Andhra HC (Pre-Telangana)
Andhra Bank At Vikarabad vs Manneguda Polishing Stones Industries ... on 10 December, 2004
Equivalent citations: 2005(2)ALD277, [2006]133COMPCAS887(AP)
JUDGMENT V.V.S. Rao, J.
1. The respondents herein availed an amount of Rs. 25,000/- as term loan sometime in the year 1980. At a later point of time, they also availed another amount of Rs. 50,000/- towards term loan. Both these loans carry interest at the rate of 11.85% per annum compoundable quarterly. Apart from these loans, the respondents also availed Open Cash Credit (OCC) with a limit of Rs. 75,000/- carrying same rate of interest compoundable quarterly. The loan was sanctioned by the appellant bank on obtaining security, which was given by creating equitable mortgage by deposit of title deeds. In spite of several demands, the loan amounts were not repaid. Therefore, the appellant bank, which is a Nationalized Bank, filed suit being O.S. No. 50 of 1998 on the file of the Court of the Subordinate Judge, Vikarabad, for recovery of suit amount in a sum of Rs. 3,66,230/-. The plaintiff/appellant bank also claimed subsequent interest on contractual rate of interest at 11.85% per annum.
2. Defendants 1 and 3 remained ex parte. Defendants 2, 4 and 5 filed a common written statement opposing the suit. They, inter alia, contended that Defendant No. 1 is not a registered partnership firm and that Defendant No. 3 was not authorized to secure loans from others. They also contended that the contesting defendants are not liable for the loans secured by the third defendant.
3. The Trial Court framed two issues, namely, (1) Whether the plaintiff is entitled to recover the suit claim as prayed for ? and (2) To what relief ? On behalf of Andhra Bank, the Manager was examined as P.W.1 and Exs.A.1 to A. 16 were marked. Second defendant was examined as D.W.1, but no documentary evidence was produced. On consideration of the evidence on record, the Trial Court by judgment and decree dated 5.8.1993 decreed the suit with costs, passing a preliminary decree for an amount of Rs. 3,66,230/-. The Trial Court also awarded interest at 6% per annum from the date of the suit till the date of realization and the defendants were granted three months time for redemption of the mortgage. Aggrieved by the judgment and decree insofar as awarding interest only at 6% per annum from the date of the suit till the date of realization, Andhra Bank has filed present appeal.
4. Learned Counsel for the appellant bank, Sri S.P. Sarveswara Murthy, placed strong reliance on Section 34 read with Order XXXIV Rule 11 of Code of Civil Procedure, 1908 (CPC) and contends that in relation to a commercial transaction the discretion vested in the Civil Court in the matter of awarding interest has to be within the parameters of proviso to Section 34 CPC and therefore the Trial Court erred in restricting interest pendente lite and post decree at 6% per annum. He placed reliance on the judgment of the Supreme Court in Central Bank of India v. Ravindra, , as well as decision of this Court in Indian Bank, Madras v. N. Munisankar, (DB) and Sri Panduranga Traders v. State Bank of India, Vatluru Branch, W.G. Dist., (DB).
5. Learned Counsel for Respondents 2, 4 and 5, Sri A. Ananda Rao, supports the impugned judgment of the Trial Court. His submissions are as follows. Even if the loan availed from a Nationalized Bank, is in the nature of a commercial transaction, in a mortgage suit, it is always permissible for the Court to exercise discretion under Order XXXIV Rule 11 read with Section 34 CPC and reduce rate of interest from the date of the suit till the date of the decree and from the date of the decree till the date of realization or redemption. He would further submit that in a mortgage suit, the suit is always filed capitalizing interest and when the Court adjudicates the amount of principal payable by the defendant, it also includes the component of interest and therefore if the interest at more than 6% per annum is awarded pendente lite and post decree, it would amount to levying interest over interest, which is penal in nature and against public policy. He placed strong reliance on the observations made in the judgment of the Supreme Court in Central Bank of India v. Ravindra (supra). The learned Counsel also submits that the Court is not precluded from exercising discretion even in a mortgage suit and for that purpose, he relies on the Division Bench judgment of this Court in Sri Panduranga Traders v. State Bank of India (supra) and LIC of India, Hyderabad v. Vaila Lakshmi Bai, .
