Madras High Court
The Purasawakum Permanent Fund Ltd vs G.Kamalam on 18 March, 2015
Author: V.M.Velumani
Bench: V.M.Velumani
IN THE HIGH COURT OF JUDICATURE AT MADRAS Reserved on : 27.07.2018 Delivered on : 26.09.2018 CORAM : THE HONOURABLE MS.JUSTICE V.M.VELUMANI S.A.No.549 of 2015 The Purasawakum Permanent Fund Ltd., Rep. by its Administrative Director, Having their registered Office at ''Appadurai Building'', No.173, Vellala Street, Purasawalkam, Chennai 600 084. ... Appellant/Appellant/Defendant [Cause title accepted vide order dated 18.03.2015, made in M.P.No.1 of 2015 in SA.SR.1363 of 2015] Vs. 1.G.Kamalam 2.L.Barani 3.L.Prabhakaran ... Respondents/Respondents/Plaintiffs Second Appeal filed under Section 100 C.P.C., against the judgment and decree, dated 25.09.2014, made in A.S.No.74 of 2010, on the file of XVII Additional City Civil Court, Chennai, confirming the judgment and decree, dated 15.04.2009, made in O.S.No.2363 of 2006, on the file of XVIII Assistant City Civil Court, Chennai. For Appellant : Mr.V.Raghupathi For Respondents : Mr.M.Rajaraman JUDGMENT
The appellant is the defendant in O.S.No.2363 of 2006. The respondents filed the above suit seeking to redeem the mortgage and for a preliminary decree ordering that an account be taken of what was due to the appellant/defendant on the date of decree for principal and interest on the mortgage dated 19.11.1994; to direct the appellant to deliver all the documents in their possession relating to the mortgaged property and re-transfer the property described in the schedule to the respondents/plaintiffs; and for permanent injunction restraining the appellant from bringing the mortgaged property by public auction.
2.The case of the respondents:-
The house and premises bearing New No.21, Old No.15, Kalingaraya Mudali Street, 3rd Lane, Old Washermanpet, Chennai21, described in the schedule to the plaint originally belonged to one Lakshmanan. After his demise, the respondents inherited the same. In order to meet the family expenses and to redeem the jewels, the respondents borrowed a sum of Rs.3,00,000/- from the appellant and executed a Deed of Mortgage on 17.11.1994 in favour of the appellant. The appellant paid only a sum of Rs.2,90,150/- by a cheque dated 19.11.1994 drawn on Canara Bank, Kellys, Purasawalkam, Chennai -7. As per the terms of Mortgage Deed, the amount borrowed has to be repaid in 92 equal monthly installments at Rs.6,600/- towards principal and interest from December 1994 upto July 2003. The respondents are depending on rental income. The respondents filed various proceedings for eviction of the tenants, in view of their default in payment of rents. The respondents in spite of several constraints, paid a sum of Rs.5,06,446.40 on various dates as per the details given in the plaint. The total amount payable is Rs.6,07,200/-.
2.1.As per the Mortgage Deed, the mortgage loan has to be paid in 92 equal monthly installments at Rs.6,600/-, which is principal and interest at 21% p.a. The monthly installment has to be paid on or before the last working day of the month. In case of default in payment of monthly installments, it will carry interest at 21% p.a. or at any other rate fixed from time to time. The conditions stipulated are to the effect of levying of interest on interest and double the interest on the principal sum. The conditions imposed in the mortgage deed are in contravention of the provisions of Section 23 of the Contract Act and Section 58(a) of the Transfer of Property Act. Therefore, such covenants are void in nature and the appellant is entitled to claim only the interest on the principal sum of Rs.2,90,150/- at the rate now fixed by the appellant. The respondents are entitled to redeem the property without reference to the conditions of the Mortgage Deed.
2.2.The respondents filed O.S.No.3817 of 2005 for permanent injunction and the same is pending on the file of XVIII Assistant City Civil Court, Chennai. Now, the appellant is charging interest only at 15% p.a. and the respondents are liable to pay only a sum of Rs.1,46,338.30 as on date of filing of the suit. The respondents have filed the suit for a judgment and decree for redemption of the suit property on payment of Rs.1,46,338.30 within the time of six months from the date of judgment and decree and the statement of account filed along with the plaint may be treated part and parcel of the plaint.
3.The case of the appellant:-
The appellant filed written statement denying all the allegations made in the plaint by the respondents. The respondents borrowed property loan of Rs.3,00,000/- and agreed to repay the said sum in 92 monthly installments at Rs.6,600/- to be paid on or before last working day of the month. If the respondents failed to pay the installment, it will be treated as unpaid installment and it will carry interest at 21% p.a. The said rate of interest on unpaid installments was increased to 24% p.a. from November 2000 as per the resolutions passed by the Board of Directors. The respondents paid only three installments. If the Mortgagor pays any amount after committing default, the amounts so paid will be appropriated first towards interest on the defaulted installments, then, towards defaulted installments and the balance if any, the same will be appropriated towards the installments for the month, in which, the amount is paid. It is not correct to state that the respondents are liable to pay Rs.6,07,200/- for 92 months. After paying first three installments regularly, the respondents were very irregular in payment of monthly installments. The respondents are also liable to pay 2% interest tax, which was in force till 31.03.2000. A sum of Rs.5,06,446.40 paid by the respondents was first appropriated towards interest on defaulted installments amounting to Rs.4,54,070.40 and balance Rs.52,376/- was appropriated towards installment amount.
3.1.At the time of availing loan, the appellant issued a Passbook. Whenever any amount was paid by the respondents, it will be entered in the Passbook and also the mode of appropriation. The appellant will be issuing Challan to the respondents at the time of payment, which will disclose how the amount was appropriated and amount due on that month in respect of mortgage loan.
