1. This appeal is filed by the plaintiff in O.S. No. 63 of 1985 on the file of II Additional Subordinate Judge''s Court, Vijayawada. The plaintiff, which is Bank of India, filed the suit for recovery of the amount due on a promissory note dated 4-10-1979 executed by the first defendant and one late Katamaneni Mangayamma for Rs.62,000/- agreeing to repay the same with interest at 12 1/2% per annum with quarterly rests. As Mangayamma expired, her legal representatives defendants 1 and 3 to 7 were added. The 2nd defendant executed a guarantee deed.
2. Defendants 2 to 7 remained ex perte. The first defendant filed a written statement contending among other things that the defendants are entitled to the benefits of Act IV of 1938.
3. The learned trial Judge following the decision of this Court rendered by P.A. Choudary, J. reported in Indian Bank, Palakole v. D. Venkata China Krishnam Raju 1988 (2) ALT 148 holding Section 4(e) of the Agriculturists Relief Act as unconstitutional, held that the plaintiff Bank is not entitled to the exemption under Sec. 4(e) of the Act and, therefore, the defendants are entitled to the benefits of Act IV of 1938 and so decreed the suit with interest as declared by Act IV 1938 from the date of the suit till the date of the decree and subsequent interest at 6% per annum from the dale of the decree till the date of realisation. The plaintiff Bank has filed this appeal aggrieved by the said judgment.
4. So, the only point for consideration is whether the defendants are entitled to the benefits of Act IV of 1938 and whether interest is liable to be scaled down as per the provisions of the said Act.
5. It is not in dispute that the defendants are agriculturists. But the piaintiff-Bank is claiming exemption from the operation of the said Act by virtue of Section 4(e). Section 4 of the A.P. (Andhra Area) Agriculturists Relief Act, 1938, hereinafter referred to as the Agriculturists Relief Act, says that nothing in this Act shall affect debts and liabilities of an agriculturist falling under the heads mentioned in clauses (a) to (h). Clause (e) of Sec. 4 reads :
"(e). Any liability in respect of any sum due to any co-operative society, including a land mortgage bank, registered or deemed to be registered under the Andhra Pradesh (Andhra Area) Co-operative Societies Act, 1932 or any debt due to any corporation formed in pursuance of an Act of Parliament of the United Kingdom or any special Indian law or Royal Charter or Letters Patent".
6. In the decision reported in Indian Bank, Alamuru v. M. Krishnamurthy AIR 1983 AP 347, a Division Bench consisting of P.A. Choudary and P. Kodandaramayya, JJ., held that (at page 353) :
"A careful reading of Section 4(e) would show that the words ''any special Indian Law'' could not have been intended to refer to any law made by any legislature of our country. A statute enacted by one of our nation''s legislatures could not have been referred to with any degree of propriety or appropriateness as a special Indian Law. In speaking of any special Indian Law, Sec. 4(e) of the Act, is referring not to a law made by any Indian Legislature but only to a law made by the British Imperial Parliament as a piece of special legislation applicable to India. Sec. 4(e) of the Madras Act while speaking of any special Indian Law is only speaking of a special Indian Law made by the British Parliament as different from any Act enacted by the British Parliament that might have application to India also in common with the rest of the British colonies".
The learned Judges further held that at page 354 :
"The granting of exemption to any Corporation formed by the British Law is repugnant to the conception of our Sovereign Democratic Republic, the last part of S.4(e) of the Act containing the words, ''any debt due to any Corporation formed in pursuance of an Act of Parliament of the United Kingdom or any Special Indian Law or Royal Charter or Letters Patent'' is also offensive to Article 14 of the Constitution and accordingly the last part of S. 4(e) is void".
This decision of our High Court is overruled by the Supreme Court in the case of
"The Banking Companies Act is a special Indian Law and the provision of S.4(e) of Agriculturists Relief Act is applicable to the Bank which was nationalised under the Banking Compenies Act. Consequently in view of S. 4(e) the provisions of the Act are not applicable to the Bank and there would be no question of scaling down the debt due to the Bank by the firm the partners of which were agriculturists."
