JUDGMENT This appeal is filed by the defendant. 2. The parties are referred to by their rank before the trial court for the sake of convenience. 3. The plaintiff is said to be a body corporate constituted under the Banking Companies (Acquisition & Transfer of Undertakings) Act, 1970, having its Head Office at Bangalore. It is said to have a credit card division, known as Cancard Division, with its Head office also at Bangalore. The defendant was said to be a credit card holder of the plaintiff and was issued a Cancard – Visa card, at Cochin. The card was issued against his application dated 16.10.1998. The application was said to have been forwarded to the plaintiff at Bangalore. The defendant’s membership was said to have been accepted and he was issued the card bearing no.4543 6330 1053 2574. The same was said to have been issued on 31.10.1998 and was valid till 31.10.2001. It was claimed that the defendant was not only bound by the terms and conditions then existing, but also any changes that could be made. The defendant was bound to make payments of the amounts that fell due on the card, within 15 days of sending the monthly statement, sent every 20th of each month. It was claimed that under Clause no.11 of the terms and conditions of the contract governing the Cancard – Visa, the defendant was bound to pay service charges at the rate of 2.5% per month, in the event of any delay in payment beyond 15 days as prescribed above. It transpires that the defendant had defaulted in making timely payments and in spite of repeated demands, payments not having been made, a legal notice is said to have been issued, dated 4.3.2000. And the suit for recovery of Rs.88,548/-, as per a consolidated statement of account was said to have been filed. It was also claimed that the defendant was liable to pay current and future service charges at the rate of 2.5% compounded monthly from the date of suit till recovery. The defendant had filed written statement to contend that the contract was not entered into at Bangalore and hence the trial court at Bangalore had no jurisdiction. That he was a resident of Kerala State and that he had transacted with the defendant’s office at Kerala. The defendant had filed written statement to contend that the contract was not entered into at Bangalore and hence the trial court at Bangalore had no jurisdiction. That he was a resident of Kerala State and that he had transacted with the defendant’s office at Kerala. It was contended that the defendant had paid all amounts due against the credit card facility availed of by him and that he had surrendered the credit card at Kerala. And that he had not received any notice after closure of the account. The defendant denied that he was made aware of any fully worded contract while being issued the credit card. He denied that he had agreed to pay any service charges at the rate of 2.5% monthly or compounded amount thereon on delayed payments. That it was impermissible for the plaintiff to claim interest at the rate of 30% per month and to compound the same monthly. Charging of interest at such usurious rates was against public policy. Further any such liability towards usurious rates of interest could not be enforced by recourse to a suit under Order XXXVII of the CPC. The suit was filed under Order XXXVII Rules 2 and 3 of the Code of Civil Procedure, 1908 (Hereinafter referred to as the ‘CPC’, for brevity). But the summary procedure prescribed under Order XXXVII has not been followed and the suit has been tried as a suit filed in the ordinary manner. Yet another oddity is that the trial court has framed the issues in the Kannada language, while the rest of the judgment is in the English language. Apparently, the issues were framed by a predecessor of the Judge, who had rendered judgment and the judge rendering the judgment felt that the issues were cast in steel and could not even be translated to English, as if the same would lose their sanctity. Order XIV Rule 5 of the CPC reads thus: “ [5. Power to amend and strike out issue. – (1) The Court may at any time before passing a decree amend the issues or frame additional issues on such terms as it thinks fit, and all such amendments or additional issues as may be necessary for determining the matters in controversy between the parties shall be so made or framed. Power to amend and strike out issue. – (1) The Court may at any time before passing a decree amend the issues or frame additional issues on such terms as it thinks fit, and all such amendments or additional issues as may be necessary for determining the matters in controversy between the parties shall be so made or framed. (2) The Court may also, at any time before passing a decree, strike out any issues that appear to it to be wrongly framed or introduced.]” Having regard to the free hand the trial court has in framing and re-framing the issues, it was indeed ridiculous to reproduce the issues in Kannada. On the basis of the above pleadings, the court below had framed the following issues:- “1. Whether the defendant proves that he has settled the entire amount due ? 