Krishna Kumar Singh Chouhan vs Punjab National Bank

R.C. Lahoti, J.

The defendant-appellant has come up in second appeal feeling aggrieved by the judgments and decrees of the Courts below directing a simple money suit to he decreed. However, me scope of controversy in the present appeal is confined only to the award of interest.

The plaintiff-respondent is a nationalised scheduled bank, a body corporate under the Banking Companies (Acquisition and Transfer of Undertakings) Act, 1970. An amount of Rs. 1100/- was advanced to the defendant-appellant on mortgage of his land. The purpose of loan was to finance the purchase of feritlizers, pesticides and insecticides by the appellant under the bank-scheme of agricultural advances to the agriculturists. The plaintiff-respondent had prayed for a decree in an amount of Rs. 2.602.71 p. consisting of Rs. 1100/- by way of principal and Rs. 1502.71 p. by way of interest for the pre-suit period. One of the pleas taken on defence was that the interest charged by the plaintiff-respondent was excessive. The trial Court had decreed the suit for recovery of Rs. 2.602.71p. with interest calculated from the date of the suit. The decree of the trial Court has been confirmed in appeal.

On 17.10.1986. this Court has admitted the appeal for hearing parties on the following substantial questions of law :

(1) Whether, in the facts and circumstances of the case, the award of interest by the trial Court is contrary to the provisions of law.''

(2) Whether, otherwise also. the interest awarded by the trial Court is harsh and excessive and it is in the interest of justice that it is interfered by this Court''?"

While the learned counsel for the defendant-appellant has forcefully relied on Sec. 34 of the C.P.C. in support of his contention, the learned counsel for the plaintiff-respondent has relied on Sec. 21 -A of the Banking Regulation Act in support of the decree under appeal. It would be useful to notice both the provisions. Section 34 of the CPC reads as under:

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 (he 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 I- In this sub-section, "nationalised bank" means a corresponding new bank as defined in the Banking Companies (Acquisition and Transfer of Undertakings) Act, 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.

Section 21-A of the Banking Regulation Act, 1449 reads as under:

21 A. Rates of interest charged by banking companies not to he subject to scrutiny by Courts. -

Notwithstanding anything contained in the Usurious Loans Act, 1918 (10 of 1918), or any other law relating to indebtendess in force in any State, a transaction between a banking company and its debtor shall not be reopened by any Court on the ground that the rate of interest charged by the banking company in respect of such transaction is excessive.

A bare reading of the two provisions indicates that they have different fields to operate. Section 21A of the Banking Regulation Act, 1949 excludes the applicability of the Usurious Loans Act, 1918 and any other law relating to indebtedness in force in any State to a transaction between a banking company andits debtor and takes away the jurisdiction of Court to reopen the accomplished transactions on the plea of the interest rate charged by the banking company being excessive. Section 21-A governs the interest charged by the banking company from the debtor till the date of the institution of the suit. If the rate of interest charged by the bank is one which was agreed to by the contract between the parties, and was permitted by law, merely because the rate of interest offends the Usurious Loans Act or any other debt law. the Court would not acquire jurisdiction to scale down the rate of interest and reopen the account making adjustments and appropriations. Section 21A does not govern the award of interest pendente lite and for the post-decree period, these two being governed by sec. 34 of the C.P.C.

The contention need not detain this court any longer and it would suffice straight-way to notice the latest decision of this Court in Ramashre V. Dena Bank (S.A. No. 598/85 decided on 24.9.1993). Having scrutinised all the relvant aspects of the issue at hand, this Court had held :

Agriculture will amount to a profession of cultivation which would fall within the meaning of business.

Agriculture is a profession which falls within the four corners of the word ''business'' and if it is business it would he covered by Explanation II of the Proviso to section 34 (1) of the Code. Consequently, it would he open to the Courts to award contractual rate of interest of where there is no contractual rate, the rate at which moneys are lent or advanced by nationalized banks in relation to commercial transactions.

Interpreting the phrase principal sum adjudged'' this Court has held in Ramashre''s case (supra):

the said expression means only the original amount lent without addition thereto of any interest whatsoever.

It is. therefore, clear that even a loan advanced for agricultural purposes would attract the applicability of Explanation II to Section 34 CPC and it would he treated as a commercial transaction empowering the Court to award future interest exceeding 6% per annum, but not exceeding the contractual rate on interest or the rate at which moneys are lent or advanced by nationalized banks in relation to commercial transactions. It is well known and is also a judicially noticeable fact that the banks are not free to charge any rate of interest at their sweet will: it is regulated by the directives/uniform policy laid down by the Reserve Bank of India. Interest on interest or compound interest cannot he awarded under Sec. 34 of the C.P.C. whereunder interest shall have to be awarded only on the principal sum adjudged.

Though the learned counsel for the plaintiff-respondent brought to the notice of this Court several earlier decisions, but it is not necessary to notice and deal with cases decided by other High Courts inasmuch as this Court is bound by view taken by this Court in Ramashre''s case (supra). However, a decision of this Court in Punjab National Bank Vs. Mullu Singh and Others, should be noticed and dealt with in all fairness to the learned counsel for the respondent. It deals with sec. 21-A of the Banking Regulation Act and holds the applicability of the provision even to transactions prior to the date of its insertion in the Act. In Punjab National Bank''s case, nothing has been held or laid down running counter to the view taken by this Court in Ramashre''s case (supra).

In view of what has been discussed above, the only fault that can be found with the decree of the trial Court is that it should not have awarded future interest on the amount of interest included in the decretal amount and should have confined the award of interest only to the principal sum adjudged.

For the foregoing reasons, the appeal is allowed. The judgment and decree of the trial Court is modified by directing that the plaintiff-respondent shall be entitled to recover form the defendant-appellant an amount of Rs. 2,602.71 p. with interest calculated at the rate of 9% per annum on the amount of Rs. 1,100/-i. e. principal sum, from the date of the suit 20.6.1979 till realization. The costs in this appeal and before the lower appellate Court shall be borne by the parties as incurred. Costs before the tiral Court shall be borne as directed by it. Counsel''s fee as per schedule, if certified.