Karnataka High Court
Canara Bank, J.C. Road, Bangalore vs B.E. Nanjundalah And Others on 1 March, 2000
Equivalent citations: 2001(3)KARLJ20
JUDGMENT
1. This is plaintiffs appeal from the judgment and decree dated 24-10-1996 passed by the Additional Civil Judge and Chief Judicial Magistrate (Mr. R. Chandrashekhar), Shimoga, whereby the Trial Court dismissed the plaintiffs suit in part while decreeing it in part i.e., for the sum of Rs. 2,92,846.07 with proportionate costs thereon. The Trial Court held that the defendants are jointly and severally liable to pay the said sum of Rs. 2,92,846/- to the plaintiff-Bank. It also directed that the defendants to pay pendente life and future interest at the rate of 6% p.a. from the date of the suit till the date of realisation on the principal amount of Rs. 1,23,740/-. The plaintiff is at liberty to proceed against the mortgaged suit properties by selling the same for realisation of the decretal amount, in case the amount is not paid within six months. The Trial Court further directed that the plaintiff is also entitled for personal decree against defendants 1 to 4 if it is found that the proceeds of the sale of the suit properties are not sufficient enough to satisfy the decree and thus directed to draw up a preliminary decree.
2. The suit having been decreed in part only i.e., for a sum of Rs. 2,92,846/- only as the claim in the suit had been made for the recovery of a sum of Rs. 3,42,956/-. The appellant-plaintiff being aggrieved by the rejection of the part of claim referred to above has come up by way of appeal in this Court.
3. The facts of the case in brief are:
According to the case of the plaintiff-Bank the defendants 1 to 4 approached the plaintiff-Bank for financial accommodation and obtained loan on five different occasions viz., (1) That defendants 1 to 4 approached the plaintiff-Bank for financial accommodation in a sum of Rs. 29,000/- on 7-2-1984 for coconut development and agreed to repay the amount with interest at 2.5% p.a. above the Reserve Bank of India rate with the minimum of 12.5% p.a. compounded quarterly or at such other rate of interest which might be specified as per the guidelines of the Reserve Bank of India. The defendants jointly executed the following documents in favour of the plaintiff-Bank and availed the loan:
(a) Demand Promissory Note dated 7-2-1984.
(b) Take delivery letter to D.P.N. dated 7-2-1984.
(c) Agreement of hypothecation dated 7-2-1984.
(2) That defendants 1 to 4 again approached the plaintiff-Bank for financial accommodation in a sum of Rs. 45.000/- for farm development and agriculture to repay the loan amount with interest at 10% p.a. compounded quarterly or at such other rate of interest which might be specified from time to time as per the directions of the Reserve Bank of India. The defendants executed the following documents in favour of the plaintiff-Bank and availed the loan:
(a) Demand Promissory Note dated 28-8-1984.
(b) Take delivery letter to D.P.N. dated 28-8-1984.
(c) Hypothecation agreement of pumpset etc., dated 28-8-1984.
(3) That the first defendant again approached the plaintiff-Bank for financial accommodation in a sum of Rs. 1,25,000/- for raising paddy, coconut and banana crops and the 2nd defendant agreed to be the co-ob-ligant. They agreed to repay the amount with interest at 16.5% p.a. to be applied at quarterly intervals or at such other rate of interest which may be stipulated by the Reserve Bank of India. They executed the memorandum of agreement on 29-1-1986 duly signed by the first defendant and the covenants of co-obligant by the 2nd defendant and availed the loan. The defendants 1 and 2 however executed the acknowledgement of debt on 1-6-1988 and jointly on 25-6-1991 and 2-2-1994.
(4) That defendants 2 to 4 approached the plaintiff-Bank for financial accommodation in a sum of Rs. 29.200/- for raising sugarcane and paddy and the first defendant agreed to be the co-obligant. They agreed to repay the amount with interest at 16,5% p.a. compounded quarterly or at such other rate of interest which might be specified from time to time as per the directions of the Reserve Bank of India.
