FIRST APPEAL No. 380 OF 1998 Against the judgment dated 16.04.1998 and the decree signed on 30.04.1998 by Shri Bhawesh Chandra Jha, learned Sub Judge-III, Araria in T.M.S. No. 33 of 1994/144 of 1996. SADANAND YADAV ………… Defendant No.1/Appellant Versus STATE BANK OF INDIA, AGRICULTURE DEVELOPMENT BRANCH, ARARIA & ORS. ……….. Plaintiffs/Respondents ******** For the appellant : Mr. Uday Bhanu Roy, Advocate. Mr. Ambrish Kumar Jha, Advocate. For the State Bank of India : Mr. Kaushlendra Kumar Sinha Advocate. Mr. Sunil Kumar Singh, Advocate. Dated : 13th day of August, 2010 P R E S E N T THE HON'BLE MR. JUSTICE MUNGESHWAR SAHOO J U D G M E N T 1. The defendant No.1 has filed this first appeal against the judgment dated 16.4.1998 and the decree following thereupon signed on 30.4.1998 by Shri Bhawesh Chandra Jha, learned Sub Judge-III, Araria in T.M.S. No. 33 of 1994/144 of 1996 decreeing the plaintiffs- respondents’ suit. 2. The State Bank of India plaintiff No.1 filed the aforesaid suit alleging that on the application of the appellant for loan for purchasing of tractor and trailor for the purposes of cultivation the bank sanctioned the loan of Rs. 80000/-. The respondent Nos. 2 and 3 became the guarantor. According to the agreement 12% and 11.5% interest with half yearly interval was payable. The appellant mortgaged Mungeshwar Sahoo, J. -2- the lands described in schedule-Ga in the plaint. In spite of repeated demands neither the appellant nor the guarantors paid the loan amount. Hence the suit was filed for decree of Rs. 2,55,496/- and in default it was prayed that the tractor and trailor and the mortgage property be sold and the decreetal amount may be realized. 3. A joint written statement was filed by the defendants and their defence is that they were made to sign on blank papers. The agreement was without free consent and signatures were obtained by fraud and misappropriation. The defendants never agreed to the rate of interest which is excessive and illegal. The account mentioned in plaint is wrong. 4. On the basis of the above pleadings, the learned court below has framed six issues. Out of which issue Nos.4 and 5 are as follows : (iv) Is the claim of the plaintiff legal and genuine ? (v) Is the plaintiff entitled to a decree as claimed ? 5. After trial the learned court below came to the conclusion that the rate of interest agreed upon has been shown as 12.5% per annum with admissible rests but the plaint mentions 12% and 11.5% and the plaintiff has not removed the said vagueness and further found that the claim of the plaintiff is genuine and, therefore, decreed the plaintiff’s suit as per statement of account Ext.5. 6. The learned counsel appearing on behalf of the appellant raised only one question of law and submitted that admittedly, the appellant has taken agricultural loan for the purpose of agriculture because he is a cultivator but the plaintiff-respondent/bank has charged interest payable on half yearly rests. Learned counsel further submitted that the appellant is ready to pay the loan amount and, -3- therefore, the bank should recalculate the interest payable on yearly basis as has been held by the Hon’ble Supreme Court and this High Court. 7. On the other hand, the learned counsel for the State Bank of India submitted that there is no illegality in the impugned judgment and decree and the appellant has agreed the rate of interest payable on half yearly rests. 8. In view of the above contentions of the parties only question to be decided in this appeal is whether the bank is entitled to charge interest with half yearly rests from the appellant or not. F I N D I N G 9. In a decision reported in 1999 (3) 227 PLJR Jainath Prasad Vs. State of Bihar and others following the Hon’ble Supreme Court decisions reported in 1994 (5) SCC 213 Corporation Bank Vs. D.S. Gowda and another at paragraphs 21, 22 and 23 it has been held as follows : “21. In the case of Karnam Rangarao the Supreme Court noticed six circulars issued by the Reserve Bank, of which circulars, dated 14.3.1972 and 5.10.1974 were directly on the subject of interest on current dues in respect of agricultural advances. The third circular, dated 13.3.1996 (sic-1976) was general in nature and the fourth circular, dated 17.8.1996 (sic.-1976) clarified that the earlier directions in respect of agricultural advance would remain unaffected by the circular dated 13.3.1996 (sic.