P. Venugopal, J.
1. The third defendant is the appellant and the defendants 1 2, 4 and 5 are the respondents. The first defendant executed a mortgage in favour of the plaintiff for Rs. 17,000/- on 5th July, 1965. The first defendant was adjudged insolvent in I.P. No. 3 of 1971 on the file of the District Judge, Dharmapuri at Krishnagiri and the property came to be vested with the second defendant, He sold property subject to all encumbrances in public auction on 19th July, 1973, and the third defendant purchased the same for Rs. 26,050.00 and the sale was confirmed in his favour on 5th November, 1973. The defendants 4 and 5 are said to be subsequent mortgagees. The plaintiff has filed the suit for recovery of the amount due on the mortgage executed by the first defendant.
2. The contention of the third defendant who has filed the present appeal is that the interest claimed at 18% per annum is excessive and usurious and he is entitled to the benefits under the Usurious Loans Act, 1918 as amended by the Tamil Nadu Act VIII of 1937. The trial Court held that even after giving allowances for the taxes to be paid to the Municipality, the third defendant will be getting not less than Rs 1,000 as rent from the shops whereas the plaintiff claims only Rs. 250/- per month being the interest on the loan at 18 percent per annum and the third defendant and his father are money lenders charging interest at 36 percent and plaintiff has placed special circumstances under which he can claim interest at 18% as per the default clause and the claim of simple interest at 18% on the mortgage of the year 1965 cannot be said to be either excessive or usurious. On these findings, the trial Court granted a preliminary decree in favour of the plaintiff for a sum of Rs. 46,841-75 with proportionate costs. Against this decree and judgment of the trial Court, the third defendant has filed the present appeal.
3. Relying on the decisions of the Supreme Court reported in Varadachariar v. GopalaMenon : 1SCR721 and S. Rajagopalaswami Naidu v. Bank of Karaikudi Limited : 2SCR427 , learned Counsel for the third defendant-appellant contended that the circumstance to be taken into account for considering whether the interest claimed is excessive under the Usurious Loans Act are: (a) the value of the security offered ; (b) the financial condition of the debtor including the result of any prior transaction ; (c) the known or probable risks in getting repayment, and all these factors had to be considered with reference to the date of loan and the circumstances relied on by the trial Court such as his father charging interest at 36 per cent and the realisation of rent from the property is much more than 18 percent interest claimed in the plaint are totally irrelevant and extraneous factors and applying the decisions laid down by the Supreme Court in the two decisions referred to supra, the third defendant is entitled to the relief under the Usurious Loans Act, 1918.
4. Learned counsel for the respondents contended that there is no pleadings that the transaction as between the parties was substantially unfair and taking into account the'date of loan and the prior mortgage in favour of the 5th defendant and the property being worth Rs. 60, 000 and the risk involved in realisation of the suit mortgage amount, 18 per cent simple interest as against compound interest of 18 per cent as provided in the bond is fair and reasonable.
5 Section 3(1) of Central Act X of 1918 as amended by Tamil Nadu Act (VIII of 1937) provides that if the Court has reason to believe that the transaction was, as between the parties thereto, substantially unfair, the Court shall exercise one or more of the following powers, namely, may, reopen the transaction, take an account between the parties, and relieve the debtor of all liability in respect of any excessive interest, Explanation I to Section 3(1) provides that if the interest is excessive, the Court, shall presume that the transaction was substantially unfair, but such presumption may be rebutted by proof of special circumstances justifying the rate of interest. Section 3(1) of the Act read with Explanation I shows that if the interest is excessive, the Court shall presume that the transaction was substantially unfair and this is a rebuttable presumption. In para. 7 of the written statement of the third defendant, it is pleaded that the interest claimed is opposed to Usurious Loans Act and the third defendant is entitled to relief under the Act. It is therefore unnecessary for the third defendant to again specifically plead that the transaction is substantially unfair between the parties.
6. The next question that arises for consideration is whether the interest claimed is excessive. The mortgage bond Exhibit A. 1 provides for 10 percent simple interest payable in each month and in the event of default for a continuous period of three months 18% is payable on the principal amount and the accrued interest. The plaintiff has however claimed 18 per cent simple interest on the amount due under the mortgage. As laid down by the Supreme Court in the decision reported in Varadachariar v. Gopala Menon : 1SCR721 , one important fact will be the risk incurred by the creditor for realisation of the mortgage amount on the date of the loan. From the allegation in the plaint, it is seen that the plaintiff is first mortgagee and defendants 4 and 5 are only subsequent mortgagees. Relying on Exhibit A. 1, learned Counsel for the plaintiff-respondent contended that even on the date of mortgage in favour of the plaintiff under Exhibit A. 1 there was already a subsisting mortgage in favour of the 8th defendant. The evidence shows that the earlier mortgage in favour of the 5th defendant was discharged. In view of the plaint allegation that defendants 4 and 5 are only subsequent mortgagees and the plaintiff being the first mortgagee and the property being a house property in urban area fetching a substantial rent, there is absolutely no risk involved in getting the repayment of the mortgage amount.
7. In the decision reported in M.A. Fernando v. Subbiah Iyer : (1974)1MLJ334 and relied on by the learned Counsel for the respondent, the mortgage deed was executed on 1st August, 1953, and the stipulated rate of interest was simple interest at 12% per annum and the default clause provided interest at 13 1/2% per annum. The Court held that the above rate of interest cannot be said to be excessive. The Court has observed in the decision referred to supra 'many a man buys vegetables in the shandie with money borrowed at 18 3/4 per cent, per annum and sells them within 24 to 48 hours at a profit of 20 to 25 per cent. It cannot be said that in such cases interest of even 18 3/4 per cent, per annum will be penal and usurious or unconscionable, as he gets a good balance as profit for himself after paying such interest'. In the instant case, the suit property consists of 18 rooms on the upstairs consisting of 9 single rooms and nine double rooms and it is admitted that Rs. 60 per month is rent for a single room and Rs. 50 per month for a double room. The finding of the trial Court is that even after payment of taxes the third defendant will be getting not less than Rs. 1,000 as rent from the shop. The interest rate at 13 1/2 per cent, was held to be reasonable by this Count in the decision referred to supra with reference to mortgage bond dated 1st August, 1953. The suit mortgage is dated 5th July, 1965.Having regard to these facts and also taking into account the substantial rent realised by the third defendant from the suit property, simple interest at the rate of 15 per cent, per annum appears to be fair and reasonable in the circumstances of the case. So, the plaintiff will be entitled to 15 percent, simple interest as against 18 percent claimed, in the plaint.
8. In the result, the appeal is allowed in part to the extent indicated above and there will be a preliminary decree in favour of the plaintiff for the sum of Rs. 34,595.00 with interest at 15 per cent, per annum from 5th July, 1965 to 25th October, 1976, with proportionate costs.
9. This appeal having been posted this day for being spoken to, on office note, the Court delivered the following Judgement:
This appeal was posted to-day for being spoken to.
2. After hearing both sides, the last paragraph of the judgment of this Court rendered on 20th April, 1983, is modified as under:
3. In the result, the appeal is allowed in part to the extent indicated above and there will be a preliminary decree in favour of the plaintiff for a sum of Rs. 17,000 with interest at 15 per cent. per annum from 5th July, 1965, till the date of decree and thereafter subsequent interest at 6 per cent, per annum till date of payment with proportionate costs. Time for payment two months.