Karnataka High Court
Mrs Tahira Rehman, vs M/S Manipal Sowbhagya Nidhi Ltd., on 26 July, 2017
Bench: Jayant Patel, S.Sujatha
R
IN THE HIGH COURT OF KARNATAKA AT BENGALURU
DATED THIS THE 26TH DAY OF JULY 2017
PRESENT
THE HON'BLE MR.JUSTICE JAYANT PATEL
AND
THE HON'BLE MRS.JUSTICE S.SUJATHA
R.F.A.No.392/2011
BETWEEN :
1. MRS.TAHIRA REHMAN
AGED 52 YEARS
W/O ABDUL REHMAN
R/AT 'KHADEEJA'
S.L.MATHIAS ROAD, FALNIR
MANGALORE, D.K. DISTRICT.
2. MRS.TASNEEM
AGED 37 YEARS
W/O ABDUL SHAFEEQ
R/AT 'KHADEEJA'
S.L.MATHIAS ROAD, FALNIR
MANGALORE, D.K.DISTRICT. ... APPELLANTS
(BY SRI.P.P.HEGDE, ADVOCATE)
AND:
1. M/S. MANIPAL SOWBHAGYA NIDHI LTD., -
INCORPORATED UNDER INDIAN COMPANIES ACT
HAVING ITS REGISTERED OFFICE AT MANIPAL
AND BRANCH AMONG OTHERS AT MANGALORE
REPRESENTED BY ITS REGIONAL MANAGER AND
P.A. HOLDER SRI.RATHANKUMAR.K.A.
2. MR.N.ABDUL SALAM
ADULT
2
S/O M.M.ABDUL KHADER
PARTNER: M/S.REGENCY BUILDERS
R/AT NEAR K.M.C. MEN'S HOSTEL
ATTAVAR NEW ROAD, KAPRIGUDDA
MANGALORE-575001.
3. MRS.NAFEESA
W/O SALEEM, ADULT
4. MRS.A.FOUZIA
W/O SAIFUDDEEN, ADULT
5. MR.A.S.KAUSAR
S/O N.A.ABDUL SALAM
AGED 37 YEARS
Nos.3 TO 5 ARE PARTNERS OF
M/S. REGENCY BUILDERS
PATEL COMPLEX, BALMATTA ROAD
MANGALORE-575001.
6. M/S. REGENCY BUILDERS -
A PARTNERSHIP FIRM
PATEL COMPLEX, BALMATTA ROAD
MANGALORE-575001. ... RESPONDENTS
(BY SRI.CYRIL PRASAD PAIS, ADV., FOR R-1,
SRI.VIJAY KRISHNA BHAT, ADV FOR R-2,
R-3 & R-4 - NOTICE D/W V/O DTD: 25.07.2014,
R-5 & R-6 - SERVED UNREPRESENTED)
THIS RFA UNDER SECTION 96 READ WITH O-XLI, RULE-1
OF CPC., AGAINST THE JUDGMENT AND DECREE DATED
13.12.2010 PASSED IN O.S.No.88/2001 ON THE FILE OF I-
ADDL. SENIOR CIVIL JUDGE AND CJM., MANGALORE,
DECREEING THE SUIT FOR THE RECOVERY OF MONEY.
THIS APPEAL HAVING BEEN RESERVED FOR ORDERS ON
03.07.2017, COMING ON FOR PRONOUNCEMENT OF ORDER,
THIS DAY, S. SUJATHA, J., PASSED THE FOLLOWING:
3
ORDER
This appeal is directed against the Judgment and decree passed by the I-Additional Senior Civil Judge, Mangalore ('Trial Court' for short) in O.S.No.88/2001.