3.2.The appellant denied that only a sum of Rs.2,90,150/- was paid to the respondents. Out of Rs.3,00,000/-, the first monthly installment, Printing and Stationery charges were deducted. A sum of Rs.3,000/- was kept under suspense account for production of Encumbrance Certificate by the respondents. When the respondents produced the Encumbrance Certificate, a sum of Rs.3,000/- was paid to them on 14.12.1994. The respondents have suppressed the above fact and the allegation that only a sum of Rs.2,90,150/- was paid towards mortgage loan is not correct.
3.3.As per the conditions in the Mortgage Deed, if the respondents committed default of payment of three consecutive monthly installments, the appellant, as per Section 69 of the Transfer of Property Act, can direct the mortgage property to be sold in public auction without intervention of the Court. The appellant brought the mortgaged property for sale by public auction on 06.05.2003. The respondents filed O.S.No.2093 of 2003 on the file of VII Assistant City Civil Court, Chennai, for permanent injunction and also filed I.A.No.8127 of 2003 for interim injunction. In the said I.A., interim injunction was granted on condition that the respondents shall pay a sum of Rs.20,000/- by 22.04.2003 and another sum of Rs.30,000/- on or before 05.05.2003. The respondents complied with the said conditions. The appellant filed written statement and contested the suit. The said suit was dismissed for default on 29.04.2004 with costs, as the respondents did not appear. Thereafter, the respondents have filed I.A.No.2222 of 2004 for restoring O.S.No.2093 of 2003, which was also dismissed for default on 05.04.2005. The appellant again brought the property for sale on 02.07.2005. The respondents filed O.S.No.3817 of 2005 claiming very same relief as claimed in the earlier suit in O.S.No.2093 of 2003. While the said Suit was pending, the respondents have filed the present Suit for redemption.
3.4.The respondents have agreed for all the terms and conditions for grant of mortgage loan and executed the Mortgage Deed. The respondents agreed to pay interest on defaulted installments, which is binding on them. Charging interest on the defaulted installment is valid and not opposed to public policy. Only when the respondents pay all the 92 monthly installments without any default, the mortgage loan will be discharged in June 2002. Even after completion of 140 months as on June 2006, the respondents are yet to discharge the loan in full. A sum of Rs.10,87,819.51 is due as on 30.06.2006 and payable by the respondents as per the terms stipulated in the Mortgage Deed. The mode of payment as stipulated in the Mortgage Deed is a contract and the respondents are liable to pay interest on the defaulted installments. The statement of account furnished in the plaint clearly shows that the respondents made irregular payments.
3.5.The appellant received deposits from its Members and lend it to its Members. Unless the borrowers repay the amounts borrowed with interest, the appellant will not be in a position to pay its Members interest and maturity amount on deposit.
4.Based on the pleadings, the learned Trial Judge framed necessary issues.
5.Before the learned Trial Judge, one A.C.Sundaramoorthy was examined as P.W.1 and one Sankarappan was examined as P.W.2 and 5 documents were marked as Exs.A.1 to A.5. On the side of the appellant, one P.Shanthilal was examined as D.W.1 and 6 documents were marked as Exs.B.1 to B.6.
6.The learned Trial Judge considering the pleadings, oral and documentary evidence, passed a preliminary decree directing the respondents to pay a sum of Rs.1,46,338.30 on or before 15.10.2009 together with interest at 6% p.a. from the date of plaint till the date of deposit. On such deposit, the respondents are entitled to get delivery of the documents pertaining to the mortgage in respect of the suit property and also granted permanent injunction.
7.Challenging the said judgment and decree dated 15.04.2009, the appellant filed A.S.No.74 of 2010.
8.The learned first appellate Judge framed necessary points for consideration.
9.The learned first appellate Judge after considering the materials on record, the judgment and decree of the Trial Court and arguments advanced by the counsel for the parties, dismissed the appeal, confirming the judgment and decree of the Trial Court.
10.Challenging the judgments and decrees of both the Courts below, the present Second Appeal is filed.
11.At the time of admission, the following substantial questions of law were framed.
''(1) Whether the Courts below are justified in ignoring and disregarding the terms and conditions in the Mortgage Deed Ex.A.1 as per which the Defendant/Mortgagee can claim interest on interest as per the settled law?
(2) Whether the lower appellate Court is justified in finding that the defendant cannot enforce the unlawful terms of Mortgage Deed contrary to fact that all terms and conditions in the Mortgage Deed Ex.A.1 are lawfully executed and registered by the Mortgagors/Plaintiffs?
(3) Whether the lower appellate Court has exceeded its Power in rejecting the prayer of passing final decree as per Clause (4) of the decree of the Trial Court?
(4) Whether the Courts below are justified in rejecting the claim of the Mortgagee who will be entitled to apply the general rule of appropriation by appropriating the amount deposited first towards interest, towards cost and finally towards principal amount due under the decree as per various decisions of this Court including that of the decision of the Constitution Bench of the Hon'ble Supreme Court of India in Gurpret Singh reported in 2006 (8) SCC 457?''
