K PUSHPANGADAN Vs. FEDERAL BANK LIMITED ALWAYE

JUDGEMENT

(1.) The first respondent is the plaintiff in the suit filed for recovery of the money advanced by the Bank to the appellant on account of a loan he took for agricultural purposes. According to the plaintiff, as per the terms of the loan, the amount was repayable on demand within twelve months in a lump sum with interest at 16.5% at quarterly rests. As a security for the advance, the appellant executed a demand promissory note in favour of the Bank. He also executed a hypothecation agreement in favour of the Bank. A collateral security was also offered as equitable mortgage in respect of the scheduled property by depositing the title deed.

(2.) The appellant contended in his written statement inter alia, that the action of the Bank in charging interest at the rate of 16.5% per annum was unauthorised and illegal. The directions issued by the Reserve Bank of India to the Scheduled Banks in the matter of charging interest for loans are binding on the Bank. According to the above circumstances, the Bank is precluded from charging interest on agricultural loans in excess of 13.5%. Therefore, it was contended that the agreement to pay interest at the rate of 16.5% per annum is opposed to public policy. The suit was decreed allowing the plaintiff to realise from the defendants and their assets and also charged over the scheduled property, the loan amount with interest thereon at the rate claimed in the plaint and at 6% from the date of the suit till realisation of the amount Aggrieved by the Decree and Judgment of the lower court, the appellant has filed this appeal.

(3.) Sri. C.V. Vasudevan, learned counsel for the appellant contended that the charging of interest at the rate of 16.5% is illegal and opposed to the various circulars issued by the Reserve Bank of India. The directions issued by the Reserve Bank of India are statutory in nature and therefore, the Bank has got a duty to abide by them. The Court is also entitled to take note of the provisions contained in the above circular. The learned counsel also relied on the decision of the Karnataka High Court and one decision of this Court