7. Subsequent to this decision, a learned Judge of this Court (P.A, Choudary, J.) had considered the constitutional validity of Section 4(e) of the Agriculturists Relief Act in the case reported in Indian Bank, Palakol In Re (1988) 2 A. L. T. 148, The learned Judge after referring to the decision of the Supreme Court in
"Section 4(e) of the Agriculturists Relief Act to the extent it grants exemption to the bank loans from the purview of the Act is unconstitutional.".
8. This decision was reversed by the Supreme Court in the case of
"On & consideration of the matter we think we ought to hold that it was not appropriate for the High Court to have itself taken up this question in the present case. We accordingly set aside the finding of the High Court on the unconstitutionality of S. 4(e) of the Agriculturists Relief Act. Consequently we hold that no defence under the A. R. Act could be urged against the appellant''s claim in these proceedings".
But the Supreme Court has remitted the Second Appeal to a Division Bench of this Court for considertion of the contentions pertaining to the effect of S. 21A of the Banking Companies Act on the applicability of Usurious Loans Act, 1918 and if the said Act is held attracted, whether the appellant is able to rebut the presumption of excessiveness of interest and also whether there were other legal impediments of the nature adverted to by the High Court, a reference to which is made in para 11, to charge compound interest on agricultural advances.
9. The learned counsel for the appellant has, therefore, contended that since the decision of P. A. Choudary, J. in Indian Bank, Palakol In Re holding Sec. 4(e) as unconstitutional, is overruled by the Supreme Court, the plaintiff-Bank is entitled to the exemption granted in Section 4(e) of the Agriculturists Relief Act and so interest cannot be scaled down as per the provisions of the said Act.
10. On the other hand, the learned counsel for the respondents has argued that the decision of P. A. Choudhary, J. was reversed by the Supreme Court on the ground that the parties in that case have not raised any contention regarding the unconstitutionality of the provision and, therefore, it was (sic) the learned Judge to decide on that aspect. But he has pointed out that the Supreme Court has not decided the matter on merits and it has specifically left over the matter for consideration in another action where pleas challenging the vires of the provision have been properly raised and urged. He has referred to Para 8 of the Judgment of the Supreme Court where it is held (at p. 2211) :
"It is true that in the
11. He has contended that in the written statement filed by the defendants there is a specific plea that the defendants are entitled to the benefits of Act 4/ 38 and, therefore, the question whether they are not entitled to the benefits of the said Act by virtue of the exemption under Sec.4(e) also has to be decided. He has further urged that this being purely a question of law, it can be taken up even at the stage of the appeal.
12. The learned counsel for the appellant has referred to some observations of the Supreme Court in case (5) (sic) in support of his contentions that it is not open to the respondents/defendants to reacitate the question in view of the earlier decision of the Supreme Court in the
"In our opinion, the submissions of Sri Bobode on the point are not without force. This Court had rejected the attack on S. 4(e) on grounds of violation Art. 14. That apart, the burden of showing that a classification is arbitrary is basically on the person who impeaches the law. If any state of facts can reasonably be conceived as sustaining the constitutionality, the existence of that state of facts, as at the time of the enactment of the law, must also be assumed. The allegations on which violation of Art. 14 are based must be specific, clear and unambiguous and must contain sufficient particulars."