12.The learned counsel for the appellant contended, (1) that the respondents are mortgagors and the debt is mortgage debt. The respondents agreed to pay interest on defaulted installments and the said contract is binding on the respondents. The Courts below failed to consider the settled law by various decisions of this Court as well as the Hon'ble Apex Court that the Mortgagee is entitled to charge interest on defaulted installments;
(2) that the respondents paid only first three installments in time, out of 92 installments and failed to pay balance installments in time and are not entitled to refuse to pay the interest on defaulted installments;
(3) that the Courts below failed to consider Exs.B.2 to B.6, which are computerized Statement of Accounts, prepared on the basis of correct calculation as per Clause 8(ii) and (3) of the Mortgage Deed, which was marked as Ex.A.1, which reveals the actual amount due on the mortgage loan. The appellant marked Exs.B.2 to B.6 Computerized Statement of Accounts before the Trial Court and non-filing of the statement of account along with the written statement has no relevance to decide the issue in the Suit. The Courts below have not considered Exs.B.2 to B.6 and committed an error of law in rejecting the claim of the appellant;
(4) that the Courts below failed to consider the attitude of the respondents by filing frivolous suit and getting it dismissed for default and filing a second suit for the very same relief of permanent injunction against the appellant and file the present suit while the said Suit was pending;
(5) that the claim of the respondents that they are not liable to pay interest on defaulted installments is an afterthought;
(6) that the Courts below failed to consider the oral and documentary evidence let in by the parties;
(7) that the first appellate Court erred in holding that the terms in the mortgage deed are unjust, against law and that poor debtor is trapped in the debt and unable to raise their voice against unjust practice of the appellant;
(8) that the first appellate Court erred in holding that D.W.1 has not explained the percentage of interest for the defaulted amount the mortgagors are liable to pay. In Ex.A.1, dated 17.11.1994, the percentage of interest the mortgagors are liable to pay is mentioned and Ex.A.1 is produced by the respondents;
(9) that the learned first appellate Judge erred in holding that the concept of interest on interest is illegal and against law without considering the well settled law and the Creditor is entitled to just amount of interest due first, then towards defaulted installment and if any balance is available, the same may be appropriated towards current installment;
(10) that as per the terms of mortgage loan evidenced by Mortgage Deed Ex.A.1, a sum of Rs.59,53,027.66 is due on December 2014. The appellant has produced and marked computerized Statement of Accounts to substantiate their claim. The Courts below failed to consider the Statement of Accounts filed by the appellant. The appellant is a financial institution incorporated in the year 1920. The Members are poor pensioners and widows, who deposit their hard earned money with the appellant with an intention to receive reasonable return by way of interest. The appellant lends such deposits received to other Members and receive interest from the borrowers and pay interest to the depositors. If the borrowers, like the respondents default in payment, the appellant will not be in a position to pay interest to the depositors; and (11) that as per the Mortgage Deed, the appellant is entitled to bring the property to sale by public auction without intervention of Court as per Section 69 of the Transfer of Property Act. The appellant brought the mortgaged property on two occasions by public auctions. The respondents filed suits for permanent injunction, but subsequently, did not pursue the suits. The learned first appellate Judge failed to consider the action taken by the appellant to realize the amount and erred in holding that the appellant did not take any action for realization of the amount.
13.In support of his submissions, the learned counsel for the appellant relied on the following judgments:
(i) Purasawakkam Permanent Benefit Fund Ltd., Rep. by its Administrative Director, Chennai 84 Vs. P.Shanmugam and others reported in 2014 (1) MLJ 325, wherein at paragraphs 14, 15 and 21, it has been held as follows:-
''14.The learned counsel for the appellant has also filed a statement of accounts showing the instalments payable on various dates, the amounts paid on various dates and the interest calculated for the unpaid instalment amounts alone from the date of default at the rate of 21% per annum. The said calculation is in accordance with the terms of the contract embodied in the mortgage deed, a copy of which has been marked as Ex.B2. .......... Admittedly the agreed rate of interest as per the mortgage deed is 21% per annum. Since the amount was agreed to be repaid in 92 equated monthly instalments, the interest for the said 92 months was calculated according to the formula and the amount to be paid as monthly instalment was fixed. As such, the normal and usual procedure of prescribing a rate of interest to be levied on the unpaid instalments was prescribed in the mortgage deed and both the parties to the transaction agreed for such an interest. When the parties have fixed the contractual interest, there shall not be a justification for the Court to interfere with the same and reduce. Such an interest should be either proved to be more than any ceiling prescribed by the statute or statutory regulations or it should have been proved to be usurious or exorbitant shaking the conscience of the court,to justify interference.
15.In this case, a simple interest at the rate of 21% p.a. alone was prescribed and the plaintiffs agreed for making payment of interest on the unpaid instalments amount at the said rate. It is not the case of the plaintiffs that the first defendant was not entitled to levy interest at the rate of 21% as per the agreed clause. ......
21.Substantial Questions of Law 1 and 2 are answered in favour of the appellant holding that the lower appellate Court committed an error in law reducing the contractual rate of interest from 21% to 15% per annum (simple interest) and by calculating simple interest on the principal amount without taking into account the contract between the parties that the amount was agreed to be repaid in equated monthly instalments and the unpaid monthly instalments would carry interest at the above said rate. .......''
14.The learned counsel appearing for the appellant relied on the Judgments of the Hon'ble Apex Court reported in 2006 (8) SCC 457 [Gurpreet Singh Vs. Union of India] and 2013 (1) SCC 243 [Bharat Heavy Electricals Limited Vs. R.S.Avtar Singh and Company] and contended that in the absence of any specific instructions by debtor, it is open to the creditor to appropriate the amounts paid first towards interest and if there is more than one debt, to appropriate towards debt of his choice including time barred debts.
15. The learned counsel appearing for the appellant also relied on the following Judgments:-
(i) Secretary, Bhubaneshwar Development Authority Vs. Susanta Kumar Mishra reported in 2009 (4) SCC 684, wherein at paragraphs 12 and 13, it has been held as follows:-
''12.Even if we assume that the price of Rs.1,39,215.40 stipulated in the lease-cum-sale agreement included, in addition to the cost of the plot and the construction of the house, interest thereon, the position will be no different. Each equated instalment would then have a principal component and an interest component. As the equated instalments would include interest on the principal only up to the due date of instalment, whenever there is a default, there can be no dispute that the ''principal'' part of the instalment could be subjected to interest from the date of default to the date of payment.