2. For the sake of convenience, the parties are referred to as per their ranking before the Trial Court.
3. Facts in brief are:
The plaintiff filed a suit in O.S.No.88/2001 before the trial Court against the defendants for recovery of a sum of Rs.68,06,495/- contending that the first and second defendants borrowed a sum of Rs.50,00,000/- at their Mangalore branch on 08.10.1996 by executing 'on demand promissory note' promising to repay the said loan with interest at 26.5% per annum compounded monthly; that the defendant Nos.3 to 7 stood as guarantors and executed letters of guarantee and the defendant Nos.1 to 6 had also executed an agreement in 4 their individual capacity and also partners, representing the 7th defendant M/s. Regency Builders and at the time of availing the loan, the second defendant had mortgaged certain immovable property as security for the loan. Subsequently, the said security was replaced by mortgaging 'A' schedule property belonging to the defendant No.7 in which the defendant Nos.1 to 6 were partners and deposited the title deeds with the plaintiff on 26.02.1999. The defendant Nos.1, 2 and 4 filed their written statements. However, the defendant Nos.3, 5, 6 and 7 though appeared through their counsel, did not file the written statement.
4. On the basis of the pleadings, the following issues were framed by the trial Court:
1. Whether the plaintiffs prove that defendants No.1 and 2 borrowed a sum of Rs.50,00,000/- from the plaintiff on 08.10.1996 and executed the suit on demand promissory note agreeing to 5 repay the same with interest at 26.5% p.a.?
2. Whether the defendants No.3 to 7 stood as guarantors for the suit loan and executed the letter of guarantee in their individual capacity and also as partners of 7th defendant firm?
3. Whether the plaintiffs prove that the 2nd defendant has created equitable mortgage by deposit of title deeds in respect of the plaint schedule property as security towards the suit loan?
4. Whether the defendants are jointly and severally liable to pay the suit claim?
5. Whether the plaintiffs are entitled for a Judgment and decree as sought for?
6. To what order or decree?
ADDITIONAL ISSUES:
1. Whether the plaintiff proves that the defendants No.2 and 4 also are liable to pay the suit claim?6
2. Whether the plaintiff proves that the plaint "A" schedule property is mortgaged by the defendants as against the loan dues?
5. The plaintiff company examined its Sub- manager as PW 1 and got marked the documents, Ex.P1 to Ex.P23. The defendant No.2 was examined as DW 1 and no documents were marked.
6. After framing the issues as aforesaid and considering the evidence on record, the trial Court decreed the suit, directing the defendants to pay a sum of Rs.68,06,495/- with interest at the rate of 26.5% per annum from the date of filing of the suit till the date of realization. Aggrieved by the same, defendant Nos.2 and 4 are in appeal.
7. The learned counsel for the defendant Nos.2 and 4 primarily argued on two grounds. Firstly, the Court below had no jurisdiction to entertain the suit to sue much against the bar provided under the Karnataka 7 Money Lenders Act, 1961 ('Act' for short). Elaborating the arguments on this point, the learned counsel invited the attention of this Court to Section 11 of the Act to contend that after the expiry of 6 months from the date of which the Act came into force, no Court shall pass a decree in favour of a money lender in any suit to which this Act applies, filed by a money lender. It is the contention of the learned counsel that the plaintiff is a money lender in terms of the Act. In order to establish the same, the definition clause of Section 2(10) of the Act was referred to, interalia referring to Section 2(9) of the Act which defines "loan". Thus, it was contended that in view of the specific bar under the provisions of the Act, the trial Court could not have entertained and adjudicated, decreeing the suit. Further the evidence of the PW 1 was referred to, to establish the factum that the plaintiff was a money lender. It was contended that the plaintiff was advancing series of loans in continuity, but had not obtained the license under the Act to carry 8 on the business of money lending. The plaint was ingeniously drafted suppressing the money lending activities carried out by the plaintiff. No averments was made in the plaint that the plaintiff was a money lender despite continuously engaged in such business as such there was no occasion for the defendants to rebut the same. Non-taking of any defense in the written statement by the defendants that the plaintiff was a money lender would not disentitle the defendants to take such grounds in the appellate stage as it was incumbent on the Court below to frame the relevant issues regarding the applicability of the Act and jurisdiction of the Court to try the suit. He submitted that where the embargo was ex facie apparent to try the suit, no pleading of the defendants is necessary and the Court is bound to take judicial notice of the nature of the transaction and decide the matter in accordance with law.
