Madhya Pradesh High Court
Bank Of India vs Harish Chandra Shrivastava on 7 July, 1997
Equivalent citations: AIR1998MP243, AIR 1998 MADHYA PRADESH 243, (1999) 2 BANKLJ 101, (1998) 1 BANKCAS 362, (1998) 2 BANKCLR 520
Bench: A.K. Mathur, Dipak Misra
JUDGMENT Dipak Mishra, J.
1. In this appeal under Clause 10 of Letters Patent the appellant calls in question the validity of the judgment passed in F. A. No. 212/79 whereby the learned single Judge while refusing to interfere in the judgment and decree passed in Civil Suit No. 3-B/78 by the 1st Additional District Judge, Jabalpur has modified the principal amount for the purpose of grant of interest. The challenge in appeal relates to both the grievances.
2. The plaintiff-appellant, a nationalised bank had advanced a sum of Rs. 45,000/- as loan for the purpose of purchase of a mint bus to the defendant-respondent No. 1 with the stipulation that the loan amount would be paid to the bank in 36 installments together with interest at the rate of 12% per annum at the minimum or at such rate of interest which might be fixed by the bank depending upon the instruction in that regard issued by the Reserve Bank of India from lime to time. That defendant-respondent No. 2 furnished guarantee for due payment of the loan and interest together. As the borrower did not pay the installments as required by him the aforesaid suit was instituted for recovery of Rs. 50,999.26 paise. In spite of valid service of notice the defendant-borrower remained ex-parte while the defendant No. 2 guarantor contested the suit. The learned Additional District Judge decreed the suit for a sum of Rs. 50,999.26 paise together with interest and costs. He awarded interest at the rate of 6% per annum.
3. Feeling aggrieved by the grant of interest at the rate of 6% per annum, pendente lite and future, the Bank had preferred F.A. No. 212/79 before this Court claiming that it was entitled to receive pendente lite and future interest at the contractual rate of 12% per annum. The learned Single Judge opined that the grant of 6% interest per annum was justified in the facts and circumstances of the case and enhancement thereof was not warranted. However, as the trial Court had not specified any particular date till which the plaintiff would be entitled to get 12% interest per annum and 6% pendente lite the learned Single Judge modified the decree directing that the plaintiff-bank would be entitled to the pendente lite interest at the contractual rate of 12% per annum up to next date of filing of the suit i.e. 28-3-1978 and for the rest of the period grant of interest at the rate of 6% per annum was affirmed.
4. While disposing of the appeal the learned Single Judge took into consideration that the trial Judge should have awarded interest only on the principal amount of Rs. 45,000/- which was initially advanced by the Bank and should not have awarded interest on Rs. 50,999.26 paise. With the said modification he dismissed the appeal with costs.
5. Mr. Shroti learned counsel for the appellant assailing the judgment passed by the learned Single Judge has contended that the Bank was entitled to realize interest at the contractual rate, no discretion was left with the court to reduce it to 6% and the affirmation of the findings of the court below by the learned Single Judge is contrary to the settled position of law. Further submission of the learned counsel is that the modification relating to principal amount by the learned Single Judge is vitiated inasmuch as such finding is contrary to the language employed under Section 34 of the Code of Civil Procedure and moreover, the determination on the said count was not appealed against by the respondents.
None is present for the respondents.
6. We shall first deal with the contention of Mrs. Shorti relating to use of discretion of the Court below in granting 6% interest and the affirmation thereof by the learned single Judge. In the plaint itself the plaintiff Bank had pleaded that the minimum rate of interest chargeable was 12% and in the prayer portion claim was advanced for realisation of 12% interest per annum. In the absence of any refutation of the same, it has to be accepted that the agreed rate of interest was 12%. The documents filed by the Bank before the Court below also indicate that the contractual rate of interest was 12% per annum. As is apparent from the judgment of the learned single Judge he has accepted the grant of 6% interest per annum by the trial Judge on the ground that the loan transaction had proved ruinous for the defendant No. 1 who was unfortunate not only losing the mini bus which he had purchased with the help of loan but also had to lose whatever money he had saved till the date of obtaining of the loan.
The question that falls for consideration is whether the bank is entitled to get contractual rate of interest and whether the Court has a discretion to reduce the same. In this regard we may refer to Section 34(1) of the Code of Civil Procedure which reads as follows :
"Section 34. Interest.-- (1) Where and in so far as a decree is for the payment of money, the Court may, in the decree, order interest of such rate as the Court deems reasonable to be paid on the principal sum adjudged, from the date of the suit to the date of the decree, in addition to any interest adjudged on such principal sum for any period prior to the institution of the suit, with further interest at such rate not exceeding six per cent, per annum, as the Court deems reasonable on such principal sum, from the date of the decree to the date of payment, or to such earlier date as the Court thinks fit.
Provided that where the liability in relation to the sum so adjudged had arisen out of a commercial transaction, the rate of such further interest may exceed six per cent, per annum, but shall not exceed the contractual rate of interest or where there is no contractual rate, the rate of which moneys are lent or advanced by nationalised banks in relation to commercial transaction.