13. But the contention of the learned counsel for the respondents/defendants is that in the earlier decision reported in Bank of India v. M/s. Vijay Transport, the Supreme Court was concerned with the question whether the Banking Companies Act is a special Indian law and the provision of Sec, 4(e) of the Agriculturists Relief Act is applicable to the Banks which were nationalised under the Banking Companies Act. But the Supreme Court did not consider the question whether the classification between the different types of creditors has got any relation to the purpose sought to be achieved by the Act. He has pointed out that the preamble of the Agriculturists Relief Act reads that it is an Act provided for the relief of indebted Agriculturists in Andhra area of the State of Andhra Pradesh. His contention is that if an agriculturist takes a loan from a private money lender, then the agriculturist would be entitled to the protection of the Agriculturists Relief Act; Whereas, if he takes the loan from a nationalised Bank, he will not be entitled to the protection of the Act by virtue of the exemption granted under Sec. 4(e) of the Agriculturist Relief Act and, therefore, he contended that there is no rational basis for this classification and so it must be struck down as violative of Art. 14 of the Constitution. He has referred to the observations made in the judgment of P. A. Choudhary, J. in the case of Indian Bank, Palakole v. D. Venkatachina Krihanam (1) in which the learned Judge held that Sec. 4(e) of the Agriculturists Relief Act as unconstitutional. The learned Judge further held that when the Agricultural Debt Relief Act is enacted with the avowed object of providing relief to the agriculturists as a class can Section 4(e) of that Act single out the agriculturists indebted to the banks for the purpose of throwing additional burden on them. It cannot be denied that the agriculturists suffer equally from the burden of indebtedness whether that burden is thrown upon them by a lending bank or by an ordinary money lender. The burden of indebtedness cannot change from a change in the status of moneylender. Prima-facie, therefore, one can find no justification in such classification which is clearly irrational. It is clear that Sec. 4(e) permits the bank to charge its agricultural debtors compound interest while the Act as a whole forbids on other money lenders the charging of such interest from the agriculturists. The question is whether this classification made by the Act between the agricultural debtors of the bank on one hand and the agricultural debtors of ordinary creditors on the other is constitutionally permissible. The learned Judge further held :
".... The agriculturist is as much ruined by the charging of compound interest by the bank as he is ruined by the charging of compound interest by the non-bank. From the point of view of the object of the Rajaji Act, we cannot, therefore, find any intelligible differentia which justifies the above classification made by Section 4(e) of the Act between the agricultural borrowers from the bank and others. I, therefore, hold that according to the above principles enunciated by our Supreme Court there is no reasonable classification founded upon any intelligible differentia between the two classes of borrowers....."
14. The learned counsel for the appellant has argued that if a debtor is entitled to the benefits of the Agricultural Relief Act, he is liable to pay interest only as per the provisions of the Act; whereas under the provisions of the Usurious Loans Act, as amended by the Madras amendment, if a compound interest is charged from an agriculturist, the Court has to decide whether it is excessive or not and the learned Judge had obviously confused between the two provisions. According to the learned counsel for the appellant, the question is simple whether the plaintiff-Bank is entitled to the exemption under Sec. 4(e) of the Act, in which case, the debtor will not be entitled to the protection of the Act. But if the exemption is not applicable and the debtor is entitled to the protection of the Act, the interest has to be scaled down as per the provisions of the Act, whatever, may be the rate of interest -- whether it is simple or compound.
15. He has pointed out that while private money-lenders can charge interest as they like, a Bank cannot do so, but it is bound by the directions issued by the Govt. of India and the Reserve Bank of India regarding the rates of interest from time to time. He has referred to Sec. 21 of the Banking Regulation Act, 1949. Sub-sec. (1) of Sec. 21 of the Banking Regulation Act, 1949, says that where the Reserve Bank is satisfied that it is necessary or expedient in the public interest or in the interests of depositors or banking policy sold do, it may determine the policy in relation to advances to be followed by banking companies generally or by any banking company in particular and when the policy has been so determined, all banking companies or the banking company concerned, as the case may be, shall be bound to follow the policy as so determined. Sub-sec. (2) says that without prejudice to the generality of the power vested in the Reserve Bank under sub-section (1), the Reserve Bank may give directions to banking companies, either generally or to any banking company or group of banking companies, in particular (clauses (a), (b), (c) and (d) omitted) clause (e) the rate of interest and other terms and conditions on which advances or other financial accommodation may be made or guarantees may be given. Sub-section (3) says that every banking company shall be bound to comply with any directions given to it under the Section. He has, therefore, argued that while giving these directions, based on the policy of the Government of India, the Government as well as the Reserve Bank naturally take into consideration the conditions of the agricttural borrowers and the banks are bound to charge or collect only that rate of interest and nothing more. Therefore, his contention is that the banks are as a class separate and distinct from the private money lenders. So, the exemption under Sec. 4(e) in respect of banks is not irrational.
16. The learned counsel for the respondents has referred to a decision of the Supreme Court reported in
" ''debt'' means an advance in cash or in kind and includes any transaction which is in substance a debt but does not include an advance as aforesaid made on or after the first day of January, 1949 or a debt due to:--
i) the Central Government or Government of any State
ii) a Local Authority;
iii) a Scheduled Bank;
iv) a Co-operative Society
v) a waqf, trust or endowment for a charitable or religious purpose only; or
vi) a person, where the debt was advanced on his behalf by the Court of Wards."
