Bombay High Court
Shri Badrinarayan Bansilal Somani vs Shri Vinodkumar K. Shah on 19 September, 2008
Equivalent citations: AIR 2009 (NOC) 2268 (BOM.), 2009 (4) AIR BOM R 167 2009 A I H C 3082, 2009 A I H C 3082, 2009 A I H C 3082 2009 (4) AIR BOM R 167, 2009 (4) AIR BOM R 167
Author: D.B.Bhosale
Bench: B.H.Marlapalle, D.B.Bhosale
-1-
IN THE HIGH COURT OF JUDICATURE AT BOMBAY
CIVIL APPELLATE JURISDICTION
FIRST APPEAL NO.961 OF 2003
Shri Badrinarayan Bansilal Somani,
Adult, Occ. Business,
residing at :156, 1/B Mangalwar Peth,
Pune-411 001. .. Appellant.
Vs
Shri Vinodkumar K. Shah,
Adult, Occ.Business,
Residing at :157, Camp,
Pune-411 001. .. Respondent.
Mr A.V.Anturkar, for the appellant.
Mr Anil Dhavale, for the respondent.
CORAM : B.H.MARLAPALLE & D.B.BHOSALE,JJ.
DATE : 19/09/2008
JUDGMENT:(Per D.B.Bhosale,J.)
1. This appeal is directed against the judgment and order dated 15.5.2003 rendered by the learned Joint civil Judge, Senior Division, Pune, in Special Civil Suit No.347 of 1988 instituted by the respondent-plaintiff. The suit was for recovery of an amount of Rs.12,64,000/- against the appellant-defendant along with interest at the rate of 24 per cent per annum. By the impugned judgment, the defendant is directed to pay to the plaintiff Rs.12 lacs together with interest at the rate of 15 per cent per annum from the date of the suit till realization of the ::: Downloaded on - 09/06/2013 13:52:32 ::: -2- entire amount and also directed to pay Rs.20,931.50 towards interest for the period from 3.12.1997 to 23.8.1998, that is, the period prior to institution of the suit.
2. Basic facts of the suit are not in dispute. As a matter of fact, Mr Anturkar, learned counsel for the appellant-defendant, submitted that he has instructions to confine challenge in the appeal only to the rate of interest, awarded by the trial Court and seek 9 per cent per annum interest on the amount of Rs.12 lacs only from the date of the ig suit till realization of the entire amount. In view thereof, we do not propose to make a detailed reference to the facts.
3. Briefly stated, the plaintiff is a trader and businessman. He knew the defendant and he claims that he had extended financial aid to him from time to time. On 30.11.1997, the defendant once again had approached the plaintiff with a request to give a loan of Rs. 12 lacs.
The plaintiff did pay this amount to the defendant on 30.11.1997 in cash. The defendant had promised to return the said amount on 3.12.1997. The defendant had accordingly issued a cheque bearing No.050646 dated 3.12.1997 of Rs.12 lacs drawn on Mahesh Sahakari Bank Ltd.. The amount was not paid as promised, the plaintiff, ::: Downloaded on - 09/06/2013 13:52:32 ::: -3- thereafter, had presented the said cheque for encashment and since it was bounced he has filed a complaint under section 138 of the Negotiable Instruments Act. Since the defendant did not make payment of the aforesaid amount the plaintiff instituted the instant suit for recovery of the amount with interest at the rate of 24% per annum.
4. The trial Court has decreed the suit holding that the plaintiff has brought sufficient evidence on record to prove that he had paid Rs 12 lacs to the defendant by way of loan on 30.11.1997 and that the defendant had promised to pay the said amount on or before 3.12.1997 by issuing post-dated cheque. The defence propounded by the defendant that the aforesaid amount was paid by the plaintiff for the purchase of shares has not been accepted by the trial Court. Insofar as the claim towards interest on the amount of Rs.12 lacs for the period before and after the suit, the trial Court has granted it at the rate of 15 per cent per annum. The trial Court has further held that the plaintiff is entitled to get interest of Rs.40,931.50 for the period from 3.12.1997 to 23.2.1998, that is, for the period prior to the suit. Admittedly, the defendant had paid Rs.20,000/- to the plaintiff and hence the Court has directed the defendant to pay the balance of Rs.20,931.50 only.
