SYNDICATE BANK, BANGALORE v. R. VEERANNA — 1994 DIGILAW 45 (KAR)

M. M. MIRDHE, J. ( 1 ) THIS appeal is preferred by the appellant who was the plaintiff in the trial court under Section 96 of CPC against the decree and judgment dated 27-8-1986 passed by the II additional City Civil Judge, Bangalore City, in O. S. No. 8174 of 1980 in not decreeing the suit of the appellant in respect of the interest as prayed for by it. ( 2 ) WE have heard the learned counsel for the appellant andthe learned counsel for the respondents and perused the records of the case fully. ( 3 ) THE appellant as a plaintiff filed the suit for the recovery ofa sum of Rs. 5,70,324. 15 in respect of the loan Account No. OSL 27/72; a sum of Rs. 7,91,203. 35 in respect of the loan Account No. OSL 20/73 and a sum of Rs. 2,53,563. 55 in respect of the over-draft facility availed by the respondent in SOD Account No. 248, dated 6-1-1975. The defendants resisted the suit on several grounds including the ground regarding charging of interest as done by the plaintiff. The trial court has decreed the suit of the appellant for Rs. 9,82,963. 47 with current interest at the rate of 11% p. a. from the date of suit on the balance amount of Rs. 2,48,502. 57 under the 1st account and the balance amount of Rs. 4,60,137. 20 under the second account and on the balance of Rs. 2,35,843. 70 under the overdraft facility loan account availed by the respondents. ( 4 ) THE first loan under OSL A/c No. 27 of 1972 was availed bythe respondents for commercial purpose under Ex. P. 1, dated 28-8-1972 for Rs. 3,00,000/- with interest at 5% above the reserve Bank of India rate of interest with a minimum of 11%. Ex. P. 3 is the equitable mortgage in respect of that amount and exs. P. 14 to P. 18 are the acknowledgments in respect of these debts. The 2nd loan of Rs. 2,50,000/- was availed for commercial purpose only under Ex. P. 5, dated 13-6-1973 by executing article of agreement. Ex. P. 7 is the deed of equitable mortgage, Ex. P. 10 and P. 9 are the extracts of ledger account and Exs. P. 16 and p. 17 are the acknowledgments executed by the defendants in favour of the plaintiff-Bank. 2,50,000/- was availed for commercial purpose only under Ex. P. 5, dated 13-6-1973 by executing article of agreement. Ex. P. 7 is the deed of equitable mortgage, Ex. P. 10 and P. 9 are the extracts of ledger account and Exs. P. 16 and p. 17 are the acknowledgments executed by the defendants in favour of the plaintiff-Bank. The third loan is the overdraft facility loan availed by the respondents under Ex. P. 11. The pronote dated 7-1-1975 is at Ex. P. 11 agreeing to pay interest at 8% above the R. B. I. rate subject to the limit of 17%. Ex. P. 13 is the equitable mortgage and Ex. P. 18 is the acknowledgment in respect of this loan. ( 5 ) THOUGH the respondents have suffered a decree they havenot challenged the correctness or validity of that decree. It is the plaintiff-Bank whose claim has been decreed by the court in part, who has preferred this appeal, being aggrieved against the granting of interest at the rate of 11% on the first two loans and 17% on the third loan. The grievance of the appellant is that the court ought to have granted interest at contractual rate and not at the rate of 11% and also it has not properly exercised its discretion in granting 6% interest from the date of decree till realisation. It has also made a grievance that the trial court was wrong in not granting the expenses, interest on insurance premium, etc. ( 6 ) THE main point to be considered in this case is that whetherthe respondents can be fastened with the liability to pay interest at the contractual rate of interest when the contractual rate of interest becomes increased in view of the Reserve Bank of India circulars. Section 21 of the Banking Regulation Act, 1949 gives power to the Reserve Bank of India to control advances by banking companies. Under that power the banks are required to raise their interest on advances to their customers in accordance with the Reserve Bank of India rate. In this case it cannot be disputed that the defendants have agreed to pay interest at the r. B. I. rate of interest subject to certain minimum. Under that power the banks are required to raise their interest on advances to their customers in accordance with the Reserve Bank of India rate. In this case it cannot be disputed that the defendants have agreed to pay interest at the r. B. I. rate of interest subject to certain minimum. It is the contention of the appellant that R. B. I. rate of interest was increased from time to time and therefore, the plaintiff-Bank also increased its rate of interest in consonance with the R. B. I. rate of interest and the defendants are liable to pay at the rate of interest as increased with the R. B. I. rate of interest in view of the contract between the parties. No doubt, if a party has entered into an agreement to pay interest at a particular rate, it is baind to pay it and if it has also agreed to pay the rise in the interest in view of the raise of rate by the R. B. I. , the party is bound to pay it. But the question in this case is whether the bank can