9
8. Nextly, it was contended that the rate of interest at 26.5% per annum fixed by the Court below is wholly unsustainable and contrary to the well established principles of law. More particularly, in the light of the provisions of the Act and Section 34 of CPC. In support of his contention, the learned counsel placed reliance on the following judgments:
1. AIR 1965 SC 1364 Smt.Surasaibalini Debi V/s. Phanindra Mohan Majumdar;
2. ILR 1985 Kant. 912 Basappa and others V/s. Garemane Kamanna;
3. ILR 2016 KAR 1535 M/s. Bawa Enterprises and others V/s. G.R.Shet and another;
4. 1970 (3) SCC 862 Kaloji Talusappa Gangavathi V/s. Khyanagouda and others;
5. 2006 SCC OnLine AP 284 Thota Venkata Rao V/s. Sunkara Raja Kumar 10
6. ILR 1996 KAR 3351 K.Lakshmipathy V/s.Channaiah; and
7. (2010) 10 SCC 640 Punjab and Sind Bank V/s. Allied Beverage Company Private Limited and others.
9. Learned counsel appearing for the plaintiff submitted that by virtue of the notification dated 9th September 1992 issued by the Officer on Special Duty, Co-operation Department exercising the powers conferred under Sub-Clause (4) of Clause 10 of Section 2 of the Act, the Government of Karnataka has exempted the plaintiff and accordingly the provisions of the Act are not applicable to the plaintiff. The learned counsel submitted that no defence was raised by the defendants as regards applicability of the Act to the plaintiff company and the embargo placed on the Court to entertain and decide the matter. In the absence of the specific pleading, no issues were framed by the Court on this point. Accordingly, the same cannot be adjudicated 11 at the appellate stage. The learned counsel submitted that the borrower is a trader as defined under the provisions of the Act and as such it cannot be considered as a loan for the purposes of the Act. Learned counsel placed reliance on the judgment of the Hon'ble Gujarat High Court reported in AIR 2012 GUJ 7 in the case of Radhe Estate Developers V/s. Mehta Integrated Finance Co. Ltd., and others.
10. We have heard the learned counsel appearing for the parties and perused the material on record.
11. The points that arise for consideration in this appeal, are as under:
(i) Whether the Court below was justified in decreeing the suit dehors the bar contemplated under Section 11 of the Act?12
(ii) Whether award of interest at 26.5% p.a. from the date of filing of the suit till realization passed by the Court below, calls for any interference?
12. Adverting to the arguments advanced by the learned counsel for the parties, it would be beneficial to refer to the relevant provisions of the Act. Section 2(9), 2(10), 2(20) and Section 11 of the Act, which runs thus:
"2. Definitions.- In this Act, unless the context otherwise requires.-
(9) "Loan" means an advance at interest whether of money or in kind, and includes any transaction which the Court finds in substance to amount to such an advance, but does not include,-
(a) a deposit of money or other property in a Government Post Office Bank or in a Karnataka Government Savings Bank or in any other bank or in a company or with a co-operative society;
(b) a loan to, or by, or a deposit with, any society or association registered under 13 the Karnataka Societies Registration Act, 1960 (Karnataka Act 17 of 1960);
(c) a loan advanced by Government or by any local authority authorised by Government;
(d) a loan advanced by a co-operative society;
(e) an advance made to a subscriber to, or a depositor in, a Provident Fund from the amount standing to his credit in the fund in accordance with the rules of the fund;
(f) a loan to or by an insurance company as defined in the Insurance Act, 1938 (Central Act IV of 1938);
(g) a loan to or by a bank;
(h) an advance of not less than three thousand rupees made on the basis of a negotiable instrument as defined in the Negotiable Instruments Act, 1881 14 (Central Act XXVI of 1881) other than on the basis of a promissory note;
(i) except for the purposes of sections 28 and 28,--
(i) a loan to a trader;
(ii) a loan to a money-lender who holds
a valid licence; or
(iii) a loan by a landlord to his tenant for
financing of crops or seasonal
finance of not more than fifty rupees per acre of land held by the tenant;
(10) "Money Lender" means,-
(i) an individual; or
(ii) an undivided Hindu family; or
(iii) a company; or
(iv) an unincorporated body of
individuals;
who or which,-
(a) carries on the business of money-
lending in the State; or 15
(b) has his or its principal place of such business in the State, but shall not include a bank [or any other financial institution which the State Government may, by notification specify in this behalf];
(20) "Trader" means a person who in the regular course of business buys and sells goods or other property, whether movable or immovable, and includes-
a wholesale or retail merchant, a commission agent, a broker, a manufacturer, a contractor, a factory owner, but does not include an artisan or a person who sells his agricultural produce or cattle or buys agricultural produce or cattle for his use.
