Karnataka High Court
Syndicate Bank vs Subhas Venkappa Savalker And Others on 19 November, 1991
Equivalent citations: [1993]77COMPCAS362(KAR), ILR1992KAR633, 1991(4)KARLJ194
JUDGMENT K.A Swami, J.
1. The only question that arises for consideration in this appeal is whether the trial court is justified in law in awarding interest at 6 per cent. per annum on the principal sum of Rs. 1,01,000 from the date of suit till the date of realisation instead of awarding interest at the contractual rate on Rs. 2,28,733.50 from the date of suit till the date fixed in the decree for payment.
2. The plaintiff-bank advanced two loans to defendants Nos. 1 and 2. A sum of Rs. 71,000 was advanced on May 19, 1976, and a further sum of Rs. 30,000 was advanced on November 22, 1976. Of course, the sum of Rs. 71,000 was not paid in a lump sum, but it was paid in four installments. However, for the purpose of this case, it is not necessary to go into that aspect of the matter because the defendants have not challenged that part of the decree passed by the trial court.
3. The plaintiff filed the suit on September 10, 1984, for recovery of a sum of Rs. 2,28,733.50 inclusive of interest at the agreed rate up to that date. The principal sum as pointed out above was Rs. 1,01,000 and the rest was the interest accrued on the principal up to the date of filing of the suit. The defendants had secured the aforesaid two loans by creating an equitable mortgage by deposit of title deeds of the suit schedule properties as per exhibits P-6 and P-8. The trial court has awarded interest on the principal sum of Rs. 1,01,000 at 6 per cent annum from the date of suit till the date of realisation. The trial court has not given any reason for awarding interest at 6 per cent. from the date of suit till the date of the decree on the sum of Rs. 1,01,000 only. This is a case to which Order 34 of the Civil Procedure Code is attracted because the suit is for recovery of the mortgage money by sale of the mortgaged properties.
4. Whatever might be the divergence of opinion in the past, but from the date of the decision of the Supreme Court in Soli Pestonji Majoo v. Ganga Dhar Khemka, , it is the settled legal position that rule 11 of Order 34 of the Civil Procedure Code by using the word "may" "gives a certain amount of discretion to the coat so far as interest pendente lite and subsequent interest is concerned ..." and it is "no longer absolutely obligatory on the court to decree interest at the contractual rate up to the date of redemption in all circumstances even if there is no question of the rate being penal, excessive or substantially unfair within the meaning of the Usurious Loans Act, 1918". Therefore, it is clear that there is a discretion vested in the court in awarding interest from the date of the suit till the date fixed for payment in the decree even in a case governed by rule 11 of Order 34 of the Civil Procedure Code. But that discretion has to be exercised according to the well-settled judicial principles and not arbitrarily.
5. In the instant case, the loans were advanced for commercial purposes, viz., for the purpose of establishing a flour mill. Defendants Nos. 1 and 2 are the principle debtors and defendant No. 3 is a surety. Defendants Nos. 1 and 2 have suffered a loss in their business. There is no doubt that this circumstance is relevant in determining the rate of interest to be awarded during the period from the date of filling the suit till the date fixed for payment in the decree. When the loan is advanced for commercial purpose on a mortgage, normally, the interest is awarded from the date of suit till the date fixed for payment in the decree at the contractual rate. But on good grounds, it is open to the court to award interest at a lower rate. In the instant case, as already pointed out, defendants Nos. 1 and 2 have suffered a loss in the business for which they had raised the loans in question. Therefore, on taking into consideration the fact that defendants Nos. 1 and 2 suffered loss in the business and as such they could not carry on the business with the help of the loans advanced by the plaintiff-bank, we are of the view that interest at the rate of 12 per cent. per annum would be just and appropriate from the date of the suit till the date fixed for payment in the decree on the principle sum of Rs. 1,01,000.
