Allowed

State Bank of India Kanchikacherla and Anr. v. Venkateswara Farms Konduru

Telangana HC29 Jul 2010AS/316/1988

Case brief

AI extract

What is this about?

The Court allowed an appeal by State Bank of India against a trial Court's decision that applied the Andhra Pradesh Agriculturists Relief Act to a bank loan. Relying on Supreme Court precedent, the Court held that the Relief Act does not apply to nationalized banks for debt recovery.

What did the court decide?

Interest on the tractor loan to be payable at the contractual rate, not the scaled-down rate under the Agriculturists Relief Act.

State Bank of India Kanchikacherla and… — Contract and Commercial Disputes | Telangana HC (2010)

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THE HON’BLE SRI JUSTICE V.V.S.RAO

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APPEAL SUIT No.316 of 1988

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Dated:29.07.2010

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Between: State Bank of India, And another.

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….Appellants

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And

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M/s.Venkateswara Farms, And others.

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…Respondents

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THE HON’BLE SRI JUSTICE V.V.S.RAO APPEAL SUIT No.316 of 1988

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JUDGMENT:

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State Bank of India, Kanchikacherla, and State Bank of India, Ibrahimpatnam, are the appellants (hereafter called, the plaintiffs). Their suit against the respondents herein (hereafter called, the defendants), was decreed with interest pendente lite at 12½ % per annum, but denied the contractual rate of interest from the date of loan till the date of suit and awarded interest at 5½% per annum. The trial Court extended the benefit of Section 4 of the Andhra Pradesh (Andhra Area) Agriculturists Relief Act, 1938 (Act IV of 1938) (the Act). There is no dispute with regard to the sanction of loans nor the purpose for which the loans are sanctioned. There is also no dispute regarding the liability of the defendants to pay the loan. The only dispute is with regard to rate of interest from the date of sanction till the date of filing of the suit. This dispute was considered by the trial Court by framing the issue: “whether the defendants are agriculturists entitled for the benefits of Act IV of 1938?” The issue was answered by the trial Court as follows.

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Admittedly the defendants are agriculturists evidenced by the sale deeds Exs.A2 to A7. They relate to agricultural lands. The loan contracted by them was for purchase of a tractor. The other debts that were contracted under the promotes are for agricultural purposes. The defendants

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agreed to repay the same by hypothecating the crops raised by them. None of said P.Ws have stated that the defendants are not agriculturists. In the plaint, it is averred that since the debt is due to the bank Sec.4(a) of the A.P.Agricultural Relief Act exempts the debts due to the Bank. It is further alleged that the plaintiffs are entitled to contractual rate of interest and the High Court has not corrected decided and it required to consideration by the Full Bench. I may state that sort of argument does not hold good. Now, it is settled proposition of law that if an agriculturist contracts a debt from the Bank, he is only liable to pay interest as provided under the A.P.Act 4 of 1938. Considering this proposition, I am of the opinion that the defendants are liable only to pay interest at 5 ½ percent per annum from the date of various debts up to 7.10.1977, and at 12½ per cent per annum from 8.10.1977 till the date of realization. This issue is held accordingly.

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In this appeal the above findings are challenged placing reliance on the decision of Supreme Court in Bank of India v M/s.Vijay Transpor t^[1] .

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In view of the rival submissions, the only point that arises for consideration is whether the trial Court has committed any error in scaling down the interest on the tractor loan under the provisions of Act IV of 1938.

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In Union of India v Koteswara Rao^[2] the learned single Judge held that a debt due to the bank by agriculturists cannot be scaled down under Section 13 of Act IV of 1938. When a similar matter came before another learned Judge, doubting the ratio in Koteswara Rao the matter was referred to Division Bench in Indian Bank v Muddana

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Krishnamurthy^[3] . Section 13 of the Act provided that in any proceeding for recovery of a debt, the Court shall scale down interest due on any debt incurred by an agriculturist not exceeding 5½% of simple interest. The issue before the Division Bench was whether agriculturists are entitled for such a relief when the loan is sanctioned by a nationalized bank. The bank relied on the principle that special law would prevail over the general law. According to them, Banking Regulation Act, being special law, even agricultural loans are liable to bank rate of interest. Rejecting the contention, the Division Bench held that when the debt is due by agriculturalists of a nationalized bank, Section 4 read with Section 13 of Act IV of 1938 has no application. The correctness of the decision in Muddana Krishnamurthy came to be tested in an appeal before the Supreme Court in M/s.Vijay Transport. The Division Bench was overruled and the Supreme Court held that even in respect of agricultural lands a

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nationalized bank can charge contract rate of interest and that Sections 4(e) and 13 of Act IV of 1938 have no application. It was held.

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The intention of the Legislature is very clear in that the provision of S.4(e) would apply to a corporation which is the creature of a special Indian Law, whether it is created in pursuance of or by or under the special Indian Law. There is no difference or distinction whatsoever between the corporation formed in pursuance of a special Indian law and a corporation formed by or under a special Indian law. It will be highly unreasonable and illogical to think that as a corporation has been formed by or under a special Indian law and not in pursuance of such a law, it will not come within the purview of S.4(e) of the Act. Accordingly, we hold that the Banking Companies Act is a special Indian law and the provision of S.4(e) is applicable to the appellant-Bank.

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In view of the discussion made above, we hold that the provisions of the Act are not applicable to the appellant-Bank and, therefore, there is no question of scaling down the debt due to the Bank by the respondents.

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In view of the binding precedent, the finding of the trial Court on issue No.2 with regard to scaling down of interest on tractor loan is unsustainable. The appeal has to be allowed.

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The appeal is accordingly allowed. In the facts and circumstances of the case, this Court directs the parties to bear their own costs.

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__________________ (V.V.S.RAO, J)

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29.07.2010 vs

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[1] AIR 1988 SC 151 [2] 1979 (1) APLJ 87

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[3] AIR 1983 AP 347 = 1983 (1) ALT 357

State Bank of India Kanchikacherla and Anr. v. Venkateswara Farms Konduru

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State Bank of India Kanchikacherla and Anr. v. Venkateswara Farms Konduru

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