Andhra HC (Pre-Telangana)
Lic Of India vs Vaila Lakshmi Bai And Anr. on 14 February, 2003
Equivalent citations: 2003(3)ALD294, 2003(3)ALT698
JUDGMENT V.V.S. Rao, J.
1. Life Insurance Corporation of India (hereinafter called, the plaintiff) filed a suit being O.S. No. 574 of 1984 on the file of the Court of I Additional Judge, City Civil Court, Hyderabad, for recovery of a sum of Rs. 37,810.50 ps. from the defendants. The trial Court by judgment dated 8.7,1988 decreed the suit for Rs. 34,547.74 ps. denying interest as well as penal interest claimed by the plaintiff. Therefore this regular appeal is filed.
2. The facts are not much in dispute except some controversy regarding alleged payment made by the defendants. Briefly stated the facts are as follows. The defendants applied for loan of Rs. 50,000/-on 12.4.1971 for construction of a house, repayment of the existing loan and investment in business. The plaintiff sanctioned Rs. 40,000/- as loan on 28.6.1971. The defendants executed a registered mortgage deed on 5.9.1971 mortgaging their land and house. The amount was duly disbursed by cheques. An additional loan of Rs. 10,000/-was sanctioned and disbursed on 9,2.1912. The defendants executed necessary documents. The loan is payable in half yearly instalments commencing from 1.4.1972 with interest at 10% per annum. If there is default in payment of instalments, the defendants are liable to pay additional interest at the rate of 2 1/2 % over and above the agreed rate of interest. They did not pay the amount and committed default. Therefore, the plaintiff issued a number of notices whereafter the defendants paid only Rs. 3,500. The cheques issued by the defendants for an amount of Rs. 2,000/-and Rs. 1,000/- were dishonoured. Hence, the suit was filed.
3. The defendants admitted the loan and mortgage bonds as well as rate of interest. They denied the liability to pay compound interest and also right of the plaintiff to call back the entire amount on default. They also contended that whenever the plaintiff issued notices amounts were paid by cash. Even though cheques were dishonoured, the total amount of Rs. 50,000/- was paid, but the balance could not be paid due to sudden death of defendants' daughter. As only small balance is left over, the plaintiff is not entitled for any future interest. The trial Court framed the following issues stemming from the pleadings.
1. Whether the final payment should be made on 1.10.1986?
2. Whether the plaintiff is entitled to claim additional interest?
3. Whether the defendants have committed default in payment of instalments ?
4. Whether the plaintiff is entitled to the suit claim ?
5. To what relief ?
4. The plaintiff examined their office assistant as P.W.1 and marked Exs.A.1 to A.21. Second defendant examined himself as D.W.1, and no documentary evidence was let in on behalf of the defendants. The trial Court on consideration of oral and documentary evidence came to the conclusion that the defendants defaulted in payment of loan instalments by 5.8,1986, and calculation of the amount due as Rs. 34,547.74 ps. as on the date of the suit by the plaintiff is correct, but as the plaintiff failed to give credit to certain amounts paid by the defendants, who also deposited an amount of Rs. 40,000/- during the pendency of the suit to the credit of the suit, the trial Court opined that the plaintiff is not entitled to any future interest or penal interest over and above the agreed rate of interest at 10% per annum.
5. The learned Counsel for the appellant/plaintiff Sri Srinivas representing Sri M.V.S. Suresh Kumar, learned Standing Counsel for the Life Insurance Corporation of India submits that Section 34 of the Code of Civil Procedure (hereinafter called 'CPC') is not applicable to mortgage suits and therefore the trial Court committed error in applying the principles adumbrated in Section 34 of the CPC, He submits that Order XXXIV Rule 11 of CPC governs the case and mortgagee is entitled to interest up to the date of redemption at the contractual rate of interest and also reasonable rate of interest after the date of redemption.