automatically charge the increased interest in view of the rise in interest on account of R. B. I. directives without bringing to the knowledge of the debtor about the rise in the rate of interest and obtain his consent. That is the point that is required to be decided in this appeal. ( 7 ) THE learned counsel for the appellant submitted that thedirections issued by the R. B. I. under Section 21 of the Banking regulation Act, 1949, have got the force of law, and therefore it will be binding on the debtors even if the bank has not brought to their notice specifically the rise in the rate of interest from time to time by virtue of the directions issued by the R. B. I. It is also argued that because these directions have got the force of law, the debtors cannot plead ignorance of this direction because no one can plead ignorance of law. Broom in his classic book legal Maxims has dealt with this aspect on page 169. No doubt ignorance of fact can be a good excuse but ignorance of law cannot be an excuse. Broom in his classic book legal Maxims has dealt with this aspect on page 169. No doubt ignorance of fact can be a good excuse but ignorance of law cannot be an excuse. The learned author has observed that ignorance of a material fact may excuse a party from the legal consequences of his conduct but ignorance of law which every man is presumed to know does not afford any such excuse. Though under the maxim ignorance of law cannot be an excuse, knowledge of the increase in the rate of interest by the R. B. I. may be attributed to the debtors, but what was the proportional rise in the rate of interest and from what date it has come into force are the material facts and the debtors cannot be presumed to know these material facts. Unless and until the debtors are made known about the rise in the rate of interest and the date from which it has been made operative, they cannot be fastened with the liability on the basis of the maxim that ignorance of law is no excuse. This court in Bank of India v Rao Saheb Krishna rao Desai, has held that the debtor in that case could not be charged with the increased rate of interest, but a perusal of the facts in that case go to show that there was a condition stipulated for increasing the rate of interest to the effect that the bank shall notify to the borrower about such increase and the bank shall also obtain the consent. No doubt in the contract between the plaintiff and the defendant in this case, there is no such stipulation that the bank should intimate the debtors about the increase in the rate of interest in the R. B. I. The learned counsel for the appellant contended that the bank can charge the increased rate of interest even without bringing to the notice of the debtor about the increase in the rate of interest due to the r. B. I. circular and also without obtaining any consent. The learned counsel relied on Section 29 of the Indian Contract Act and contended that the agreement between the parties is not void on account of any uncertainty and therefore, it must be in force. The learned counsel relied on Section 29 of the Indian Contract Act and contended that the agreement between the parties is not void on account of any uncertainty and therefore, it must be in force. The question is not whether the contract between the parties is void in view of Section 29 of the Contract Act, on the ground that it is vague or uncertain but the question is whether the plaintiff-bank is empowered to charge the increased rate of interest in pursuance of the R. B. I. directives, even though it has not brought the rise in the rate of interest to the notice of the debtors and obtained their consent. Section 29 of the Contract act cannot be an answer to this case. The learned counsel for the appellant also relied on Syndicate Bank, Chickmagalur v A. K. Ahmed Bawa, wherein it has been held by this Court that under Order 34, Rule 11 the court has discretion in awarding interest from the date of suit till the date fixed for redemption. But, this discretion has to be exercised judiciously and not arbitrarily. He also relied on Vijaya Bank, Bangalore v S. Bhathija2, wherein the same proposition has been reiterated holding that if facts of a particular case warrant reduction of interest, the court may reduce the contract rate of interest by giving reasons justifying such reduction. ( 8 ) IN this case it is not disputed that the increase in the rateof interest by the Bank due to the direction of the R. B. I. was not brought to the notice of the defendants and their consent was not obtained. In fact Exhibits D. 16 and D. 17 are the letters intimating the defendants about the rise in the rate of interest. The defendants protested against the manner in which the Bank has been charging interest. When a person is to be charged with more liability than which is contracted for in the contract, principles of natural justice are that he must be put on a notice. If the rate of interest is increased by the Bank and its intimation is given to the debtor, the debtor may choose either to continue with the contract or to pay off the dues of the Bank and clear off the dues