Andhra HC (Pre-Telangana)
Syndicate Bank vs M. Venkatesu on 16 August, 2002
Equivalent citations: 2003(1)ALT307, [2003]115COMPCAS110(AP)
ORDER P.S. Narayana, J.
1. Syndicate Bank, Mudigubba, Anantapur District, the plaintiff in OS.No. 89 of 1987 on the file of the Subordinate Judge, Kadiri is the appellant and the respondent in the appeal is the defendant in the suit. This appeal is preferred questioning the rate of interest which had been granted by the trial Court. 'The parties are referred to as plaintiff and defendant for the purpose of convenience. The plaintiff filed the suit for recovery of a sum of Rs. 31,536.90/- ps inclusive of the interest at the rate of 20.5% per annum payable from 10-7-1978, the date of suit loan transaction to 26-6-1987, the date of the plaint, with future interest. The allegations in the plaint are as follows:
"On 10-7-1978 the defendant who is a cloth merchant at Mudigubba and one Nagabhnshnam Setty approached the plaintiff-bank for creating an over-draft facility in the current account of the defendant with the plaintiff-bank up to a limit of Rs. 10,000/-and accordingly issued a letter of request. On 10-7-1978 they requested the plaintiff-bank through a letter to permit the defendant to exceed the limit of the over-draft facility. Accordingly on 10-7-1978 the plaintiff-bank granted to the defendant an overdraft facility and the defendant with the said K. Nagabhnshnam Setty executed a promissory note dated 10-7-1978 for Rs. 10,000/- in favour of the plaintiff-bank agreeing to repay the debt with interest at 6 1/2% per annum above the Reserve Bank of India rate with a minimum of Rs. l51/2% per annum compounded monthly/quarterly and thus they availed themselves of the overdraft facility and withdrew the said amounts from the plaintiff-bank. On demands made by the plaintiff-bank, the defendant and the said K. Nagabhushanam Setty did not repay the suit loan amount, except making certain payment as shown in the extract from the ledger account filed with the suit. On 8-6-1981 the defendant and K. Nagabhushnam setty acknowledged the debt. They also did so on 27-4-1984 and 27-6-1984. The said K. Nagabhushnam Setty did not join the defendant in acknowledging the debt on 27-4-1984 and 27-6-1984 and for this reason the claims against him is barred by limitation. Hence the suit is filed against the defendant only."
2. The defendant had opposed the suit by filing a written statement with the following allegations:
"The defendant is not a cloth merchant at Mudigubba but he is an agriculturist. The defendant obtained the suit loan for the purpose of his agriculture. The defendant could not discharge the entire debt hut made certain payments as shown in the extract from the ledger account filed by the plaintiff. Due to failure of crops, the defendant could not realize any income through his lands for the last about five or six years. Hence he is not in a position to discharge the debt. The acknowledgments filed by the plaintiff are inadmissible in evidence. However the defendant agrees to pay simple interest. The interest claimed by the plaintiff-bank is exorbitant and incorrect. The claim includes certain charges which are not admissible. The rate of interest is liable to be scaled down"
3. Basing on the respective pleadings of the parties the following issues were settled:
a. Whether the acknowledgments made by the defendant are true and valid?
b. Whether the interest claimed by the plaintiff is excessive and usurious and if so, whether the interest is to be scaled down?
c. To what relief (the parties entitled)?
4. The Branch Manager of the plaintiff-bank was examined as PW1 and Exs. A1 to A6 had been marked and the defendant was examined as DW1.
5. On appreciation of the oral and documentary evidence, the trial Court decreed the suit to the extent of Rs. 10,000/-towards principal with compound interest with quarterly rests at the rate of 15.5% per annum from 10-7-1978, the date of the suit promissory note marked as Ex.A2 till 25-6-1987, the date of the institution of the suit, and at the rate of 6% per annum with effect from 26-6-1987, the date of filing of the suit, till the date of realization less payments already made by defendant to the plaintiff-bank.