6. The learned Counsel for defendants/ respondents submits that the plaintiff failed to give credit to the amounts paid by the defendants prior to filing of the suit. During the pendency of the suit the defendants deposited an amount of Rs. 30,000/-on 29.4.1986 and another amount of Rs. 10,000/-on 24.4.1986 into Court. Though this amount was deducted from the amount due, the plaintiff still calculated penal interest which is illegal and unjustified. He submits that during the pendency of the suit, i.e., pre-decree stage and after passing the decree, i.e. post-decree stage, it is competent for the Civil Court to award such reasonable rate of interest as the Court deems fit. Placing reliance on Central Bank of India v. Ravindra, , he submits that the amounts claimed are not proved as required under law.
7. The pleadings and rival submissions give raise to only one point for consideration as to whether the trial Court is justified in denying pre-decree and post-decree interest.
In Re Point:
8. The plaintiff does not dispute the finding of the trial Court that as on the date of filing of the suit, the defendants are liable to pay Rs. 34,547.74 ps. Indeed, the contention of the defendants that an amount of Rs. 1,000/- was not given credit to the statement of account was rejected by the trial Court having regard to the fact that it was deducted. Therefore, when once the amount liable to be paid by the defendants as on the date of filing of the suit is Rs. 34,547.74 ps. the only question is whether the defendants can be burdened with payment of interest at 12 1/2% per annum from the date of suit and whether the defendants are also liable to pay costs of the plaintiff.
9. The learned Counsel made a submission that Section 34 of CPC has no application to mortgage suits and that only Rule 11 of Order XXXIV of CPC governs mortgage suits. Section 34 of CPC reads as under:
34. (1) Where and in so far as a decree is for the payment of money, the Court may, in the decree, order interest at such rate as the Court deems reasonable to be paid on the principal sum adjudged, from the date of the suit to the date of the decree, in addition to any interest adjudged on such principal sum for any period prior to the institution of the suit, with further interest at such rate not exceeding six per cent per annum as the Court deems reasonable on such principal sum, from the date of the decree to the date of payment, or to such earlier date as the Court thinks fit:
Provided that where the liability in relation to the sum so adjudged had arisen out of a commercial transaction, the rate of such further interest may exceed six per cent per annum, but shall not exceed the contractual rate of interest or where there is no contractual rate, the rate at which moneys are lent or advanced by nationalised banks in relation to commercial transactions.
(2) Where such a decree is silent with respect to the payment of further interest on such principal sum from the date of the decree to the date of payment or other earlier date, the Court shall be deemed to have refused such interest, and a separate suit therefor shall not lie.
10. Rule 11 of Order XXXIV of CPC deals with payment of interest in mortgage suits and may beneficially be extracted as under.
11. Payment of Interest :--In any decree passed in a suit for foreclosure, sale or redemption, where interest is legally recoverable, the Court may order payment of interest to the mortgagee as follows, namely:--
(a) interest up to the date on or before which payment of the amount found or declared due is under the preliminary decree to be made by the mortgagor or other person redeeming the mortgage-
(i) on the principal amount found or declared due on the mortgage, at the rate payable on the principal, or where no such rate is fixed, at such rate the Court deems reasonable, and
(ii) on the amount adjudged due to the mortgagee for costs, charges and expenses properly incurred by the mortgagee in respect of the mortgage-security up to the date of the preliminary decree and added to the mortgage-money, at the rate agreed between the parties, or, failing such rate, at such rate not exceeding six per cent per annum as the Court deems reasonable; and
(b) subsequent interest up to the date of realisation or actual payment on the aggregate of the principal sums specified in Clause (a) as calculated in accordance with that clause at such rate as the Court deems reasonable.
