Punjab National Bank vs Rajbir Singh and Others

Rajive Bhalla, J.—The Punjab National Bank challenges preliminary decree dated 17.10.1994, passed by the Sub Judge, 1st Class, Jhajjar and judgment and decree dated 30.10.1995, passed by the Additional District Judge, Rohtak, on the question of award of interest. Counsel for the appellant submits that while decreeing the suit, the trial Court awarded interest @ 12% per annum on the principal amount from the date of loan till the date of decree and future interest @ 6% per annum. The first appellate Court awarded a flat rate of 11% per annum from the date of institution of the suit till payment of the decretal amount. The Courts below were unmindful of the fact that the loan was a commercial transaction and, therefore, a decree was required to be passed in terms of the mortgage deed i.e. interest @ 12% per annum with half yearly rests and in case of default additional penal interest @ 2% per annum. The impugned judgments and decrees may, therefore, be modified.

Counsel for the respondents submits that the impugned judgments and decrees are legal and valid as in a mortgage suit interest has to be calculated under Order 34 Rule 11 of the C.P.C. and not as per Section 34 of the C.P.C. The first appellate Court has, therefore, rightly decreed the suit with future interest @ 11%.

I have heard counsel for the parties and perused the impugned judgments and decrees.

The substantial question of law that arises for adjudication is the, rate of future interest to be awarded in a mortgage suit.

A perusal of the pleadings and the evidence on record reveals that the respondents raised a loan for purchase of a tractor by mortgaging their property and agreeing to repay the loan with interest @ 12% per annum with quarterly rests and in case of default interest @ 2% would be added to the rate of interest. The appellant-Bank filed a suit under Order 34 of the C.P.C. for foreclosure of the mortgage alleging non payment of Rs. 99,299/- and prayed for passing a preliminary decree for Rs. 99,299/- with future interest at 12 1/2% with half yearly rests and by adding 2% penal interest. The trial Court passed a preliminary decree but awarded future interest @ 11%. The appellant-Bank filed an appeal. The Additional District Judge, Rohtak, modified the decree passed by the trial Court by awarding interest at 11% per annum from the date of institution of the suit till payment of the decretal amount, thereby awarding future interest at 11% per annum.

Before answering the question framed, it would be appropriate to point out that there is no dispute that the mortgage deed required repayment of loan with interest @ 12 1/2% per annum with half yearly rests and in case of default, 2% additional interest as penalty.

A suit for sale of mortgage property, has to be filed under Order 34 of the C.P.C. and requires a Court to pass a preliminary decree for sale of the mortgaged property directing the mortgagor to pay the decretal amount with interest calculated and determined in the manner prescribed by order 34 Rule 11 of the C.P.C. which reads as follows:-

"11. 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 up to 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,

[***], and

(iii) on the amount adjudged due to the mortgagee for costs, charges and expenses properly incurred by the mortgagee in respect of 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."

A perusal of Rule 11(a)(i) reveals that interest is to be awarded on the principal "at the rate payable on the principal, or where no such rate is fixed, at such rate as the Court deems reasonable". Thus, in a mortgage suit where the rate of interest, payable on the principal amount is already fixed under the mortgage deed, the rate of interest payable shall reflect the interest recorded in the mortgage deed/agreement and only if such a rate is not fixed may a Court proceed to award interest at a rate that the Court deems reasonable. As regards future interest i.e. interest from the date of the decree upto payment/realisation referred to as "subsequent interest", Order 34 Rule 11(b) prescribes that, interest shall be assessed on the aggregate of principal sums specified in clause (a) at a rate to be calculated in accordance with interest prescribed by clause (a) at such rate as the Court deems reasonable, thereby clearly postulating that future, interest shall be calculated in the manner prescribed by sub-clause (i) of clause (a) of Order 34 i.e. at the rate agreed between the parties and if not so agreed at such rate as the Court deems reasonable. Order 34 Rule 11(b) of the C.P.C. confers judicial discretion on a Court to award future interest at such rate as the Court "deems reasonable", only if a rate is not already agreed between parties. The substantial question of law is, therefore, answered in the aforesaid mentioned terms.

The first appellate Court has awarded interest @ 11% per annum from the date of institution of the suit till payment of the decretal amount by apparently misreading Order 34 Rule 11 of the C.P.C. which requires a Court to award the contractual rate from the date of default upto the date of preliminary decree as postulated by order 34 Rule 11(a)(i) of the C.P.C. and thereafter future interest also at the agreed rate. In view of answer to the substantial question of law and the errors committed by Courts below judgments and decrees passed by the Courts below are modified in the following terms:-

"That the appellant shall be entitled to interest from the date of default upto the date of preliminary decree @ 14-1/2% per annum with half yearly rests and future interest also @ 14-1/2% per annum with half yearly rests from the date of preliminary decree upto realisation/payment."

Decree sheet be drawn up accordingly.

No order as to costs.