Bombay High Court
Union Bank Of India vs Dalpat Gaurishankar Upadhyay on 21 October, 1991
Equivalent citations: 1992(1)BOMCR354
JUDGMENT D.R. Dhanuka, J.
1. The plaintiff Bank has filed this suit against the defendant for recovery of a sum of Rs. 5,55,259.35 with further interest thereon at the rate of 16.5 per cent per annum with quarterly rests from the date of the suit till payment and for enforcement of the securities created by the defendant in favour of the plaintiff referred to in the plaint. The plaintiff has relied upon several documents, including a promissory note dated 9th July, 1984 (Exhibit ' A' to the plaint) in support of its plea that the defendant had agreed to pay the amount of interest to the plaintiff "with quarterly rests".
2. The plaintiff applies for ex-parte decree against the defendant and prays for award of interest pendente lite and post-decretal on the amount due and payable by the defendant to the plaintiff as on the day of the suit.
3. Section 34 of the Code of Civil Procedure empowers the Court to award post-decretal interest and interest pendente lite "on the principal sum adjudged" at such rate as it deems fit within the framework of the said section. It is necessary to consider the question as to what is the correct legal interpretation of the expression "principal sum adjudged" as used in section 34 of the Code. This question has arisen for consideration of the Court very often and particularly in Bank suits whether addition of interest to the principal at certain intervals with prescribed rests is the part of normal Banking practice. In some of the judicial pronouncements it has been held by some of the High Courts that the expression "principal sum adjudged" means the original amount lent or the original principal amount without adding any amount on account of interest thereto. In several other decisions it has been held that the expression "the principal sum adjudged" means and includes aggregate amount found due and payable by the Court on the date of filing of the suit i.e., the amount inclusive of amount of interest which has been capitalised with or without rests by virtue of an agreement between the parties.
4. In Halsbury's Laws of England, Volume 3. Paragraph 160, reference is made to the universal custom of bankers charging interest to their customers at periodical rates. The relevant paragraph from the above standard work reads as under:---
"It is the practice of Bankers to debit the accrued interest to the borrower's current account at regular periods (usually half-yearly); where the current account is overdrawn or becomes overdrawn as the result of the debit the effect is to add the interest to toe principal, in which case it loses its quality of interest and becomes capital".
5. In Paton (Fenton's Trustee) v. I.R.C., (1938)1 All England Reporter, 786, the House of Lords observed that the accrued interest which the Bank has, with the customer's assent, added to the principal loan ceases to be due or recoverable as interest but becomes merged in the principal. Lord Atkin as well as Lord Macmillan have made clear observations to the above effect in the abovereferred judgment. The said observations are duly extracted in paragraph 11 of the judgment of the High Court of Delhi in the case of Syndicate Bank v. M/s. W.B.. Cements Ltd, A.I.R. 1989 Delhi 107.
6. I shall first refer to the three Division Bench judgments of our High Court on the subject which appear to be directly relevant. In the case of Kaluram v. Chimniram, A.I.R. 1934 Bombay 86, Beaumont, CJ., observed as under:---
"Mr. Setalvad for the defendants has suggested that on the words of that section (section 34 of the Civil Procedure Code), which allows us to give interest on the principal sum adjudged at the date of the suit, we cannot give compound interest. But I think we clearly have jurisdiction to give compound interest; and in this case, having, regard to the practice which existed between the parties, and to the very long time during which the defendants have been in possession of the plaintiffs' goods without paying for them, and to the fact that although they admitted in the written statement that something would be due, they have never paid anything on account, and never brought anything into Court, I am not prepared to differ from the manner in which the learned Judge exercised his discretion under section 34 Civil P.C."
In the same very judgment, Blackwell, J., who was a party to the abovereferred Division Bench judgment, also observed at pages 90 and 91 of the report that the plaintiff was entitled to award of compound interest and section 34 of the Code of Civil Procedure did not prevent the Court from allowing compound interest since obligation to pay such compound interest was impliedly agreed upon between the parties. The High Court was considering this question in respect of the period after filing of the suit i.e., post-decretal interest and pendente lite interest.
7. In First Appeal No. 364 of 1986, M/s. Jagannath Pigments & Chemicals &. ors. v. Bank of Baroda, decided on 19th November, 1986, S.K. Desai and A.D. Tated, JJ., took a contrary view in the matter. In this case, the abovereferred Division Bench judgment in Kaluram v. Chimniram (supra) was not cited. In this case, the plaintiff bank had claimed interest from the defendant on sum of Rs. 1,66.759.29 which sum was inclusive of amount of interest upto the date of the suit added to the original principal amount of Rs. 1,20,675.59. The learned Civil Judge, Senior Division, Thane, had awarded interest pendente lite on the abovereferred sum of Rs. 1,66,759.29. In the abovereferred judgment, the Division Bench of our High Court modified the decree and awarded interest pendente lite only on the amount of Rs. 1,20,675.59. Even though there is not much discussion in this case about the meaning of the expression "the principal sum adjudged", this judgment is quite clear to convey the underlying thought that the principal sum adjudged must be interpreted to mean the original principal amount and not the aggregate amount found due and payable by the Court as on the date of the suit.
8. In First Appeal No. 999 of 1987 (Central Bank of India v. Haribhai Kakade & others), decided on 16th March, 1988, another Division Bench of our High Court consisting of S.C. Pratap, J., (as he then was) and A-D. Tated, J., took the same view. In this case, the promissory note was for Rs. 1,49,318/-. The amount due and payable by the defendants to the plaintiff bank as on the date of the suit was Rs. 2,45,162.74. The Court allowed interest only on the amount of the promissory note and not on the aggregate amount which was found due and payable on the date of the suit.