Explanation I.-- In this sub-section, "nationalised bank" means a corresponding new ban as defined in the Banking Companies (Acquisition and Transfer of Undertakings) Act, 1970.
Explanation II.-- For the purposes of this section, a transaction is a commercial transaction, if it is connected with the industry, trade or business of the party incurring the liability."
Undisputedly the transaction is a commercial one and as per the proviso to the aforesaid section the rate of interest can exceed 6% but cannot exceed the contractual rate of interest. In absence of any contractual rate, the rate at which the moneys are lent or advanced by the nationalised bank in relation to commercial transaction should be the appropriate rate. Thus, the proviso carves out an exception to the rule relating to award of future interest. True it is, the aforesaid proviso docs not cast a mandate on the Court to grant at the contractual rate but only enables the Court to grant interest beyond 6% and not exceed the contractual rate if the same is provided for. The discretion vested in the Court of law has to be judicially exercised. One cannot lose sight of the fact that it was a commercial transaction and the bank had advanced the loan for purchase of the vehicle in question. The bank had nothing to do with the business activities of the loanee or nor did it control or curtail such activities. The learned trial Judge directed 6% interest to be paid assigning the reason that the plaintiff had charged more interest. The learned single Judge had accepted the grant of less interest on the ground that the defendant-borrower had suffered immensely.
With regard to grant of interest we may refer to a decision of the Apex Court rendered in the case of B. Shivananda v. Andhra Bank Ltd., (1994) 4 SCC 368 : (1994 AIR SCW 2472). In the said case the trial Court had not specified in the judgment with regard to rate of interest but in revision filed by the Bank the High Court granted interest at the rate of 161/2% on the decretal amount. Dismissing the appeal the Apex Court held as follows at page 2473 (of AIR SCW):
"But in this case, as seen, that the claim for further interest at 161/2% was made in the suit itself which admittedly, is the contracted rate of interest. Therefore, the Bank is entitled to claim interest in terms of the contract at 161/2% from the date of lending till the date of filing of the suit. However, the Court has discretion under Section 34, C.P.C. to award interest. Admittedly, the loan was taken for construction of theatre. In other words, the loan was for a commercial transaction. In the facts and circumstances of this case, we consider it just and proper that the appellant should pay simple interest at the rate of 161/2% per annum on the principal amount claimed in this suit from the date of decree till the date of realisation."
From the aforesaid, it is crystal clear that the Court has discretion under Section 34 of the C.P.C. to award interest but the nature of transaction has to be kept in view. We may further refer to a decision rendered by a Division Bench of Kerala High Court in the case of Indian Bank v. Abson Rubber Industries, Kottayam, AIR 1995 Ker 60, wherein it has been held as follows at page 61 :
"Coming by the provision to Section 34.C.P.C. where the liability in relation to the sum decreed had arisen out of a commercial transaction, the rate of such further interest may exceed 6% per annum, but shall not exceed the contractual rate of interest or where there is no contractual rate, the rate at which moneys are lent or advanced by nationalised banks in relation to commercial trans-actions. Evidently, the transaction in question is a commercial transaction and being a commercial transaction we are of the view that the appellant-plaintiff is entitled to interest at 16% per annum on the sum of Rs. 14,62,494.00 which is the contractual rate of interest from the date of suit till date of realisation."
In M/s. Jagdamba Rice Mills v. Oriental Bank of Commerce, Karnal, AIR 1990 P & H 60, repelling the contention that the Court should not have granted more than 6% per annum "on the principal amount the Court held that the grant of interest at the rate of 131/2% is justified. We may also refer the decision rendered by the Orissa High Court in the case of Indian Bank v. M/s. Kamalalaya Cloth Store, AIR 1991 Orissa 44, wherein the Court regarding a bank loan as a commercial transaction held that the bank was entitled to receive pendente lite and future interest at the rate of 161/2% per annum as per the contractual rate. In this regard we may also refer to a Division Bench decision of Gujarat High Court rendered in the case of Central Bank v. India, Kutch v. P. R. Garments, Pvt. Ltd., Surendra-Nagar, AIR 1986 Guj 113, wherein it has been held as under :
"The commercial transaction by public financial institutions the contractual rate of interest should be the rule and departure a rare exception. Hence in such cases granting of lesser rate of interest is ordinarily ruled out."
(Quoted from the placitum) In the case of M/s. S. K. Engineering Works, Batala v. New Bank of India, Batala, AIR 1987 P & H 90, it has been held that in commercial transaction by public financial institutions the grant of contractual rate of interest should be the rule.
This Court in case of Punjab National Bank, Bilaspur v. Kishanlal Soni, L.P.A. No. 95/86, decided on 8-11-1995 : AIR 1997 MP 27 has held that the Bank is entitled to charge on principal sum interest at the contractual rate and the Court has no jurisdiction to reduce it on the ground that it is excessive.