17. The Supreme Court has pointed out that the High Court was right in holding that the impugned part of Sec. 2(e) infringes Art. 14 of the Constitution. It is now well-settled that in order to pass the test of permissible classification, two conditions must be fulfilled, namely, (1) that the classification must be founded on an intelligible differentiation which distinguishes persons or things that are to be put together from others left out of the group and (2) that the differentia must have a rational relationship to the object sought to be achieved by the statute in question. They further held as under (at p, 1635) :-
"In our opinion, condition No. 2 above has clearly not been satisfied in this case. The object sought to be achieved by the impugned Act was to reduce the debts secured on jagir lands which had been resumed under the provisions of the Rajasthan Land Reforms and Resumption of Jagirs Act. The Jagirdar''s capacity to pay debts had been reduced by the resumption of his lands and the object of the Act was to ameliorate his condition. The fact that the debts are owed to a government or local authority or other bodies mentioned in the impugned part of S. 2(e) has no rational relationship with the object sought to be achieved by the Act. Further, no inteligible principle underlies the exempted categories of debts. The reason why a debt advanced on behalf of a person by the Court of Wards is clubbed with a debt due to a State or a scheduled bank and why a debt due to a non-scheduled bank is not excluded from the purview of the Act is not discernible."
18. The Supreme Court, therefore, held that no reasonable classification is disclosed for the purpose of ascertaining the impugned part of Sec. 2(e). The learned counsel for the respondents contended that the provisions contained in this Act are very much similar to Sec. 4(e) of the Agricultural Relief Act and, therefore, the very same reasoning also applies regarding Sec. 4(e) of the Agricultural Relief Act.
19. The learned counsel for the appellant has pointed out that in the case of State of Rajasthan v. Mukan Chand (supra) the object sought to be achieved by the impugned Act was to reduce the debts secured on Jagir lands which have been resumed under the provisions of the Rajasthan Jagirdars'' Debt Reduction Act. The Jagirdars capacity to pay debts have been reduced by the resumption of his land and the object of the Act was to ameliorate their condition. He has pointed out that Agriculturists Relief Act was passed in 1938 to provide relief of indebtedness to agriculturists. At that time the economic condition of agriculturist was very bad but subsequently there is a definite improvement in the economic condition of the agriculturist. Though when the Act was passed the maximum interest chargeable on agriculturist is 5 1/2%p .a. the present rate is 12%. He has also stated that though previously the agriculturists were dependent mainly on private money lenders, now they are mainly depending on the banks for loans and the rate of interest charged from agriculturists by the banks is also fixed by disrectives given by the Reserve Bank of India based on the policy of the Government. He has therefore contended that there is a rational basis in the distinction between the private money feanders and the banks and so the contention of the learned counsel for the respondent that there is no basis in the classification cannot be accepted. I agree with the contention of the learned counsel for the respondent that since the banks are governed by the directives issued by the Reserve. Bank under the Banking Regulation Act and they cannot charge interest more than that whereas a private money lender can charge interest as he likes and there is rational basis in the classification between the banks and the private money lenders. So, I am unable to accept the contention that the exemption granted in favour of'' the banks under S. 4(e) of the Act is unconstitutional.
20.The learned counsel for the respondent has further pointed out that the expression ''debt'' due to any corporation formed in pursuance of an Act as mentioned in Sec. 4(e) only refers to the principal amount but does not cover interest. His contention is that as far as interest is concerned S. 13 provides for the maximum rate of interest which can be charged from the agriculturist. But the definition of debt in S. 3(7). means any liability in cash or kind, whether secured or unsecured, due from a debtor whether payable under a decree or order of any civil Court of otherwise. Therefore, since the debt includes the entire liability it includes the principal and interest also and that contention cannot be accepted.
21. In view of the fact that the decision of P. A. Choudary, J. reported in 1988 (2) A.L.T. 148 (supra) was reversed by the Supreme, Court in the case of Bank of Baroda v. R. Nagachaya Devi (supra) and also in view of the fact that I have held that S. 4(2) of the Act is valid, the decision of the lower Court holding that the defendants are entitled to the benefits of Act 4/1938 and granting interest at the rate provided under Act IV of 1938 is modified and the suit is decreed with contract rate of interest. The appeal is allowed accordingly. There will be no order as to costs.
22. Appeal allowed.
