Makhan Singh vs Union Bank of India and others

Ujagar Singh, J.—A preliminary decree for the recovery of Rs. 4,25.129.30, interest Rs. 83,112.25 paise and Rs. 25,811/- by way of costs was passed by the Additional Senior Subordinate Judge, Panipat on 25.2.1987 in favour of the Plaintiff-decree holder and against the judgment-debtor. On non payment of the said amount, a final decree was passed on 16.7.1988. The property in dispute was hypothecated with the Plaintiff decree-holder and therefore, the suit was under, Order 34 of the CPC (the Code in short) Auction of the hypothecated property was directed vide order dated 8.9.1988 and it was to take place on 24.10.1988. The Defendant-judgment debtors filed objections, claiming that the decree was a nullity, as it infringed mandatory provisions of S. 34 of the Code and as such, further interest could not be charged at the rate more than 6 per cent per annum on the principal amount Similarly, it was challenged that compound interest could not be allowed to be charged as claimed in the execution petition by the Plaintiff decree-holder. The executing Court accepted the plea that the judgment-debtors could challenge the Tate of interest in the execution proceedings if the same is awarded u/s 34 of the Code, but it was of the view that in the instant case, S. 34 of the Code was not applicable and reliance was placed on State Bank of India v. Neeru Plastic Works and Ors. (1984) 86 P.L.R 382, wherein the property was mortgaged and the Plaintiff was held entitled to the agreed rate of interest at 18 p. c. p. a. and it was held that interest was not excessive, keeping in view the prevailing market position.

The executing Court dismissed the objections as without merit and directed the proceedings in the execution petition to continue.

The judgment-debtors have filed this revision petition. It came up for preliminary bearing on 19.10.1988. Notice was issued for 4-11-1988. Stay of auction was granted.

The learned Counsel for the revision-Petitioner has argued that even in a mortgage suit for sale of the property, the decree is always for the recovery of money and therefore, according to him, S. 34 of the Code is applicable. In the alternative, he has argued that even is mortgage suits, there is a limit imposed upon interest to be awarded by the Court under Rule 11 of Order 34 of the Code This rule imposes the same limitation on the Court as S. 34 of the Code.

For the sake of convenience of discussion, S 34 and Order 34 R. 11 of the Code are reproduced as under:

Interest: (1) Where and in so far as 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 adjuged 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 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 (Acquision 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.

(2) Where such a decree is silent with respect to the payment of further interest on such principal sum, from the date of the decree to the date of payment or other earlier date, the Court shall be deemed to have refused such interest, and a separate suit therefore shall not lie.

Order 34. Suits relating to Mortgages of Immovable Property.

R. 1....... ......

... ... ... ...

Payment of interest-In any decree passed in a suit for foreclosure, sale or redemption, where interest is legally recoverable, the Court may order payment of interest to the mortgagee as follows, namely

(a) interest upto the date on or before which payment of the amount found or declared due is under the preliminary decree to be made by the mortgagor or other person redeeming the mortgage-

(i) on the principal amount found or declared due on the mortgage, at the rate payable on the principal, or, where no such rate is fixed, at such rate as the Court deems reasonable.

(ii)... ... ... ...

(iii) on the amount adjudged due to the mortgagee for costs, charges and expenses properly incurred by the mortgagee in respect of the mortgage security up to the date of the preliminary decree and added to the mortgage-money,-at the rate agreed between the parties or failing such rate at such rate not exceeding six per cent per annum as the Court deems reasonable; and

(b) subsequent interest up to the date of realisation or actual payment on the aggregate of the principal sums specified in Clause (a) as calculated in accordance with that clause at such rate as the Court deems reasonable.

Present S. 34 of the Code except the proviso to Sub-section (1) was substituted by the CPC Amendment Act, 1956 for the earlier section. Section 2 of the Amendment Act No. 66 of 1956 amended the earlier Section 34 and Sub-section (1) for the words "with further interest at such rate as the Court deems reasonable on the aggregate sum so adjudged, the words "with" further interest at such not exceeding six per cent per annum the Court claims reasonable on such principal sum" and in Sub-section (2) the words "on such aggregate sum of the aforesaid" the words "on such principal sum" shall be substituted. This amendment was not without any meaning. The intention of the Legislature was that the interest pending the suit has to be awarded by the Court on the principal sum advanced or claimed and not on the whole amount claimed in the suit. Similarly, future interest i.e. from the date of the decree till realisation should be awarded only on such principal sum as adjudicated by the Court in the decree and judgment. To make it more clear, the duty of the Court is first to adjudicate what was the principal amount recoverable from the Defendant. After adjudicating the principal amount, interest pending the suit and after the decree till realisation of the amount is to be awarded at the rates mentioned in the section and not on the suit i amount, i.e. principal amount plus any other amount, such as interest on the principal amount. It has further to be emphasised that the intention of the Legislature was not to grant any amount as interest on interest included in the suit amount.

