whether the 1st defendant is not due any amount to the plaintiff? 6) Whether the interest claimed is penal and usurious? 7) To what relief? 10. On behalf of the plaintiff, one G.Madhusudhana Rao was examined as P.W.1 and Ex.A.1 to Ex.A.14 were marked. On behalf of the defendants, D.W.1 – the 2nd defendant was examined and Ex.B.1 to Ex.B.5 were marked. 11. The Trial Court after recording findings, came to the conclusion that the Andhra Bank was unsuccessful in establishing the case and further recorded a finding that the defendants might have signed on blank printed forms and hence those may not be binding and accordingly dismissed the suit. 12. Aggrieved by the same, the unsuccessful plaintiff-Andhra Bank carried the matter by way of appeal A.S.No.27/2006 on the file of the I-Additional District Judge, Guntur. The Appellate Court at para 7 formulated the following points for consideration:- 1) Whether the claim of the defendants that they have paid the amounts due by them on 8-3-1990 towards full and final settlement? 2) Whether the plaintiff is entitled for recovery of the suit claimed amount? The learned Judge appreciated the evidence of D.W.1 in elaboration apart from the evidence of P.W.1 and also the other documentary evidence available on record, recorded findings at paras 9, 10, 11, 12, 13 and 14 and came to the conclusion that the defendants failed to prove the payments made under Ex.B.1 was out of the settlement between the plaintiff and the defendants towards full and final settlement of the suit claim and hence the approach adopted by the Trial Court and the findings recorded being erroneous, the Decree and Judgment of the Trial Court to be set aside and accordingly the same were set aside and the appeal was allowed and the suit was decreed as against D.1 to D.4 for Rs.85,988.14 together with interest at 12% per annum from the date of the suit till the date of Judgment and thereafter at 7.5% per annum till realization against the estate of Bandlamudi Subbaiah in the hands of defendants 3 and 4. Accordingly, a preliminary decree was passed and two months time was granted for redemption. Aggrieved by the same, the present Second Appeal had been preferred. 13. The fact that the plaintiff has sanctioned the loan on KCC and OCC and the defendants had availed the loan and the defendants made periodical payments. These are not in serious controversy. The admissions made by D.W.1 also had been taken into consideration by the Appellate Court. D.W.1 approached the Manager of the plaintiff Bank and enquired with him regarding the amount due and paid the amount as desired by the Andhra Bank. However, the details relating to the same had not been deposed by D.W.1. D.W.1 filed a case before the Consumer Forum and the same was dismissed. D.W.1 also asserted that he had made payments towards full and final settlement of all the claims while sending the draft to the plaintiff Bank and since the plaintiff Bank accepted the same amount without any protest whatsoever, the plaintiff is not entitled to make any further claim in this regard. There is an admission on the part of D.W.1 that if there to be settlement between the parties, the plaintiff Bank and the defendants, it should not be unilateral and the same to be bilateral. Even Ex.B.1 was taken into consideration and certain admissions made by D.W.1 also had been specified in paras 12 and 13 of the Judgment of the Appellate Court. P.W.1 clearly deposed about the charging of 27% per annum with quarterly rests as per the R.B.I. Rules. P.W.1 also further deposed about Ex.A.1 – Promissory note; Ex.A.2 – letter dt.9-3-87; Ex.A.3 – letter dt.9-3-87; Ex.A.4 – Agreement of cash credit dt.9-3-87; Ex.A.5 – Letter dt.9-3-87 regarding security for advances; Ex.A.6 – Agreement of guarantee dt.9-3-87; Ex.A.7 – Agreement of hypothecation of movable machinery dt.9-3-87. This witness also deposed about Ex.A.8 – Registered sale deed dt.27-7-74; Ex.A.9 – dt.9-3-87 letter of confirmation of mortgage; Ex.A.10 – Registered notice dt.30-8-91. Ex.A.11 is the account copy, relating to which several submissions in elaboration had been made. Ex.A.12 is the letter of acknowledgment. Ex.A.13 is the Photostat copy of letter dt.8- 3-90. Ex.A.14 is the Photostat copy of the letter dt.7-11-88. In the evidence of D.W.1, the witness deposed about the Full Settlement said to have been made and also deposed about the copy of letter dt.8-3-90 – Ex.B.1 and copy of the letter dt.16-1-90 addresed to the plaintiff Bank by the defendants – Ex.B.2. Another letter dt.10-9-91 was marked as Ex.B.3. The postal acknowledgments were marked as Ex.B.4 and Ex.B.5. No doubt, certain pleas had been taken relating to the non- joinder of the parties - the daughters of the 1st defendant , but however these aspects are not being argued in elaboration before that the. 14. Be that as it may, the learned Counsel representing the appellants strongly relied on the decision of the Apex Court in