13.It is no doubt true that when the defaulted instalment in entirety is subjected to interest, the ''interest'' component of the defaulted instalment is also subjected to interest. To that limited extent, there may be charging of interest upon interest. Charging of such interest, on the interest part of the instalment, on default in payment of the instalment, at a reasonable rate from the date of default, cannot be termed as charging of compound interest in regard to the entire dues. It is only a provision to ensure that the dues (instalments) are paid promptly and avoid misuse of the concession given by permitting payment in instalments. But for such a provision, lessees/allottees who have already been given possession will be tempted to delay payments, thereby leading to continuous defaults. A statutory development authority, working on no-profit-no-loss basis, can ill afford to permit such continuous defaults by lessees/allottees, which will paralyse their very functioning, thereby affecting future developmental activities for the benefit of other members of the general public.''
(ii) The unreported decision of this Court in M.Joseph Vs. The Purasawakkam Permanent Benefit Fund Ltd., Purasawakkam, Chennai 84 and another [S.A.No.241 of 2010, dated 30.04.2013], wherein at paragraphs 15, 17 and 19, it has been held as follows:-
''15. ..... Strictly speaking the interest levied on the defaulted installments cannot be construed as a compound interest. The principle of compound interest contemplates consolidation of interest with the principal periodically and treating the consolidated amount (principal + interest) as the principal for the subsequent period. Periodical consolidation of the amount due for working out the principal for the next period is not the method adopted by the first respondent/first defendant in this case. On the other hand, the principal amount of loan and the premium in case of repayment by way of equated monthly installments were taken into account to fix the amount of monthly installments. Simply because the same includes in it a portion of interest also, it will not make the levy of interest on the defaulted installments a levy of compound interest. There is no clause in the contract for consolidating the defaulted installments and the interest levied on such defaulted installments periodically. If such consolidation is sought to be made and interest is sought to be levied on such consolidated amount, then it can be said that a compound interest is sought to be levied. In the present case, only simple interest and not compound interest is levied on the defaulted installments. Therefore, the contention of the appellant that compound interest is sought to be levied is not correct. Even in case compound interest is levied as per the agreement found in the mortgage deed, the same cannot be ipso facto held to be usurios. In State Bank of India vs. Yasangi Venkateswara Rao reported in (1999) 2 SCC 375, the Hon'ble Supreme Court made the following observation:
"We also find it difficult to agree with the observation of the High Court that normally when a security is offered in the case of mortgage of property, charging of compound interest would be regarded as excessive. Entering into a mortgage is a matter of contract between the parties. If the parties agree that in respect of the amount advanced against a mortgage compound interest will be paid, we fail to understand as to how the court can possibly interfere and reduce the amount of interest agreed to be paid on the loan so taken. The mortgaging of a property is with a view to secure the loan and has no relation whatsoever with the quantum of interest to be charged.'' .......
17.The Hon'ble Supreme Court in Meghraj & Ors. vs. Mst.Bayabai & Ors. reported in (1969) 2 SCC 274 : AIR 1970 SC 161 has held that, where a mortgagor deposited amount in the court whether it was for the principal or interest, the ordinary principle was that such money should first be applied towards interest and cost and then towards the principal. The same principle provided prior to the said judgment and the view still holds the field. There are umpty number of cases, in which the said principle has been reiterated. It is unnecessary to cite all those decisions.
19.The contract embedded in the mortgage deeds, copies of which have been marked as Exs.A1 and A2, shows that repayment of the loan with interest was agreed to be made in 92 equated monthly installments of Rs.14,300/- in respect of the first loan and 99 equated monthly installments of Rs.11,000/- per month in respect of the second loan. The scheme provided in the contract is that the monthly installments should be paid on or before the last day of the month and incase of non-payment within that month, the said installment amount shall be treated as unpaid installment for the subsequent months and that unpaid installments shall carry an interest at the rate of 21% per annum for the first loan and 22% per annum for the second loan. Admittedly, the appellant/plaintiff was not regular in making payment of installments. Thus when belated payments were made, they were first applied towards the interest on the unpaid installments and then towards the unpaid installments and then the balance towards the current installments. It is not the case of the appellant/plaintiff that he made payments towards the installments in advance. Therefore, this Court finds nothing wrong in the method of appropriation adopted by the first respondent/first defendant.''
16.Per contra, the learned counsel for the respondents contended that after preliminary decree, a final decree was passed directing the appellant to return the document, but the appellant has not challenged the final decree. The respondents filed E.P. This Court granted stay and E.P. was closed. The final decree is in force.
17.The interest on mortgage debt has to be calculated only as per Order 34 Rule 11 C.P.C. and cannot be calculated otherwise. The calculation of interest on mortgage debt is different from calculation of interest on money or other debts.
18.The respondents have paid Rs.5,06,446/- and filed Memo of Calculation. The appellant has admitted the payment of said amount. The Courts below has passed the judgment based on evidence and not as per Clause 8(i) of Ex.A.1 Mortgage Deed. The Judgments are based on facts and no substantial question of law has arisen. The contention of the learned counsel for the appellant with regard to business of the appellant has no relevance to the issue in the present proceedings. Mortgage debt is the only issue to be decided.
19.In the judgment reported in 2014 (1) MLJ 325 [cited supra] relied on by the learned counsel for the appellant, Clause 8(x) was not referred. Only provisions of Indian Contract Act were considered, which are not relevant to decide the issue in the suit.
20.The judgments in 2006 (8) SCC 457 [cited supra] and 2009 (4) SCC 684 [cited supra] do not relate to Mortgage debt. They relate to land acquisition proceedings and allotment of property respectively.
21.When the Mortgagor files the suit for redemption, Order 34 Rule 7 C.P.C. applies. The Mortgagor may or may not pay amounts. Even then the Court can pass a preliminary decree. Only when a preliminary decree is passed, the mortgagee will be entitled to further proceedings.
