C.B. Joseph vs M.P. Chandran

Balakrishna Menon, J.—The only question for decision in this appeal is as to the rate of interest payable on a negotiable instrument where the instrument itself does not specify any rate. The dispute in this case relates to the interest due under a promissory note, exhibit A-1. The promissory note is dated October 27, 1984, and it is for a sum of Rs. 2,00,000. The instrument does not specify the rate of interest. The court below has found that there was a collateral agreement between the parties as per which the defendant had agreed to pay interest at 16 per cent. per annum, and interest is decreed at that rate. Section 80 of the Negotiable Instruments Act, 1881, as it stood on the date on which the court below passed its decree, reads :

"80. Interest when no rate specified. --When no rate of interest is specified in the instrument, interest on the amount due thereon shall, notwithstanding any agreement relating to interest between any parties to the instrument, be calculated at the rate of six per centum per annum, from the date at which the same ought to have been paid by the party charged, until tender or realisation of the amount due thereon, or until such date after the institution of a suit to recover such amount as the court directs."

This section has been amended by the Banking, Public Financial Institutions and Negotiable Instruments (Amendment) Act, 1988 (Central Act 66 of 1988), and the rate of interest is enhanced to 18 per cent. with effect from April 1, 1989. Section 80 excludes collateral agreements relating to interest and the interest payable on an instrument which does not specify the rate is as provided for in the section. We are, therefore, of the view that interest payable on exhibit A-1 is only at the rate of 6% per annum till March 31, 1989, and at 18 per cent. per annum from April 1, 1989, until realisation.

Learned counsel for the respondent, Sri P. Sukumaran Nair, relies on the decision of the Supreme Court in Mithilesh Kumar and Another Vs. Prem Behari Khare, in support of the proposition that the plaintiff is entitled to interest at 18 per cent. as provided for in Section 80 of the Act as amended by Act No. 66 of 1988. Mithilesh Kumar and Another Vs. Prem Behari Khare, related to the interpretation of Sections 2 and 4 of the Benami Transactions (Prohibition) Act, 1988, and the Supreme Court held that benami transactions have become unenforceable by virtue of Section 4 of the Act. The Supreme Court observed (at page 109) :

"When an Act is declaratory in nature, the presumption against its retrospectivity is not applicable. Acts of this kind only declare. A statute in effect declaring the benami transactions to be unenforceable belongs to this type. The presumption against taking away a vested right will not apply in this case inasmuch as under law it is the benamidar in whose name the property stands, and law only enabled the real owner to recover the property from him which right has now been ceased by the Act. In one sense, there was a right to recover or resist in the real owner against the benamidar. Ubi jus ibi remedium. Where there is a right, there is a remedy. Where the remedy is barred, the right is rendered unenforceable. In this sense, it is a disabling statute. All the real owners are equally affected by the disability provision irrespective of the time of creation of the right. A right is a legally protected interest. The real owner''s right was hitherto protected and the Act has resulted in removal of that protection."

It is for the reason that the statute is declaratory and it takes away the remedy of the real owner, the Supreme Court held that the Act applies also to past transactions. The amendment of Section 80 of the Act has provided for a higher rate of interest with effect from April 1, 1989, and the higher rate is applicable to past transactions also with effect from that date. The rate of interest applicable to the period prior to the amendment can only be at 6 per cent. as provided for in the section as it stood prior to the amendment. The amendment of Section 80 of the Act is not retrospective nor is it declaratory of a higher rate of interest applicable to past transactions for any period prior to the amendment. The decision of the Supreme Court in Mithilesh Kumar and Another Vs. Prem Behari Khare, has no application in the matter of the applicability of a higher rate of interest prescribed by the amending statute.

For the aforesaid reasons, we modify the decree passed by the court below by allowing the plaintiff to recover interest at 6 per cent. till March 31, 1989, and at 18 per cent. from April 1, 1989, until realisation.

The appeal is allowed to the above extent. The parties will suffer their respective costs.