6. In the background facts and in the light of the rival submissions, the only point that would arise for consideration is, whether the Trial Court was not correct in awarding interest only at the rate of 6% per annum pendente lite in the mortgage suit filed by the plaintiff/appellant?
7. Andhra Bank filed a mortgage suit for recovery of the amounts sanctioned and disbursed to the first defendant firm on defendants executing deed of equitable mortgage. In a suit for recovery of money based on mortgage, it is no gainsaying to mention that Section 34 and Order XXXIV Rule 11 CPC, apply insofar as the power of the Court to award interest on suit claim. These read as under:
Section 34(1) Where and insofar as a decree is for the payment of money, the Court may, in the decree, order interest at such rate as the Court deems reasonable to be paid on the principal sum adjudged, from the date of the suit to the date of the decree, in addition to any interest adjudged on such principal sum for any period prior to the institution of the suit, with further interest at such rate not exceeding six per cent per annum as the Court deems reasonable on such principal sum, from the date of the decree to the date of payment, or to such earlier date as the Court thinks fit:
Provided that where the liability in relation to the sum so adjudged had arisen out of a commercial transaction, the rate of such further interest may exceed six per cent per annum, but shall not exceed the contractual rate of interest or where there is no contractual rate, the rate at which moneys are lent or advanced by Nationalized Banks in relation to commercial transactions.
(2) Where such a decree is silent with respect to the payment of further interest on such principal sum from the date of the decree to the date of payment or other earlier date, the Court shall be deemed to have refused such interest, and a separate suit therefore shall not lie.
Order XXXIV Rule 11: Payment of Interest :-In any decree passed in a suit for foreclosure, sale or redemption, where interest is legally recoverable, the Court may order payment of interest to the mortgagee as follows, namely:
(a) interest upto the date on or before which payment of the amount found or declared due is under the preliminary decree to be made by the mortgagor or other person redeeming the mortgage-
(i) on the principal amount found or declared due on the mortgage - at the rate payable on the principal, or, where no such rate is fixed, at such rate as the Court deems reasonable,
(ii) (x x x), (omitted by Act 66 of 1956, Section 14 (with effect from 1-1-1957), and
(iii) on the amount adjudged due to the mortgagee for costs, charges and expenses property incurred by the mortgagee in respect of the mortgage - security upto the date of the preliminary decree and added to the mortgage - money, - at the rate agreed between the parties, or, failing such rate at such rate not exceeding six per cent, per annum as the Court deems reasonable; and
(b) subsequent interest upto the date of realization or actual payment on the aggregate of the principal sums specified in Clause (a) as calculated in accordance with that clause at such rate as the Court deems reasonable.
