# SRINIV ASAY ARDACHARIAR AND ORS v. GOPALA MENON AND ORS

- **Citation:** [1967] 1 S.C.R. 721
- **Court:** Supreme Court of India
- **Decided:** 1966-10-04
- **Case number:** CIVIL APPEHATE JURISDICTION : Civil Appeal No. 636 of 1964
- **Bench:** K. N. Wanchoo, J.M. Shelat, G. K. Mitter
- **Source:** https://unisonlegal.in/judgment/supreme-court-of-india/sriniv-asay-ardachariar-and-ors-v-gopala-menon-and-ors-3906
- **Pages:** 6

## Headnote

Usurious Loans (Madras Amendment) Act (8 of 1937), s. 3-Rate ot
interes..t permissible.
The first appellant advanced monies to D against mortgages of her
property. D was adjudicated an insolvent in 1949 and her properties got
vested in the Official Assignee of Madras. The Official Assignee brought
the properties to sale which were ultimately purchased by the first respondent. The Trial Court decreed the appellants' suit for enforcement of
the mortgages against the property and awarded interest at the rate of 15
per cent compoundable with yearly rests. In appeal the Division Bench of
the High Court found that in the circum1tances of the case a rate of 10
per cent compound interest with yearly rests was just. With certificatethe appellants came to this Conrt. Section 1 of the Usurious Loans
(Madras Amendment) Act, 1937 fell for consideration.
HELD : The net result of the various clauses of s. 3 -
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 ·after considering :
(a) the value of the security offered;
(b) the financial condition of the debtors including the result of
any earlier transaction;
(c) the known and probable risks in getting repayment;
(d) whether compound interest was provided for and if 10 the frequency of the reriod of calculatton of interest for being added
to the principa amount of the loan. [725 E-0]
In the circumstances of the case the Division Bench rightly held 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 a auit by
the brother of the mortgagor was not serious. [726 A-BJ
Venkatarao v. Venkatratnam, A.I.R. 1952 Madras 872 and Sri Ba/a.-
lllJl'aswatl v. A. Parameswara Aiyar, A.I.R. 1957 Mad. 122 referred to.
There was also no reason to interfere with the scaling down of the rate
of interest to 6 per cent from the date of filing of the suit.
Although tho
reasons were not indicated it was fairly clear that the High Court was
using its discretion as regards interest pendente lite. [726 El
CIVIL APPEHATE JURISDICTION : Civil Appeal No. 636 of
1964.
Appeal from the judgment and decree dated September 1
1959 of the Madras High Court in 0. S. Appeal No. 104 of 1955'.
T. V. R. Tatachari, for the appellants.
R. Thiagarajan, Jayaram and M. R. K. Iyer, for respondents.
Nos. 1 and 9.
722
SUPREME COURT REPORTS
[1967) I S.C.R.
The Judgment of the Court wa; delivered by
Mitter, J. This is an appeal from a judgment of the High
Court at Madras on a certificate granted by it.
The main question in ihis appeal relates to the rate of interest
payable in respect of four mortgages executed in between March
20, 1936 and January 2, 1938.
Both the learned trial Judge, Ramaswami J. of the Madras High Court and the Bench of two Judges
in appeal were of the view that the provision for interest in the
impugned mortgages should be reduced; but whereas the learned
trial Judge reduced the rate of interest from
15 per cent
compoundable every quarter to
15 per cent compoundable
with yearly rests, the Judges in appeal after taking all the
circumstances into consideration held that ID per cent compound interest with yearly rests would not be excessive and they
reduced the rate accordingly. They also scaled down the rate
of interest to 6 per cent from the date of the institution of the suit.
The creditor has come up before this Court in appeal and his substantial complaint is that the rate of interest should not have been
cut down by the Division Bench of the Madras High Court.
The power of the court to reduce interest in a case like this
is derived from s. 3 of the Usurious Loans (Madras Amendment)
Act VIII of 1937. Sub-section (I) of that section gives the court
the power to give relief in various ways if it has reason to believe
that the transaction as between the parties thereto was substantially
unfair. One of such reliefs is the reopening of the transa

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SRINIV ASAY ARDACHARIAR AND ORS.
v.
GOPALA MENON AND ORS.
October 4, 1966
[K. N. WANCHOO, J.M. SHELAT AND G. K. MITTER, JJ.)
Usurious Loans (Madras Amendment) Act (8 of 1937), s. 3-Rate ot
interes..t permissible.
