Karnataka High Court
Syndicate Bank vs M. Jeevandar Kumar on 15 November, 1994
Equivalent citations: ILR1994KAR3603, 1995(1)KARLJ268
Author: Tirath S.Thakur
Bench: Tirath S. Thakur
JUDGMENT
Tirath S.Thakur, J
1. This is a Plaintiffs first Appeal arising out of a suit for recovery of money, which was tried and decreed by the 1st Addl. Civil Judge, Mangalore, by his judgment and decree dated the 13th of February, 1991. The grievance in the Appeal is however limited only to that part of the decree by which the Court below has disallowed compound interest for the period prior to the suit, and awarded pendentelite and future interest at the reduced rate of 6% simple as against the contractual rate of 16.5% per annum. A few facts necessary for the disposal of the appeal may be stated first:
Respondent No. 1 who is the Principal debtor, applied for and secured a term loan of Rs. 1 lakh from the appellant Bank's 'Moodabidri Branch' on 26.4.1976, with a view to liquidate a preexisting debt incurred by the said respondent for developing his farm. The loan amount was repayable by the borrower in yearly instalments of Rs. 20,000/- each for the first two years and thereafter one yearly instalment of Rs. 15,000/- each for the next two years, with the stipulation that the entire loan amount with interest due on the same shall be cleared by him by the end of 30th of March 1981. Another facility by way of an overdraft with an outer limit of Rs. 50,000/- was secured by the said respondent on 26.4.1976 itself from the appellant-Bank, for what the parties admit was an agriculture purpose namely development of the borrower's farm thereby making the said loan an agriculture loan. It is not in dispute that proper documents were executed by the defendants for a total consideration of Rs. 1.50.000/- received by the Principal borrower including a mortgage deed, and a loan agreement dated 26.4.1976 stipulating the terms and conditions governing the loan transactions entered into by the parties.
2. The borrower-respondent, having committed default in the repayment of the loan amount outstanding against him, the appellant-Bank instituted a suit in the Court below for the recovery of the same on the 27th of October, 1986, i.e., more than five years after the date fixed for repayment of the amount secured by him. In the suit the appellant-Bank prayed for a decree for the recovery of an amount of Rs. 4,87,727.80 on account of the term loan inclusive of interest calculated upto 15.10.1986 and a further amount of Rs. 1,29,306.30 on account of the overdraft facility making a total of Rs. 6,17,034,10. This amount the appellant claimed with interest pendentelite and future @ 16.50% per annum, besides a decree for sale of the mortgaged landed properties and hypothecated machineries and moveables described in the suit schedule.
3. In the written statement filed by the Respondent borrower, he raised a three-fold defence to the suit. In the first place he contended that the loan secured by him was obtained and utilised for agricultural operation and development of agricultural land, with the result that the rate of interest charged by the appellant-Bank was contrary to the Reserve Bank of India Directives on the subject. In the second place he contended that the suit filed by the Appellant-Bank was time barred, and lastly that during the pendency of the suit, and Defendant borrower had made certain payments, credit whereof was due to and claimed by him.
4. On the pleadings of the parties, the trial Court framed the following five issues:-
1) Whether the discharge pleaded is true?
2) What is the correct rate of interest payable?
3) What if any is the correct amount?
4) Whether the suit is barred by limitation?"
5) What decree?
5. By its judgment and decree under Appeal the trial Court found that during the pendency of the suit, the borrower had deposited with the appellant-Bank, a sum of Rs. 2,04,792-50ps credit whereof had to be given to the said defendant.
6. In regard to issue No. 2, the trial Court held that since the loans advanced to the borrower were agricultural in nature, meant for development of agriculture, the charging of compound interest with quarterly rests was illegal. The trial Court accordingly disallowed the compounding of interest but allowed the contractual rate at 16 1/2% per annum without rests.
7. The issue regarding limitation was held against the borrower and the suit found to be within time. The trial Court accordingly passed a decree in favour of the plaintiff-Bank with interest at the rate of 16 1/2% per annum without rests. Costs of the suit and interest at 6% per annum from the date of the suit till the date of realisation were also awarded to the appellant-Bank, and the decretal amount made recoverable jointly and severally from all the defendants.
8. The appelIant-Bank is in Appeal before us against the aforesaid judgment and decree to the extent the same disallows compounding of interest with quarterly rests, for the period prior to the suit and awards a reduced rate of 6% per annum pendente lite and till realisation.