-1976). The fifth circular, dated 28.2.1978 was again general in nature and the sixth and the last circular, dated 15.9.1984 stated that in respect of agricultural advances the banks should not compound interest in case of current dues. It, however, provided that in case crop loans or instalments under terms loans became overdue, -4- banks could add interest outstanding to the principal. However, it further added that where the default was due to genuine reasons, banks should extend the period of loan or reschedule the instalments under term loan. Once such a relief was extended the overdues would become current dues and in that event banks should not compound interest. The Supreme Court noted that this revealed the concern of the Reserve Bank towards the agriculturist loanees. On a consideration of the aforesaid circulars the Supreme court held and found as follows : “23. In so far as Civil Appeal No. 544 of 1986 is concerned it relates to the bank’s right to charge compound interest i.e. interest which periodical rests on agricultural advances. We have already referred to the various circulars issued by the Reserve Bank from time to time in exercise of power conferred by Section 21/35-A of the Banking Regulation Act. We have pointed out that the said circulars/directives provide that agricultural advances should not be treated on a par with commercial loans insofar as the rate of interest thereon is concerned because the farmers do not have any regular source of income except sale proceeds of their crops which income they get once a year. The question of recovery of interest with quarterly or six-monthly rests from farmers is, therefore, not feasible. The fact that the farmers are fluid at a given point of time every years has to be kept in mind in determining the point of time when they should be expected to repay the loan or pay the instalment/interest on advances. Therefore, to allow the Banks to charge interest on quarterly or half-yearly rests from farmers would tantamount to virtually compelling them to pay compound interest, since they would not be able to pay the interest except once in a year i.e. when they receive the income from sale proceeds of their crops. The Reserve Bank has -5- shown concern for the farmers by directing all banking institutions to so regulate the recovery of interest as to coincide with the point of time when the farmers are fluid. It has, therefore, been emphasised by the Reserve Bank that interest should be charged once a year to coincide with the point of time when the farmer is fluid and interest on current dues should not be compounded although it may be done when the advance/ instalment becomes overdue. Thus according to the circulars/directives, so far as loans for agricultural purposes are concerned, at best interest may be charged with yearly rests and may be compounded if the loan/instalment becomes overdue. In the present case, since interest was charged with six-monthly rests that was clearly in contravention of the Reserve Bank circulars/directives. Compounding of interest on current dues on agricultural advances having been discouraged, the Bank was not entitled to charge interest with shorter periodical rests and compound the same. The Bank could add interest outstanding to the principal and compound the interest when the crop loan or term loan becomes overdue having regard to the tenor of the circulars dated 14.3.1972. The High Court was, therefore, fully justified in coming to the conclusion that the Bank was not entitled to charge interest with half-yearly rest.” 22. Thus the picture that emerges from the Supreme Court decision in Karnam Rangarao is that in agricultural advances so far as the rate of interest is concerned (percentage per annum) in view of section 21-A of the Banking Regulation Act, the courts are precluded from reopening or questioning it as long as the rate remains within the limit fixed by the Reserve Bank. The courts can interfere only in case the rate exceeds the limit fixed by the Reserve Bank. On the question of application or compounding of interest in agricultural advances, -6- no compounding is permissible if the instalments are paid on due time. In case of default the banks may reschedule the repayment instalments of a term loan having regard to any special circumstances adversely affecting the loanee farmer. In case, however rescheduling of payment is not warranted then in the event of default and the instalment(s) becoming overdue it is open to the bank to add interest outstanding to the principal. 23. Thus the action of the bank in charging interest with half yearly rests on the loan given to the petitioner was clearly not in accordance with the legal position as laid down by the Supreme Court.” 10. From the above settled principles of law, it is now clear that the action of the Bank in charging interest with half yearly rests on the loan given to the appellant is not in accordance with the legal position as laid down by the Hon’ble Supreme Court as well as this Court. 11. In view of the above discussions, in my opinion the point raised by the learned counsel for the appellant is clearly covered by the law laid down by the Hon’ble Supreme Court and this Court and, therefore, needs no further discussions. 12. Accordingly, this first appeal is allowed in part. The judgment and decree is only modified to the extent that the plaintiff/bank is entitled to recover the interest with yearly rests. The bank shall recalculate the amount dues accordingly, and proceed to realize the same. (Mungeshwar Sahoo, J.) Patna High Court, Patna Dated : 13th August, 2010 N.A.F.R./ S.S.