6. The plaintiff-bank, aggrieved by the relief relating to the rate of interest which had been granted by the trial Court had preferred the present appeal. Sri K.G. Shastry, learned Counsel representing the plaintiff-bank contended that he is not making out of a grievance relating to the rate of interest at 15.5% per annum which had been granted by the trial Court. The learned Counsel had submitted that the trial Court has totally erred in not granting the contractual rate of interest as mentioned in the promissory note marked as Ex.A2. The learned Counsel also contended that the calculation of interest on the amount of the principal and interest which had been claimed treating the total amount as principal amount instead of granting the interest on the amount actually advanced initially cannot be sustained. The learned Counsel further had taken me through the oral and documentary evidence and had submitted that in the facts and circumstances of the case even the subsequent interest should have been awarded only at the contractual rate and not at the rate of 6% per annum for the reason that if such relief is granted it will amount to encouraging defaulters to get the advantage as against the bona fide borrowers who will be prompt in making repayments to the banking institutions. The learned Counsel had also placed reliance on Bank of Baroda v. Jagannath Pigment and Chem and Ors., 1996 (3) Civil LJ 699, State Bank of India v. Yasangi Venkateswara Rao, 1999 (1) SLT 284, Shree Bharat Laxmi Wool Store, Panipat and Ors. v. Punjab National Bank and Ors., I (1992) BC 210, Union of India v. Narendra Plastics, Bhavnagar and Ors., 1991 (1) Civil LJ 619.
7. On the contrary Sri P. Sreeramulu Naidu, learned Counsel representing the respondent had contended that the respondent-defendant is not a merchant and he is only an agriculturist and at any rate inasmuch as granting of interest is within the discretion of the trial Court, the same cannot be interfered with. The trial Court had arrived at a conclusion while answering Issue No. 2 that the interest claimed by the plaintiff-bank is excessive and the same was reduced from 20.5% to 15-5% per annum. The learned Counsel had also contended that the rate of interest at 6% with effect from 26-6-1987, the date of the suit till the date of realization is in accordance with the provisions of Section 34 of the Code of Civil Procedure.
8. Heard both the Counsel. The short question which this Court is called upon to answer in the present appeal is whether the plaintiff-bank is entitled to the relief of interest as claimed by it in the present appeal. Inasmuch as the suit was decreed and since the respondent-defendant had not preferred any appeal as against the said judgment and decree, there is no need to repeat the factual aspects again in detail.
9. In Bank of Baroda's case (supra) it was held that where future interest, on amount decreed which included principal sum and interest on it till date of decree, if granted by Court, is not illegal and the bank is entitled to claim compound interest on sum advanced as loan and the High Court had erred in holding that future interest be charged only on principal sum. Reliance was also placed on Corporation Bank v. D.S. Gowda, (1994) 3 Scale 46.
10. The aspect of charging compound interest had been discussed in State Bank of India's case (supra). Section 34 of the Code of Civil Procedure was amended by the Civil Procedure Code (Amendment) Act, 1976, A proviso and an Explanation have been added by the Amending Act to increase post-decretal interest on the principal sum adjudged in relation to a liability arising out of a commercial transaction so that the existing provision for grant of interest at the rate not exceeding six per cent, may not be exploited by commercial operators by lending the money borrowed by them at a higher rate than six per cent, and thereby earning profits.
11. In view of the decision of the Apex Court in Bank of Baroda 's case (supra), while calculating the interest the Court below could have as well taken the principal and interest on the date of institution of the proceeding for granting interest instead of calculating interest at the original amount actually advanced and this approach of the trial Court is definitely not in accordance with law and hence it is made clear that the suit is decreed with interest as granted by the trial Court on the amount claimed in the suit treating the same as the principal amount, for the purpose of calculations of the interest.