9. In my order dated 2nd August, 1991 passed in Suit No. 1863 of 1988 (Canara Bank Balwant Singh & others), I have followed the abovereferred two Division Bench judgments as no submission was made in that case before me that the relevant question deserves to be referred to the Full Bench and a request should be made to the Hon'ble the Chief Justice to constitute a Full Bench for consideration of the question involved. Moreover, the conflict of onion between the earlier Division Bench judgment in Kaluram's case (supra) and the abovereffered two unreported Division Bench judgments was not then noticed.
9A. It is time to refer to the judgments of some other High Courts on the same question. I shall make a brief reference to the view taken by some of the other High Courts on this aspect.
10. In Sigappiachi v. Palaniappa, , a Division Bench of the High Court of Madras presided by Kailasam, J., (as he then was) took the view that the expression "principal sum adjudged" used in section 34 of the Code would mean the amount found due at the date of the suit.
11. In Indian Bank v. Kamalalaya Cloth Store, , the High Court of Orissa has taken the view that interest accrued and added to the principal amount on the date of the suit is the principal for the purpose of section 34 of the Code. The High Court of Allahabad has been taking a similar view since 1937. In Jafar Husain v. Bishambhar Nath , the Division Bench of the High Court of Allahabad took the view that the expression "on the principal amount found or declared due" in Order 34 of the Code referred not merely to the principal sum secured by the mortgage deed but also to the amount due on account of interest which had become a part of the principal in accordance with the terms of the deed. In this case, the Division Bench of the High Court of Allahabad dissented from the view taken in another case i.e. ChoteyLal v. Mohammad Ahmad All Khan, A.I.R. 1933 Oudh. 128. The High Court of Punjab and Haryana has taken the same view in series of judgments and its latest judgment is to be found in the case of M/s. Jagdamba Rice Mills v. Oriental Bank of Commerce, Kamal . In this case, a learned Single Judge of the High Court of Punjab and Haryana referred to an earlier judgment of the said High Court in State Bank of India v. Avtar Singh, :1986 Bank. J. 686 (P. &H.) and held that the expression "principal adjudged" would include the amount of interest which had become part of the principal. In Kalyanpur cold Storage v. Sohanlal Bajpai the Division Bench of the High Court of Allahabad has taken the view that the expression "principal sum adjudged" means the amount which the Court determines to be due and payable as on the date of the suit inclusive of interest and the said expression is not restricted to the original amount advanced to the defendant.
12. In Syndicate Bank v. M/s. W.B. Cements A.I.R. 1989 Delhi 107, Y.K. Sabharwal J., has referred to large number of judgments, except the judgments of our High Courts, and has taken the view that the expression "principal adjudged" was liable to be interpreted to include such amounts of interest which had become a part of the principal. In particular, passages from the judgment of Lord Macmillan, J., in the Paton 's case, (1938) 1 All England Law Reports, 786, are noticed, wherein Lord Macmillan has clearly observed that the accrued interest which is , added to the principal with the assent of the customer gets merged in the principal itself.
13. Having regard to the above trend of judicial decisions, which are highly persuasive, the question before me was as to whether I should recommend reference of the relevant question to the Full Bench of this Court or I should make recommendation to the Hon'ble the Chief Justice to refer the questions involved to a Division Bench in the first instance. I had a little doubt on this aspect regarding the procedure which ought to be followed by the Single Judge. On this aspect, Shri Tulzapurkar, the learned Counsel for the plaintiff, invited my attention to the judgement of the Supreme Court in Tribhovandas v. Ratilal, , wherein it was clearly held that it was open to a learned Single Judge to request that the papers be placed before the Chief Justice of the High court with a recommendation to refer the matter to a Special or Full Bench if he was of the opinion that there was conflicting decisions of the same Court or there were decisions of the other High Courts in India on the subject which persuaded the Single Judge to recommend reconsideration of the questions involved. In my judgment, there is a clear conflict between the Division Bench judgments of our High Court in Kaluram v. Chimniram A.I.R. 1934 Bombay 86, and the two unreported judgments referred to in the earlier part of this order. There is also reason to take the view that the view expressed by the High Courts of Allahabad, Delhi. Madras. Orissa, and Punjab and Haryana are sufficiently persuasive so as to warrant a recommendation for constitution of a Full Bench in the matter.
14. Almost identical question arises in respect of interpretation of the expression "principal amount" used in Order 34, Rule 2 and Order 34, Rule 11 of the Code of Civil Procedure. The Court is to deal with the same frequently while considering in mortgage suits for passing of ex parte decree where the deed of mortgage provides for addition of amount of interest to the principal with periodical rest's and interest is thus treated by parties as if the principal.
15. In view of the above discussion, I direct the Prothonotary and Senior Master to place the papers of this suit before the Hon'ble the Chief Justice with my recommendation to the Hon'ble Chief Justice that a Full Bench be constituted to consider the following questions or such other questions as may be deemed fit by the learned Chief Justice at the earliest possible in view o these questions arising in large number of suits before the Court almost every week :---
(a) Whether the expression "the principal sum adjudged" used in section 34 of the Code of Civil Procedure means only the original amount lent or the amount of original principal without addition of any interest whatsoever thereto and interest pendente lite or post decretal interest can be awarded by the Court only on such original amount?
(b) When interest becomes part of the principal or gets merged with the principal within the meaning of section 34 of the Code when the agreement provides for additions of interest to the principal at certain intervals with periodical rests?
(c) Whether the expression "principal sum adjudged" includes the aggregate amount found due and payable on the date of the suit inclusive of amount of interest added to the principal with or without periodical rests in accordance with the agreement between the parties, express or implied, or the practice followed?
(d) What is the meaning of the expression "principal" used in Order 34, Rule 2 and Order 34, Rule 11 of the Code?