11. [x x x x x] Suits by money lenders not holding licence.-- (1) After the expiry of six months from the date on which this Act 16 comes into force, no court shall pass a decree in favour of a money lender in any suit to which this Act applies, filed by a money lender, unless the court is satisfied that at the time when the loan or any part thereof to which the suit relates was advanced, [and on the date such suit was filed] the money lender held a valid licence.
[(2) x x x (3) x x x (4) x x x ] (5) Nothing in this section shall affect.--
(a) suits in respect of loans advanced by a money-lender before the date on which this Act comes into force;
(b) the powers of an official receiver, an administrator or a Court under the provisions of the Mysore Insolvency Act, 1925, or other corresponding law in force in any area of the State, or of a liquidator under the Companies Act, 1956, to realise the property of a money- lender."
17
13. As per Clause (i) of Sub-Section (9) of Section 2, except for the purpose of Section 28, a loan to a trader cannot be construed as a loan for the purpose of the Act. To analyze whether the plaintiff is a trader, it has to be examined with reference to the definition Clause of trader which includes a contractor. The loan was borrowed by defendant No.1 who was a contractor and defendant No.2 (both are partners of Regency Builders -defendant No.7). If the case is analyzed in this angle, certainly the provisions of the Act are not applicable to the facts of the present case. Yet another important aspect which keeps the plaintiff out of the purview of the Act is the notification dated 9th September 1992 issued by the Government of Karnataka under Clause 4(b) of Section 2(10) of the Act. Section 2(10) (4)(b) contemplates, any other financial institutions other than a bank which the State Government may by notification notify, would not come within the realm of the expression 'money lender'. Such 18 notification being issued by the Government of Karnataka, the provisions of the Act are totally inapplicable to the facts of the case. In view of the same, the arguments of the learned Counsel for defendant Nos.2 and 4 do not inspire any credence as regards the point of jurisdiction is concerned.
14. It is fairly conceded by the learned counsel appearing for the defendant Nos.2 and 4 that no defense was raised in the written statement as regards the applicability of the Act. It is imperative that even in the memorandum of appeal, no such ground is raised by the appellants. It is only at the time of arguments, this point was raised. Though this issue is mixed question of fact and law unless direct evidence is placed on record to establish the same, the same cannot be considered at the appellate stage, however the evidence of the defendants is silent on this aspect. As aforesaid, the provisions of the Act being not applicable to the present 19 case, the arguments on jurisdictional aspect advanced by the appellants miserably fails.