Recently a Division Bench of this Court in the case of Oriental Bank of Commerce, Raipur v. Devi Prasad Verma, 1996 MPLJ 155, after referring to Section 21A of the Banking Laws (Amendment) Act, 1983 and referring to an observation of this Court in the decision rendered in the case of Bharat Engineering v. Punjab National Bank, 1987 (2) Bank CLR 329 held that grant of interest at the contractual rate cannot be reduced on the ground that it is excessive. In the instant case the borrower remained ex parte. No ground was advanced by him for use of discretion by the Court under Section 34, C.P.C. The reason ascribed by the trial Judge that the bank had charged excess interest is contrary to law. Observation of the learned single Judge affirming the same does not get support from the material on record, and in any case, those grounds cannot be accepted for reduction in contractual, rate of interest as use of discretion on these picas would not be justified. Therefore, we are of the considered view that the finding of the learned single Judge affirming the grant of interest at the rate of 6% is untenable in law and accordingly we reverse the same and hold that the appellant Bank would be entitled to get interest at the rate of 12% per annum which is the contractual rate.
7. Now we shall deal with the challenge to the finding relating to the principal amount. On a perusal of the plaint we find that the Bank had advanced Rs. 45000/-. The defendant failed to pay the sum as promised by him. As the money was not paid the vehicle was seized by the Bank and notices were issued to the defendants to pay outstanding dues. Letters and registered notices could not secure the presence of the defendants. The vehicle was sold in an auction and amount collected was adjusted towards the outstanding dues as shown in the statement of account. Computing the dues inclusive of interest as on the date of filing of the suit the plaintiff sued for realisation of Rs. 50,999.26 paise. The trial Court treated the same as the principal sum and accordingly awarded interest. The learned single Judge reversed the same on the ground that the interest should have been granted on the principal amount of Rs. 45000/- and not on Rs. 50,999.26 paise which included interest. This finding has been assailed by Mr. Shroti on the ground that no appeal was filed by the defendants and there was also no cross-objection, and, therefore, learned single Judge has erred in reversing the finding returned in favour of the plaintiff. The reason given by the learned single Judge that when the Bank had come up for modification of rate of interest it was within his jurisdiction to rectify the defect with regard to the sum on which interest would be granted. The rectification was not in relation to any clerical or arithmetical error. In fact, it relates to substantial aspect of adjudication. We are of the view that in absence of any appeal by the defendants the relief granted by the learned trial Judge could not have been modified in appeal preferred by the plaintiff-Bank. Quite apart from the above, the finding of the learned single Judge is also not sustainable on merits. Section 34(1) of the C.P.C. authorises the Court to order interest at such rate to be paid on the principal sum adjudged from the date of suit to the date of decree. In this regard we may refer to the decision rendered by a Division Bench of Madras High Court in the case of Sigappiachi v. M. A.F. A. Palaniappa Chettiar, AIR 1972 Mad 463, wherein it has been held that the--
"Principal sum adjudged is the amount found due as on the date of the suit."
The aforesaid view has been reiterated in the case of P.C.T.L. Lakshmanan Chettiar v. K.T.R.M. - K.R.-R.M. Karuppan Chettiar, 1978 (2) Mad LJ (HC) 364. We may also refer to the decision rendered in the case of Syndicate Bank v. M/s. West Bengal Cement Ltd., AIR 1989 Delhi 107, wherein it has been held as follows at page 113:--
"Where the statement of account of the hank showed that the bank computed interest with quarterly rests and after the quarter the interest was added to the last balance and that amount was treated as "principal sum" for computing interest for the next quarter and so on and so forth and no contract was cither pleaded or proved by borrower showing that amount inclusive of interest could not be treated as "principal sum" and the borrower acknowledged liability for the sum arrived at by the bank in the aforesaid manner the amount so arrived at would be the principal sum for purpose of interest under Section 34. The plea that the interest under Section 34 can be awarded only on the original sum advanced would be misconceived as such interpretation would run counter to the normal banking practice and act as a premium for those not paying the amount of interest when it is due at the cost of those making payment of interest when it is due."
The aforesaid decision has been followed in the case of Indian Bank v. Kamalalaya Cloth Store, AIR 1991 Orissa 44. In the case of M/s. Jagdamba Rice Mills (supra) it has been held that principal amount found due not only means the principal amount as such, but also the amount due on interest which has become part of the principal amount. In view of the discussion above, we are of the considered view that the finding recorded by the learned single Judge with regard to the principal sum for the purpose of award of interest is erroneous and is liable to be reversed.
8. As both the contentions raised by the learned counsel for the appellant are accepted, the letters patent appeal is allowed, the judgment and decree passed by the learned single Judge in F.A. No. 212/79 is set aside and the judgment and decree of the learned trial Court is modified to the extent that the plaintiff-Bank would be entitled to get pendente lite and future interest at the rate of 12% per annum on the principal sum as adjudicated by him. In the peculiar facts and circumstances of the case, there shall be no order as to costs.