9. We have heard the learned Counsel for parties at length and perused the record carefully.
10. Mr. Aswathram, learned Counsel appearing for the appellant-Bank submitted that the trial Court was in error in holding that both the loan transactions were farm loans meant for development of agriculture. He argued that while the overdraft facility of Rs. 50,000/-could be treated to be a farm loan, the same was not true about the term loan of Rs. 1 lakh, which according to the learned Counsel did not qualify for being treated as an agricultural loan. This was so according to the learned Counsel for the reason that the loan amount was not spent on developing agriculture or any other related purpose but for liquidation of an antecedent debt which the borrower had secured earlier from some other source. In order that the loan can be treated an agricultural loan contended the learned Counsel it was imperative that the amount borrowed is spent directly on an agriculture related activity. We regret to say that we are not impressed by this line of reasoning advanced by the learned Counsel. The reasons are obvious. In the first place the term "agriculture loan" has not been defined, All that appears to have been done by the Reserve Bank, is to identify the priority sectors one of which, of course, is agriculture, for which the Reserve Bank of India Guidelines envisage both direct as also indirect financing. In direct financing the Guidelines provide for short term, medium and long term loans given to the farmers directly for financing their production and development needs. A farm loan advanced to a farmer in the priority sector of agriculture, as in the instant case, would therefore clearly qualify to be an agricultural advance. The fact that the term loan in question was advanced by the appellant-Bank in the said sector was not disputed by Mr. Aswathram, nor was it disputed that the Bank had in fact treated the said loan to be a farm loan. We therefore, see no reason why the appellant-Bank should be permitted to go back on its own stand and contend that the loan in question was not an agricultural loan.
11. That apart, we do not see any conceptual difference between a loan which is advanced to the farmer for being spent directly on the specified agricultural purposes, on the one hand and a loan which is advanced to pay-off an earlier loan which had admittedly been secured and utilised by the farmer for the said purposes. What lies at the heart of the Reserve Bank of India Policy, is "the purpose for which the amount in question was utilised". If the pre-existing debt was utilised for development of agriculture, as in the case before us a loan advanced by the appellant-Bank to liquidate the said antecedent debt, must of necessity be treated to be an agricultural loan, for the simple reason that the amount of a loan advanced by the Bank has, eventually, though indirectly, resulted in improvement of agriculture, identified as a priority sector by the Government, for purpose of financing both short and long term by public sector financial institutions. We therefore, have no hesitation in repelling the submission made by Mr. Aswathram in this regard and upholding the finding returned by the Court below.
12. It was next contended by Mr. Aswathram that even if the loans were treated to be agricultural loans the Court below was not justified in denying to the appellant, compounding of interest on yearly rests basis. In support of his submission he placed heavy reliance upon a Judgment of their Lordships of the Supreme Court in CORPORATION BANK v. D.S. GOWDA ILR 1994 KAR 2234 (SC). In the said case, one of the points that fell for the consideration of their Lordships was, whether charging of interest with quarterly or six monthly rests was justified keeping in view the Reserve Bank of India directions issued on the subject particularly in respect of agricultural loans. Their Lordships observed thus:-
"We have pointed out that the said Circulars/directives provide that agricultural advances should not be treated on par with commercial loans insofar as the rate of interest thereon is concerned because the farmers do not have any regular source of income except sale proceeds of their crops which income they get once a year, The question of recovery of interest with quarterly or six monthly rests from farmers is, therefore, not feasible. The fact that the farmers are fluid at a given point of time every year has to be kept in mind in determining the point of time when they should be expected to repay the loan or pay the instalment/interest or advances. Therefore, to allow the banks to charge interest on quarterly or half yearly rests from farmers would tantamount to virtually compelling them to pay compound interest, since they would not be able to pay the interest except once in a year i.e., when they receive the income from sale proceeds of their crops. The Reserve Bank has shown concern for the farmers by directing all banking institutions to so regulate the recovery of interest as to coincide with the point of time when the farmers are fluid. It has, therefore, been emphasised by the Reserve Bank that interest should be charged once a year to coincide with the point of time when the farmer is fluid and interest on current dues should not be compounded although it may be done when the advance/instalment becomes overdue. Thus according to the Circulars/directives, so far as loans for agricultural purposes are concerned, at best interest may be charged with yearly rests and may be compounded if the loan/instalment becomes overdue."