(a) Memorandum of agreement dated 14-6-1986. (b) Acknowledgement of debt dated 1-6-1988.
(5) That the second defendant as the borrower and the first defendant as the co-obligant obtained a loan of Rs. 8,500/- from the plaintiff-Bank for raising paddy crop and agreed to repay the amount with interest at 16.5% p.a. compounded quarterly and executed the memorandum of agreement on 22-7-1986 duly executed by the second defendant and the covenants of the co-obligant by the first defendant.
4. According to the plaintiff-Bank as per paragraph 18 of the plaint in respect of which the amount of relief claimed has been shown as under:
(a) The amount due as on 31-1-1995 for the development of lands 10,938-00
(b) Amount due as on 31-1-1995 for the pumpset loan 70,082-00
(c) Amount due as on 31-1-1995 the paddy loan 38,982-00
(d) Amount due as on 31-1-1995 for the sugarcane crop loan 1,25,824-00
(e) Amount due as on 31-1-1995 for the coconut loan 96,184-00
(f) Further interest 826-00
(g) Typing and miscellaneous charges 120-00 Total 3,42,956-00
5. According to paragraph 15 of the plaint this amount includes interest upto 31-1-1995. The plaintiff-appellant claimed for decree for the recovery of a sum of Rs. 3,42,9567-.
6. The defendants filed the written statement taking various pleas and denying the liability to pay a sum of Rs. 3,42,956/- as claimed in the plaint.
7. That it is true defendants 2 to 4 are the sons of first defendant approached the plaintiff-Bank for financial accommodation and availed in all five different loan facilities. It is also true that the defendants have given security of their properties by creating equitable mortgage with deposit of title deeds. They have asserted that in respect of two items of loan only the two defendants are liable. The defendants alleged that they are liable to pay interest at the rate of 6% p.a. only and in the figures mentioned in the plaint the interest has been included by the plaintiff. When they have mentioned the figures in para 18 of the plaint compounded the interest half-yearly. The defendants submit that they are not liable to pay compound interest. They assert that the interest could be calculated only on yearly basis and not quarterly basis. The defendants also took the plea that the suit is barred by limitation.
8. On the basis of the pleadings of the parties, the Trial Court framed the issues as under:
1. Whether the plaintiff proves that the defendants have executed the acknowledgements of debt?
2. Whether the plaintiff proves that the defendants have created the equitable mortgage in respect of the suit loan?
3. Whether the defendants prove that they are liable to pay interest at 6% p.a.?
4. Whether the plaintiff is not entitled for awarded rate of interest at 2% per annum over and above the agreed rate of interest?
5. Whether the defendants prove that the ledger extracts does not reveal the correct accounts?
6. Whether the suit is barred by limitation?
7. Whether the defendants are entitled for installments?
8. Whether the plaintiffs entitled for the reliefs as prayed?
9. What order or decree?
The Trial Court after consideration of the evidence held that the defendants have executed the acknowledgement of debts on various dates and have created equitable mortgages in respect of the suit loans. It further held that the defendants have failed to establish that they are liable to pay interest at the rate of 6% p.a. only and are not liable to pay the interest at the rate of 2% per annum over and above the Reserve Bank of India rate of interest. The Trial Court found that the suit was not barred by limitation and it was well within the time. It further found that the plaintiff is not entitled to calculate the interest half-yearly. Therefore, it directed the plaintiff to furnish fresh calculations and found that the plaintiff has proved that as on the date of the suit, the plaintiff is entitled to recover a sum of Rs. 2,92,846.07 which included the principal sum as well as the interest calculated thereon at the rate of 16.5% compounded annually.
9. Feeling aggrieved by the judgment and decree of the Trial Court, the plaintiff has come up in appeal.
10. No cross-objections have been filed by the defendants.
11. I have heard Sri J.S. Shetty holding brief for Sri Padubidri Raghavendra Rao, learned Counsel for the appellant and Sri R.V. Jayaprakash, learned Counsel for the respondents.