CHANDRADHAR GOSWAMI AND OTHERS v. GAUHATI BANK[1] wherein the Apex Court while dealing with Section 34 of the Indian Evidence Act and Section 4 of the Bankers’ Books Evidence Act, 1891, held “no person can be charged with liability merely on the basis of entries in books of account, even where such books of account are kept in the regular course of business. There has to be further evidence to prove payment of the money which may appear in the books of account in order that a person may be charged with liability thereunder, except where the person to be charged accepts the correctness of the books of account and does not challenge them. The original entries alone under Section 34 of the Evidence Act would not be sufficient to charge any person with liability and as such copies produced under Section 4 of the Bankers’ Books Evidence Act obviously cannot charge any person with liability”. Strong reliance also was placed on ERRABALLI SRIRANGA RAO v. ERRABALLI SAMPATH RAO AND OTHERS[2] wherein it was held that mere marking of account does not amount to proof of contents therein and the entries in books of account regularly kept in course of business are relevant but they are not themselves sufficient evidence unless they are proved. 15. There cannot be any doubt or controversy relating to these prepositions. It is pertinent to note that in the light of the provisions of the Bankers’ Books Evidence Act, 1891, especially in the light of Ex.A.11, unless it is shown that the entries are not in accordance with the Books of Account and some entries had been made, the mere fact that anterior thereto, all the accounts had been not produced, by that itself it cannot be said that the claim had not been established. It is not as though Andhra Bank – plaintiff had not adduced any evidence. The evidence of P.W.1 is available on record. Certain submissions had been made that the Trial Court had not discussed the whole oral and documentary evidence available on record in proper perspective. May be that the evidence of P.W.1 had not been referred to in detail for the reason that the admissions of D.W.1 by themselves being sufficient to grant a decree, the findings in such a fashion had been recorded by the Appellate Court. Strong reliance was placed on BONDAR SINGH AND OTHERS v. NIHAL SINGH AND OTHERS[3] wherein it was held that findings, perverse and contrary to evidence of the subordinate Courts, can be set aside by High Court in Second Appeal. In DILBAGRAI PUNJABI v. SHARAD CHANDRA[4] it was held where the finding was that the landlord was not owner recorded by lower Courts without considering all evidence, interference by High Court was held to be proper. In JAI SINGH v. SHAKUNTALA[5] it was held that the scrutiny of evidence in a Second Appeal is not totally prohibited, but the power to scrutiny can only be had in very exceptional circumstances and upon proper circumspection. 16. There cannot be any quarrel relating to the prepositions of law laid down in the decisions referred to supra. But however these decisions are not applicable to the present set of facts. Further strong reliance was placed on the aspect of interest on the decision of Division Bench of this Court in STATE BANK OF INDIA, AGRICULTURAL DEVELOPMENT BRANCH, PRODDUTUR v. KOLLI VENKATA APPARA RAO AND ANOTHER[6] wherein no doubt the aspect of the Bank loan and the Reserve Bank of India circular dt.27-5-1999 issued to Banks during pendency of L.P.As., on the basis of guidelines given by Ministry of Finance as regards loans running into millions of rupees unrealized and the directions given to banks to charge simple interest at 10% per annum from material dates negotiating for compromise settlements and other aspects had been discussed. 17. This Court on thorough scrutiny of the oral and documentary evidence on record is satisfied that the findings recorded by the Appellate Court do not suffer from any illegality whatsoever. The documents ‘A’ series had been discussed in the light of the admissions made by D.W.1 and this discussion itself is sufficient to sustain the findings of the Appellate Court. However, in the facts and circumstances, this Court is inclined to modify the Decree as follows:- “The suit is decreed as against D.1 to D.4 for Rs.85,988.14 together with interest at 6% per annum from the date of suit till the date of Judgment and thereafter 6% per annum till the date of realization against the estate of Bandlamudi Subbaiah in the hands of D.3 and D.4. The preliminary decree is passed accordingly. The time for redemption is hereby granted by three more months. Accordingly, the interest portion alone is hereby modified.” 18. The Second Appeal is partly allowed. No costs so far as the Second Appeal is concerned. _______________________ Justice P.S.Narayana 21st April, 2010 smr [1] AIR 1967 S.C., 1058 [2] 1990 (1) An.W.R. 6 (DB) [3] AIR 2003 S.C., 1905 [4] AIR 1988 SC. 1858 [5] AIR 2002 S.C., 1428 [6] 2004 (1) ALT 462