1. In this suit, the plaintiff', a Poona money lender, seeks to recover on a bond executed by the defendant on the 7th of September 1918. The consideration of the bond is a cash advance of Rs. 5000 and the obligor agrees to repay Rs. 8400, i. e., Rs. 5000 principal and Rs. 3400 interest. The interest is assessed at 2 per cent. per mensem, i. e., Rs. 100 a month for Rs. 5,000; and it is calculated in advance for thirty-four months. The total amount of Rs. 8400 is then repayable in thirty-three installments of Rs. 250 and one 34th installment of Rs. 150. Thus the principal is repaid in thirty-three installments of Rs. 150 and one installment of Rs. 50 and the interest is repaid in thirty-four installments of Rs. 100.
2. The first three installments have been recovered by a suit in the Court of Small Causes. The present suit is for six installments from January to June 1919.
3. The defendant does not appear but, though the suit is ex parte, the Court has, under Section 3 (1) of the Usurious Loans Act, 1918, jurisdiction to consider the merits of the transactions.
4. The bond professes to charge interest at 2 per cent. per mensem but the scheme of the bond is that the interest on the whole sum of Rs. 5000 should continue to be paid at this rate though the principal is being progressively discharged by installments. The obligor of the bond, therefore, continues to pay interest on money which he has actually repaid. This provision seems to me altogether unconscionable and unfair. Moreover, the effect of it is that though at the end of the first month the interest paid is at the rate of 2 per cent. per mensem yet this rate progressively increases until at the end of the 33rd month Rs. 100 interest is paid for a balance of Rs. 200 or at the end of the 34th month Rs. 100 interest is paid for a balance of Rs. 50. The rates of interest at the end of the 33rd and 34th months work out to the preposterous rates of 50 per cent. per mensem and 200 per cent. per mensem.
5. Under the Act, the Court may reopen the transaction and relieve the debtor of all liability in respect of excessive interest, if two conditions are fulfilled. These are that the Court has reason to believe (a) that the interest is excessive, and (b) that the transaction was as between the parties thereto substantially unfair.
6. On the first point, there can of course be no doubt. As to the second, it may be said that the defendant is a member of the Indian Finance Department and that he must have understood the terms of the bond and that his agreement is evidence that the transaction was not unfair. But the explanation to Section 3 enacts that interest may of itself be sufficient evidence that a transaction was substantially unfair. The Legislature has adopted the view of Lord Loreburn in Samuel v. Newbold  A.C. 461, that excess of interest may in itself rebut any presumption of reasonableness arising from the agreement of the party. Moreover, I have already found that the transaction which involves payment of interest on money, which in fact has been repaid, is substantially unfair. I therefore think this is a fit case for reopening the transaction between the parties and giving relief in respect of excessive interest.
7. I do not and cannot disturb the transaction so far as it has been concluded by the decree of the Small Causes Court in regard to the first three installments. As regards the six installments in suit there is no occasion to disturb the provision for repayment of the principal by installments of Rs.150 per mensem.
8. The loan was made on personal security and I may take it that the rate of 2 per cent. per mensem was reasonable in view of the risk incurred. But the progressive increase of this rate and the provision which makes money chargeable with interest after it has been repaid, is both excessive and substantially unfair. I, therefore, disallow interest on sums actually repaid. This will not make much difference in the present suit but will make a considerable reduction when the account comes to be taken of the future installments. If the account were taken in this way, the interest chargeable on the six installments in suit would not be Rs. 100 per mensem but would be reduced as follows:-
Installment. Principal unpaid. Interest at 2 per c. p. m.January 4550 91February 4400 88March 4250 85April 4100 82May 3950 79June 3800 76----501 instead of 600
9. But as no installment of principal has been paid, the plaintiff la entitled to 2 per cent. per mensem on Rs. 4550 due in January.
10. Decree, therefore, for the plaintiff for Rs. 900 interest at 2 per cent. per mensem on Rs. 4550 from the 10th of January 1919 till judgment. Costs and interest on judgment at 6 per cent.