The first appellant advanced monies to D against mortgages of her
property. D was adjudicated an insolvent in 1949 and her properties got
vested in the Official Assignee of Madras. The Official Assignee brought
the properties to sale which were ultimately purchased by the first respondent. The Trial Court decreed the appellants' suit for enforcement of
the mortgages against the property and awarded interest at the rate of 15
per cent compoundable with yearly rests. In appeal the Division Bench of
the High Court found that in the circum1tances of the case a rate of 10
per cent compound interest with yearly rests was just. With certificatethe appellants came to this Conrt. Section 1 of the Usurious Loans
(Madras Amendment) Act, 1937 fell for consideration.
HELD : The net result of the various clauses of s. 3 -
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 ·after considering :
(a) the value of the security offered;
(b) the financial condition of the debtors including the result of
any earlier transaction;
(c) the known and probable risks in getting repayment;
(d) whether compound interest was provided for and if 10 the frequency of the reriod of calculatton of interest for being added
to the principa amount of the loan. [725 E-0]
In the circumstances of the case the Division Bench rightly held 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 a auit by
the brother of the mortgagor was not serious. [726 A-BJ
Venkatarao v. Venkatratnam, A.I.R. 1952 Madras 872 and Sri Ba/a.-
lllJl'aswatl v. A. Parameswara Aiyar, A.I.R. 1957 Mad. 122 referred to.
There was also no reason to interfere with the scaling down of the rate
of interest to 6 per cent from the date of filing of the suit.
Although tho
reasons were not indicated it was fairly clear that the High Court was
using its discretion as regards interest pendente lite. [726 El
CIVIL APPEHATE JURISDICTION : Civil Appeal No. 636 of
1964.
Appeal from the judgment and decree dated September 1
1959 of the Madras High Court in 0. S. Appeal No. 104 of 1955'.
T. V. R. Tatachari, for the appellants.
R. Thiagarajan, Jayaram and M. R. K. Iyer, for respondents.
Nos. 1 and 9.
722
SUPREME COURT REPORTS
[1967) I S.C.R.
The Judgment of the Court wa; delivered by
Mitter, J. This is an appeal from a judgment of the High
Court at Madras on a certificate granted by it.
The main question in ihis appeal relates to the rate of interest
payable in respect of four mortgages executed in between March
20, 1936 and January 2, 1938.
Both the learned trial Judge, Ramaswami J. of the Madras High Court and the Bench of two Judges
in appeal were of the view that the provision for interest in the
impugned mortgages should be reduced; but whereas the learned
trial Judge reduced the rate of interest from
15 per cent
compoundable every quarter to
15 per cent compoundable
with yearly rests, the Judges in appeal after taking all the
circumstances into consideration held that ID per cent compound interest with yearly rests would not be excessive and they
reduced the rate accordingly. They also scaled down the rate
of interest to 6 per cent from the date of the institution of the suit.
The creditor has come up before this Court in appeal and his substantial complaint is that the rate of interest should not have been
cut down by the Division Bench of the Madras High Court.
The power of the court to reduce interest in a case like this
is derived from s. 3 of the Usurious Loans (Madras Amendment)
Act VIII of 1937. Sub-section (I) of that section gives the court
the power to give relief in various ways if it has reason to believe
that the transaction as between the parties thereto was substantially
unfair. One of such reliefs is the reopening of the transaction
and relieving the debtor of all liability in respect of any excessive
interest. Explanation I to the section lays down that "if the interest is excessive, the court shall presume that the transaction
was substantially unfair; but such presumption may be rebutted
by a number of special circumstances justifying the rate of interest."
Sub-section (2) of s. 3 provides by clause (a) that the word "excessive" in the section means in excess of that which the court deems
to be reasonable having regard to the risk incurred as it appeared
or must be taken to have appeared, to the creditor at the date of
the loan. Under clause (b) of the said sub-section the court has
also to take into account any amounts charged or paid etc. and
if compound interest is charged, the period at which it is calculated
and the tot~J advantage which may reasonably be taken to have
been expected from the transaction. Clause (c) of sub-section 2
provides that in considering the question of risk, the court shall
take into account the presence or absence of security and the value
thereof, the financial condition of the debtor and the result of any
previous transactions of the debtor, by way of loan, so far as the
same were known, or must be taken to have been known, to the
creditor. Clause (d) of the said sub-section enjoins upon the court
to consider also all circumstances materially affecting the relations
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SRINIVASA v. GOPALA MENON (Mitter, 1.)
723
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of the parties at the time of the loan or tending to show that the
transaction was unfair, including the necessities or supposed necessities of the debtor at the time of the Joan so far as the same were
known, or must be taken to have been known, to the creditor.
In effect the provisions of the section which are relevant for
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the purpose of this appeal are as follows:-
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(a) If the Court has reason to believe that the transaction was unfair·it will exercise the powers given by subsection (!).