To illustrate the provision of S. 34 of the Code further, suppose an amount of Rs. 10,000/- is advanced as loan to the Defendant and the rate of interest agreed between the parties is 15 p. c.p.a Before the expiry of limitation, the Plaintiff files a suit for the recovery of the principal amount of Rs. 10,000/- plus the amount of interest calculated at the rate of 15 p. c. p. a. till the suit is filed. At the time of the suit, the trial Court has to first determine the principal amount specifically, i.e. in this example, Rs. 10.000/- and it is this principal amount on which interest at the rate mentioned in the section can be awarded pending the suit and again, it is this principal amount of Rs. 10,000/-wuh future interest at the rate mentioned in the section can be awarded only on this amount and not on the decretal amount. The practice looks to be the easier course and cases have come to the notice that interest pending the suit is awarded on the suit amount and then again, interest after the decree till realisation is awarded on the decretal amount. This practice is beyond the powers of trial Court. It is totally against the provisions of S 34 of the Code. To make it more effective proviso and explanations I and II were inserted by CPC (Amendment) Act, 1976 (104 of 1976).

Suits in respect of mortgaged properties for their sale are filed Under Order 34 of the Code and therein a provision similar to that of S. 34 of the Code has been specifically mentioned in R 11 thereof Rule 11, reproduced above, was substituted for the earlier rule by the Transfer of Property (Amendment) Supplementary Act, 1929, Sub-clause (2) of Clause (a) was omitted by the above noted Amending Act ((sic)6 of 1956). According to this rule, in a decree passed in a suit for foreclosure, sale or redemption where interest is legally recoverable, the Court may order payment of interest to the mortgagee upto the date on or before which payment of the amount found or declared due under the preliminary decree to be made by the mortgagor on the principal amount found or declared due at the rate payable on the principal or where no such rate is fixed, at such rate as the Court deems reasonable and on the amount adjudged due to the mortgagee for costs, charges and expenseses properly incurred by the mortgagee in respect of the mortgage securityup to the date of the preliminary decree and added to the mortage money at the rate agreed between the parties or failing such rate, at such rate not exceeding 6 p.c.p.a. as the Court deems reasonable. The subsequent interest up to the date of realisation or actual payment on the aggregate of the principal sums specified earlier, as calculated in accordance with the earlier provisions at such rate as the Court deems reasonable. This rule leaves no option to the Court except that mentioned in the rule itself for fixation of rate of interest. Whenever interest is legally recoverable, it can be ordered up to the date on or before which payment of the amount found or declared due under the preliminary decree to be made by the mortgagor on the principal amount at the rate payable on the principal or where no such rate is fixed, at such rate as the Court deems reasonable. Similarly, on the amount of costs, charges and expenses properly incurred by the mortgagee in respect of mortgage-security up to date of preliminary decree and added to the mortgage amount at rate agreed or failing such rate, at such rate not exceeding 6 p.c.p.a. as the Court deems reasonable. This provision of interest in R. 11 of the Code is also mandatory. Future interest i.e. from the date of decree till realisation or actual payment or the aggregate of the principal sums calculated, as mentioned above, at a rate which the Court deems reasonable. As noted above, with slight variance, R. 11 of the Code is not different from the provisions of Section 34 of the Code The lower Court has not given any detail as to how amount of Rs. 6,05,937 42 is recoverable and what was the mortgage amount ? The lower Court has not taken into consideration the provisions of Order 34 Rule 11 of the Code.

In this view of the matter, I accept this revision and set aside the order of the Court below. The case is remanded for giving a finding as required by Rule 11 of Order 34 of the Code. The parties are directed to appear before the lower Court on 20.3.1989. The revision Petitioner is directed to pay an amount of rupees 3 lacs within a period of two months and the learned Counsel for the Petitioner has agreed to do the same- The lower Court may also consider afresh offer of the judgment debtor to sell the property privately.