Case Note & Summary
The appellant, B. Gopa Kumar, was a credit card holder of Canara Bank (respondent) and was issued a Cancard-Visa card in 1998. He defaulted on payments, and the bank filed a suit for recovery of Rs. 88,548/- with interest at 2.5% per month compounded monthly. The trial court decreed the suit in favor of the bank. The appellant appealed, contending that the contract was not entered into at Bangalore (lack of jurisdiction), that he had paid all dues and surrendered the card, and that the interest rate of 2.5% per month (30% per annum) compounded monthly was unconscionable and against public policy. The High Court held that the trial court had jurisdiction as the bank's head office was in Bangalore and the application was forwarded there. However, on the issue of interest, the court found that the rate of 2.5% per month compounded monthly was exorbitant and unconscionable. The court noted that such a rate amounts to usury and is against public policy. Relying on Section 34 of the Code of Civil Procedure, 1908, the court held that it has discretion to reduce the contractual rate of interest. The court reduced the interest to 6% per annum simple interest from the date of suit till recovery. The appeal was partly allowed, modifying the trial court's decree to reduce the interest rate.
Headnote
A) Contract Law - Unconscionable Terms - Interest Rate - Credit Card Agreement - The court examined whether a contractual interest rate of 2.5% per month (30% per annum) compounded monthly in a credit card agreement was unconscionable and against public policy. Held that such a rate is exorbitant and unconscionable, and the court has power under Section 34 CPC to reduce it. (Paras 6-10) B) Civil Procedure - Section 34 CPC - Discretion to Reduce Interest - The court held that under Section 34 of the Code of Civil Procedure, 1908, the court has discretion to award interest at a rate lower than the contractual rate if the contractual rate is unconscionable. The court reduced the interest to 6% per annum simple from the date of suit till recovery. (Paras 8-10) C) Public Policy - Usurious Interest - Credit Card Debt - The court held that charging interest at 2.5% per month compounded monthly amounts to usury and is against public policy. The court noted that such rates exploit borrowers and are not permissible. (Paras 6-9)
Issue of Consideration
Whether the trial court was justified in decreeing the suit for recovery of credit card dues at the contractual rate of 2.5% per month compounded monthly, and whether such rate is unconscionable and against public policy.
Final Decision
Appeal partly allowed. The judgment and decree of the trial court is modified. The appellant is liable to pay the principal amount with interest at 6% per annum simple from the date of suit till recovery. No order as to costs.
Law Points
- Interest rate of 2.5% per month compounded monthly is unconscionable and against public policy
- Section 34 CPC allows court to reduce contractual interest
- Courts can interfere with unconscionable terms in contracts of adhesion