22.The appellant has calculated cumulative interest and they are not entitled to charge interest on interest, which is against law and public policy. The appellant has not given proper calculation. Only when there is default, Clause 8(i) will apply. The appellant has not given Memo of Calculation for Rs.10,00,000/- as claimed by them in the written statement. The appellant has given different Memo of Calculations calculating interest at 21%, 18% and 15% respectively, from 01.07.2006. This Memo of Calculations are not correct and cannot be relied upon.
23.In support of his submissions, the learned counsel for the respondents relied on the following judgments:-
(i) N.M.Veerappa Vs. Canara Bank reported in AIR 1998 SC 1101, wherein at paragraphs 11 and 18, it has been held as follows:-
''11. ..... This Court held that before 1929 the position was that till the period for redemption expired, the matter was considered to be in the domain of contract and therefore interest had to be paid at the rates agreed to in the contract and that it was only after the expiry of the redemption period, the matter would pass into the domain of the Court from the domain of the contract. The rights of the mortgagee would thereafter depend not on the contents of the bond but on the directions in the decree. This Court referred to what was stated by the Privy Council in Jagannath Prasad Singh Chowdhury vs. Surajmul Jalall, 54 Ind App 1 : [AIR 1927 PC 1]. But after 1929, a new Rule 11 was introduced, which used the words. "the Court may order payment of interest". The new Rule was explained by the Federal Court in Jaigobind Singh vs. Lachmi Narain Ram, AIR 1940 FC 20 and it was held that this provision gave a certain amount of discretion to the Court so far as interest after date of suit was concerned and it was no longer obligatory after the 1929 Amendment on the Courts to direct interest at the contractual rates upto 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. Approving the above observations of the Federal Court, this Court held on facts, that the mortgagee should be granted interest on the principal sum at the contractual rate till date of suit and only simple interest at 6% p.a. on the principal sum adjudged form the date of suit till date of preliminary decree and again at same 6% p.a. from date of preliminary decree till date of realisation.
18. ...... In that Karnataka case too, the trial Judge's award at 6% per annum simple from date of suit till date of realisation was affirmed. Unfortunately, the learned Single Judge of the High Court, in the present case before us, though he referred to the above Division Bench Judgment, still said that Section 34 CPC was applicable. This was obviously wrong and contrary to the decisions of this Court and of the Karnataka High Court.''
(ii) P.Ragothaman Vs. A.B.Govardhan reported in 2017 (3) MLJ 522, wherein at paragraph 12, it has been held as follows:-
''12.The Supreme Court in N.M.Veerappa v. Canara Bank and others [AIR 1998 SC 1101 : (1998) 2 SCC 317 : LNIND 1998 SC 109 : 1998 (2) MLJ 20] considered the question regarding payment of interest under Order 34 Rule 11 CPC. The Supreme Court indicated the correct rate of interest in a mortgage suit. The Supreme Court observed thus:
"18.From the aforesaid rulings the following principles can be summarised. (a) Before 1929, it was obligatory for the Court to direct the contract rate of interest to be paid by the mortgagor on the sum adjudged in the preliminary decree, from the date of suit till the date fixed for payment as per Order 34 Rule 2(c)(i) or Order 34 Rule 4(1) or Order 34 Rule 7(c)(i), respectively in suits for foreclosure, sale or redemption. (b) But after the 1929 Amendment, because of the words used in the main part of Order 34 Rule 11, namely that ''the Court may order payment of interest'' it is no longer obligatory on the part of the Court while passing preliminary decree to require payment at the contract rate of interest from date of suit till the date fixed in the preliminary decree for payment of the amount. It has been so held in Jaigobind case [AIR 1940 FC 20 : 44 CWN 21] by the Privy Council and by this Court in S.P. Majoo case [(1969) 1 SCC 220 : (1969) 3 SCR 33] that the new provision gives a certain amount of discretion to the Court so far as pendente lite interest is concerned and subsequent interest is concerned. (c) It is no longer obligatory to award the contractual rate after date of suit and up to the date fixed for redemption as above stated even though there was no question of the contractual rate being penal, excessive or substantially unfair within the meaning of the Usurious Loans Act, 1918. (d) Even if the Court otherwise wants to award interest, the position after the 1929 and 1956 Amendments is that the Court has discretion to fix interest from date of suit under Order 34 Rule 11(a)(i) up to date fixed for payment in the preliminary decree, the same rate agreed in the contract, or, if no rate is so fixed, such rate as the Court deems reasonable - on the principal amount found or declared due on the mortgagor is concerned. (e) The Court has also power to award from the date of suit under Order 34 Rule 11(a)(iii) a rate of interest on costs, charges and expenses as per the contract rate or failing such rate, at a rate not exceeding 6%. This is the position of the discretionary power of the Court, from the date of suit up to the date fixed in the preliminary decree as the date for payment. (f) Again under Order 34 Rule 11(b) so far as the period after the date fixed for payment is concerned, the Court, even if it wants to exercise its discretion to award interest up to date of realisation or actual payment, on the aggregate sums specified in clause (a) of Order 34 Rule 11, could award interest at such rate as it deemed reasonable." ''
24.The learned counsel for the appellant, in reply to the arguments of the learned counsel for the respondents, contended that this Court after considering the error of law and facts committed by both the Courts below, have framed substantial questions of law.
25.The appellant has substantiated its case and proved that the Courts below have committed both error of law as well as fact and therefore, the judgments and decrees are liable to be set aside. The learned counsel for the respondents has admitted that the appellant is not a moneylender. In such case, the contention of the respondents that the Mortgage Deed is not a contract, is contrary to law. The respondents have accepted the terms on which the amount was borrowed and executed the Deed of Mortgage, which is binding on the respondents. Once the preliminary decree is set aside or modified, the final decree passed pending appeal has to be modified as per the preliminary decree and prayed for allowing the Second Appeal. In support of the said contention, the learned counsel for the appellant has also relied on the following judgments.
