Hudco Niwas vs Smt. V. Victoriyal, D. James and Sri D. Ranganathan

Anand Byrareddy, J.—Heard the learned Counsel for the appellant. The Counsel for the respondents remains absent. Even when the matter was listed earlier, the Counsel for the respondents had remained absent. The appellant was the plaintiff before the trial court. It is a financial institution covered under the State Financial Corporations Act, 1951. The appellant had filed a suit for recovery of money. The defendants had borrowed money in a sum of Rs. 3,00,000/- from the plaintiff, on 23.2.2000 agreeing to pay interest @ 13.5% per annum and had executed the relevant documents in this regard as security for the loan amount. There was even a mortgage deed in favour of the plaintiff in respect of the property bearing khata No. 229/A measuring 45 feet x 46 feet at Ambedkar Nagar, K.G.F. The defendants had defaulted in repayment of the loan. The third defendant was the guarantor for the loan granted to the first and second defendants. Demand having been made on the defendants to discharge the loan, there was no repayment. Hence, the suit was filed.

The defendants had contested the suit setting up a claim that they had not borrowed any amount from the plaintiff-Corporation and that they were never sanctioned any loan. That there was no agreement to pay any interest and that they had not executed any documents. It was further alleged that the plaintiff had obtained cheques in blank, of Rs. 3,895/- each, duly signed by the first and second defendants and that some have been encashed. And that the plaintiff had filed criminal cases in respect of cheques that were dishonoured. Though the criminal cases were later on withdrawn as settled, it was alleged that the first and second defendants had paid a sum of Rs. 96,595/- and had issued cheques for Rs. 30,084/- and they have paid in all a sum of Rs. 1,50,049/-. It is or, these pleadings that the court below had framed the following issues:

Whether the plaintiff prove that the 1st and 2nd defendant have availed housing loan of Rs. 3,00,000/- with the interest alleged?

Whether the plaintiff proves that the 3rd defendant is the guarantor for the amount borrowed by the 1st and 2nd defendant?

Whether the defendants prove payment of Rs. 1,50,049/-?

Whether the plaintiff is entitled for the suit claim?

What decree or order?

The trial court on appreciation of the evidence tendered by the plaintiff had decreed the suit with costs, for Rs. 3,37,851/- with future interest @ 6% per annum on Rs. 3,00,000/- from the date of suit till the date of payment.

It is the interest awarded, which is sought to be questioned in the present appeal.

The learned Counsel for the appellant would straightaway point out that Ex. P3, which is a letter granting sanction of the loan granted to the defendants, at clause (2.a) thereof, it is stated that the equated monthly instalment comprises the principal and interest calculated on the basis of monthly rests at the rate of 13.5% per annum and is rounded off to the next rupee. Even in the loan agreement-Ex. P4, it is again specified that the rate of interest would be as above. A promissory note, that is executed as additional security, at Ex. P5, also indicated the rate of interest. Therefore, the court below was not justified in awarding the rate of interest at its discretion, when there was a contractual rate of interest prescribed and when it was the claim of the plaintiff. In this regard, the learned Counsel for the appellant would place reliance on a decision of a Division Bench of this Court, in the case of Vijaya Bank Vs. S. Bhathija and another, wherein the Division Bench has laid down that insofar as the interest chargeable by Banks is concerned, that the following are the settled principles:

(a) Banks are entitled to interest at contract rates, subject to the ceiling or limitations placed by the Reserve Bank of India in its circulars/directives;

(b) Whenever the contract provides for compounding of interest, either specifically or impliedly by use of the words "with rests", the Banks are entitled to compound interest, except in the case of agricultural advances;

(c) The Courts can only examine whether the rates of interest claimed is excessive or not with reference to the directives of Reserve Bank of India. The Courts cannot reduce the contract rate of interest either under the provisions of Usurious Loans Act or any other law relating to indebtedness or principles of equity;

(d) Normally in regard to Bank claims, the Courts should award current interest (from the date of suit to date of decree) and future interest (from the date of decree to date of realisation) u/s 34 of the Code of Civil Procedure, at the contract rates. ''Contract rate of interest'' refer not only to the ''rate of interest'', but refers also to compounding of interest. Thus if contract provides for quarterly rests, the interest granted u/s 34 should be at the contract rate with quarterly rests (except in the case of agricultural advances). If the Courts want to reduce the rate of interest, either current or future, such reduction should be supported by reasons.

Applying the said principles, the Division Bench has further laid down thus at paragraph-22:

The next point relates to interest payable on the amount decree from the date of suit to date of realisation. The plaintiff has claimed interest at 16.25% per annum from the date of suit to date of realisation. The Trial Court has awarded 6% per annum from the date of suit to date of realisation. The contract rate, subject to Reserve Bank ceiling, would be 16% per annum as discussed in para 20 above. The learned Counsel for the plaintiff submitted that even in regard to current and future interest, compounding of interest should be allowed. But neither the plaint nor the Memorandum of Appeal seek compounding "of interest, from the date of suit. They merely sought interest at 16.25% per annum without using the words ''compound interest or ''interest with quarterly rests''. Hence, the plaintiff is not entitled to compound interest from the date of suit. Hence we allow interest at 16% per annum on the amount decreed from the date of suit to date of realisation.

Therefore, it is evident that the interest that was agreed to be paid on the amount borrowed by the defendants was much below the ceiling fixed and therefore, it could not be said to be usurious or illegal in any manner and hence the court below was not justified in according interest @ 6% per annum when there was a definite agreement between the parties as regards the payment of interest as above. Therefore, the appeal is allowed, the judgment impugned stands modified, in that, the defendants shall be liable to pay interest on the amount decreed at 13.5% per annum from the date of suit till the date of payment.