Case: Srinivasavardacharur And Ors Vs. Gopala Menon And Ors

per cent compound interest calculated with quarterly rests was certainly excessive. Taking note of several decisions of the Madras High Court to which we shall presently refer, the learned fudges thought that the rate of interest to be allowed was 10 per cent compound interest with yearly rests.8. It is difficult to predicate of any rate of interest as being excessive divorced from the circumstances of the case unless the rate fixed is so high us to he suggestive of an unfair transaction on the face of things. It is not for us to speculate as to why the Legislature of the State of Madras proceeded in such a round about way in making amendments to the Usurious Loans Act of 1918 for the purpose of giving relief to borrowers when it is well known that at or about the time of the Madras amendment the Legislatures of other States in India had fixed certain rates as being the maximum beyond which the Courts of law were not competent to go. So far as we are aware difference was made in the treatment of unsecured loans and secured loans and even in the case of the former the rate allowed was not to exceed 12 per cent simple in most of the States. With regard to the rate of interest allowed by the Madras High Court after 1937 we find that in Venkatarao v. Venkataratnam, AIR 1952 Mad 872 , a bench consisting of Govinda Menon and Ramaswami, JJ. observed,"that anything above 12 per cent per annum simple interest is excessive, considering the nature of transaction in this State."There the suit was on a mortgage which provided for payment of interest of 121/2 per cent per mensem with annual rests. In Sri Balasaraswathi Ltd., Tirunelveli v. Paramaswara Aiyar, AIR 1957 Mad 122 , a Division Bench consisting of Rajamannar, C. J. and Panchapakesa Ayyar, J. observed (p. 129)"in normal cases where the security is ample to cover the loan and there is no danger at all to the principal and interest the Court will hold more than 12 per cent simple interest to be excessive, as held in AIR Madras and by us in A. S. 348 and 361 of 1948".According to the learned Judges"Where the security is not sound 10 per cent compound interest can be allowed as in A.l.R. 1954 Madras 764".In the result the learned Judges only allowed simple interest at 12 per cent per annum. In the instant cases the learned Judges in appeal also referred to a judgment of Subba Rao, J. (as he then was) in C.S. 163 of 1949 as containing an observation that the dictum in AIR 1952 Mad 872, that "anything above 12 per cent simple interest was excessive would not be taken as a principle of law applicable to all cases irrespective of the circumstances obtaining at the time of the transaction". That transaction also related to Dhanakoti Ammal-the original debtor in this case and Subba Rao, J. (as he then was) reduced the rate of interest from 15 per cent compound interest to 12 per cent per annum simple. We have not had the benefit of reading the judgment of his Lordship, but we take it that the result of it is as indicated in the judgment in appeal before us.9. It appears to us, therefore, that in the opinion of a member of Judges of the Madras High Court who were cognizant of the state of affairs prevailing in the State interest beyond the rate of 12 per cent per annum simple would be considered excessive by Courts of law where the security was not inadequate and the risk run by the creditor was not abnormal. There can be no dispute that interest payable at the rate of 10 per cent compoundable annually over a number of years would be more in the interest of the creditor than 12 per cent per annum simple for the same period. In our opinion the learned Judges of the Division Bench of the Madras High Court were right in holding that 10 per cent compound interest with yearly rests would meet the justice of the case. The security was not inadequate and the threat of suit by Alavandar in view of the fact that his earlier suit which had been taken. in appeal to the Madras High Court and subsequently lost, was never regarded seriously. This is corroborated by the fact that even after the institution of that suit in 1937 the appellant before us advanced further sums of money to Dhanakoti Ammal at the same rate of interest as before. If he had thought that his security was put in jeopardy by the institution of the suit he would have been careful not to advance any further amounts and would in any case have insisted on the rate of interest being higher than that provided for in the earlier mortgages.10. In our opinion the division bench of the Madras High Court made a correct assessment of the situation and their pronouncement with regard to the rate of interest prior to the date of the suit ought not to be disturbed.11. We also find no reason to interfere with the scaling down of the rate of interest to 6 per cent from the date of the filing of the suit. Although the reasons are not indicated, it seems fairly plain that their Lordships were using their discretion as regards interest pendente lite. We cannot overlook the fact that the mortgages were executed as far back as 1936 and 1938 that the creditor who had waited till 1950 for the institution of the suit would, in any event, get interest substantially exceeding the principal amount of the loans. In this view of things we are not prepared to interfere with the exercise of the discretion exercised by the learned Judges of the Madras High Court even though they have given no reasons sons for the reduction of rate of interest pendente life.

