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Judgment
A.M. Shaffique, J.—The plaintiff is the appellant. Parties are referred to as the plaintiff and the defendants. Suit is filed for realisation of an amount of Rs. 3,05,474/- with future interest and costs. The plaintiff alleged that as per three separate transactions, viz. overdraft cash credit facility, key cash credit loan facility and term loan account amounts were due to the plaintiff. The defendants mortgaged their immovable properties as security for the facilities and also hypothecated the goods. When the amounts were not paid and remained outstanding, notices were issued and since the defendants failed to pay the amount the suit is filed.
The first defendant is a company and defendants 2 and 3 are its directors. 4th defendant is a guarantor. The 1st defendant contended that the plaintiff Bank having granted more facilities than the limit prescribed was not entitled to recover the amount as claimed. They specifically denied the liability to pay the overdraft cash credit facility and key cash credit loan facility though admitted the term loan transaction. It is also contended that all the claims were barred by limitation. However, the 1st defendant admitted that the goods in possession and custody of the plaintiff under the loan account of the hypothecated goods could be taken over and sold for realisation of any dues.
The defendants 2 and 3 having adopted the contentions raised by the 1st defendant further contended that they have executed letters of guarantee only for cash credit facility. Since the loans were granted on hypothecation basis the plaintiff ought to have proceeded against the hypothecated goods rather than seeking a personal decree against the defendants. They also denied creation of mortgage in respect of the plaint schedule properties. The 4th defendant remained ex parte.
The court below framed various issues as to whether the plaint claim is genuine in respect of the amount due under the open cash credit facility and key loan account, whether there is a valid mortgage in respect of plaint A schedule. whether the plaintiff is entitled to claim different loan amounts in a single suit and whether the plaintiff is entitled to get a decree, as prayed for.
The plaintiff relied upon evidence of PWs 1 and 2 and marked Exts.A1 to A17. The defendant relied upon the oral evidence of DW1.
The court below having found that the plaintiff has proved the plaint claim and that defendants 2 and 3 has mortgaged the properties for discharging the debt decreed the suit permitting the plaintiff to recover an amount of Rs. 3,05,474/- with future interest @ 12% per annum on the principal amount of Rs. 1,50,000/- from the date of suit till realisation and the costs of the suit directly from the defendants and by the sale of the mortgaged properties and the hypothecated goods.
The plaintiff impugns the above judgment on the ground that the court below was not justified in limiting future interest only on the principal amount of Rs. 1,50,000/- and limiting the rate of interest at 12% per annum.
Though the defendants have filed a cross appeal at the time of hearing, they did not appear and the counsel reported no instructions. Cross Appeal is therefore dismissed for default.
The point for determination in this appeal is whether the court below was justified in granting only 12% interest on an amount of Rs. 1,50,000/- from the date of suit till realisation.
The learned senior counsel appearing for the plaintiff/appellant Sri.Chacko George contended that when the court below had found that the plaintiff was entitled to recover the principal sum as Rs. 3,05,474/-, the Court below ought not to have refused interest on such amount and has, without any justification, reduced the principal amount to Rs. 1,50,000/- for awarding future interest and that there was no reason to reduce future interest to 12% which was less than the contractual rate.
The learned counsel also relied upon the judgment in Central Bank of India Vs. Ravindra and Others, , to contend for the position that when the court has arrived at the principal sum for passing the decree exercise of discretion for granting future interest is covered by Section 34 of the Code of Civil Procedure. Section 34 (1) reads as follows:
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 not exceeding six per cent per annum as the Court deems reasonable on such principal sum], from the date of the decree to the date of payment, or to such earlier date as the Court thinks fit:
[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 1. In the sub-section, "nationalised bank" means a corresponding new bank as defined in the Banking Companies (Acquisition and Transfer of Undertakings) Act, 1970 (5 of 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.]
Therefore when the "principal sum adjudged" is found and decreed by the court below, the question would be whether there is any discretion left with the court to reduce such amount for the purpose of awarding interest as provided u/s 34.
In Central Bank of India case (supra) the Supreme Court held as follows:
If there is a stipulation for the rate of interest, the court must allow that rate up to the date of the suit subject to three exceptions: (i) any provision of law applicable to money lending transactions, or usury laws or any other debt law governing the parties and having an overriding effect on any stipulation for payment of interest voluntarily entered into between the parties; (ii) if the rate is penal, the court must award at such rate as it deems reasonable; (iii) even if the rate is not penal the court may reduce it if the interest is excessive and the transaction was substantially unfair.
