Jammu & Kashmir High Court
Bank Of Baroda vs Shri Subhash Chander Dutta And Ors. on 17 February, 1994
Equivalent citations: AIR1995J&K99, AIR 1995 JAMMU AND KASHMIR 99
Author: Chief Justice
Bench: Chief Justice
JUDGMENT S.C. Mathur, C.J.
1. This is plaintiff's first-appeal arising from a suit for recovery of loan. While decreeing the appellant's suit for recovery of Rs. 1,06,103.03 with costs against the respondents, the learned single Judge gave two directions : (1) that the decretal amount shall be liquidated within a period of six years with minimum instalments of Rs. 1500 -each, and (2) that the decretal amount shall carry pendente lite and future interest at the rate of 6% per annum. The contractual rate of interest was 11%. The appellant-Hank was aggrieved with both the directions. It accordingly preferred the instant appeal which was filed on 15-5-1987. Despite service no one appeared on behalf of the respondents.
2. The period of six years mentioned hereinabove has already expired and therefore the challenge directed in the present appeal against the first direction has become infructuous. The challenge against the second direction survives.
3. Section 34 of the Code of Civil Procedure, 1977(B) deals with grant of pendente lite and future interest. This section prior to its amendment through Act No. XI of 1983 (A.D.) with effect from 15-8-1983 contained two sub-sections, but no proviso or explanations. Sub-section (2) is not relevant for the purposes of the present appeal. Sub-section (1) reads as follows :--
"34. Interest-- (1) Where and in so far as a decree is for the payment of money, the Court may. in the decree, order interest at such rate as the court deems reasonable to be paid on the principal sum adjudged, from the date of the suit to the date of the decree, in addition to any interest adjudged on such principal sum for any period prior to the institution of the suit, with further interest at such rate as the Court deems reasonable on the aggregate sum so adjudged, from the date of the decree to the date of payment, or to such earlier date as the Court thinks fit."
This sub-section refers to two periods : first period is from the date of the institution of the suit to the date of passing of decree and second period is from the date of decree to the date of payment. In respect of both these periods the Court is competent, while passing the decree, to award interest at a rate which may be different from the contractual rate, it any existing between the parties. The section fixes neither the minimum limit nor the maximum limit. The discretion is entirely of the Court. The rate fixed may be lower than the contractual rate or it may be higher than such rate.
4. The amendment mentioned above introduced proviso and two explanations between Sub-sections (1) and (2) as below :
"Provided that where the liability in relation to the sum so adjudged had arisen out of a commercial transaction, the rate of such further interest may exceed six per cent, per annum, but shall not exceed the contractual rate of interest or where there is no contractual rate, the rate at which moneys are lent or advanced by nationalised banks in relation to commercial transactions.
Explanation-I -- In this sub-section, "nationalised bank" 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."
The proviso fixes three higher limits -- (1) 6%, (2) contractual rate, and (3) rate at which moneys are lent or advanced by the nationalised banks in relation to commercial transactions. The proviso makes it clear that the discretion conferred by Sub-section (1) cannot go beyond 6%. The Court may award pendente lite and future interest under Sub-section (1) at a rate lower than 6% but it cannot award the same at a higher rate Interest at higher rate is available only in cases covered by the proviso. Therefore the first thing to be seen is whether the present case is covered by the proviso or not.
5. The proviso applies only in one situ-ation and that is where the amount sued for becomes due id respect of a commercial transaction. Whether it should be a commercial transaction for the creditor or for the debtor is made explicit by the Explanation-II. It should be for the debtor. This is clear from the expression "if it is connected with the industry, trade or business of the party incurring the liability."
6. Let us now examine whether the money in question was borrowed in connection with the industry, trade or business of the respondents.
7. From the averments made in the plaint it appears that the money was borrowed by defendant No. 1 who is respondent No. 1 in the present appeal, and the predecessor-in-interest of defendants 2 to 6 (present respondents 2 to 6) was merely a guarantor. The guarantor has since died. ,In paragraph 2 of the plaint it has been stated that defendant No. 1 is the sole proprietors of M/s. Biram Agro Engineers and its main objects are to provide service in the agricultural fields i.e. repairs and service of agricultural implements equipment and Farm machinaries. Thereafter in paragraphs 3 and 4 it is stated as follows :--
"3. That to establish the Biram Agro Engineers (Agro Service Centre) defendant No. 1 required finances for which he approached and requested for the loan limit of Rs. 1,29,000/-.
4. That the plaintiff sanctioned a loan limit of Rs. 1,29,000/- in pursuance of the request of defendant No. J for which a promissory note dated 24th April, 1973 was executed by defendant No. 1 in favour of the plaintiffs. The promissory note in original is enclosed herewith as Annexure 'B' to this plaint."
The averments clearly make out that respondent No. 1 was engaged in business and borrowed money in connection with that business. Therefore the proviso is fully appli-cable to the case on hand. The learned single Judge was therefore fully competent to award pendente lite and future interest at a rate higher than 6%.
8. In the plaint there is no allegation that respondents 2 to 6 were also engaged in industry, trade or business but that wilt not alter their liability in respect of pendente lite and future interest because the proviso read with Explanation-2 refers merely to the nature of the transaction.