A reading of Rule 11 of Order XXXIV of CPC would show that it is not mandatory that the Court should order contract rate of interest in mortgage suit. The discretion is vested in the Court to award interest up to the date on or before which payment of the amount found due in preliminary decree. On principal amount found due on the mortgage at the rate payable on the principal or where no such rate is fixed such rate as the Court may deem reasonable. Sub-clause (b) of Rule 11 of Order XXXIV of CPC empowers the Court to grant subsequent reasonable rate of interest up to the date of realisation or actual payment agreeable of the principal sum as determined in Sub-clause (a) of Rule 11 of Order XXXIV of CPC. In this connection, a reference may be made to three decisions of the Supreme Court in S.P. Majoo v. Ganga Dhar, , E.I. Corporation v. Gujarat State Financial Corporation, , and N.M. Veerappa v. Canara Bank, . In S.P. Majoo v. Ganga Dhar (supra), the Supreme Court considered the applicability of Section 34 of CPC to mortgagee. The Court ruled:
Prior to 1929 the legal position was that under Section 34 of the Civil Procedure Code in granting a decree for payment of money the Court had full discretion to order interest at such rate as it deemed reasonable to be paid on the principal sum adjudged from the date of the suit onwards. But Order 34, Rules 2 and 4 which applied to a mortgage suit, enjoined the Court to order an account to be taken of what was due to the plaintiff at the date of such decree for principal and "interest on the mortgage". The special provision in Order 34 has therefore to be applied in preference to the general provision in Section 34. Till the period for redemption expired therefore the matter was considered to remain the domain in the contract and interest had to be paid at the rate and with the rests specified in the contract of mortgage but after the period for redemption had expired the matter passed from the domain of contract to that of judgment.
11. In E.I. Corporation v. Gujarat State Financial Corpn. (supra), the Supreme Court reiterated that in mortgage suits filed in Civil Courts, the question of interest is governed by Order XXXIV, Rule 11 and not Section 34 of CPC, which may be applicable only to cases of personal decrees passed under Order XXXIV, Rule 6.
12. In N.M. Veerappa v. Canara Bank (supra), the Supreme Court after referring to S.P. Majoo v. Ganga Dhar (supra) observed thus:
Section 34 of the Code of Civil Procedure applies to simple money decrees and payment of interest pending such suit. Order 34, Rule 11, CPC deals with mortgage suits and payment of interest. It is obvious that so far as mortgage suits are concerned, the special provision in Order 34, Rule 11 alone is applicable and not Section 34. This has been laid down in several decisions of this Court and also by the Karnataka High Court in State Bank of Mysore v. B.P. Thulasi Bai, .
13. In the light of the above authorities, the law is settled that Section 34 of CPC does not per se apply to mortgage suits. However, it is not correct to argue that in all mortgage suits, the interest is to be paid at the contract rate of interest. What all Rule 11 of Order XXXIV of CPC lays down is that the principal amount payable by the mortgagor has to be determined having regard to the rate of interest as on the date of the suit and subsequent interest pendents lite i.e., pre-decree and after decree i.e., post-decree is within the discretion of the Court which is again dealt with by Section 34 of CPC.
14. A Constitution Bench of the Supreme Court in Central Bank of India v. Ravindra (supra) interpreted Section 34 of CPC especially the phrases "the principal sum adjudged" and such principal sum as occurring in Section 34 of CPC and it was laid down by the Supreme Court that the interest agreed till the date of suit after capitalisation becomes part of the principal so as to bind the debtor or borrower. Therefore, when once the Court determines the principal sum to be paid by the mortgagor and passes preliminary decree, it is only Section 34 of CPC which governs the award of pre-decree and post-decree interest. In Central Bank's case (supra) the Court also considered the scope and power of the Civil Court in awarding interest and laid down various principles. A reference to all of them is not necessary, but paragraph 55(8) may be extracted which reads as under.
Award of interest pendente life and post-decree is discretionary with the Court as it is essentially governed by Section 34 CPC de hors the contract between the parties. In a given case if the Court finds that in the principal sum adjudged on the date of the suit the component of interest is disproportionate with the component of the principal sum actually advanced the Court may exercise its discretion in awarding interest pendente lite and post-decree interest at a lower rate or may even decline awarding such interest. The discretion shall be exercised fairly, judiciously and for reasons and not in an arbitrary or fanciful manner.
15. In view of the decision of the Constitution Bench in Central Bank of India v. Ravindra (supra), in a mortgage suit also the interest pendente lite and post-decree interest are at the rate decreed by the Court. It does not mean that discretion is exercised under Section 34 of CPC, but the same principle as applicable to determination of interest may as well be applied while determining the interest under Order XXXIV, Rule 11 (b) by exercising sound discretion having regard to the facts and circumstances of each case.
