Kerala High Court
The Divisional Manager, L.I.C. Of India vs Bhagavathy Amma And Ors. on 9 July, 1991
Equivalent citations: AIR1992KER329, AIR 1992 KERALA 329, ILR(KER) 1991 (3) KER 584, (1991) 2 KER LJ 301, (1991) 2 KER LT 522, (1992) 2 BANKLJ 122, (1991) 3 CURCC 459
JUDGMENT K.P. Balanarayana Marar, J.
1. A substantial question has been raised in this appeal. That relates to the right of a mortgagee to claim Interest provided in the mortgage deed from the date of suit till the period fixed for redemption. The Life Insurance Corporation advanced a sum of Rs. 30,000/ - to the respondents for the purpose of construction of a residential-cum-office building in the plaint schedule property which was mortgaged to the corporation. Respondents having committed default to repay the amount the corporation filed the suit O. S. 547/83 before Sub Court, Trivandrum. The suit was for realisation of the amount together with interest at 161/2% per annum. On the total amount due as on the date of plaint further interest at the same rate was also claimed. Respondents admitted the transaction and their liability to pay the amount but contended that interest is payable only at the rate of 6% from date of suit. A decree was therefore given in favour of the plaintiff for the amount claimed in the plaint. But interest from date of plaint was awarded only at the rate of 6% per annum. Aggrieved by the decree for interest at 6% per annum plaintiff has come up in appeal.
2. While passing a preliminary decree for sale the court shall take an account of the amount due to the plaintiff at the date of such decree. The account to be taken is of what was due to the plaintiff towards principal and interest on the mortgage, the costs of suit if any awarded to him and other costs, charges and expenses properly incurred up to that date in respect of the mortgage security together with interest thereon. The law relating to payment of interest is contained in Rule 11 of Order XXXIV which reads thus:
"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.
(ii) ****************
(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 6 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 the clause at such rate as the Court deems reasonable."
Rule 11 deals with interest in respect of two periods, (i) Up to the date fixed under the preliminary decree for payment of the mortgage money, and (ii) from such date till realisation. Rule 11 provides that the court may allow interest on the principal amount fixed 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 thinks reasonable. In addition the court may also allow interest on costs, charges and expenses. Regarding the subsequent interest payable from the date fixed for payment and the date of realisation a discretion is given to the court to award interest at such rate as the court deems reasonable.
3. Interest cannot be claimed as a matter of course. Interest is recoverable provided there is an express or implied agreement to pay interest, or interest can be recovered under any statutory provision. When there is an agreement to pay interest, interest is liable to be paid at the agreed rate unless it is penal or the rate of interest is excessive or the transaction is substantially unfair. In any of these cases it is open to the court to decree interest at the rate it considers reasonable. But in so far as the decree is for payment of money the court has a discretion to grant interest at such rate on the principal sum adjuded from the date of suit to the date of the decree and from the date of decree to the date of payment but such further interest shall not exceed 6% per annum. The maximum interest awardable under Section 34 of the Code of Civil Procedure is 6%. In proper cases the court has a discretion to award interest at a lesser rate but in any case it should not exceed 6%. But Section 34 is applicable only in case of a decree being passed for payment of money.
4. The interest payable in a decree passed in a suit for foreclosure, sale or redemption of a mortgage is provided in Rule 11 of Order XXXIV. That provides for payment of interest on the principal amount at the rate payable on the principal up to the date fixed for payment of the amount and thereafter at such rate as the court deems reasonable. It is therefore contended that appellant-plaintiff is entitled to get interest at the rate agreed to between the parties till the date fixed for payment. It is pointed out that Section 34 of C.P.C. has no application to cases of mortgages. Reliance is placed on the decision of this Court in Nafeesumma v. Indian Overseas Bank 1974 KLT 853. While observing that the award of interest under Section 34 after the date of suit is entirely in the discretion of the court it has held that the discretion must be exercised on sound judicial principles. It was also held that this general provision regarding fixation of interest can have no application in the case of mortgage suits where there is a particular provision in Order 34 regarding fixation of interest after date of suit. It was further held that tilt the period of redemption has expired the matter remains in contract and the interest has to be paid at the rate and with the costs specified in the mortgage. The special provision contained in Order 34 has therefore to be applied in the present case in preference to the general provision contained in Section 34 of the Code.
5. The further question that falls for consideration is whether interest at the rate claimed in the plaint is payable for the principal amount from date of plaint or whether the court has a discretion in awarding interest on such sum. Order 34, Rule 11 itself gives a discretion to the court so far as interest payable after suit. As observed by the Bombay High Court in Dawoodbhai v. Shaikhali AIR 1953 Bom 445 the Legislature under this rule did not make it obligatory upon the Court to order payment of interest at the rate agreed upon up to the date fixed for redemption but it gave a discretion to the court to award that rate of interest. The court has therefore a discretion to award a lesser interest also.