9. The learned single Judge has given no reason for not taking recourse to the proviso. It is true that the power conferred under Section 34, C.P.C. is discretionary, but all judicial discretions have to be exercised reasonably. A court of law should not feel satisfied by merely passing a decree. It should pass decree in a manner that will ensure as far as possible, automatic and speedy compliance. It is well known, and we can take judicial notice of it, that profits in business far exceed the interest a businessman has to pay to a nationalised bank on the amount borrowed by him in connection witb his business. If the pendente lite and future interest is awarded at a rate much lower than the contractual rate, there Would be no incentive to the judgment debtor to liquidate the decree. He will comply with the decree only when he is compelled through execution. In our opinion therefore it will not be a reasonable exercise of discretion to award pendente lite and future interest in commercial transactions at a rate lower than the contractual rate except in exceptional circumstances, like business suffering losses or profit in business not being substantial. Defendant No. 1, the actual borrower instead of appearing before the Court and pleading and establishing any excepting circumstance chose to stay away from the proceedings and the case against him proceeded ex parfe. Therefore, there is no reason to absolve him from the liability to pay interest at the contractual rate till the entire loan is liquidated.
10. The position of defendants 2 to 6 is however different. They had become liable only as heirs of the guarantor. It is not alleged either against the guarantor or against de-fendants 2 to 6 that they were engaged in any trade, industry or business, They may there-| tore be treated leniently. Their liability to pay pendente lite and future interest deserves to be confined to 6% only.
11. A few decisions of this Court may be examined to see whether they lay down law contrary to the one we are laying down.
12. In J&K Bank Ltd. v. Bashir Ahmad Qazi, 1987 Srinagar LJ 249, a Division Bench of this Court held that the plaintiff could not claim as a matter of right pendente lite and future interest at contractual rate and that the Court had full discretion to grant or refuse to grant such interest at the contractual rate. With this proposition of law was entirely agree and it is for this reason that while imposing pendente lite and future interest at the contractual rate against the respondent No. 1, we are not imposing the said interest at contractual rate against respondents 2 to 6. The significant observation made by the Division Bench in paragraph 5 reads thus :
".....Future interest after the institution of the suit is generally granted by the Court according to the agreement of the parties and can be refused if the circumstances of the case so warrant.....As the awarding of interest from the date of the decree to the date of the payment is in exercise of the courts power conferred by Section 34 of the C.P.C. and not under the terms of the contract between the parties, it has to be seen as to whether the discretion exercised is in accordance with the settled propositions of law and based upon the facts of The case or not. Once it is proved that the discretion has been exercised on sound judicial principles, the same cannot be (sic) fered with in an appeal."
This case the defendant appeared before the (sic) court and admitted the plaintiffs claim and made art application praying for fixation of instalments for liquidating the liability as he was not in a position to pay the whole amount in lump sum. In the application reasons had been stated which found favour with the trial Court as is apparent from the observations in the judgment of the Division Bench :--
"In the instant case the defendant had given sound reasons, in the application which were supported by the evidence produced in the case in the forms of statements of Ahmad Syed Chesti, Qazi Ghulam Hassan and the defendant-himself. The trial Court after being satisfied about the existence of circumstance's exercised its discretion and refused to grant the interest pendente lite."
From this observation it would appear that the defendant not merely made application indicating his adverse financial position, but also supported the same through the evidence of certain witnesses. The Bench was of the opinion that since discretion had been exercised on relevant facts, there was no occasion for entertaining the appeal. In the case on hand respondent No. 1 did not even plead any adverse financial circumstance warranting lenient treatment. In fact the judgment of the learned single Judge does not indicate that while fixing pendente lite and future interest at 6% he had taken into account the fact that respondent No. 1 was engaged in business and the case was covered by the second proviso. The law laid down in this judgment does not debar us from entertaining the present appeal.
13. In United Commercial Bank v. Hans Raj Saraf, 1988 (Cash LJ 428 : (AIR 1989 J and K 28) (DB) the controversy raised was whether Section 34 of the C.P.C. was controlled by the provisions of Section 79 of the Negotiable Instrument Act. The Bench answered the question in negative and relying upon Bashir Ahmad Qazi's case (supra) held that grant of pendente lite and future interest at contractual rate or otherwise was discretionary with the Court deciding the suit. This judgment does not run counter to the view we have taken.
14. State of Jammu and Kashmir v. Dev Datt Pandit, 1989 Kash LJ 559 (DB) was a case arising from arbitration proceedings. The arbitrator had awarded interest at the rate of 10%. The learned single Judge who heard objections against the award reduced the rate of interest to 6% from the date of the award till the amount was realised. It was held by the Bench that the award of interest at the lower rate did not suffer from any infirmity. From the observations made in paragraph 18 of the report it appears that the judgment of the learned single Judge contained detailed discussions on the scope and ambit of the power of arbitrator via-a-viz Section 34 of the Code of Civil Procedure and thereafter reduced the rate of interest In the case on hand, as mentioned hereinabove, there is no discussion by the learned single Judge of the circumstances warranting award of pendente lite and future interest at a rate lower than the contractual rate.
15. In view of the above the appeal is partly allowed and the decree of the learned single Judge is modified to the extent that the said decree will carry pendente lite and future interest at the rate of 11% against respondent No. 1 and pendente lite and future interest against respondents 2 to 6 at the rate of 6% per annum. Since the respondents have not contested the appeal, there shall be no order of Costs against them.