(i) Sital Parshad and another Vs. Kishorilal reported in CDJ 1967 SC 294, wherein at paragraph 15, it has been held as follows:-
''15.Then we come to the third class of cases where there has been variation by the appellate Court in appeal from the preliminary decree. This variation can be of two kinds; firstly, the amount fixed for redemption may be increased as happened in the present case, or secondly, it may be reduced. In the first case we are of opinion that the matter stands on exactly the same footing as in the case where the appeal from the preliminary decree by the defendant is dismissed in toto. However, in the second case, where variation is in favour of the defendant and the amount fixed for redemption is reduced, a question may arise whether the period for redemption can be said to have been extended for six months or such other time as may be provided in the preliminary decree under appeal but beginning from the date of the decree in appeal. In such a case we are of opinion that it is the duty of the appellate Court when it is reducing the amount payable for redemption to fix some time for the purpose in the interest of justice. But it is not bound to do so and if it does not do so, the original time fixed in the preliminary decree stands even though the amount for redemption may have been reduced : [See Rukhmabai's case, ILR (1952) Nag 243 : AIR 1952 Nag 145 FB]. Nor do we think that any serious harm is done to the defendant-mortgagor in such a case for under O. XXXIV R. 5(1), even though no fresh time may have been fixed by the appellate Court where the amount for redemption is reduced, the mortgagor-defendant would have time upto the date of the confirmation of sale to deposit the amount and save the property. In these circumstances, we see no reason to distinguish even this case where variation results in reduction of the amount of redemption from the case where the decree of the appellate Court affirms the preliminary decree in appeal in toto.''
(ii) Periakaruppan Chettiar Vs. Venugopal Pillai and others reported in AIR 1946 MADRAS 383, wherein it has been held as follows:-
''If this function of a final decree for sale is borne in mind it becomes clear that on principle there ought not to be any distinction between a case of the affirmance and a case of variation of the preliminary decree by an appellate Court. The final decree passed in the case, if it was passed before the disposal of the appeal against the preliminary decree, would, in our opinion, automatically operate on the preliminary decree as affected by the decision of the appellate Court. It might be affected to a greater or lesser decree. The alterations which may be necessary, if they have to be made formally in the final decree already passed, would be practically the same whether the appellate decree is one of affirmance or of variation. In fact the words "preliminary decree passed in this suit " which occur in any final decree for sale ought to be understood to mean the preliminary decree as affected by any appellate decision in cases where the preliminary decree is the subject of an appeal. So read, we do not see any difficulty in holding that whether the preliminary decree is affirmed in toto or is varied to any extent or in any particular, the final decree could be executed with such modifications as may be necessary in the circumstances which might as well be made in the execution petition filed after the appellate decree.
Considered from another aspect too, we think that there is no substance in the objection by the appellant. It can be said, that it is the duty of the trial Court which passes the final decree to carry out such modifications as may be necessary by reason of the decision of an appellate Court in an appeal against the preliminary decree when its attention is drawn to the necessity for such alteration by the decree-holder. We do not think that so long as the decree itself has been kept alive, there can be a bar of limitation to an application of this sort. Such application really calls upon the Court to carry out modifications which in law automatically take place in the final decree already passed before the decree of the appellate Court. .....''
26.I have heard the learned counsel appearing for the parties and perused the materials available on record.
27.The respondents have borrowed a sum of Rs.3,00,000/- on the security of the suit property. The appellant has set out the terms and conditions for lending the money, which was accepted by the respondents. According to the appellant, the amount has to be paid together with interest at 21% p.a. The respondents agreed to pay the amount in 92 monthly installments at Rs.6,600/-. The monthly installments have to be paid on or before the last date of the month, in which, the installment is due. If the respondents default in payment of monthly installment, they agreed to pay interest at the contract rate on the defaulted installments. The respondents admittedly paid only first three monthly installments in time and after that, the respondents failed to pay the installments in time. From the Plaint, it is seen that the respondents have paid amounts very irregularly and various amounts according to their whims and fancies. The appellant has stated that at the time of advancing monies, a Passbook was issued to the respondents and other borrowers. The appellant has further stated that as and when the respondents pay any amount, the same will be entered in the Passbook and also it will be entered as to how the said amount was adjusted, namely, towards interest for defaulted installment and then towards defaulted installments and if any balance is left, then towards the current monthly installment. The appellant has further stated that for payment of any amount by the respondents, a Challan will be issued showing as to how the amount paid was adjusted. The respondents have not denied these contentions of the appellant. The respondents have not produced the Passbook and the Challans issued by the appellant, showing as to how the amounts paid by the respondents were adjusted. The respondents have not disputed the amounts claimed by the appellant till the appellant brought the property mortgaged by public auction without intervention of the Court as per Section 69 of the Transfer of Property Act. The respondents filed O.S.No.2093 of 2003 before the VII Assistant City Civil Court, Chennai, for permanent injunction. Subsequently, the said suit was dismissed for non-prosecution. The application to restore the suit was also dismissed for default. The appellant has also stated that when the appellant brought the property again for sale, the respondents filed O.S.No.3817 of 2005 for permanent injunction. Pending the said suit, the respondents have filed the present suit for redemption, which shows that the claim of the respondents is not bona fide.
28.The respondents contended that the appellant did not pay the entire amount of Rs.3,00,000/- as agreed upon, but paid only Rs.2,90,150/- by a cheque dated 19.11.1994 and that the respondents are liable to pay interest on the above amount only and not on Rs.3,00,000/-. The appellant furnished details as to how the said amount of Rs.3,00,000/- was disbursed and proved that the contention of the respondents that only a sum of Rs.2,90,150/- was paid, is not correct.
