Kerala High Court
Rama Vadhyar Guna Bhatt And Ors. vs The Trivandrum Permanent Bank Ltd., ... on 12 March, 1973
Equivalent citations: AIR 1973 KERALA 196, ILR (1973) 1 KER 554
Author: Viswanatha Iyer
Bench: Viswanatha Iyer
JUDGMENT Viswanatha Iyer, J.
1. This is an appeal by defendants 1, 2 and 15 against the decree passed by the Subordinate Judge's Court. Cochin, for recovery of a sum of Rs. 23.738.74 with 12 per cent, interest per annum on the principal amount of Rs. 23,706.74 from 4-7-1960 till the date of the decree and thereafter at 6 per cent, per annum till recovery. The 1st defendant is doing export and import business at Mattancherry under the name and style "Chandrasadani & Company". The 2nd defendant is his wife and the 3rd defendant is his brother. To secure an over-draft account in the Ernakulam branch of the plaintiff-bank in the name of Chandrasadani & Company, defendants 1 to 3 executed a mortgage deed on 23-2-1955 undertaking personal liability and securing properties included in the mortgage deed for the ultimate balance amount that may be found due under the overdraft account. In the mortgage deed, Ext. P-1 dated 23-2-1955, six items of properties were included. The 1st defendant has been authorised to operate the over-draft account. Originally the maximum limit of the over-draft account was Rs. 50,000/-.
But it was later reduced to Rupees 25,000/- and the bank on 30-6-1958 released items 1 to 3 in the original mortgage document from the security and kept the liability of defendants 1 to 3 and the plaint schedule items 4 to 6 intact. The 1st defendant had been operating the over-draft account with the plaintiff-bank. The balance due as per the accounts of the bank on 30-6-1960 was Rs. 23,706.74. In spite of demands the amount was not paid and hence the plaintiff sued to realise the amount. Pending suit the 3rd defendant died and the 4th defendant was impleaded as his legal representative. He also died and defendants 5 to 16 have been impleaded as the legal representatives.
2. The 1st defendant contended that Ext. P-1 mortgage deed was never intended to be acted upon and was not as a matter of fact acted upon. The overdraft accommodation was allowed to the 1st defendant exclusively for withdrawing the amounts by cheque to be utilised for the trade purposes of Chandrasadani & Co. The mortgage was executed only by way of guarantee and it has been treated only as such. The adjustment of the amounts from the over-draft account towards recurring deposits in the name of the 1st defendant, had not the approval and consent of the 1st defendant and the guarantors. The bank having released some of the properties contained in the original mortgage deed, obligations and rights under the old contract were put an end to. The original security bond has lost its force and as such the suit based on the original security bond is not maintainable. If for any reason the court finds that the security bond is still enforceable, the liability under the bond can arise only from 30-4-1955, the date of the correction deed. The amount including interest claimed is excessive.
3. The 2nd defendant in a separate written statement contended that her liability is only that of a surety. The mortgage executed by her has to be construed only as a continuing guarantee for the over-draft accommodation given to the 1st defendant. The only liability under the mortgage deed Ext. P-1 is for withdrawals by cheques made by 1st defendant from the bank for the purpose of trade. Therefore she cannot be made liable for the debits towards recurring deposit accounts. The plaintiff had never disclosed the real state of affairs. She has not given her consent or approval for adjusting any amount from the over-draft account towards the recurring deposits of the 1st defendant. The variation of the over-draft limit to Rs. 25,000/- on security of only three items of properties contained in the original deed has not been made with her consent and as such it has to be found that herself and her properties are discharged from all the obligations. The amount claimed is excessive. There is no provision for debiting interest for the quarterly periods and then calculating interest on the same. On these grounds she also resisted the plaint claim.
4. The trial court decreed the suit rejecting all the contentions raised by the defendants. Hence this appeal is filed.
5. The first contention raised on behalf of the appellants is that the accounts of the plaintiff-bank will show debits of 9% interest quarterly in the accounts and calculation of interest on this again. This, according to the appellants is not justified by the terms of the mortgage deed. Ext. P-1. As per the terms of the deed if the interest on the outstanding debit at the end of three months or interest of one-third of the maximum limit of the over-draft allowed is not paid within 10 days of the debit and advice it is open to the bank to claim the entire balance as per the account without any further notice and claim interest at 12 per cent, on the balance. From this provision it is contended that the plaintiff-bank is not authorised to debit the interest for every quarter of an year and then claim interest on that.
The only plea regarding interest that has been raised by defendants 1 and 2 is that contained in para 18 of the written statement of the 1st defendant. Therein it is stated that the interest claimed in para 6 of the plaint is excessive and not correct. Plaintiff produced along with the plaint a copy of the bank accounts. The accounts show the debit. No specific plea was taken in the written statement. In the absence of any plea regarding the procedure followed by the plaintiff in debiting the account with interest for every three months this contention cannot be normally considered for the first time in appeal. Before suit the plaintiff issued a suit notice mentioning the amount due. The 1st defendant had opportunity to look into the accounts, if he wanted, during the period 1955 to 1960. The bank had been debiting the interest once in every three months. No objection was taken by the defendant against this course.