2. Whether this court has jurisdiction to entertain the suit? 3. Whether the interest rate at 30% is exorbitant? 4. Whether the plaintiff is entitled to the suit claim?” The trial court had answered Issues nos.1 to 3 in the negative and Issue no.4 in the affirmative and had decreed the suit. It is that which is under challenge in the present suit. 4. The primary grounds raised in the appeal are that the trial court at Bangalore had the territorial jurisdiction to try the suit. And that the terms and conditions of the contract did not enable the plaintiff to recover any “Service Charges” on the alleged delayed over-dues. The expression “Service Charges” and the expression “Interest”, were not interchangeable and hence in the absence of any such contractual obligation to pay service charges, the plaintiff was not entitled to demand and claim the same. It is further contended that it is against public policy and impermissible to charge compounding penal interest. Any such stipulation in a contract would hence be unenforceable. The learned counsel for the appellant, Shri R. Rajagopalan, would draw attention to the relevant clauses of the terms and conditions pertaining to the Cancard-Visa, credit card issued by the plaintiff to demonstrate that there is no stipulation providing for collecting service charges on the amounts said to be due from the plaintiff. He would contend that no part of the cause of action is shown to have arisen at Bangalore and hence the trial court at Bangalore had no jurisdiction to try the suit. He would contend that no part of the cause of action is shown to have arisen at Bangalore and hence the trial court at Bangalore had no jurisdiction to try the suit. And further that the law prohibits banks from compounding the penal interest and hence a substantial portion of the claim by the plaintiff, even if it could be construed as being towards penal interest is illegal and could not have been allowed. Reliance is placed on a Constitution Bench decision of the apex court in Central Bank of India v. Ravindra, (2002) 1 SCC 367 . 5. The learned counsel for the defendant, on the other hand, seeks to justify the judgment of the trial court. 6. On the contention of the appellant as to the trial court not having territorial jurisdiction to try the suit, it is seen that the Credit Card Division of the plaintiff had its Head Office at Bangalore. The plaintiff is a body corporate. The “Explanation” to Section 20 of the CPC reads as follows: “[Explanation]-A corporation shall be deemed to carry on business at its sole or principal office in [India] or, in respect of any cause of action arising at any place where it has also a subordinate office, at such place.” Illustration (a) to the said Section reads thus : “(a) A is a tradesman in Calcutta, B carries on business in Delhi B, by his agent in Calcutta, buys good of A and requests A to deliver them to the East Indian Railway Company. A delivers the goods accordingly in Calcutta. A may sue B for the price of the goods either in Calcutta, where the cause of action has arisen or in Delhi, where B carries on business.” If the explanation and the illustration are read, it is clear that the trial court at Bangalore was vested with jurisdiction. The finding of the trial court in this regard is affirmed. In so far as the claim of the plaintiff towards “Service Charges” at 2.5% per month on the outstanding amount, compounded monthly, is concerned, it is necessary to examine the relevant clauses of the terms and conditions of the Contract. Exhibit – P6 contains the terms and conditions. Clauses 9, 11 and 12 are relevant and are extracted hereunder for ready reference: “9. Exhibit – P6 contains the terms and conditions. Clauses 9, 11 and 12 are relevant and are extracted hereunder for ready reference: “9. The Cardholder may avail “Cash Withdrawal” in Indian Rupees Equivalent to 20% of the Card ceiling limit with a minimum of Rs.5000/- and subject to a maximum of Rs.10,000/- depending on the Cardholder’s status or any such amount as may be notified by the issuer from time to time, once in a calendar month from any of the branches of the Bank on production of “Cash Withdrawal Card” issued for the purpose. The cash so withdrawn will be billed to the Cardholder’s account and will be repayable by the Cardholder together with charges at the rate of Rs.30/-per thousand or part thereof per withdrawal or at such other rate as may be fixed by the issuer from time to time. 11. All liabilities under the Card shall be payable by the Cardholder within such period as the issuer may stipulate from time to time. The issuer would endeavour to dispatch to the Cardholder Statement of accounts, indicating the amounts payable at monthly intervals (hereinafter to be known as billing cycle). The issuer may fix billing cycles to commence at different dates in respect of different groups of Cardholders. On receipt of such Statements of Accounts, the amount indicated thereon shall be payable within 15 days from