8. The view that in the mortgage suits the question of interest is governed by Order XXXIV Rule 11 CPC was also reiterated by the Supreme Court in Everest Industries Corporation v. Gujarat State Financial Corporation, as well as N.M. Veerappa v. Canara Bank, AIR 1988 SC 1101. It may therefore be taken as well settled that Section 34 CPC would not apply to mortgage suit. But, as rightly contended by the learned Counsel for the respondents, it is not necessary for the Trial Court to award contractual rate of interest pendente lite and post decree under Rule 11 of Order 34 CPC in a mortgage suit without exercising jurisdiction. This rule lays down that principal amount payable by the mortgagor has to be determined having regard to the rate of interest as on the date of the suit. Thereafter, the interest during the pendency of the suit and the interest payable after the date of the decree are again have to be governed by Section 34 CPC. This view is well supported by the decision of the Constitution Bench of the Supreme Court in Central Bank of India v. Ravindra (supra), wherein it was held:
What follows from above is that the Supreme Court in D.S. Gowda's case (supra) was considering the scope of power of the Courts to reopen a transaction under Section 21-A of the Banking Regulation Act in cases where the banks charge interest on the loan advanced by them at a rate higher than the rate prescribed by the Reserve Bank of India. In such cases, the Courts can reopen the said transaction, but not on the ground that the interest charged is excessive or unreasonable, in the sense it is confined only to see whether the banks charge interest on a loan advanced by them in confirmity with the circulars issued by the Reserve Bank of India or not. If the Courts come to the conclusion that the interest charged by the banks is not in confirmity with the Circulars/Directives issued by the Reserve Bank of India and is on a higher side, then the Courts will reopen the transaction to bring it inconformity with the rate of interest fixed by the Reserve Bank of India. However, the learned Judges left open the question whether Section 21-A of the Banking Regulation Act would debar the Courts from interfering if the Circulars/ Directives issued by the Reserve Bank of India do not fix the maxima and leave it to the discretion of the banks to determine the rate of interest above the minimum fixed. The said principle of reopening a transaction under Section 21-A by the Courts on the ground that the banks have charged the interest at a rate higher than the rate fixed by the Reserve Bank of India is applicable to agricultural loans as well as the commercial loans (non-agricultural loans).
9. At this stage, the submission of the learned Counsel for Andhra Bank needs to be considered. According to the learned Counsel, if the liability of the defendant has arisen out of a commercial transaction, the Court has to exercise jurisdiction subject to the proviso to Sub-section (1) of Section 34 CPC. Be it noted that proviso to Sub-section (1) of Section 34 CPC stipulated that the liability has arisen out of a commercial transaction the rate of further interest i.e., from the date of the suit till the date of realization; may exceed six per cent per annum, but shall not exceed the contractual rate of interest and in the case where there is no such contractual rate of interest, the rate at which money is lent or advanced by Nationalized Banks in relation to a commercial transaction. In simple terms, if the liability of the defendant is in relation to a commercial transaction, it is competent for the Court to award rate of interest ranging between 6% per annum to the contractual rate of interest. This submission of the learned Counsel for the appellant, however, ignores the law declared by the Supreme Court in Central Bank of India v. Ravindra (supra). As already noticed, even in the case of mortgage suit, the award of interest pendente lite and post decree is discretionary with the Court and as held by the Supreme Court, it is essentially governed by Section 34 CPC "de hors the contract between the parties". A deed of mortgage is a contract between the parties, which prescribed or contains a covenant as to rate of interest. Therefore, as a necessary corollary, it must be held that notwithstanding anything contained in the mortgage deed with regard to rate of interest, the Court is not denuded of its power to modulate rate of interest pendente lite and post decree stages; subject to the requirement of proviso to Sub-section (1) of Section 34 CPC.
10. The Division Bench of this Court in Sri Panduranga Traders case (supra) considered the earlier judgments of the Supreme Court in Corporation Bank v. D.S. Gowda, and State Bank of India v. Yasangi Venkateswararao and came to the conclusion that even in a mortgage suit, the discretion vest in Civil Court, while awarding interest subsequent to filing of the suit. In the case of State Bank of India v. Yasangi Venkateswara Rao (supra), which arose out of a mortgage suit filed by State Bank of India, the Division Bench thought it fit to award interest at 12.5% per annum. In the considered opinion of this Court, the said judgment clearly applies to the facts of this case as well.
11. Applying the decision of Supreme Court in Central Bank of India v. Ravindra (supra) as well as Division Bench judgment of this Court in Sri Panduranga Traders case, this Court agrees with the submission of the learned Counsel for the appellant. The learned Trial Judge was in error in awarding interest at 6% per annum from the date of the suit till the date of realization.
12. Therefore, the appeal is allowed and the judgment and decree of the lower Court is modified, passing a preliminary decree directing the respondents/defendants to pay the amount of Rs. 3,66,230/- with interest at 11.85% per annum from the date of the suit till the date of realization. The defendants shall pay proportionate costs of this appeal to the appellant.