6. However, it is contended by Sri Radhesh Prabhu, learned counsel for the plaintiff-bank, that the words "on the principle amount found or declared due on the mortgage" found in rule 11(a) of Order 34 of the Civil Procedure Code is wide enough to include not only the principle sum advanced on the mortgage but also the interest accrued on it up to the date of the suit. Therefore, it is contended that as it is the claim of the plaintiff-bank that it is entitled to a sum of Rs. 2,28,733.50 as on September 10, 1984, the date on which the suit was filed and this has not been disputed, it must be taken as the principle amount found or declared due on the mortgage and it is on this entire sum that the interest pendente lite has to be awarded and not on the sum of Rs. 1,01,000 only. Learned counsel has placed reliance on a decision of the High Court of Allahabad in Jafar Husain v. Bishambhar Nath, AIR 1937 All 442.
7. The contention of learned counsel for the plaintiff that the words "principle amount found due or declared due on the mortgage" include the interest accrued on the principle up to the date of the suit as the interest also would be the amount due on the mortgage if the same is not paid, therefore, the mortgagee is entitled to interest at the contractual rate on the entire amount claimed in the suit inclusive of the principle and the interest from the date of the suit till the fixed for payment cannot be accepted. It is an undisputed legal position that no interest is recoverable unless there is an express or implied agreement to pay interest or unless it is recoverable under mercantile usage, or custom or under a statutory provision. The interest on the amount advanced on the mortgage is governed by the terms of the mortgage deed. If the mortgage deed provides that the mortgagee will be entitled to add the interest to the principle if the interest is not paid as and when it becomes due and treat it as part of the principle amount and claim interest on the entire sum at the contractual rate, the mortgagee will be entitled to claim interest at the contractual rate not only on the principal sum but also on the sum due as interest which gets added on to or merged into the principal amount by reason of non-payment of the same as and when it becomes due. In the absence of any such recital in the mortgage deed, it would not be possible to hold that the mortgagee will be entitled to claim interest at the contractual rate not only on the principal sum but also on the amount of interest accrued on the principal sum. The words "principle amount found due or declared due on the mortgage" occurring in sub-clause (i) if clause (a) of rule 11 of Order 34 of the Civil Procedure Code mean only the principal amount due under the mortgage without interest till the date of the suit. These words cannot be interpreted to mean and include not only the principal amount found due on the mortgage but also the interest accrued thereon up to the date of the suit. Therefore, a mortgagee will not be entitled to interest from the date of the suit to the date fixed for payment at the contractual rate on the amount accrued as interest on the principal sum up to the date of the suit, but he would be entitled to interest from the date of the suit up to the date fixed for payment at the contractual rate only on the principal amount due under the mortgage and not on the total amount due on the date of the suit. Even then, there is a discretion vested in the court, as already pointed out, in awarding interest and it is open to the court to award interest at a lesser rate from the date of the suit till the date fixed for payment in the decree.
8. Order 34, rule 11 reads thus :
"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 up to 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 ....
(iii) on the amount adjudged due to the mortgagee for costs, charges and expenses properly incurred by the mortgagee in respect of the mortgage security up to 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 up to the date of realisation 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."
9. It is also relevant to notice the difference between sub-clauses (i) and (iii) of clause (a) of rule 11 of Order 34 of the Civil Procedure Code. Sub-clauses (i) uses the words "principal amount found or declared due on the mortgage", whereas sub-clause (iii) uses the words "on the amount adjudged due to the mortgagee". Thus, on a reading of sub-clauses (i) and (iii) of clause (a) of rule 11 of Order 34, it becomes apparent that what is intended by the Legislature by using the words "principal amount found or declared due on the mortgage" is the principal amount found due or declared due under the mortgage and it does not include the interest accrued on the principal sum advanced on the mortgage, whereas under sub-clause (iii), the words used are "on the amount adjudged due to the mortgagee" make it clear that the amount adjudged due to the mortgagee, will be inclusive of not only the principal amount but also of the interest accrued thereon for the purpose of costs, charges, and expenses properly incurred by the mortgagee in respect of the mortgage security up to the date of the preliminary decree. If the Legislature did not intend to make any difference between the words "principal amount found or declared due on the mortgage" and the "amount adjudged due to the mortgagee", there was no reason whatsoever to use different expression in sub-clauses (i) and (iii) of clause (a) of rule 11 of Order 34 of the Civil Procedure Code. In B. Chotey Lal v. Mohammad Ahmed Ali Khan, AIR 1933 Oudh 128, it was contended that the words "principal amount fund or declared due" on the mortgage in Order 34, rule 11(a)(i) should include interest also. The contention was overruled and it was held that the principal amount found or declared due on the mortgage must be taken to be the principal sum only and not the interest which was found due or declared due on the mortgage. It was also specifically held that the interest could not be held to be part of the principal amount. This decision has been followed in Pirthipal Singh v. Raghubar Dayal Shukla, AIR 1935 Oudh 263. We may also point out that both the decisions were rendered by a Division Bench. In Pirthipal Singh's case, AIR 1935 Oudh 263, after referring to Chhote Lal's case, AIR 1933 Oudh 128, it was held that the words "principal amount" as used in sub-clause (a) of rule 11 of Order 34 of the Civil Procedure Code, meant the principal money secured by the deed of mortgage and interest which had accrued due before the suit could not be regarded as part of the principal amount.