the date of the Statement of Account or within such other shorter period as the issuer may stipulate from time to time. In case of non-receipt of Statement of Account, the dues incurred by the Cardholder during any billing cycle shall be payable within 15 days form the end of the billing cycle based on the Cardholder’s copy of the chargeslips or other information available with the Cardholder. Non-receipt of Statement of Accounts will not absolve the responsibility of the Cardholder to pay the dues within the stipulated period. Non-receipt of Statement of Accounts will not absolve the responsibility of the Cardholder to pay the dues within the stipulated period. In case of nonpayment of dues within the stipulated period the Cardholder is liable to pay penal charges, at the rate of 2.5% per month or part thereof (compounded monthly) or at such other rate as may be stipulated by the issuer from time to time, on the amount outstanding as on the date when the amount was due for payment; besides, the Cardholder is also liable to pay expenses, service, charges, etc., incurred by the issuer for reminding the Cardholder about his obligation to pay the dues and for the recovery of such dues (including legal fees, etc,). 12. The Cardholder shall opt for settlement of dues under CANCARD. VISA by debit to the Cardholder’s account with the issuer’s branch. The charges incurred through usage of the Card will be billed to the Cardholder’s account at the branch. The Cardholder shall be bound to maintain sufficient credit balance in the Cardholder’s account to enable the issuer to recover the dues. If due to debit of the amount of dues, the account is overdrawn, the Cardholder is bound to pay charges at the rate mentioned in paragraph 11 above on the overdrawn amount(s). In case it is not possible for the issuer to debit the Cardholder’s account due to closure of account of whatever other reason, the issuer shall have the right to change the mode of settlement to direct payment. Besides in such case the Cardholder’s shall be liable to pay penal charge at the rate of 2.5% per month or part thereof on the unpaid amount. Such Cardholder who has to settle the dues directly shall remit the amount(s) due, by way of demand draft or local cheque, favouring the issuer and payable at places where the issuer’s collection centres are situated, as maybe indicated by the issuer. Outstation cheques will not ordinarily be accepted at any of the Collection Centres; in exceptional cases where the issuer at its discretion accepts outstation cheques, such acceptance will be subject to collection and the amount would be deemed to have been paid by the Cardholder on the day the collection proceeds are received by the issuer.” It is evident from a reading of the above that there is no stipulation for collecting any “Service Charges” on the outstanding dues. It is not the case of the plaintiff that it was imposing penal charges or interest by way of penalty. And if it was penal interest, in the guise of “Service Charges”, the same could not be compounded as laid down by the apex court in Central Bank of India v. Ravindra, supra. “37. Black's Law Dictionary (7th Edition) defines 'interest' inter alia as the compensation fixed by agreement or allowed by law for the use or detention of money, or for the loss of money by one who is entitled to its use; especially, the amount owed to a lender in return for the use of the borrowed money. According to Stroud's Judicial Dictionary of Words and Phrases (5th edition) interest means, inter alia, compensation paid by the borrower to the lender for deprivation of the use of his money. In Secretary, Irrigation Department, Government of Orissa & Ors. V. G.C. Roy, (1992)1 SCC 508 , the Constitution Bench opined that a person deprived of the use of money to which he is legitimately entitled has a right to be compensated for the deprivation, call it by any name. It may be called interest, compensation or damages........this is the principle of Section 34 of the Civil Procedure Code. In Dr. Shamlal Narula v. C.I.T., ( AIR 1964 SC 1878 ), this Court held that interest is paid for the deprivation of the use of the money. The essence of interest in the opinion of Lord Wright, in Riches v. Westminister Bank Ltd., (1947)1 All ER 472 is that it is a payment which becomes due because the creditor has not had his money at the due date. It may be regarded either as representing the profit he might have made if he had the use of the money, or, conversely, the loss he suffered because he had not that use. The general idea is that he is entitled to compensation for the deprivation; the money due to the creditor was not paid, or, in other words, was withheld from him by the debtor after the time when payment should have been made, in breach of his legal rights, and interest was a compensation whether the compensation was liquidated under an agreement or statute. A Division Bench of the High Court of Punjab speaking through Tek Chand, J. in C.I.T. v. Dr. A Division Bench of the High Court of Punjab