12. It has been contended by the learned Counsel for the appellant that the Court below acted illegally by not allowing the interest compounded half-yearly though under the agreement interest was agreed at the rate of 16.5% p.a. to be compounded quarterly. The learned Counsel contended that the appellant-Bank has been gracious enough to claim the interest at the rate of 16.5% p.a. compounded half yearly and not quarterly and the Court below acted illegally in not allowing it to be compounded even half-yearly. The learned Counsel further contended that the pendents lite and future interest which have been awarded at the rate of 6% p.a. applying Section 34 of the Code of Civil Procedure is illegal, it should have been allowed under Order 34 of the C.P.C. and it should have been awarded at the contracted rate of i.e., 16.5% p.a, The learned Counsel contended that the pendente lite and future interest should have been awarded at least on a sum of Rs. 2,92,846.07 and not on Rs. 1,23,740/-. The learned Counsel for the appellant contended that the expression "Principal sum found" to be due means the sum which the Court finally finds to be due against the defendants which may include the principal sum and interest upto the date of the suit under the contract.
13. The above contentions of the learned Counsel for the appellant have been hotly contested by the learned Counsel for the respondents. He contended that in view of the decision of the Supreme Court in the case of Corporation Bank v D.S. Gowda , recovery of interest with quarterly or six monthly rests from farmers not feasible tantamounting to payment of compound interest. Interest may be charged with yearly rests compounded only if overdue. The learned Counsel for the respondents further contended that the Court below therefore was justified in directing the appellant-plaintiff to furnish fresh calculations on the basis of the yearly rests and not allowing of interest with quarterly or six monthly rests from farmers. He contended that the interest at the rate of 6% p.a. is in consonance with the provisions of Section 34 of the Code of Civil Procedure. He contended that the principal amount referred to therein means the principal amount and not interest accruing thereon. The learned Counsel contended that Order 34 of the C.P.C. is not applicable to agricultural loans. He contended that the expression used in Section 34 of the C.P.C. to the effect that 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 adjudged on such principal sum very clearly reveal that the intent of Legislature is the principal sum of loan and not interest added to that. He submitted that the principal sum means the principal .sum of loan as advance and if the respondents-defendants allege that they have paid the money towards discharge of the principal advance or loan, then principal sum adjudged after making deduction therefor and if not discharged or paid, then it refers to principal sum found by the Court as per the appellant-plaintiffs or respondents-defendants case, but it does not include interest on such principal sum.
14. I have applied my mind to the contentions advanced by the learned Counsels appearing for the parties.
15. A reading of the decision of the Supreme Court in the case of Corporation Bank, supra, per se reveals that it laid down the law after having perused various circulars issued by the Reserve Bank of India that interest is to be charged on the basis of yearly rests. It will be appropriate at this juncture to quote the observations of their Lordships of the Supreme Court contained in paragraph 22 of the report which reads as under:
"Insofar as Civil Appeal No. 544 of 1986 is concerned it relates to the Bank's right to charge compound interest i.e., interest with periodical rests on agricultural advances. We have already referred to the various circulars issued by the Reserve Bank from time to time in exercise of power conferred by Section 21/35A of the Banking Regulation Act. We have pointed out that the said circulars/directives provide that agricultural advances should not be treated on par with commercial loans insofar as the rate of interest thereon is concerned because the farmers do not have any regular source of income except sale proceeds of their crops which income they get once a year. The question of recovery of interest with quarterly or six monthly rests from farmers is, therefore, not feasible. The fact that the farmers are fluid at a given point of time every year has to be kept in mind in determining the point of time when they should be expected to repay the loan or pay the installment/interest or advances. Therefore to allow the Banks to charge interest on quarterly or half-yearly rests from farmers would tantamount to virtually compelling them to pay compound interest, since they would not be able to pay the interest except once in a year i.e., when they receive the income from sale proceeds of their crops. The Reserve Bank has shown concern for the farmers by directing all banking institutions to so regulate the recovery of interest as to coincide with the point of time, when the farmers are fluid. It was, therefore, been emphasised by the Reserve Bank that interest should be charged once a year to coincide with the point of time when the fanner is fluid and interest on current dues should not be compounded although it may be done when the advance / installment becomes overdue. Thus according to the circulars/directives so far as loans for agricultural purposes are concerned, at best interest may be charged with yearly rests and may be compounded if the loan/installment becomes overdue".
