BANK OF INDIA Vs. MARY GEORGE

JUDGEMENT

(1.) Appellant plaintiff is a banking institution. Admittedly defendant respondents owed money to the Bank on account of money advanced to them under a demand loan facility evidenced by an agreement dated 17-12-1979 and secured by demand promissory note and equitable mortgage of immovable property belonging to the first defendant as also revival letter dated 26-11-1982 acknowledging all liabilities. The plaint claims Rs. 1,73,599.45 made up of Rs.1,67,927.90 being the amount due as per the accounts as on 23-4-1985 and Rs.5,671.55 being the interest at 16% per annum on the above amount from 23-4-1985 till the date of the plaint, namely 13-6-1985. Admittedly the amount shown as due as on 23-4-1985 has been arrived at reckoning interest at 16% per annum which is the contract rate. Defendants filed written statement styled as "consent statement" admitting the transaction and admitting that a sum of Rs. 1,67,927.90 as also Rs.3,585/- being the interest at the rate of 16% per annum from 23-4-1985 to 11-6-1985-and praying that a decree may be passed in favour of the plaintiff directing refund of half the court fee. The plaint was subsequently amended to show that Rs.5,671.55 is the interest due from 17-3-1985: This was obviously correction of a clerical error. Thereupon defendants' counsel made an endorsement on the written statement to the effect that in view of the amendment of the plaint the contention with respect to the interest is withdrawn and plaint claim is admitted. The court below passed a decree for Rs. 1,73,599.45 as claimed in the plaint. Future interest was ordered at 12% on the principal amount of Rs. 1 lakh from the date of suit till date of realisation. Half the court fee was directed to be refunded to the plaintiff. Plaintiff being dis-satisfied with the direction regarding future interest has filed this appeal.

(2.) Learned counsel for the appellant contended that under the contract between the panics defendants had agreed to pay interest at 16% per annum with quarterly rests so that interest remaining unpaid at the end of every quarter will be added to the principal and therefore future interest is due on the entire amount due as on the date of suit and not merely on the original amount advanced namely Rs. 1 lakh. Learned counsel further contended that the Trial Court was not justified in limiting the future interest to 12% and it should have allowed future interest at the contract rate of 16%. Answer of learned counsel for the respondents is that future interest is governed by S.34 of the Code of Civil Procedure as per which only reasonable rate of interest can be allowed to the "principal sum adjudged" from the date of the suit to the date of the decree and the court has discretion to grant further interest on such principal amount at such rate not exceeding 6% per annum as the court deems reasonable on the principal sum. Proviso to this Section states that where the liability in relation to the sum 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. The money borrowed in this case was for the purpose of constructing a nursing home building and incidental expenses. The transaction cannot therefore be regarded as commercial transaction. Thus it is argued by learned counsel for the respondents that rate of interest to be awarded from date of suit till date of decree is "reasonable interest" and 12% is reasonable rate of interest. This contention is met by learned counsel for the appellant who contended that the loan is secured under an equitable mortgage and hence the decree is to be passed under the provisions of O.34 C.P.C. and in view of R.11 of O.34 C.P.C., the provision in S.34 is not applicable and award of future interest is entirely in the discretion of court but the Trial Court did not advert to this aspect and did not purport to exercise any judicial discretion at all and at any rate, it exercised its discretion arbitrarily.

(3.) The Supreme Court in Soli Pestenji Majoo v. Gangadhar Khomka ( AIR 1969 SC 600 ) had occasion to consider the above aspect. It is pointed out that prior to 1929 the legal position was that under S.34 C.P.C. 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 O.34 R.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 provisions in O.34 had therefore to be applied in preference to the general provision in S.34. Till the period for redemption expired the matter was considered to remain in the domain of 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. The right of the mortgagee would henceforth depend not on the contents of his bond but on the direction of the decree. By Act 21 of 1929, O.34 C.P.C. was amended and a new R.11 was inserted which deals specially with interest. Relying on the decisions in Jagannath Prosad Singh Chowdhury v. Surajmal Jalal ( AIR 1927 PC 1 ) and Jaigobind Singh v. Lachmi Narain Ram ( AIR 1940 PC 20 ) it was held that the language of the rule gives a certain amount of discretion to the court so far as interest pendente lite and subsequent interest are concerned and it was no longer absolutely obligatory on the courts to decree interest at the contractual rate upto the date of redemption in all circumstances even if there is no question of the rate being penal, excessive or substantially unfair. That the direction regarding interest in mortgage suits is governed by the provisions of O.34 R.11 is also laid down in Nafeesumma v. Indian Overseas Bank ( 1974 KLT 853 ) and Jameela Beevi v. State Bank of Travancore ( 1990 (2) KLT 868 ). See also Rama Vadhyar Guna Bhatt v. Trivandrum Permanent Bank Ltd. ( AIR 1973 Ker. 196 ). At the same time the court has to take into consideration the fact that the parties had agreed on a particular rate of interest in the contract entered into by them. In Catholic Syrian Bank Ltd. v. N. V. Varkey ( 1987 (2) KLT 789 ) a Division Bench of this court had to deal with a suit on a money transaction where no mortgage was involved. The contract rate of interest was 17 1/2% per annum. The court indicated that considering the nature of the business of the bank it is clear that the business can be carried forward only when recoveries of advances were effected; in other words, recoveries are vital to the future existence of the Bank and in the circumstances future interest should be awarded at the rate of 12% per annum. We find no reason to take a different view on the facts of the present case. The present case does not involve a commercial transaction. The amount decreed by the Trial Court has, we are told, already been paid. In these circumstances, we are not inclined to interfere with the rate of interest (12%) fixed by the Trial Court.