without incurring the liability to pay the increased rate of interest. If the rate of interest is increased by the Bank and its intimation is given to the debtor, the debtor may choose either to continue with the contract or to pay off the dues of the Bank and clear off the dues without incurring the liability to pay the increased rate of interest. By virtue of the directions of the R. B. I. if the Bank goes on increasing the rate of interest without bringing to the notice of the debtor the concerned R. B. I. directives, it will amount to the violation of the principles of natural justice. This could be allowed only if there was to be any provision in law entitling the bank to charge interest in this manner or increase interest in this manner without bringing to the notice of the customers the necessary circulars of the R. B. I. in this regard. But there is no such law. The plaintiff-Bank itself is aware of this principle of natural justice which it has incorporated in exhibit P. 38 circular issued by it to its branches regarding enhancement of interest on advances as per the directions of the r. B. I. ( 9 ) IN that circular it is mentioned as follows:"in the case of all advances/limits of above Rs. 1 lakh and advances covered by S. C. C. commodities, branches should send intimations to borrowers that the rates of interest on their borrowing accounts will stand enhanced by 2% or 3% as stated above (vide Annexure-I ). The concurrence of the borrowers should be obtained without fail on the acknowledgment portion of the notice and kept affixed to the loan papers. In the case of small borrowers, a notice may be put up on the Notice Board of branches intimating the increase in the rate of interest. Draft of this notice is attached as Annexure-II. " in cases of all advances, etc. , similar instructions are issued by the bank under Exhibits P. 38, P. 39, P. 33 and P. 34. By these circulars the Head Office of the plaintiff has directed its branches to intimate the borrowers about the increase in the rate of interest if the loan is more than Rs. 5,000/- and obtain their consent to make it binding on them and in cases where the loan is less than Rs. By these circulars the Head Office of the plaintiff has directed its branches to intimate the borrowers about the increase in the rate of interest if the loan is more than Rs. 5,000/- and obtain their consent to make it binding on them and in cases where the loan is less than Rs. 5,000/- it is sufficient if the intimation is put up on the Notice Board. But the plaintiff-Bank has not followed the instructions issued by the Head Office in its circulars. The learned counsel for the appellant argued when confronted with these circulars that these circulars are between the Head Office and the plaintiff-Bank and the defendants cannot take any advantage of those circulars. He also submitted that these circulars are issued by the Head Office by way of abundant precaution. This argument is an argument of desperation. We have no hesitation to reject it as devoid of any merit. The circulars themselves envisage that the bank should intimate the debtors about the rise in the rate of interest and obtain their consent if the loan amount is more than Rs. 5,000/- and if it is less than Rs. 5,000/- it will be sufficient even if it is put up on the notice Board. The plaintiff has violated the instructions given by the Head Office. Therefore, on this ground the plaintiff-Bank cannot claim the rate of interest by virtue of the rise in interest on account of the R. B. I. circulars. The trial court has rightly considered this aspect of the case and rejected the claim of the plaintiff for the advanced rate of interest in this regard. ( 10 ) SO far as non-levy of interest on insurance premium is alsoconcerned, we find no reasons to differ from the view taken by the trial court. ( 11 ) THE learned counsel for the appellant submitted that onthe 3rd loan amount the trial court was wrong in awarding the future interest at the rate of 11% p. a. from the date of the suit till the date of decree. The interest awarded by the trial court is at 11%. P. W. 2 himself in his evidence has admitted that the rate of interest is not calculated at the rate mentioned either in Ex. P. 9 or in Ex. P. 10. The interest awarded by the trial court is at 11%. P. W. 2 himself in his evidence has admitted that the rate of interest is not calculated at the rate mentioned either in Ex. P. 9 or in Ex. P. 10. He has also admitted that it may be a fact that if interest is calculated at 11% on the amount of Rs. 3,08,318. 10 Ps. from 1-1-1973 to 31-8-1973 it will come to Rs. 8,478. 75 Ps. and not Rs. 9,503. 30 as shown in Ex. P. 9. He has further admitted that Ex. P. 9 does not reflect the actual rate of interest charges. In view of these admissions we think that the trial court was justified in awarding interest at 11% on the third loan from the date of suit till the date of decree. We do not find any grounds to interfere with the judgment and decree passed by the trial court. ( 12 ) HENCE we proceed to pass the following order:order the appeal is dismissed with proportionate costs. --- *** --- .