15. It is axiomatic to refer to the Judgments relied upon by the appellant's counsel. In the case of Smt.Surasaibalini Debi (supra), the Hon'ble Apex Court has held that in the absence of pleadings, the defendant was not entitled to rely on the taint of illegality in the transaction to pursue the Court to reject the relief claimed by the plaintiff. It was held that where a contract or transaction ex facie is illegal there need be no pleading of the parties raising the issue of illegality and the Court is bound to take judicial notice of the nature of the contract or transaction and mould its relief accordingly. In the case of Kaloji Talusappa Gangavathi (supra), the Hon'ble Apex Court was considering the case wherein the plaintiff had not obtained the license while advancing the money to the defendants on the transaction of mortgage and 20 promissory note and wherein it was proved that the plaintiff was at the date of transactions carrying on business as a money lender. It was held that the Court was bound to dismiss the suit for recovery of the amount in the course of his business as a money lender. The judgment of this Court in the case of M/s. Bawa Enterprises and others (supra) also related to the case of a money lender vis-à-vis the embargo on the power of the Court to pass a decree. Similarly, the judgment of this Court in K.Lakshmipathy (supra) also relates to the money lender and the bar of passing decree in favour of money lender in any suit to which the Act applies. In the judgment of the Hon'ble High Court of Andhra Pradesh in Thota Venkata Rao's case (supra) a specific assertion was made in the written statement that the plaintiff was doing money lending business. In that context, it was held that whether there is a pleading or no pleading, in a suit relating to a loan under the Act, it is the duty of the Court to frame 21 issues, whether the plaintiff has money lending business licence and whether he has been maintaining accounts for the same as required under the Act.
16. As discussed above, in all these judgments referred to above, the fulcrum of dispute revolves round the money lender engaged in the business of lending money and seeking for the relief of recovery of the amount in a suit. In such circumstances, where there is no dispute regarding the applicability of the provisions of the Act, the Courts have held that Section 11 of the Act is an embargo for the Courts to decree the suit. But the same is not the factual position in the instant case. As aforesaid, the provisions of the Act are not at all applicable to the present case. Thus, the said judgments relied on by the learned counsel for defendant Nos.2 and 4 are not applicable to the present case. In addition to this, the Judgment of the Gujarat High Court also 22 comes to the assistance of the plaintiff. Hence, we answer the point No.1 in the Affirmative.
17. As regards the rate of interest at 26.5% per annum awarded by the trial Court, it is beneficial to refer to Section 3 and Section 5 of the Interest Act, 1978, whereby it is provided that any interest liable to be paid on any debt or damages by virtue of an obligation imposed by contract, the rate of interest payable under Section 3, shall not be applicable and the contractual rate of interest stipulated in the agreement prevails. Sections 3 and 5 of the Interest Act, 1978 reads thus:
"3. Power of court to allow interest.-- (1) In any proceedings for the recovery of any debt or damages or in any proceedings in which a claim for interest in respect of any debt or damages already paid is made, the court may, if it thinks fit, allow interest to the person entitled to the debt or damages or to the person making such claim, as the case may be, at a rate not exceeding the current rate of interest, for the whole or part of the following period, that is to say,--23
(a) if the proceedings relate to a debt payable by virtue of a written instrument at a certain time, then, from the date when the debt is payable to the date of institution of the proceedings;
(b) if the proceedings do not relate to any such debt, then, from the date mentioned in this regard in a written notice given by the person entitled or the person making the claim to the person liable that interest will be claimed, to the date of institution of the proceedings:
Provided that where the amount of the debt or damages has been repaid before the institution of the proceedings, interest shall not be allowed under this section for the period after such repayment.
(2) xxxxx
(a) xxxxx
(b) xxxxx
(3) Nothing in this section,--
(a) shall apply in relation to--
(i) any debt or damages upon which
interest is payable as of right, by virtue of any agreement; or
5. Section 34 of the Code of Civil Procedure, 1908 to apply. - Nothing in this Act shall affect the provisions of Section 24 34 of the Code of Civil Procedure, 1908 )5 of 1908).
18. Section 34 of CPC., and the proviso thereof reads thus:
" 34. Interest. - (1) Where and insofar 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 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, 25 the rate at which moneys are lent or advanced by nationalized banks in relation to commercial transactions.
Explanation I - In this sub-Section, "nationalized bank" means a corresponding new bank 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."