The terms of the mortgage deed referred to earlier justify the debiting of interest once in every three months in the account of the 1st defendant. The fact that if interest is not paid within ten days of the advice, a further right will accrue to the plaintiff to demand the entire sum with 12 per cent, interest is no reason to contend that the plaintiff is not entitled to debit the interest quarterly in the account. Once this interest is debited in the account its character changes and the debit entry for this amount will be similar to the other debit entries in the account. This is also the normal banking practice. In such circumstances there is nothing wrong in the plaintiff debiting the account with this amount once in three months and in calculating interest on such amounts also.
6. The second contention raised is that as per the terms of the mortgage deed Ext. P-1 only withdrawals made by cheques issued by the 1st defendant can be debited in the account but other amounts are also debited and that cannot be allowed. It is alleged that simultaneously with the opening of over-draft account the 1st defendant joined for a recurring deposit investment and gave instructions as per Ext. P-43 to the bank to appropriate a sum, of Rs. 500/- every month towards this. The provision in the mortgage deed is to the effect that the 1st defendant will operate the account opened in the name of Chandrasadani & Co. by way of cheques. This does not in any way prohibit the 1st defendant from drawing the amounts or directing the bank to adjust or appropriate from the account any other payments which he has to make to the bank under other transactions. Subsequently this was increased to Rs. 700/- a month and the bank was adjusting Rs. 700/-from the overdraft account.
Though no separate instructions for this adjustment is produced, it is seen that the bank was making such adjustments to the knowledge of the 1st defendant and the 1st defendant has no case that he was making any other payment for the recurring deposits. The absence of any proof that amounts from other accounts could have been adjusted towards the recurring deposit and the fact that he was silent when the bank was adjusting recurring deposit from the overdraft account lead to an inference that he had consented to this arrangement. He cannot now turn round and contend that he had not approved debiting his overdraft account with the amount adjusted for the recurring deposit account. Instead of himself drawing from the overdraft account and paying into the recurring deposit account what was done every month was the amount payable towards recurring deposit was adjusted from the overdraft.
This was not objected to at any time and it is not against the terms of Ext. P-1 mortgage deed. Under the terms of Ext. P-1 mortgage deed the executants and the properties are made liable for all amounts due from the 1st defendant. The 1st defendant has utilised the amount credited into the recurring deposit account from the overdraft account. He is liable to pay this amount to the bank and under the terms of the mortgage deed the other executants and the properties are also liable for this,
7. A contention was raised on behalf of the 2nd defendant that she is only a surety and therefore the conduct of the plaintiff in releasing items 1 to 3 in the mortgage deed and reducing the overdraft to Rs. 25,000/- amounts to a novation and it will discharge her from liability. This is unsustainable. As per the terms of Ext. P-1 the executants are jointly and severally liable for the amount due under the overdraft account even though the overdraft account was allowed to be operated by the 1st defendant alone. The liability undertaken in Ext. P-1 is not a liability of a surety but liability of joint obligors. Therefore, the 2nd defendant cannot escape liability for the amount claimed by the plaintiff.
8. The last contention raised by the defendants is that at any rate the interest claimed by the plaintiff at 12 per cent, subsequent to the filing of the suit should not be allowed. The plaintiff-respondent contended that the liability being a liability under the mortgage deed, the provision for payment of 12 per cent, interest must govern not only a stage before suit but also subsequent to the institution of the suit up to the sale of the properties or discharge of the debt. It is true that under the mortgage deed the plaintiff is allowed to claim 12 per cent interest on the amount due to the plaintiff. But that provision can govern only for a period anterior to the date of suit. From the date of suit it is for the court to decide the rate of interest which the plaintiff is entitled to get on the principal sum due. Section 34 read with Order 34, Rule 11, C. P. C. clearly shows that it is within the discretion of the court to award such rate of interest as the court thinks reasonable in the circumstances of the case.
In Subhanand v. Apurba Krishna, (AIR 1940 FC 7) and Jaigobind Singh v. Lachmi Narain, (AIR 1940 FC 20) it has been held that Order 34. Rule 11 does not in any way affect the discretion of the court under Section 34 to limit the rate of interest after the institution of the suit. This decision of the Federal Court takes note of the Privy Council decision in Jagannath Prosad Singh v. Surajmal Jalal. (AIR 1927 PC 1) and the change of the law in 1929 also. In Kishen Raj v. Radhalal. (AIR 1958 Raj 145) the scope of Section 34 and Order 34, Rule 11 have been considered and the principle that it is for the court to decide the rate of interest after suit is followed. Following the Federal Court decisions and adopting the decision of the Rajasthan High Court in AIR 1958 Raj 145 we feel that the plaintiff is not entitled to get interest at more than 9 per cent, per annum from the date of suit to the date of decree of the lower court. The interest after that date will be only 6 per cent, on the principal sum sued.
9. Subject to the above modification in the decree of the court below, the appeal is dismissed with costs.