speaking through Tek Chand, J. in C.I.T. v. Dr. Shamlal Narula, AIR 1963 Punjab 411, thus articulated the concept of interest: (AIR p.414, para 8) "8. The words ‘interest’ and ‘compensation’ are sometimes used interchangeably and on other occasions they have distinct connotation. "Interest" in general terms is the return or compensation for the use or retention by one person of a sum of money belonging to or owned to another. In its narrow sense, "interest" is understood to mean the amount which one has contracted to pay for use of borrowed money.......... In whatever category "interest" in a particular case may be put, it is a consideration paid either for the use of money or for forbearance in demanding it, after it has fallen due, and thus, it is a charge for the use or forbearance of money. In this sense, it is a compensation allowed by law or fixed by parties, or permitted by custom or usage, for use of money, belonging to another, or for the delay in paying money after it has become payable." It is the appeal against this decision of the Punjab High Court which was dismissed by the Supreme Court in Dr. Shamlal Narula case. 38. However 'penal interest' has to be distinguished from 'interest'. Penal interest is an extraordinary liability incurred by a debtor on account of his being a wrong-doer by having committed the wrong of not making the payment when it should have been made, in favour of the person wronged and it is neither related with nor limited to the damages suffered. Thus, while liability to pay interest is founded on the doctrine of compensation, penal interest is a penalty founded on the doctrine of penal action. Penal interest can be charged only once for one period of default and, therefore, cannot be permitted to be capitalised. xxxxx 55. During the course of hearing it was brought to our notice that in view of several Usury Laws and Debt Relief Laws in force in several States private money lending has almost come to an end and needy borrowers by and large depend on banking institutions for financial facilities. Several unhealthy practices having slowly penetrated into prevalence were pointed out. During the course of hearing it was brought to our notice that in view of several Usury Laws and Debt Relief Laws in force in several States private money lending has almost come to an end and needy borrowers by and large depend on banking institutions for financial facilities. Several unhealthy practices having slowly penetrated into prevalence were pointed out. Banking is an organised institution and most of the banks press into service long running documents wherein the borrowers fill in the blanks, at times without caring to read what has been provided therein, and bind themselves by the stipulations articulated by the best of legal brains. Borrowers other than those belonging to the corporate sector, find themselves having unwittingly fallen into a trap and rendered themselves liable and obliged to pay interest the quantum whereof may at the end prove to be ruinous. At times the interest charged and capitalised is manifold than the amount actually advanced. Rule of damdupat does not apply. Penal interest, service charges and other over-heads are debited in the account of the borrower and capitalised of which debits the borrower may not even be aware. If the practice of charging interest on quarterly rests is upheld and given a judicial recognition, unscrupulous banks may resort to charging interest even on monthly rests and capitalising the same. Statements of Accounts supplied by banks to borrowers many a times do not contain particulars or details of debit entries and when written in hand are worse than medical prescriptions putting to test the eyes and wits of the borrowers. Instances of unscrupulous, unfair and unhealthy dealings can be multiplied though they cannot be generalised. Suffice it to observe that such issues shall have to be left open to be adjudicated upon in appropriate cases as and when actually arising for decision and we cannot venture into laying down law on such issues as do not arise for determination before us. However, we propose to place on record a few incidental observations, without which, we feel, our answer will not be complete and that we do as under : (1) Though interest can be capitalised on the analogy that the interest falling due on the accrued date and remaining unpaid, partakes the character of amount advanced on that date, yet penal interest, which is charged by way of penalty for non-payment, cannot be capitalised. Further interest, i.e. interest on interest, whether simple, compound or penal, cannot be claimed on the amount of penal interest. Penal interest cannot be capitalised. It will be opposed to public policy. (2) Novation, that is, debtor entering into a fresh agreement with creditor undertaking payment of previously borrowed principal amount coupled with interest by treating the sum total as principal, any contract express or implied and an express acknowledgement of accounts, are the best evidence of capitalisation. Acquiescence