19. Ex.P1 - on demand promissory note bears the signature of the defendant Nos.1 and 2. It was argued that the defendant Nos.2 and 4 are pardanashin ladies and they do not have any knowledge or experience of worldly affairs, they blindly signed the papers, mostly blank as desired by the 1st defendant as they had implicit faith and confident in him and they had no reason to suspect his bonafide at that time as 26 they were the partners of the 1st defendant. The said arguments cannot be countenanced primarily for the reason that the defendant Nos.2 and 4 were the partners with the 1st defendant and they were engaged in the business. The loan was raised as a commercial loan to meet the financial requirements of the defendant No.7 partnership firm. As such, the defendant Nos.2 and 4 cannot be considered to have affixed their signature blindly on the blank papers. Ex.P20 - the deed of reconstitution of partnership deed dated 10.01.1992 further clarifies that the managing partner shall negotiate with the bank/s, financial institution or such other parties for the purpose of obtaining loans, overdrafts, cash-credits etc., and he shall execute the necessary loan papers and documents etc., and shall operate such account/facilities for and on behalf of the interest of the firm. The defendant No.1 was the managing partner of the defendant No.7 partnership firm and authorized to execute the necessary 27 documents on behalf of the firm. Ex.P23 - the certified copy of the release and reconstitution of partnership firm of the defendant No.7 executed between defendant No.1, defendant No.5, defendant No.6 - who are continuing partners and the defendant No.2 and defendant No.4 - the retiring partners indicates, the retiring partners (defendant Nos.2 and 4) have agreed to take upon the entire outstanding liabilities of plaintiff company amounting to Rs.68.06 lakhs as on 31.03.2001 along with all future interest. The retiring partners have agreed to clear the said liability on or before 30.09.2002, without fail and without seeking any extension of time and were required to make necessary arrangement to release the properties which was offered as security to the plaintiff company, a part of which as now fallen to the share of continuing partners. Further, it was agreed that the retiring partners are entitled to sell or mortgage the properties detailed in Item Nos.1 and 2 of schedule 'B' on or before 30.09.2002 to 28 discharge the liabilities of plaintiff company and/or Bank of Madura Limited (presently merged with ICICI bank limited). These two documents clearly establishes that the defendant Nos.2 and 4 had the knowledge of the liabilities of discharging the loan amount of Rs.68.06 Lakhs as on 31.03.2001 with all future interest to the plaintiff company. The Ex.P1 - on demand promissory note stipulates that the defendants shall pay interest at the rate of 26.5% compounded with monthly rests on the loan amount of Rs.50 lakhs, the purpose of loan was for the business. Indisputably, the defendants had agreed to pay interest at the rate of 26.5% per annum as the loan raised was for a commercial purpose. It is imperative that in case of bilateral agreements entered into between the parties agreeing to pay the specified rate of interest stipulated therein, such rate of interest shall apply. The learned counsel for the defendant Nos.2 and 4 argued that in view of Section 34 of CPC, the rate of interest has to be 29 reduced. But as per the proviso, 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 6% p.a., but shall not exceed the contractual rate of interest. The judgments relied upon by the learned counsel for defendants 2 and 4, lays down that award of interest, pendente lite and post decree, is discretionary with the Court, as it is essentially governed by Section 34 CPC dehors the contract between the parties. However, such discretion shall be exercised fairly and judiciously. Considering the totality of circumstances of the case particularly, contractual rate of interest agreed between the parties at 26.5% per annum, with monthly rests, arising out of a commercial transaction as explained in Explanation-II read with Proviso to Section 34 CPC coupled with Sections 3(3) and 5 of the Interest Act, we find that ends of justice would be met by awarding simple interest at 12% per annum from the date of filing of the suit till the 30 realisation. The judgment and decree impugned is modified to the said extent. Point No.2 is answered accordingly.
Hence, the defendants are directed to pay a sum of Rs.68,06,495/- (Rupees Sixty Eight Lakhs Six Thousand Four Hundred and Ninety Five only) with simple interest at the rate of 12% per annum from the date of filing of the suit till the date of realisation. In all other respects, the judgment and decree of the court below remains undisturbed.
Appeal is partly allowed as indicated above. No order as to costs.
Sd/-
JUDGE Sd/-
JUDGE NC/ln.