16. Whether the trial Court has exercised sound discretion in denying the interest pendente lite and/or post-decree interest. This is the only question that remains to be answered.
17. Ex.A1 is a mortgage deed executed by the defendants on 5.8.1971. As per Ex.A. 1, mortgage amount is payable in equal half yearly instalments and shall be fully repaid on by 5.8.1986. It is covenanted by the parties that the mortgagor agreed for interest at the rate of 10% per annum and if there is any default in payment of half yearly instalments, simple interest at the rate of 21/2% shall be payable on the amount remaining unpaid. The provision for payment of simple interest at 21/2% over and above the agreed rate of interest does not in any manner prejudice or interfere with the power of the mortgagee to bring the property into sale and avail other remedies under law. Therefore, it is clear that the defendants had time till 5.8.1986 for repaying the loan advanced for by the plaintiff. It is in the evidence of P.W.1 that the defendants failed to pay the instalments in spite of repeated reminders. Therefore notice was issued. Though defendants paid some amount by way of cheque it was dishonoured. It is also admitted that subsequent to filing of the suit defendants paid Rs. 30,000/- into Court on 29.4.1986 and Rs. 10,000/- on 24.4.1986. Therefore, P.W.1 stated in his evidence that defendants are liable to pay an amount minus the amount deposited in the Court.
18. The learned Counsel for the defendants submits that the defendants had time till 5.8.1986 to deposit the amount and as the deposit amount is paid by April, 1986, much before the time granted by the plaintiff for repayment of the loan, there cannot be any penal interest or interest pendente lite. According to the learned Counsel, the suit debt is discharged during the pendency of the suit itself and therefore the judgment of the trial Court is unassailable. The learned Counsel for the appellant-plaintiff, however, submits that since 1979 there is default and therefore for the period from 30.3.1979 when the plaintiff received Ex.A.3, legal notice demanding repayment of instalments, till 29.4.1986 when the defendants deposited amount of Rs. 30,000/-in the Court, the plaintiff is entitled to claim simple interest at the rate of 21/2% per annum over and above agreed rate of interest 10%.
19. The suit was filed claiming an amount of Rs. 37,810.50 ps. The amount included 10% interest payable as per Ex.A.1 as well as 2 1/2% over and above 10% on the amount. The defendants failed to pay the amount. The trial Court, however, arrived at Rs. 34,547.74 ps. which included additional interest as well. Therefore, the submission of the learned Counsel for the plaintiff that they are entitled to claim further interest at 21/2% over and above 10% cannot be accepted.
20. With regard to interest during the pendency of the suit, as already held by me in a suit based on mortgage the first step is to determine the principal amount as per Order XXXIV Rule 11 (A) of CPC. In this case such amount is determined as 37,810.50 ps. This is not disputed or denied. It is also not denied that though the suit is filed on 23-4-1984 and though appearance was entered, the defendants did not pay the amount till 29-4-1986. Therefore, it would be reasonable to award interest at 6% per annum from 23-4-1984 (date of filing of the suit) till 29-4-1986 (date of deposit of Rs. 30,000/- by the defendants). This is because the Court recorded part satisfaction for Rs. 30,000/- and plaintiff was given liberty to withdraw balance of Rs. 4,547.74 ps. from out of the deposit. The defendants were also given liberty to withdraw balance of amount lying to the credit of the suit after expiry of the appeal time against the judgment. As on the date of the disposal of the suit the plaintiffs debt was discharged and therefore, it would be unreasonable to mulct the defendants with interest from the date of decree till the date of realization. The plaintiff would be entitled for interest at 6% per annum from the date of suit i.e., 23-4-1984 to 29-4-1986 when the defendants made a deposit of Rs. 30,000/- to the credit of the suit. In the facts and circumstances, I also deem it proper to award proportionate costs of this appeal to the plaintiff.
21. The appeal is accordingly, partly allowed with proportionate costs on the amount of interest decreed in favour of the plaintiff.