29.The next contention of the respondents that they are liable to pay only Rs.6,07,200/-, being the principal and interest and that they have paid a total sum of Rs.5,06,446.40 and they are liable to pay only the balance sum, is without merits. The respondents agreed to pay Rs.6,600/- per month for 92 months and discharge the mortgage loan. At the time of borrowing, both the appellant and the respondents agreed that in case of default in payment of monthly installments within the time limit as agreed upon, then, the appellant is entitled to interest at the contract rate on the defaulted monthly installments. The said term was reduced into writing and the respondents executed the Mortgage Deed, marked as Ex.A.1. The respondents can discharge the loan by paying Rs.6,07,200/- in 92 monthly installments only when they pay all the 92 monthly installments in time without any defaults. When the respondents commit default, they are liable to pay interest on the defaulted installments.
30.The respondents contend that the monthly installments of Rs.6,600/- includes interest also. The appellant is not entitled to charge interest on interest and the said condition is opposed to public policy. There is no merit in the said contention. It is well settled that Banks and Financial Institutions are entitled to charge monthly, quarterly and yearly rest as per agreed terms of loan. If the borrower commits default in payment of interest in time, the defaulted interest will be added to the principal and the creditor is entitled to charge on the total amount of principal and interest. In the present case, the appellant is claiming interest on the defaulted installments as per the agreed term. Even though a small portion of the said monthly installments contains interest, that will not be a reason for terming the said condition as illegal or opposed to public policy. Whether the Mortgagee is entitled to charge interest on the defaulted installments or not, was considered by this Court in two second appeals, in which, the appellant was a party [S.A.No.241 of 2010, dated 30.04.2013 and S.A.No.1261 of 2012, dated 17.09.2013 reported in 2014 (1) MLJ 325]. The borrowers, who were Mortgagors took similar objections that the Mortgagee is not entitled to charge interest on defaulted installments. This Court considered similar objections and terms in the Mortgage Deed and held that the Mortgagee is entitled to charge interest on the defaulted installments. This Court also held that the said Clause is normal contractual clause, used to stipulate interest on the unpaid installment money at a particular rate. The ratios laid down in the judgments reported in 2014 (1) MLJ 325 [cited supra] and the judgment dated 30.04.2013 made in S.A.No.241 of 2010 [M.Joseph Vs. The Purasawakkam Permanent Benefit Fund Ltd., Purasawakkam, Chennai 84 and another] are squarely applicable to the facts of the present case. Courts have consistently held that charging interest on the defaulted installment is valid.
31.The Trial Court referred to the judgments relied on by the learned counsel for the appellant and without giving any reason, failed to apply the principles laid down in the said judgments and erroneously decreed the suit. The first appellate Court erroneously held that the Clauses in Ex.A.1 Mortgage Deed are opposed to public policy. The learned first appellate Judge has not stated, which are the Clauses that are opposed to public policy and how they are opposed to public policy. The learned first appellate Judge erred in holding that the appellant has not taken any legal proceedings in respect of the suit mortgage loan. The respondents and the appellant have entered into Mortgage Deed and registered the same. The respondents have marked the Mortgage Deed as Ex.A.1. As per the registered Mortgage Deed Ex.A.1, the appellant is entitled to bring the mortgaged property for sale without intervention of the Court as per Section 69 of the Transfer of Property Act. The appellant on two occasions brought the property for sale by public auction. On both the occasions, the respondents filed suits for permanent injunction and stopped the public auction. The respondents and the appellant have mentioned the suits filed by the respondents, when the appellant had brought the property for sale by public auction. The learned first appellate Judge erred in holding that the appellant has not taken any action to enforce the mortgage.
32.The respondents have paid only first three monthly installments in time and defaulted in payment of other installments in time. In such a case, the appellant is entitled to claim interest on the defaulted installments. The respondents paid various amounts on various dates. The respondents have not given any instructions to the appellant as to how the amounts are to be appropriated. When the debtor does not give any instruction as to how to appropriate the amounts so paid, the creditor has a right to appropriate the same first towards the interest and then towards the principal amount. In the present case, the appellant has appropriated the amounts paid by the respondents towards interest and defaulted installments in the first instance. The said appropriation by the appellant is in order and valid.
33.The appellant has filed statement of accounts Exs.B.2 to B.6. The first appellate Court has stated that the appellant has not filed statement of accounts along with written statement. The first appellate Court failed to see that once the statement of accounts is marked, the first appellate Court has to consider the same and give a finding on merits. The first appellate Court without considering Exs.B.2 to B.6, erroneously accepted the contention of the respondents that only a sum of Rs.1,46,338.30 is due and payable by the respondents in the present redemption suit. The appellant has filed statement of accounts and claimed a sum of Rs.10,00,000/- as on June 2006. Considering all the materials on record and the judgments relied on by the learned counsel for the appellant, I hold that the appellant is entitled to charge interest on the defaulted installments and the same is valid and not opposed to public policy and is entitled to adjust the amount paid by the respondents first towards interest due on the defaulted installments and then towards defaulted installments and then only towards current monthly installments.
34.For the above reasons, the judgments and decrees of the Courts below are set aside. There shall be a preliminary decree for a sum of Rs.10,00,000/- as claimed by the appellant, being the amount due as on June 2006.