::: Downloaded on - 09/06/2013 13:52:32 ::: -4-5. We have heard the learned counsel for the appellant only on the rate of interest awarded by the trial court which, according to Mr Anturkar, was much higher than what the plaintiff is entitled in law. He invited our attention to Section 34 of the Code of Civil Procedure (for short, "CPC") and submitted that since there was no agreement for the payment of interest between the parties and that the amount was not received for commercial purpose, the Court below was wrong in awarding interest at the rate of 15 per cent per annum. He submitted that the facts of the case clearly show that the plaintiff was not entitled for any interest and he was supposed to return only Rs.12 lacs and, therefore, the cheque of that amount only was issued. He submitted that the trial Court has committed an error of law in awarding interest at the rate of 15% per annum from the date the amount was paid till the date of the suit. He submitted, in the absence of an agreement for payment of interest the defendant was not liable to pay the interest for the period prior to the suit. He then submitted that even awarding interest at the rate more than 6 per cent from the date of decree till the payment thereof was also wrong and illegal. He submitted that insofar as the rate of interest for the period from the date of the suit till the date of decree at the rate of 15% cannot be sustained in law since the plaintiff has miserably failed to prove that the loan was ::: Downloaded on - 09/06/2013 13:52:32 ::: -5- obtained for commercial purpose. He submitted that it was a simple transaction of personal loan and it did not have a colour of commercial transaction.
6. The question that falls for our consideration centers around section 34 of CPC, and hence it would be advantageous to re-produce the said section for better appreciation of the contentions urged on behalf of the defendant. Section 34 reads thus:
"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 at 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 at which moneys are lent or advanced by nationalised banks in relation to commercial transactions.
Explanation I.- In this sub-section, "nationalised bank" mean a corresponding new bank as defined in the Banking Companies (Acquisition and Transfer of Undertakings) act, 1970 (5 of 1970).
Explanation II.- For the purposes of this section, ::: Downloaded on - 09/06/2013 13:52:32 ::: -6- a transaction is a commercial transaction, if it is connected with the industry, trade or business of the party incurring the liability.
(2) Where such a decree is silent with respect to the payment of further interest on such principal sum from the date of the decree to the date of payment or other earlier date, the Court shall be deemed to have refused such interest, and a separate suit therefor shall not lie."
7. A mere perusal of Section 34 shows that it deals with the question of interest in three stages. First is, interest for the period prior to the institution of the suit, the second stage is, interest on the principal sum adjudged date of from decree, the date of institution of suit at such rate as the Court till the deems reasonable, and the third stage is, further interest on the principal sum adjudged from the date of the decree till realization of the decretal amount or to such earlier date as the Court thinks fit at a rate not exceeding 6 per cent per annum. The section does not refer to payment of interest for the period prior to the institution of the suit on the "principal sum adjudged". It applies only to additional interest on the principal sum adjudged from the date of suit to the date of the decree and further interest from the date of the decree to the date of payment. A plain reading of this section show that an interest on the principal amount adjudged from the date of decree to the date of payment in any case cannot be ::: Downloaded on - 09/06/2013 13:52:32 ::: -7- allowed at a rate higher than six per cent per annum unless the liability in relation to the sum adjudged had arisen out of commercial transaction as provided for under the first proviso to section 34. In short, about the first stage, section 34 does not say anything while about the second stage it says that the interest to be awarded shall be as considered reasonable by the Court. About the third stage, that is, from the date of decree till realization, the power of the Court to award interest is circumscribed, that is, it cannot be more than 6% per annum. This is settled by the Supreme Court in Ramnik Vallabhdas Madhvani Vs. ig Taraben Pravinlal Madhvani (2004) 1 SCC 497.
8. The Supreme Court had an occasion to consider the meaning of phrases "the principal sum adjudged" and "such principal sum" occurring in section 34 of CPC in Central Bank of India Vs. Ravindra and ors, (2002) 1 Supreme Court Cases 367.
