LexSTATE BANK OF INDIA versus YASANGI VENKATESWARA RAO
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·- -t STATE BANK OF INDIA A ,..... v. YASANGI VENKATESWARA RAO JANUARY 21, 1999 [B.N. KIRPAL ANDS. RAJENDRA BABU, JJ.] B _... Banking Regulation Ac~ 1949: Section 21-A (as inselted in 1984)-Provided that banking transaction not to be reopened by any cowt on ground that interest rate of such transac- c ti on is excessive--Preliminary decree was passed by trial coult in a suit for recovery of money and upheld in appeal by District Coult-However,• High Coult allowed second appeal on the ground that S.21-A was ultra vires-Held: S.21-A deals with question of rate of interest. charged by a banking company, whether to an agricultwist or non-agricultwist-1herefore, reference to Enfly D 30 of List II dealing with relief of agriculture indebtedness is of no conse- quence-Hence, S.21-A is validly enacted and High Coult erred in holding that Parliament has no jurisdiction to enact S.21- A-Constitution of India, 1950, Ans 245 and 246, Sch. VII List I, Ent1y 45 & List II Ent1y 30. Banking company-Interest-Charging of-Rate of-Mo1tgage-Held : E Rate of interest is a matter of contract between the palties-Hence, coult cannot interfere in respect of an agreement stipulating charging of compound interest in respect of the amount advanced against a moltgage-:-f.!surious Loans Act, 1918. The appellant-Bank filed a suit for recovery of money against the F ,,. respondent before the Trial Court. A preliminary decree was passed by the Trial Court in favour of the appellant, which was upheld by the District Court. Mter the decree of the Trial Court Section 21-A was inserted in the G Banking Regulation Act, 1949, which provided that a banking transaction ~"'!' .;--~: was not to be reopened on the ground that the rate of interest charged by the banking company in respect of such transaction was excessive. The respondent filed a second appeai before the High Court contend~ ing that in view of Section 21-A of the Act there would be no occasion for H 213 214 SUPREME COURT REPORTS (1999] l S.C.R. A the court to reduce the rate of interest which the borrower had contracted to· pay. While allowing the second appeal, the High Court bad declared + ... ......, Section 21·A or the Act ultra vires. Hence this appeal. Allowing the appeal, this Court B HELD : 1. There Is no doubt that Section 21-A or the Banking Regulation Act, 1949 deals with the question of the rate or interest which 4. can be charged by a banking company. Entry 45 of List I of the Seventh Schedule clearly empowers the Parliament to legislate with regard to banking. The enactment of Section 21-A was clearly within the domain of c the Parliament. The said Section applies to all types of loans which are granted by a banking company, whether to an agriculturist or a non· agriculturist, and therefore, reference by the High Court to Entry 30 of List II dealing with agricultural indebtedness was of no con5equence. Hence,· High Court erred in holding that Parliament had no jurisdiction D to enact Section 21·A. (216·8-C] 2. Entering into a mortgage is a matter of contract between the parties. If the parties agree that In respect of the amount advanced against a mortgage, compound Interest will be paid, court cannot interfere and E reduce the amount of interest agreed to be paid on the loan so taken. The mortgaging of a property Is with a view to secure the loan and bas no relation whatsoever with the quantum of interest to be charged. [216·D·E] CIVIL APPELLATE JURISDICTION : Civil Appeal No. 4607 of 1989. F From the Judgment and Order dated 16.10.85 of the Andbra Pradesh "' High Court in S.A. No. 972 of 1984. K.N. Rawat Additional Solicitor General, Sanjay Kapur, Rajiv Kapur, G (M.K. Michael} (NP} for the Appellant. The Judgment of the Court was delivered by '"'/- ... ,.. .. KIRPAL, J. The challenge in this appeal is to judgment of the High Court which, while allowmg the appeal filed by the respondent, had H declared Section 21-A of the Banking Regulation Act as being ultra vires. S.B.I. v. Y.V. RAO [KIRPAL, J.) 215 ... ~ Briefly stated the facts are that a suit for recovery of money was filed A - by the appellant before the District Munsif, Eluru. The Trial Court passed a preliminary decree and the same was substantially upheld by the District Court. In the second appeal which was filed, one of the contentions which B was raised related to the charging of interest by the appellant. After the ~ decree of th
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