(b) The court shall presume the transaction to be substantially unfair if the interest is excessive, such presumption being a rebuttable one by the special circumstances of the case;
(c) In order to find out whether the interest is excessive
the court must examine the circumstances of the case
in the light of the risk incurred or the risk as would be
apparent to the creditor at the date of the loan, and then
judge whether compound interest at the rate prescribed and with the rests provided for was justifiable keeping
also in view the securit~-given by the inortgagor, the value
of such security and-_the ·condition of the debtor including
the result of any previous transaction.
·
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 after considering :-
(a) the 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.
The facts of the case may no'w be briefly stated. The original
mortgagor Dhanakoti Ammal had succeeded to the properties of
her father along with her sisters under a will executed by him on
the basis that the properties were his self-acquired properties.
Her brother Alavandar filed a suit in the year 1919 through a next
friend claiming that the properties were not the self-acquired
properties of his father and as such not capable of bequest under
a will. This suit was dismissed as also the appeal therefrom to
724
SUPREME COURT REPORTS
(1967] I S.C.R.
the Madras High Court preferred in 1922. By the year 1936 when
the first mortgage in favour of Srinivasavaradachariar, the appellant, before us, was executed,
Dhanakoti Ammal was involved
in debts. The most important item of her properties was a market
on the outskirts of the city of Madras which had become dilapidated and the Corporation of Madras was refusing to renew the licence
unless it was put in good order. She had further borrowed a sum
of money repayable with interest at 20 per cent compoundable
monthly. Her brother Alavandar who was due to attain majority
very soon threatened to file another suit impeaching the decree
in the earlier suit. As a matter of fact, the first two mortgages
were executed in 1936 before Ala>andar had filed his suit and the
last mortgage was executed in January 1938. Dhanakoti Amrnal
got more and more involved in debt and was adjudicated an insolvent in 0. P. 148 of 1949. Her properties got vested in the Official
Assignee of Madras. The Official Assignee brought the properties to sale which were ultimately purchased by Dr. Gopala Menon
for Rs. 5,000/-.
Dr. Gopala Menon tried to come to an arrangement with Srinivasavaradachariar but nothing came out
of it
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and the suit out of which this appeal has arisen was filed in the year
D1950. Other alienees were imolved in the suit but we are not
concerned with them.
According to the
learned trial Judge
the risks which the creditor ran in advancing the money
were
considerable in that the adequacy of the security was questionable
in view of the threat of suit by Dhanakoti Ammal's brother and the
condition of the property in an undeveloped area of KodambakE
kam. The learned trial Judge could not find anything unfair in
the transaction, but nevertheless he thought that the rate of interest
-i;hould be scaled down to 15 per cent compoundable at the end of
each year.
The learned Judges of the Division Bench of the Madras High
Court found that the amount advanced under the old mortgages
came to nearly Rs. 48,000/- that there was already a prior mortgage in respect of which nearly Rs. 8,000/- was due and the value
of the security though not very ample could not be said to be
markedly inadequate and there was a shadow on the title of the
mortgagor by reason of the threat of suit by her brother. On
a consideration of the entire evidence bearing on the point revealing the circumstances in which the loan
transaction came into
existence the appellate bench held that 15 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 Judges thought that the rate of
interest to be allowed was 10 per cent compound interest with
yearly rests.
It is difficult to predicate of any rate of interest as being excessive .:livorced from the circumstances of the case unless the rate
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SRINIVASA v. GOPALA MENON (Mitter, I.)
725
fixed is so high as to be 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(1) 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 at
12! per cent per mensem with annual rests. In Sri Balasaraswati v. A. Parameswara Aiyar(2) a Division Bench consisting
of Rajamannar C. J. and Panchapekesa Ayyar J. observed, "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 A.I.R. 1952 Madras 872 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.I.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 Venkatarao v. Venkatratnam(') 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.
It appears ta μs the~fore that in th,e opinion of a number
of Judges of the Ma!lras High Court who were cognizant of the
state of affairs prevailing in tile State interest beyon\l the rate
of 12 % per-annum sinwle would be considered excessive by court
of law where the sec]lrity was not inadequate an!! the risk rμn by
the creditor was net @n9rmal.
Th,er~ can be no displltll that
(1) A.I.R. 19il )\{adnis B12..
GJ A.I.R. 1957 Madras 122, 129.
726
SUPREME COURT REPORTS
[1967] l S.C.R.
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.
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.
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 tiling 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 and 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 arc 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 for the reduction of raie of interest pendente lite.
Jn the result the appeal fails and is dismissed with costs.
G.C.
Appeal dismissed.
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