10. In Brij Jiwandas v. Smt. Kawal Mani Bibi, AIR 1942 all 444, it was held that, under Order 34, rule 11, interest should ordinarily be allowed at the contractual rate on the principal amount from the date of the institution of the suit till the date of the decree. In Vasudeo Govind v. Mahadeo Bhaskar, AIR 1956 Nagpur 105, it was held that rule 11 of Order 34 of the Civil Procedure Code, made a clear distinction between the two periods, viz., the period between the date of the suit and the date fixed for redemption and the period between the date fixed for redemption and the date of realisation. It was also further held that, in either case, it was discretionary with the court to allow interest, the rule contemplated only the principal amount adjudged in respect of the first period for awarding interest while, for the subsequent period, interest may be allowed on the total amount due. Therefore, it was held that interest would be allowed only on the principal sum from the date of the suit till the date fixed in the preliminary decree for redemption. In Mrs. I. K. Sohan Singh v. State Bank of India, AIR 1964 Punj 123, it was held that Order 34, rule 11 of the Civil Procedure Code did not provide for payment of any interest on any amount which consisted of interest prior to the date of the suit. The view expressed by us accords with the view expressed in these decisions.
11. We shall now take up for consideration the decision in Jafar Hussain's case, AIR 1937 All 442, in which it has been held as follows (page 444) :
In our judgment, the words 'on the principal amount found or declared due' in clause (a) sub-clause (i) refer not only to the principal sum secured by the mortgage deed but also to the amount due on account of interest which has become a part of principal in accordance with the terms of the deed on the date when the preliminary decree is prepared. In our judgment, there is no force in the contention that the Legislature when they used the words 'due or declared to be due' in rule 11, enacted that in calculating interest from the date of the suit till the date fixed for redemption no interest on interest was to be allowed to the mortgagee in spite of the terms of the mortgage deed."
12. In Jafar Husain's case, AIR 1937 All 442, the aforesaid view was taken after observing that the view taken in Chotey Lal v. Mohammad Ahmad Ali Khan, AIR 1933 Oudh 128, was not correct; that the said view in Chotey Lal's case, AIR Oudh 128, was taken without noticing another decision of the same High Court by a Division Bench in Rajendra Bahadur Singh v. Raghubir Singh's case, AIR 1934 Oudh 473. We may point out here that the decision in Rajendra Bahadur Singh's case, AIR 1934 Oudh 473, was rendered on the basis of the terms contained in the mortgage deed as to payment of interest on the amount of interest. The mortgage deed considered in that case, provided that, in case of non-payment of interest for any period of six months on the due date, the amount of interest shall be added to the principal money and interest and compound interest thereon shall run at the same rate as on the principal amount till the date of payment. Therefore, it was held that the court should also allow interest on the aggregate amount found due instead of on the principal amount lent. Therefore, the decision in Rajendra Bahadur Singh's case, AIR 1934 Oudh 473, turned upon the actual terms of the mortgage deed as to payment of interest on interest, and compound interest, whereas the decision in Chotey Lal's case, AIR 1933 Oudh 128, was rendered on an interpretation of sub-clause (i) of clause (a) of rule 11 of Order 34 of the Civil Procedure Code and not on the basis of the recitals contained in the mortgage deed.
