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Judgment
S.S. Subramani, J.—Except in W.P. No. 6387 of 1998, in other two writ petitions, a common question arises, that is, whether the Appellate Authority was justified in awarding the interest only at the rate of 6% per annum on the amount due to the Society which is less than the contract rate of interest. In W.P. No. 6387 of 1998, the Appellate Authority has set aside the order of the Registrar and has remitted the entire matter for reconsideration by the Authority on the ground that whether debtor has defaulted and an opportunity should have been given to defend his case, and no notice was in fact received by them.
In W.P. Nos. 6374 and 10955 of 1998, the Respondents borrowed amounts from the Petitioner-Society for the purpose of putting up construction in the plot allotted to them. They also executed a mortgage deed in favour of the Petitioner. As per the provisions of the Mortgage Deed, they are liable to pay interest at 13.75% and in case they committed default in payment of instalments they are liable to pay 15% rate interest and after passing of the award, they are liable to pay interest at the rate of 16%. Taking into consideration the contract between the parties, the Arbitrator passed an award directing to pay interest on the balance amount at the rate of 16% per annum.
An appeal was filed by the second Respondent in the respective writ petitions challenging the rate of interest alone. The Appellate Authority, who is the District Judge, reduced the rate of interest to 6% taking into consideration an earlier decision of this Court where it was held that the principle of Section 34 of CPC could be made applicable in arbitration proceedings also. From the date of initiation of the proceedings, the debtor is liable to pay only 6% interest. The same is challenged in these writ petitions.
Learned Counsel for the Petitioner submitted that the decision relied on by the first Respondent-District Judge, the Appellate Authority reported in 1979 T.L.N.J. 449 is no longer a good law in view of amendment to the Tamilnadu Cooperative Societies Act. It is represented by the counsel that u/s 90(8) of the Act, application of Section 34 of the CPC has been excluded. Once the principles of Section 34 excluded or it is not made applicable to Arbitration proceedings under the Cooperative Societies Act, the only other alternative is to avoid interest at the contract rate.
As against the said contention, learned Counsel for the Respondent submitted that even though Section 34 may not apply in terms, that does not follow the discretion in awarding the rate of interest could not be exercised. In awarding the rate of interest, the Arbitrator or the Appellate Authority is entitled to take into consideration the various circumstances and if a discretion is exercised in limiting the rate at 6%, the same is not liable to be interfered with under Article 226 of the Constitution of India. It is further submitted that if the discretion has been exercised, taking into consideration the relevant facts, the proceedings before this Court, not being in the nature of appeal, is not to be interfered with.
The only point that arises for consideration in this case is whether the award of 6% interest is proper. Section 90(8) reads thus:
Nothing contained in Section 34 of the Code of Civil Procedure, 1908 (Central Act V of 1908) shall apply to any decision passed or award made under this section.
In view of the incorporation of Sub-section (8), I do not think any decision rendered earlier taking into consideration the principles of Section 34 of CPC could be made applicable after the amendment.
The further question that arises for consideration is whether the Arbitrator or the Court has a discretion in awarding the rate of interest even if Section 34 is not applied. It is the contention of the learned Counsel for the Petitioner that u/s 34 of Code of Civil Procedure, the maximum rate of interest that could be awarded is provided and if the applicability of that principle is excluded, the only other option is to award contract rate of interest. It means they are entitled to 16% rate of interest since they have committed default in payment. How far this submission could be accepted is the only question that requires further consideration.
In a recent decision of Supreme Court reported in N.M. Veerappa Vs. Canara Bank and Others, , the question that came up for consideration was whether in a mortgage suit under Order 34 of Code of Civil Procedure, Section 34 of CPC could be made applicable. The Honourable Supreme Court said that in mortgage suit, Section 34 has no application. Order 34 is self-contained in regard to mortgage suits. Then, their Lordships further considered that if Section 34 has no application, whether the Court can exercise its discretion in awarding the lesser rate of interest than the contract rate. Taking into consideration the provisions of Order 34 Rule 11 Code of Civil Procedure, the honourable Supreme Court found that is an independent power. In appropriate cases, the Court can exercise its discretion in awarding lesser rate of interest. Neither the provisions of Section 21-A of the Banking Regulation Act, 1949 nor any other law will prevent the Court from awarding a lower rate of interest and the Honourable Supreme Court reduced the rate of interest at 6% in that case.
According to me, the said decision of the Honourable Supreme Court, could be applied to the facts of this case as well, and I feel that even though principles of Section 34, CPC are not made applicable, the Arbitrator or Appellate Authority has discretion in granting the lower rate of interest. That discretion will have to be exercised properly, taking into consideration the relevant materials. Sympathy to the debtor cannot be considered as a criterion.
The Appellate Authority while reducing the rate of interest, has only relied on the decision of this Court, which is no longer good law. In one case, it was held if the loan was availed for putting up a residential house, it will not be proper to realise more than 6% interest. According to me, both these reasoning for reducing the rate of interest are not relevant considerations.
It could be seen from the typed set of papers, the Society itself is taking a loan from the Tamilnadu Cooperative Housing Federation agreeing to pay 11.75% interest and the amount taken as loan is subsequently distributed among the various members of the Society. When the Society itself has to pay an interest of 11.75%, the interest rate can never be less than that rate. These members have agreed to discharge the debt within a span of 15 years, agreeing to pay 13.75% i.e., 2% above the rate of interest which the society has to pay to the Tamilnadu Cooperative Housing Federation. This 13.75% interest is liable-to be raised in case there is a default. If a default is committed, the rate of interest will be 15% and after passing the award, it will be 16%. The Appellate, Authority has not considered the rate of interest which the Petitioner-Society has to pay to the Tamilnadu Cooperative Housing Federation. The relevant fact was omitted to be considered. The loan was obtained in the year 1981. Proceedings were initiated against the members years thereafter. By that time, due to inflation and other circumstances, the value of money has also gone down. The lending rate during the relevant time is also not considered.
Under the above circumstances, I feel that the award of interest at the rate of 16%, as found by the Arbitrator, will be proper.
In the result, W.P. Nos. 6374 and 10955 of 1998 are allowed and the rate of interest awarded by the Arbitrator is restored. To that extent, the order of the Appellate Authority stands modified. Writ Petitions are allowed. The Petitioners are also entitled to the costs of these writ petitions quantified at Rs. 2,500/- (Rupees two thousand five hundred only) each.
In regard to Writ Petition No. 6387 of 1998, I do not think that the Petitioner is entitled to any relief. In that case, the Appellate Authority has found the Respondent has not received notice of the Arbitration proceedings and it is only proper that he may be given an opportunity to defend his case. No record has been placed before this Court to show that the Respondent herein absented himself after receipt of notice of the arbitration proceedings. When the authority is met with a contention that the award is passed without notice, it is only proper on its part (which is the final authority on facts) to verify whether the contentions are correct or not. Once it is found that the grievance of the Respondent is genuine, it has no option but to remit the case to the lower authority.
No interference is called for in that writ petition. In the result, W.P. Nos. 6387 of 1998 is dismissed. No costs.
In the results, W.P. Nos. 6374 and 10955 of 1998 are allowed. Advocate''s fee Rs. 2,500/- (Rupees Two thousand five hundred only) each. W.P. No. 6387 of 1998 is dismissed. No costs. Consequently, connected W.M Ps. are dismissed.