in the method of accounting adopted by the creditor and brought to the knowledge of the debtor may also enable interest being converted into principal. A mere failure to protest is not acquiescence. (3) The prevalence of banking practice legitimatises stipulations as to interest on periodical rests and their capitalisation being incorporated in contracts. Such stipulations incorporated in contracts voluntarily entered into and binding on the parties shall govern the substantive rights and obligations of the parties as to recovery and payment of interest. (4) Capitalisation method is founded on the principle that the borrower failed to make payment though he could have made and thereby rendered himself a defaulter. To hold an amount debited to the account of the borrower capitalised it should appear that the borrower had an opportunity of making the payment on the date of entry or within a reasonable time or period of grace from the date of debit entry or the amount falling due and thereby avoiding capitalisation. Any debit entry in the account of the borrower and claimed to have been capitalised so as to form an amalgam of the principal sum may be excluded on being shown to the satisfaction of the Court that such debit entry was not brought to the notice of the borrower and/or he did not have the opportunity of making payment before capitalisation and thereby excluding its capitalisation. (5) The power conferred by Sections 21 and 35A of the Banking Regulations Act, 1935 is coupled with duty to Act. Reserve Bank of India is the prime banking institution of the country entrusted with a supervisory role over banking and conferred with the authority of issuing binding directions, having statutory force, in the interest of public in general and preventing banking affairs from deterioration and prejudice as also to secure the proper management of any banking company generally. Reserve Bank of India is the prime banking institution of the country entrusted with a supervisory role over banking and conferred with the authority of issuing binding directions, having statutory force, in the interest of public in general and preventing banking affairs from deterioration and prejudice as also to secure the proper management of any banking company generally. Reserve Bank of India is one of the watchdogs of finance and economy of the nation. It is, and it ought to be, aware of all relevant factors, including credit conditions as prevailing, which would invite its policy decisions. RBI has been issuing directions/circulars from time to time which, inter alia, deal with the rate of interest which can be charged and the periods at the end of which rests can be struck down, interest calculated thereon and charged and capitalised. It should continue to issue such directives. Its circulars shall bind those who fall within the net of such directives. For such transaction which are not squarely governed by such circulars, the RBI directives may be treated as standards for the purpose of deciding whether the interest charged is excessive, usurious or opposed to public policy. (6) Agricultural borrowings are to be treated on a pedestal different from others. Charging and capitalisation of interest on agricultural loans cannot be permitted in India except on annual or six monthly rests depending on the rotation of crops in the area to which the agriculturist borrowers belong. (7) Any interest charged and/or capitalised in violation of RBI directives, as to rate of interest, or as to periods at which rests can be arrived at, shall be dis-allowed and/or excluded from capital sum and be treated only as interest and dealt with accordingly. (8) Award of interest pendente lite and post-decree is discretionary with the Court as it is essentially governed by Section 34 of the CPC de hors the contract between the parties. In a given case if the Court finds that in the principal sum adjudged on the date of the suit the component of interest is disproportionate with the component of the principal sum actually advanced the Court may exercise its discretion in awarding interest pendente lite and post-decree interest at a lower rate or may even decline awarding such interest. The discretion shall be exercised fairly, judiciously and for reasons and not in an arbitrary or fanciful manner”. The discretion shall be exercised fairly, judiciously and for reasons and not in an arbitrary or fanciful manner”. However, in so far as cash withdrawals are concerned, Clause 9 does enable the plaintiff to charge Rs.30/-per thousand of such cash withdrawn, subject to a maximum of Rs.10,000/-. But it cannot be denied that the appellant had defaulted in payment of dues made on the credit purchases and withdrawals in a sum of Rs.66,819/- as on 20.12.1999. He is liable to pay the same with reasonable interest. Accordingly, the judgment and decree of the trial court stands modified. The defendant shall be liable to pay a sum of Rs.66,819/- with interest thereon at 6% per annum from 20.12.1999 till payment and costs of the suit.