6. The Supreme Court had considered this aspect in S.P. Majoo v. Ganga Dhar AIR 1969 SC 600. After referring to the provision contained in Rule 11 of Order 34 the Supreme Court observed that the special provision contained therein has to be applied in preference to the general provision in Section 34. It was also noticed that till the period for redemption expired the matter was considered to remain in the domain of contract and interest had to be paid at the rate and with the rates specified in the contract of mortgage. But the matter passed from the domain of contract to that of judgment after the period of redemption. The Supreme Court approved the dictum laid down in Jaigobind Singh v. Lachmi Narain Ram AIR 1940 FC 20 and held that it is no longer absolutely obligatory on the courts to decree interest at the contractual rates 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. In that case the Supreme Court awrded simple interest at 6% per annum on the principal adjudged from date of suit till date of preliminary decree and also at the same rate till the date of realisation.
7. The Bombay High Court in AIR 1953 Bom 445 (supra) has expressed the same opinion. It was held that it is the discretion of the court whether to allow or not to allow the contractual rate of interest in a mortgage suit from the date of the institution of the suit till the period fixed for redemption. In the case which came up before the Supreme Court in AIR 1969 SC 671, K. Manick Chand v. E. Saleh Mohamed - interest was payable at the rate of one percent per mensem under the mortgage deeds. The Supreme Court observed that the fair interest payable on the loan would be at the rate of 9% per annum and interest must be calculated at this rate on the principal amount. A further direction was given that interest will be payable at the rate of 6% under Rule I l(b) of Order 34, C.P.C. i.e. the subsequent interest payable from the date fixed for payment up to the date of realisation.
8. While passing a preliminary decree for sale an account of the amount due to the mortgagee at the date of the decree in respect of principal and the interest agreed upon under the mortgage has therefore to be taken. Regarding interest up to the date of suit the mortgagee can claim interesst as stipulated in the mortgage deed unless it is penal or is excessive or is substantially unfair in which case the court may decree interest at the rate which it considers reasonable. But it is in the discretion of the court whether to allow or not to allow the contractual rate of interest from date of suit till the period fixed for redemption. Thereafter it is absolutely in the discretion of the court as provided in Rule 1 l(b) of Order 34. The court may or may not grant interest at all. The discretion has to be exercised by the court on sound judicial principles and reasonable interest can be provided in the decree on the principal amount from date of suit till date fixed for payment of the mortgage money. That can be at the contractual rate if the court feels that it is reasonable or at any lesser rate.
9. The Court below awarded interest at 6% per annum from date of suit. Before considering whether the discretion has been properly exercised by the court it is worthwhile to refer to the amendment introduced to the First Schedule to the Code of Civil Procedure by this Court as per notification No. D-22480/85 dated 16-12-1989 by which Order 34 of the C.P.C. was substituted in exercise of the powers vested in the High Court under Section 122 of the Code. As per Order 34 applicable to this State by virtue of that notification the court shall pass a decree in a suit for sale declaring the principal and interest on the mortgage, the costs of the suit if any awarded to the plaintiff and other costs, charges and expenses incurred up to that date together with interest thereon. The provision in the order as introduced by that notification is different from Rule 11 of Order 34 of the Code. By that rule interest is payable on the principal amount at the rate payable on the principal or where no such rate is fixed at such rate as the court deems reasonable. Whereas by the change introduced as per the notification interest is payable on the mortgage to be determined by the court. An amendment similar to the one introduced by this notification was in force in this State before the amendment of the Code by the Amendment Act of 1976. The amendment brought into effect by the notification came up for consideration in State Bank of Travancore v. May C. George 1976 KLT 205 : (AIR 1977 Ker 8). Referring to Rule 11 of Order 34 and the corresponding provisions contained in the amendment this Court held that the provision regarding payment of interest up to the date of redemption has by the amendment undergone a substantial change inasmuch as the provision "at the rate payable on the principal" is not retained in the amended provision. It is observed that the provision of Rule 2 of Order 34 in its amended form as is clear from Sub-rule (1)(a)(i) provides only for the interest on the mortgage in the place of "interest at the rate payable on the principal" as embodied in Order 34 before the amendment. This court further observed that it would be wrong to assume that the absence of the words "at the rate payable on the principal" in the amended provisions is due to an accidental mistake or omission. It was held that the appellant-decree holder would be entitled to interest on the principal adjudged after the date of the institution of the suit only at the rate of 6% per annum which is the maximum provided under Section 34, C.P.C. Since the notification dated 16th December, 1989 by which Order 34, C.P.C. was substituted in place of Order 34 of the Code of Civil Procedure is identical to the notification published in Kerala Gazette No. 3 dated 15-1-1974 which was considered in the decision in 1976 KLT 205 : (AIR 1977 Ker 8) (supra), the principle enunciated in that decision squarely applies to the determination of interest in a suit for sale on a mortgage. Interest is payable only at 6% per annum, the maximum that could be awarded under Section 34, C.P.C. after the institution of the suit. The court has therefore no discretion in the matter after the notification above mentioned. The award of interest at 6% after suit is in accordance with law and does not require interference in appeal.
For the reasons stated above the appeal is dismissed but without costs.