(emphasis supplied) Again, their Lordships of the Supreme Court in paragraph 23 of the said report observed as under:
"In the case of agricultural loans/advances, the position has been made amply clear by the Circulars referred to earlier which do not permit Banks to charge compound interest with quarterly rests, In such case as observed earlier the interest can be fixed with annual rests, coinciding with the time when the farmer is fluid and if thereafter the farmer fails to pay the interest it would be open to compound the interest on the crop loan or installments upon the term loans becoming overdue".
16. In my opinion, in the case of agricultural loans compounding of interest with quarterly or half-yearly rests is not permissible, the interest can be fixed with annual rests. But no doubt when the loan amount has become overdue or the installment has been overdue, it is open to the Banks to add the amount of interest with the principal sum that has become due calculated at yearly rests that interest could be added towards the principal amount. Therefore, in my opinion so far as the decree which has been passed for a sum of Rs. 2,92,846.07 calculating the interest at the rate of 16.5% p.a. with yearly rests cannot be said to suffer from error of law or fact. But so far as pendente lite and future interest is concerned a different result may follow. The interest, no doubt, has been allowed at the rate of 6% p.a. as it is agricultural loan and not commercial loan. But the advance amount of loan had become overdue it had earned interest and the learned Counsel for the appellant has been justified in his contention. When he submitted that here the principal amount found to be due should be interpreted to mean the sum of loan amount including the interest that has become due and payable on the principal sum till the date of the suit. As the Bank had been entitled to include the interest towards the principal sum, the sum of Rs. 2,92,846.07 should be taken as the principal amount which includes the interest due on the date of the suit. In view of the observations of their Lordships of the Supreme Court in the above mentioned case (Corporation Bank's case, supra), their Lordships observed that at best the interest may be charged is to be with yearly rests and may be compounded if the loan/installment becomes overdue. Here, in the present case the crop loan which had been taken on 7-2-1984 and after that the respondents-defendants failed to pay any amount either towards the loan or interest. In this view of the matter, in my opinion the expression "principal amount" here found has to be taken i.e., as the original principal amount of loan plus interest that has become due upto that date. Therefore, in my opinion the appellant-plaintiff, no doubt, is entitled to the interest at the rate of 6% p.a, on the sum of Rs. 2,92,846.07. When I so observe, I find support for my view from the decision in the case of Bank of Baroda v Jagannath Pigments and Chemicals and Others, wherein the same has been expressed taking into consideration the law laid down in the case of Corporation Bank, supra. In this view of the matter, the appeal, as such, is allowed in part only to the extent that so far as the decree which has been granted by the Court below decreeing the appellant-plaintiffs suit for a sum of Rs. 2,92,846.07 is maintained.
17. The decree of the Trial Court is modified only to the extent that the respondents-defendants are liable to pay pendente life and future interest at the rate of 6% p.a. on a sum of Rs. 2,92,846.07 and not on Rs. 1,23,740/- as mentioned by the Trial Court.
18. Subject to, and with above modification, the judgment and decree of the Court below is maintained and confirmed; it means the decree of the Trial Court is modified to the extent that pendente lite and future interest will be payable by the respondents-defendants at the rate of 6% p.a. on Rs. 2,92,846.07 from the date of the suit till the date of realisation or payment.
19. I direct the parties to bear their respective costs.