13. In the face of the above view expressed by their Lordships, we hold that the trial Court was in error in not allowing charging of interest with atleast yearly rests and compounding the same if the amount was over due. In fairness to Mr. Visveswara we must add that the grant of yearly rests for calculation of interest was not contested by him, and rightly so, because the view expressed by the Apex Court, in the above case does finally lid the controversy whether agricultural loans can attract interest at yearly rests.
14. Mr. Aswathram then submitted that the appellant's suit being one under Order 34 CPC, the contractual rate of interest, namely 16.5% per annum, could not have been reduced by the trial Court to barely 6% per annum and that in having done so without disclosing any basis or evidence, in support of the said reduction, the Court below committed a palpable error. He placed reliance upon a Division Bench Judgment of this Court, in SYNDICATE BANK v. AHMED BAWA in support of his submission, that the defendant was required to adduce evidence to establish his weak financial position to warrant any reduction in the agreed rate of interest.
15. Mr. Visveswara on the other hand urged that the term loan of Rs. 1 lakh was unsupported by any mortgage and therefore the, question of applying Order 34 Rule 11 of the CPC did not arise. In the alternative he argued that even under Order 34 of the CPC the Court had ample discretion to award a lesser rate of interest pendente lite and till realisation. He placed reliance upon the Judgment of the Supreme Court in SOLI PESTONJI MAJOO v. GANGA DHAR KHEMKA AlR 1 969 SC 600 and contended that the respondent borrower's conduct particularly the payments he made during the pendency of the suit before the trial Court, was a sufficient circumstance to entitle him to a reduction in the rate of interest, and that the discretion exercised by the trial Court in that regard should not be interfered with by this Court in appeal.
16. We may first examine the question whether the suit is one relatable to Order 34 of the CPC. An answer to this question is not difficult to find. In para 3(c) of the plaint, the appellant Bank made a specific averment to the effect that in consideration of the term loan and the overdraft facility, defendants-No. 1 & 2 executed a registered Memorandum of Mortgage dated 26-4-1976 in favour of the Bank and deposited the title deeds in respect of the properties described in the schedule attached to the plaint with the plaintiff Bank's Hampankatta -Mangalore Branches, to create an equitable Mortgage as per the said Memorandum. In para-3 of the written statement filed by the respondent borrower, the fact that the farm loan was availed of and the necessary documents executed is specifically admitted, That being so, we fail to appreciate as to how the borrower can, now turn round and argue that no mortgage in respect of the term loan had been executed by him. The admission of the borrower that the requisite documents were executed by him, is enough to bind him with that statement; for, an admission is the best evidence available against a party; and a fact which is admitted needs no proof. Mr. Visveswara's submission to the contrary therefore needs to be noticed only to be rejected.
17. The next question then is whether the trial Court was bound to award the contractual rate of interest for the period subsequent to the institution of the suit and till realisation. Mr. Aswathram contended that in the light of the Judgment of their Lordships of the Supreme Court in Soli Pestonji Majoo v. Ganga Dhar Khemka and a Division Bench Judgment of this Court in Syndicate Bank v. Ahmed Bawa the legal position that the Civil Court was entitled in its discretion to award a lesser rate of interest pendetelite and till realisation, cannot be disputed. He, however, contended that the discretion vested in the Court has to be exercised on sound and judicial lines. We find considerable merit in this submission of the learned Counsel. The question as to the discretion of the Court in awarding a lesser rate of interest has indeed been finally settled by the aforesaid two Judgments in which it has now been authoritatively held that the Court has discretion in awarding a lesser rate of interest in a given case, if the circumstances so warrant and justify. In order, however, that the discretion vested in the Court should be exercised in his favour, the defendant/borrower has to bring on record before the trial Court circumstances which warrant taking of a lenient view in regard to the payment of interest by him. Material showing the financial capacity of the borrower will have to be adduced by the borrower at the trial in order to justify the reduction in the contractual rate of interest. Again, the conduct of the borrower, his honesty and fair approach in his dealings with the lending Bank, will be relevant considerations for the Court to keep in view while examining the question whether a lesser rate of interest than contracted by the parties should be awarded, It is only on an objective consideration of these factors that the Court can interfere with the agreed rate of interest and award a lower rate. Discretion howsoever wide can never be exercised in a fanciful or whimsical manner. On the contrary, the wider the discretion and the greater the implications of its use one way or the other, the more cautious and sparing should be its use. Indeed one of the surest safeguards against arbitrariness in matters relating to exercise of discretion, is the disclosure of reasons for the exercise thereof whether for or against a party. Disclosure of reasons provides transparency to the thought process of the Court or authority exercising the discretion vested in it and enables an Appellate Court, to consider whether the same has been exercised along sound and Judicial lines. Non-disclosure of reasons for taking a particular view on the contrary shrouds the exercise of discretionary power in suspicion of arbitrariness. The principle that an appellate Court does not ordinarily interfere with the exercise of discretion by the Court subordinate to it, applies only to cases where the exercise of discretion by the lower Court, is demonstrably on a fair and proper consideration of what is relevant to the exercise thereof. The principle has no application where the Court or authority exercising the discretion has either failed to consider or otherwise remained oblivious of what is relevant for a proper exercise of the discretionary power.