367 In this case, the Supreme Court has observed that "if the amount of interest is paid, there will be no occasion for capitalising the amount of interest and converting it into principal. If the interest is not paid on the date due, from that date the creditor is deprived of such use of the money which it would have made if the debtor had paid the amount of interest on the date due. The creditor needs to be ::: Downloaded on - 09/06/2013 13:52:32 ::: -8- compensated for such deprivation". The Supreme Court further held that the expression "the principal sum adjudged" may include the amount of interest charged on periodical rests, and capitalised with the principal sum actually advanced, so as to become an amalgam of principal in such cases where it is permissible or obligatory for the court to hold so. Where the principal sum (on the date of suit) has been so adjudged, the same shall be treated as "principal sum".
9. In the present case, perusal of the pleadings and the oral evidence show that there was no agreement between the parties for the payment of interest at fixed rate on the principal sum actually advanced. The plaintiff, therefore, is not entitled to claim interest on the amount of Rs.12,64,000/- since Rs.64000/- were added to the actual sum advanced by way of interest at the rate of 24 % per annum from the date of payment to the date of the suit. Section 34 does not refer to payment of interest for the period prior to the institution of suit on the principal sum adjudged. The principal sum, according to the plaintiff, of Rs.12,64,000/- cannot be treated as the "principal sum adjudged" on the date of the suit.
Therefore, the plaintiff would be entitled for interest only on the principal amount actually advanced, i.e. Rs.
12,00000/-. We find support for the view in the decision ::: Downloaded on - 09/06/2013 13:52:32 ::: -9- of the Supreme Court in Union of India Vs The West Punjab Factories Ltd, AIR 1966 SC 395, wherein, while dealing with the contention that no interest could be awarded for the period before the suit on the amount of damages decreed, it was observed that in the absence of any usage or contract, express or implied, or of any provision of law to justify the award of interest, it is not possible to award interest by way of damages. In the circumstances, the Supreme Court held that no interest could be awarded for the period upto the date of the suit and the decretal amount in the two suits will have to be reduced by the amount of such interest awarded. For taking such view the Supreme Court also placed reliance upon its Judgment in Union of India Vs. Watkins and Mayor Co, AIR 1966 SC 275. The Supreme Court in that case, while dealing with a case under the Interest Act, 1939, had observed that interest may be awarded for the period prior to the date of the institution of the suit if there is an agreement for the payment of interest at fixed rate or if interest is payable by the usage of trade having the force of law, or under the provisions of any substantive law.
10. It is now well settled that in matter of grant of interest under this section, the Court has discretion, even not to grant the interest and it is not limited to ::: Downloaded on - 09/06/2013 13:52:32 ::: -10- the rate of interest. In other words, the grant of interest under section 34 is a matter of discretion and is to be exercised on the facts and circumstances of each case more particularly where there is no agreement for the payment of interest. Scrutiny of Section 34 of CPC indicates guidelines for exercise of such discretion. It shows that grant of interest at contract rate should be the normal rule, the use of discretion to refuse interest or reduce the agreed rate being the exception. To reduce or deny interest would amount to penalising the creditor for approaching the Court and encouraging the debtor to deliberately prolong the litigation. In short, where there is no agreement for the payment of interest between the parties, the Court is expected to use the discretion and in such cases Courts are guided by the provisions contained in section 34 of CPC. Undoubtedly, the courts are expected to bear in mind that the discretion is required to be exercised on sound judicial principals.
11. Thus, it is clear that in the absence of any agreed rate of interest, the Court will have to use its discretion keeping in view the provisions contained in Section 34 of CPC so also the facts and circumstances of each case and the nature of transaction. If prima facie the nature of transaction does not disclose it to be a commercial transaction, it would not be proper for Court ::: Downloaded on - 09/06/2013 13:52:32 ::: -11- to award any interest paid by nationalised Banks in relation to commercial transaction for the period from the date of suit to the date of decree. In the present case, the trial Court has observed that the monies were paid for the purpose of business and awarded 15% interest right from the date of payment till the date of realization. We do not find the material either in the form of document or oral evidence in support thereof. In other words, there is nothing on record to suggest that the payment of loan was given for industry, trade or business of the defendant. In fact, issuance of the cheque of the exact amount which was borrowed by the defendant itself is an indicator that the transaction was not commercial. There was nothing in writing between the two. In defence defendant has set out a case that the amount was paid to him for purchase of shares.