XXX XXX XXX
Interest from the date of suit to the date of decree is in the discretion of the court. Interest from the date of the decree to the date of payment or any other earlier date appointed by the court is again in the discretion of the court -- to award or not to award as also the rate at which to award.
It is further held that
While decreeing a suit if the decree be for payment of money, the court would adjudge the principal sum on the date of the suit. The court may also be called upon to adjudge interest due and payable by the defendant to the plaintiff for the pre-suit period which interest would, on the findings arrived at and noted by us herein above, obviously be other than such interest as has already stood capitalized and having shed its character as interest, has acquired the colour of the principal and having stood amalgamated in the principal sum would be adjudged so. The principal sum adjudged would be the sum actually loaned plus the amount of interest on periodical rests which according to the contract between the parties or the established banking practice has stood capitalised. Interest pendente lite and future interest (i.e. interest post-decree not exceeding 6 per cent per annum) shall be awarded on such principal sum i.e. the principal sum adjudged on the date of the suit.
It is well settled that the use of the word "may" in Section 34 confers a discretion on the court to award or not to award interest or to award interest at such rate as it deems fit. Such interest, so far as future interest is concerned may commence from the date of the decree and may be made to stop running either with payment or with such earlier date as the court thinks fit. Shortly hereinafter we propose to give an indication of the circumstances in which the court may decline award of interest or may award interest at a rate lesser than the permissible rate. We are of the opinion that the meaning assigned to the expression "the principal sum adjudged" should continue to be assigned to "principal sum" at such other places in Section 34(1) where the expression has been used qualified by the adjective "such", that is to say, as "such principal sum". Recognition of the method of capitalisation of interest so as to make it a part of the principal consistently with the contract between the parties or established banking practice does not offend the sense of reason, justice and equity. As we have noticed, such a system has a long-established practice and a series of judicial precedents upholding the same. Secondly, the underlying principle as noticed in several decided cases is that when interest is debited to the account of the borrower on periodical rests, it is debited because of it having fallen due on that day. Nothing prevents the borrower from paying the amount of interest on the date it falls due. If the amount of interest is paid there will be no occasion for capitalising the amount of interest and converting it into principal. If the interest is not paid on the date due, from that date the creditor is deprived of such use of the money which it would have made if the debtor had paid the amount of interest on the date due.
Apparently, on going through the judgment we do not find as to why and on what basis the court below has exercised its discretion to deny future interest on the principal amount of Rs. 3,04,474/-. As held by the Supreme Court in Central Bank of India case (supra) the principal sum adjudged would be the sum actually loaned plus the amount of interest on periodical rests which according to the contract between the parties or the established banking practice has stood capitalised. Once the "principal sum adjudged" is arrived at by the Court it can only order interest at such rate as the court deems reasonable to be paid on "such" "principal sum adjudged" from the date of suit to the date of the decree with future interest at such rate not exceeding 6% per annum as the court deems reasonable on such "principal sum" from the date of decree to the date of payment. The proviso to section 34 indicates that if it is a commercial transaction, the court has discretion to grant interest more than 6% but should not exceed the contractual rate of interest. Apparently this is a commercial transaction and interest claimed by the bank is 17.5% and the future interest claimed by the bank is 15.5%, 15% and 13.5% respectively for the three loans. Therefore the court below having found that the "principal sum" claimed can be decreed, it cannot have a further discretion to reduce the "principal sum" for the purpose of granting interest from the date of suit till realisation.
No doubt, the court has the discretion to grant future interest at such rate not exceeding what is provided u/s 34 of C.P.C, which again depends on the facts and circumstances of each case. The court below had already fixed 12% as future interest which we think is reasonable under the circumstances.
However, on account of the findings made above, the decree of the court below requires to be modified and the plaintiff should be permitted to recover the amount of Rs. 3,05,474/- from the defendants jointly and severally with future interest @ 12% per annum on the said amount from the date of the suit till realisation. In the result, this appeal is partly allowed and the judgment and decree of the court below is modified as follows:
The suit is decreed allowing the plaintiff to realise a sum of Rs. 3,05,474/- with future interest @ 12% per annum from the date of the suit till realisation and cost of the suit and by sale of the mortgaged properties and hypotheca.