18. Coming then to the facts of the present case, we find that the trial Court has not given any reason whatsoever for reducing the rate of interest from 16.5% to 6% per annum. The judgment and decree impugned are singularly silent as to the reasons, which weighed with the trial Court in awarding a substantially lesser rate than the one stipulated and agreed to by the parties. We are therefore left with no option but to examine the question on its merits, though with an obvious handicap of not having the benefit of the reasons which prevailed with the Court below. It is also obvious that it is one of those cases-where the appellate Court, will not be loathe to enter this thicket of discretionary power and its exercise by the lower Court.
19. Mr. Visveswara, learned Counsel for the respondent made a valiant attempt to support the rate awarded by the trial Court. He pressed into service-before us, two reasons why the rate awarded by the trial Court should be upheld. In the first place, he contended that the overdraft facility had been utilised for digging a well, which proved a total loss, because the well did not hit the water. In the 2nd place he argued that the borrower's conduct had been fair and forthright as he had made substantial repayments even during the pendency of this suit. We do not, however, find any substance in either of these two reasons advanced by the learned Counsel.
20. There is nothing on record to show that any well was actually dug or that the expenditure incurred on the same by the respondent borrowed proved a loss, for the reason advanced before us. That apart, we do not think that the failure of the purpose for which the loan facility was extended for any reason not attributable to the conduct of the appellant-Bank would furnish a good cause for denying to the lender the agreed rate of interest. Equally untenable is the other reason advanced by Mr. Visveswara. The loan was advanced to the respondent as early as in the year 1976. The last instalment fixed for repayment of the amount was payable by 30.3,1981. No payment was however made by the respondent, even upto the year 1986, when the appellant- Bank was forced to file the suit for recovery of the outstanding amount. It was only after the suit had been filed, did the respondent, pay an amount of Rs. 2,04,792-50 ps as found by the trial Court. This payment as against an amount of over Rs. 6 lakhs, does not, in our opinion show either the borrower's anxiety to pay or his forthright conduct to entitle him to a lenient rate of interest. We say so particularly for the reason that the borrower did not have any financial , constraints which would possibly prevent him from liquidating the outstanding and within a reasonable time, instead of dragging on his feet for over 10 years. In para 9 of written statement the respondent borrower has clearly stated that the farm owned by him has 560 Areca plants and 1300 Coconut plants, and that by a modest estimate also the value of the property would be more than 'Rs.50 Lakhs. Besides the farm, the borrower owns a rice mill also. All these admissions therefore leave no manner of doubt in our mind that the financial position of the borrower was affluent enough to enable him to liquidate the outstanding amount within the estimated period of 5 years instead of delaying the same for nearly 2 decades now. We therefore do not feel convinced about the borrower's so called honest and forthright conduct, so as to justify any interference by us with the contractual rate of interest stipulated by the parties themselves; nor was the trial Court's interference with the said rate warranted in the facts and the circumstances of the case.
21. In the result we make the following Order:-
The Appeal is partly allowed, the judgment and decree of the Court below in so far as the award of interest pre-suit, pendentelite and future is concerned is set aside; and the appellant held entitled to payment of interest @ 16.5% per annum with yearly rests up to the date of the institution of the suit. The appellant shall also be entitled to simple interest pendentelite and till realisation @ 16.5% per annum on the principal amount, decreed in its favour. Costs in the Appeal shall abide the result. A decree on the above term shall follow.