12. The next question which was argued with all vehemence is that because of granting of 6% interest subsequent to the institution of the suit the defaulters are taking undue advantage whereas the bona fide borrowers who are making payments are not getting the same advantage. Sri K.G. Shastry, learned Counsel for the plaintiff-bank with all seriousness had strenuously contended that if the amended provision of Section 34 of the Code of Civil Procedure is not given due effect by making clear that this advantage is not available to the defaulters who intend to take advantage having borrowed the amounts from the Banking Institutions, it will amount to doing injustice in the case of bona fide borrowers who make repayments to the banking institutions with all promptness. Strong reliance was placed on M/s. Shree Bharat Laxmi Wool Store's case (supra) where failure to take notice of the non-applicability of the amendment to the suits filed prior to the amendment of Section 34, Code of Civil Procedure had been pointed out. Further strong reliance was placed on Union of India's case (supra), wherein the Division Bench of Gujarat High Court had observed as follows:
"The trial Court ought to have realized that contractual rate of interest should be the rule and departure a rare exception. This is so because ordinarily the Court cannot and would not vary the terms of contract arrived at between the parties. The mutual rights and obligations arising out of the contract are required to be respected and enforced by the Courts, cannot and would not vary the terms of contract and impose a new contract on the parties. This is the basic underlying principle contained in the provisions of Section 34 of the Civil Procedure Code.
It is true that the Court has discretion to make departure from the aforesaid ordinary rule. But such cases would be only those in which it manifestly appears to the Court that the contract is unfair and unconscionable and its enforcement would be shocking to the conscience of the Court. The parties seeking variation in the rate of interest agreed to be paid should show by cogent evidence that the rate of interest agreed to be paid is usurious, excessive or unreasonable. Unless this is shown it would not be just and proper for the Court to vary the terms of contract upon the parties. In cases wherein the amount advanced is to be recovered by public financial institutions, if the Courts were to determine the 'reasonable' rate of interest, it would be extremely hazardous and it may even lead to disastrous consequences. The task of managing the public money has been entrusted by the nation to the Bankers. It is not entrusted to the Courts. Therefore, ordinary it would not be proper for the Court to aggregate to themselves to task which is not assigned to them. The disastrous consequence which may follow are not difficult to be perceived. The defaulting debtor would, in all cases, be in a position to advance the case that on account of weak financial position it is not possible for him to make the payment of the amount due. Weak financial position can also be shown by window dressing the statements of accounts. It would not be possible for the Court to scrutinize the jugglery of figure work. If the course adopted by the Court is to be confirmed and if the bankers are required to take "flexible and pragmatic" approach as indicated by the trial Court, it would be an invitation to the traders and businessmen to make defaults in making payment and enter a deal with bank officers".
13. Strong reliance was placed on the said decision, and it was emphatically contended by Sri K.G. Shastry that this is a fit case where in view of the conduct of the respondent-defendant and also in view of the findings on Issue No. 3 that the defendant had not proved through any satisfactory oral and documentary evidence that he is an agriculturist, the trial Court should have decreed the suit at the same contractual rate as specified in the promissory note or at least at the same rate of 15.5% per annum till the date of realization. I am inclined to accept the said contention of Sri K.G. Shastry for the reason that the view so expressed by the Division Bench of Gujarat High Court is not only in accordance with the provisions of Section 34 of the Code of Civil Procedure, but it is also well justified both on the ground of justice and equity. A person who is a defaulter cannot be placed on an advantageous position when compared to a borrower who has been conscious in making prompt repayments to Banking Institutions. In such cases, Courts should not come to the aid of such chronic defaulters inasmuch as it will amount to encouraging the borrowers from committing defaults and driving banking institutions to the Courts. Inasmuch as public money is involved in all these banking transactions, Courts are expected to be very careful and cautions while granting the rate of interest and also quantum of amount on which the said rate of interest has to be granted. In the light of the facts and circumstances of the case, I feel it to be just and reasonable to grant 12% simple interest from the date of institution of the suit till the date of realization.
14. The appeal is accordingly allowed with the said modifications of granting decree calculating the interest at 15.5% as decreed by the trial Court on the total sum which had been claimed on the date of the institution of the suit and also with interest at 12% simple interest per annum from the date of institution of the suit till the date of realization. Accordingly the appeal is allowed with costs.