THE PALLIPPURAM RURAL HOUSING CO-OPERATIVE SOCIETY LTD. Vs. K.K. SUGUNAN, THE KERALA CO-OPERATIVE TRIBUNAL AND T.R. RAJAMMA

JUDGEMENT

(1.) THE short question agitated by the petitioner -Bank before this Court in the above writ petition challenging Exhibit P5 order of the Kerala Co -operative Tribunal (for brevity "Tribunal"), on remand, is the interest levied at reduced rate of 12%. Admittedly the contractual rate of interest was 15.2% with penal interest at 2%. There is no dispute that default was committed by the 1st respondent, who is now no more and legal heirs are on the party array. The Bank was before the Arbitration Court, which awarded the entire amount sought for, with future interest at the rate of 17.2%, as evidenced by Exhibit P2. Subsequently on revision by the deceased 1st respondent, Exhibit P3 order was passed by the Tribunal reducing the future interest to 6%. Challenging the said order, the petitioner -Society was before this Court. Following a Division Bench decision of this Court in Kerala State Co -op. Bank Ltd. v. Kerala Co -op. Tribunal : [2005 (1) KLT 572], the writ petition filed by the WP(C). No. 2372 of 2012 -V. petitioner -Society was disposed of, remanding the matter. Consequent to the remand by this Court, the Tribunal passed Exhibit P5 reducing the future interest to 12%, considering the dictum laid down in the decision afore -cited. The Tribunal found that interest of justice requires that the interest liability of the 1st respondent -defaulter be restricted to 12% and not at the contractual rate.

(2.) WHAT has been laid down in the aforecited decision is that, when agricultural loans are the subject matter in issue, the Arbitration Court and the Tribunal could necessarily adopt the procedure contemplated in Section 34 of the Code of Civil Procedure (for brevity "CPC") and restrict the interest to 6%. However in commercial transactions, the Division Bench of this Court held that Section 34 CPC would not be applicable, since there was a specific provision, as Note 2, in Rule 67(10) of the Kerala Co -operative Societies Rules, 1969 (for brevity "KCS Rules"). Herein the loan was admittedly a housing loan and not an agricultural loan. On a reading of Note 2, it was declared that an amount of discretion has been conferred on the Arbitrator to fix the rate of interest, depending upon varied circumstances like the nature of transaction, WP(C). No. 2372 of 2012 -V the purpose for which the loan was obtained, the reason for default, the rate of interest payable by the Bank or the societies; as the case may be, to obtain amounts for disbursement as loan, the conduct of the loanee in repaying the loan amount, the total amount outstanding, proportionality of interest accrued and the principal amount and other related and exceptional aspects. It is specifically brought to the notice of this Court by the petitioner -Society that, the interest payable by the Bank or the Society has been noted as a relevant factor in the aforecited decision and in the present case the petitioner -Society obtains finance from the apex housing society to disburse loans to its members. The petitioner -Society has to pay the contractual rate of interest to the financing society and this award would not absolve them from their liability. It is to be specifically noticed that the discretion which was conceded to the Tribunal in the aforecited decision was to fix future interest and it could not import principles of equity in reducing the rate of interest. None of the relevant factors were considered by the Tribunal in reducing the interest rate. In such circumstance, Exhibit P5 to the extent it reduced the contractual rate of interest is set aside. WP(C). No. 2372 of 2012 -V. However, it is to be noticed that equity could be employed in absolving the borrower from the liability of penal interest. Hence, this Court finds that the liability to pay penal interest at 2% can be waived and the additional respondents 3 to 6, being the legal heirs of deceased 1st respondent, to the extent they inherited from the deceased borrower, can be directed to satisfy future interest at the rate of 15.2%, being the contractual rate of interest. I do so.