13. Similarly, the decision in Pirthipal Singh's case, AIR 1935 Oudh 263, which followed the decision in Chotey Lal's case, AIR 1933 Oudh 128, was rendered on an interpretation of the words "principal amount" found in sub-clause (i) of clause (a) of rule 11 of Order 34 of the Civil Procedure Code. In addition to this, the decision in Jafar Husain's case, AIR 1937 All 442, as extracted above, depend upon the terms of the mortgage. This is clear from the underlined observations in Jafar Husain's case, AIR 1937 All 442, extracted above.
14. Even otherwise, if it is construed that the decision in Jafar Husain's case, AIR 1937 All 442, and Rajendra Bahadur Singh's case, AIR 1934 Oudh 473, have interpreted that sub-clause (i) of clause (a) of rule 11 of Order 34 of the Civil Procedure Code takes in to its fold not only the principal amount found due on the mortgage but also the interest accrued thereon up to the date of the suit, with great respect to their Lordships who decided these two cases, we find ourselves unable to agree with the view as in our opinion, it is clearly opposed to the words "on the principal amount found or declared due" contained in sub-clause (i) of clause (a) of rule 11 of Order 34 of the Civil Procedure Code. It means only the principal amount due on the date of the suit and not the interest accrued on it up to the date of the suit.
15. In the instant case, we have also even perused the agreements, exhibits P-6 and P-8, creating equitable mortgages. We do not find any clause in both the documents entitling the mortgagee to claim compound interest and interest on interest at the contractual rate fixed on the principal sum, in the event the interest accrued on the principal sum remaining unpaid by adding the same to the principal and treating it as part of the principal. If the agreements, exhibits P-6 and P-8, specifically provided for payment of interest at quarterly or six-monthly or yearly rests, as the case may be, with a further clause that, in the event the amount of interest was not paid, it shall be added on to the principal and the interest shall also run on that amount on the same rate as agreed on the principal sum, then the mortgagee - the plaintiff would have been entitled to interest on the interest at the same rate which the principal amount was to carry. Therefore, we reject the contention of the plaintiff and hold that the principal sum due on the date of the suit was a sum of Rs. 1,01,000. On this amount, the plaintiff is entitled to interest at the rate of 12 per cent. from the date of the suit till the date fixed for payment in the decree.
16. As far as interest from the date of the decree till the date of realisation is concerned, the trial court, no doubt, is right in awarding interest for this period on a sum of Rs. 1,01,000 at the rate of 6 per cent. per annum, but it ought to have awarded interest at the rate from the date fixed for payment in the decree till realisation. The trial court also ought to have awarded interest at 6 per cent. on the balance of the amount of Rs. 1,27,733.50 which represents interest on the principal sum up to the date of suit from the date of the decree till realisation.
17. Therefore, we hold that the trial court is right in treating a sum of Rs. 1,01,000 as principal amount due on the mortgage on the date of the suit. However, it is not right in awarding interest only at 6 per cent. on that sum from the date of the suit till the date of realisation. It ought to have awarded interest at the rate of 12 per cent. per annum on the sum of Rs. 1,01,000 from the date of the suit, viz., September 10, 1984, till the date fixed for payment in the decree. The trial court, as already pointed out, also ought to have awarded interest on the principal sum of Rs. 1,01,000 at six per cent. from the date fixed for payment in the decree till realisation and also at 6 per cent. per annum on the balance of the amount of Rs. 1,27,733.50 from the date of the decree till realisation. The question raised for determination is answered accordingly.
18. For the reasons stated above, this appeal is allowed in part. The judgment and decree of the trial court in so far as they relate to interest from the date of suit till the date of realisation are modified in the following terms. In all other respects, the decree of the trial court except the date fixed for payment hereunder is not disturbed.
(i) The plaintiff is entitled to interest at 12 per cent. on the principal sum of Rs. 1,01,000 from the date of the suit till the date fixed in the decree for payment of the amount adjudged due to the mortgagee and at the rate of 6 per cent. on the aforesaid principal sum of Rs. 1,01,000 from the date fixed for payment in the decree till realisation;
(ii) The plaintiff is also entitled to interest at 6 per cent. on the balance of the amount of Rs. 1,27,733.50 from the date of the decree till realisation. The defendants are granted six months from today to pay the decretal amount.
(iii) The appellant is entitled to costs proportionate to its success in the appeal. The decree be drawn up in terms of Order 34, rule 4 of the Civil Procedure Code.