Decision (1 = appeal accepted, 0 = rejected): 0

Explanation:
0[ds]5. The net result of the above seems to be that the Court must go back to the date of the original transaction and form an opinion as to the rate of interest which would be reasonable afterthe value of the security offered;(b) the financial condition of the debtor including the result of any prior transaction(c) the known or probable risks in getting repayment;(d) whether compound interest was provided for and if so the frequency of the period of calculation of interest for being added to the principal amount of the loan.It is difficult to predicate of any rate of interest as being excessive divorced from the circumstances of the case unless the rate fixed is so high us to he suggestive of an unfair transaction on the face offar as we are aware difference was made in the treatment of unsecured loans and secured loans and even in the case of the former the rate allowed was not to exceed 12 per cent simple in most of the States. With regard to the rate of interest allowed by the Madras High Court after 1937 we find that in Venkatarao v. Venkataratnam, AIR 1952 Mad 872  , a bench consisting of Govinda Menon and Ramaswami, JJ.anything above 12 per cent per annum simple interest is excessive, considering the nature of transaction in thisthe suit was on a mortgage which provided for payment of interest of 121/2 per cent per mensem with annual rests. In Sri Balasaraswathi Ltd., Tirunelveli v. Paramaswara Aiyar, AIR 1957 Mad 122  , a Division Bench consisting of Rajamannar, C. J. and Panchapakesa Ayyar, J. observed (p.normal cases where the security is ample to cover the loan and there is no danger at all to the principal and interest the Court will hold more than 12 per cent simple interest to be excessive, as held in AIR Madras and by us in A. S. 348 and 361 ofto the learnedthe security is not sound 10 per cent compound interest can be allowed as in A.l.R. 1954 Madrasthe result the learned Judges only allowed simple interest at 12 per cent per annum. In the instant cases the learned Judges in appeal also referred to a judgment of Subba Rao, J. (as he then was) in C.S. 163 of 1949 as containing an observation that the dictum in AIR 1952 Mad 872, that "anything above 12 per cent simple interest was excessive would not be taken as a principle of law applicable to all cases irrespective of the circumstances obtaining at the time of the transaction". That transaction also related to Dhanakotioriginal debtor in this case and Subba Rao, J. (as he then was) reduced the rate of interest from 15 per cent compound interest to 12 per cent per annum simple. We have not had the benefit of reading the judgment of his Lordship, but we take it that the result of it is as indicated in the judgment in appeal before us.9. It appears to us, therefore, that in the opinion of a member of Judges of the Madras High Court who were cognizant of the state of affairs prevailing in the State interest beyond the rate of 12 per cent per annum simple would be considered excessive by Courts of law where the security was not inadequate and the risk run by the creditor was not abnormal. There can be no dispute that interest payable at the rate of 10 per cent compoundable annually over a number of years would be more in the interest of the creditor than 12 per cent per annum simple for the same period. In our opinion the learned Judges of the Division Bench of the Madras High Court were right in holding that 10 per cent compound interest with yearly rests would meet the justice of the case. The security was not inadequate and the threat of suit by Alavandar in view of the fact that his earlier suit which had been taken. in appeal to the Madras High Court and subsequently lost, was never regarded seriously. This is corroborated by the fact that even after the institution of that suit in 1937 the appellant before us advanced further sums of money to Dhanakoti Ammal at the same rate of interest as before. If he had thought that his security was put in jeopardy by the institution of the suit he would have been careful not to advance any further amounts and would in any case have insisted on the rate of interest being higher than that provided for in the earlier mortgages.10. In our opinion the division bench of the Madras High Court made a correct assessment of the situation and their pronouncement with regard to the rate of interest prior to the date of the suit ought not to be disturbed.11. We also find no reason to interfere with the scaling down of the rate of interest to 6 per cent from the date of the filing of the suit. Although the reasons are not indicated, it seems fairly plain that their Lordships were using their discretion as regards interest pendente lite. We cannot overlook the fact that the mortgages were executed as far back as 1936 and 1938  that the creditor who had waited till 1950 for the institution of the suit would, in any event, get interest substantially exceeding the principal amount of the loans. In this view of things we are not prepared to interfere with the exercise of the discretion exercised by the learned Judges of the Madras High Court even though they have given no reasons sons for the reduction of rate of interest pendente life.