35.The next question to be decided is, the rate of interest at which rate the respondents are liable to pay from the date of Plaint till the preliminary decree. The suit is for redemption with regard to mortgage debt. Section 34 C.P.C. applies only to money debt and other debts and not mortgage debt. Order 34 Rule 11 C.P.C. is the relevant provision. This Rule was amended once in 1929 and again in 1956. Before 1929 amendment, the Court was bound to grant contractual rate of interest till the preliminary decree. By 1929 amendment, the Court is given discretion to grant lesser rate of interest than the contractual rate even if the contractual rate is not penal, excessive or substantially unfair within the meaning of Usurious Loans Act, 1918. This issue of discretion was considered in the judgment reported in AIR 1927 PC 1 [Jagannath Prasad Singh Chowdhury vs. Surajmul Jalall]. In Jaigobind Singh vs. Lachmi Narain Ram reported in AIR 1940 FC 20, it was held that the Court can grant contractual rate or any reasonable lesser rate of interest by exercising its discretion. This principle was followed by various High Courts and Lower Courts. The Honble Apex Court in the judgment reported in 1998 (2) SCC 317 [N.M.Veerappa v. Canara Bank and others], considered various judgments on this issue and summarized the principle in paragraph 18, which is reproduced hereunder:-
"18.From the aforesaid rulings the following principles can be summarised. (a) Before 1929, it was obligatory for the Court to direct the contract rate of interest to be paid by the mortgagor on the sum adjudged in the preliminary decree, from the date of suit till the date fixed for payment as per Order 34 Rule 2(c)(i) or Order 34 Rule 4(1) or Order 34 Rule 7(c)(i), respectively in suits for foreclosure, sale or redemption. (b) But after the 1929 Amendment, because of the words used in the main part of Order 34 Rule 11, namely that ''the Court may order payment of interest'' it is no longer obligatory on the part of the Court while passing preliminary decree to require payment at the contract rate of interest from date of suit till the date fixed in the preliminary decree for payment of the amount. It has been so held in Jaigobind case [AIR 1940 FC 20 : 44 CWN 21] by the Privy Council and by this Court in S.P. Majoo case [(1969) 1 SCC 220 : (1969) 3 SCR 33] that the new provision gives a certain amount of discretion to the Court so far as pendente lite interest is concerned and subsequent interest is concerned. (c) It is no longer obligatory to award the contractual rate after date of suit and up to the date fixed for redemption as above stated even though there was no question of the contractual rate being penal, excessive or substantially unfair within the meaning of the Usurious Loans Act, 1918. (d) Even if the Court otherwise wants to award interest, the position after the 1929 and 1956 Amendments is that the Court has discretion to fix interest from date of suit under Order 34 Rule 11(a)(i) up to date fixed for payment in the preliminary decree, the same rate agreed in the contract, or, if no rate is so fixed, such rate as the Court deems reasonable - on the principal amount found or declared due on the mortgagor is concerned. (e) The Court has also power to award from the date of suit under Order 34 Rule 11(a)(iii) a rate of interest on costs, charges and expenses as per the contract rate or failing such rate, at a rate not exceeding 6%. This is the position of the discretionary power of the Court, from the date of suit up to the date fixed in the preliminary decree as the date for payment. (f) Again under Order 34 Rule 11(b) so far as the period after the date fixed for payment is concerned, the Court, even if it wants to exercise its discretion to award interest up to date of realisation or actual payment, on the aggregate sums specified in clause (a) of Order 34 Rule 11, could award interest at such rate as it deemed reasonable." '' The principles laid down in Paragraph 18(d) and (e) are relevant to fix the rate of interest, at which, the respondents have to pay for mortgage debt during pendency of suit. The Courts have discretion to grant contractual rate of interest or any lessor reasonable rate. As per the Mortgage Deed Ex.A.1, the agreed contractual interest is 21% p.a. The appellant contended that subsequently, the rate of interest was enhanced to 24% p.a. The respondents contended that the appellant reduced the rate of interest to 15% p.a. According to the appellant, the said reduction of interest is prospective and not retrospective. Considering the above rival contentions, it will be reasonable to award interest at 15% p.a. from the date of suit till the date of preliminary decree on the principal amount and thereafter, at 6% p.a. on the principal amount and cost and expenses till the realization.
36.The respondents have paid only first three installments in time and thereafter, failed to pay subsequent installments in time. They paid amounts at irregular intervals. After deducting the amount paid in time, the principal amount due will be Rs.2,80,200/-, as the appellant has appropriated the amounts paid by the respondents after default first towards interest payable on the defaulted installments and thereafter, towards the defaulted installments.
37.The learned counsel for the respondents contended that the appellant is challenging the concurrent finding of facts and no substantial question of law has arisen and prayed for dismissal of the Second Appeal. The said contention is without merit. This Court considering the materials on record, rightly framed proper substantial questions of law. When concurrent findings are erroneous and invalid, this Court can interfere with such erroneous and invalid findings in the Second Appeal. Erroneous findings of fact also give rise to substantial questions of law.
38.For the above reasons, the substantial questions of law are answered in favour of the appellant and the judgments and decrees of the Courts below are liable to be set aside and accordingly, the same are set aside.
39.In the result, this Second Appeal is allowed.
(a) There shall be a preliminary decree for Rs.10,87,819.51 together with interest at 15% p.a. on the principal sum of Rs.2,80,200/- from the date of suit till the date of preliminary decree, namely, 26.09.2018 and thereafter, at 6% p.a. on the principal amount, cost of the suit and other expenses incurred by the appellant in respect of the mortgaged property and four months time from the date of receipt of a copy of this judgment is granted to pay the amounts;
(b) A sum of Rs.1,46,338.30 deposited by the respondents should be appropriated first towards interest, thereafter, towards interest on defaulted installments, and then on the defaulted installments and if there is any balance, towards principal amount;
(c) If the respondents pay the amount as decreed within the time granted, the appellant shall deliver the documents of title to the respondents;
(d) If the respondents fail to pay the amount decreed, it is open to the appellant to sell the mortgaged property either by public auction as per Section 69 of the Transfer of Property Act without intervention of the Court or file an application for final decree for sale of the mortgaged property;
(e) the decree of permanent injunction is set aside; and
(f) the appellant is entitled to cost throughout.
26.09.2018 Index : Yes Speaking order/Non-speaking order smn2 To
1.The XVII Additional Judge, City Civil Court, Chennai.
2.The XVIII Assistant Judge, City Civil Court, Chennai.
3.The Record Keeper, Vernacular Section, High Court, Chennai.
V.M.VELUMANI, J.
smn2 Pre-delivery Judgment in S.A.No.549 of 2015 26.09.2018