12. On perusal of the pleadings and the evidence of the plaintiff we have no hesitation to hold that the plaintiff has failed to prove that payment of the monies was for business, trade or industry. Explanation-II makes it very clear that a transaction is "commercial transaction" only if it is connected with the industry, trade and business of the party incurring liability. The plaintiff neither in his plaint nor in his evidence has stated for what purpose the amount was advanced. He has simply stated ::: Downloaded on - 09/06/2013 13:52:32 ::: -12- that the amount of Rs.12 lacs was paid to the defendant on his request to give a loan and since he was knowing the defendant he had paid that amount to him. The plaintiff has further stated that the defendant had received the said amount and had promised to return on or before 3.12.1997. The defendant had also issued a cheque of the said sum and no interest was added to while issuing the cheque. He has not stated either in the pleadings or in his evidence the purpose of seeking loan from him. Thus the evidence and the pleadings of the plaintiff are silent as to the nature of transaction. The plaintiff is not a money lender or ig a financial institution. He is an individual who claims that even on earlier occasions he had paid loan to the defendant. In the circumstances it would not be possible for us to hold that the transaction was commercial transaction. In our opinion, it was a simple personal loan paid by the plaintiff to the defendant.
13. The trial Court was wrong in awarding interest at the rate of 15 per cent per annum from the date (30.11.1997) of payment till the realisation of the entire amount. In the absence of an agreement for the payment of interest and material to show that the transaction was commercial transaction, the Court ought not to have granted commercial rate of interest which was being ::: Downloaded on - 09/06/2013 13:52:32 ::: -13- charged by nationalised Banks at the relevant time.
Moreover, there was no material on record to show that the rate of interest prevailing at the relevant time was 15%.
Similarly, awarding 15 per cent rate of interest from the date of decree to the date of realization cannot be sustained in law. In the facts of the present case, under Section 34 of CPC, for the period from the date of payment till the institution of the suit the plaintiff is not entitled for any interest and from the date of the decree till realization of the entire amount, the plaintiff is entitled for the interest at the rate of 6% per annum.
14. In the circumstances, this appeal is partly allowed. The defendant is not liable to pay interest for the period from the date of borrowing the monies till the date of institution of the suit. The defendant shall pay the interest at the rate of 6 per cent per annum from the date of the decree till realization of the entire amount, and insofar as the period from the date of institution of the suit till the date of decree the defendant shall pay the interest at the rate of 9 percent per annum. Decree be drawn up accordingly. No costs.
::: Downloaded on - 09/06/2013 13:52:32 ::: -14-(D.B.BHOSALE, J.) (B.H.MARLAPALLE,J.) ::: Downloaded on - 09/06/2013 13:52:32 ::: -15- HIGH COURT APPELLATE SIDE FIRST APPEAL NO.961 OF 2003 Date of Judgment:
19TH SEPTEMBER,2008.
For approval and signature THE HON'BLE MR.JUSTICE B.H.MARLAPALLE.
THE HON'BLE MR.JUSTICE D.B.BHOSALE.
1. Whether Reporters of Local Papers may be allowed to see the judgment?
2. To be referred to the Reporter or not?
3. Whether Their Lordships wish to see the fair copy of the Judgment?
4. Whether this case involves a substantial question of law as to the interpretation of the Constitution of India, 1950 or any Order made thereunder?
5. Whether it is to be circulated to the Civil Judges?
6. Whether the case involves an important question of law and whether a copy of the judgment should be sent to Nagpur Aurangabad or Goa offices?::: Downloaded on - 09/06/2013 13:52:32 :::