State Bank of India vs Siddharth Hotel and Others

A.P. Shrivastava, J.

This appeal has been preferred by the appellant/plaintiff u/s 96 of CPC against the judgment and decree dated 4-10-93 and 14-10-93 passed by the Second Additional Judge to the Court of District Judge, Gwalior, in Original Civil Suit No. 3-B/87 by which money decree of Rs. 72,287.06 was ordered against the respondents to the plaintiff. It is further directed that the respondents shall also pay interest at the rate of 6% per annum from the date of filing of the suit till realization of the amount.

The facts giving rise to this case are that on 22-11-86, the plaintiff-appellant instituted a civil suit against the defendants-respondents for recovery of Rs. 72,287.06 on account of the loan obtained by it and the interest accrued thereon. The loan received by the defendants-respondents was agreed at the interest of 15% per annum of bank rate and the plaintiff executed documents to that effect with the defendants as well. The agreement executed by the parties is Exh. P-2 and in Clause 6 of Exh. P-3, the rate of interest agreed by the parties was 15% per annum.

In the Trial Court, the defendants/respondents were not present to contest the claim of the plaintiff and were proceeded ex parte.

In the appeal before this Court also, respondent No. 4 was not present and proceeded ex parte while, the notices to the respondent Nos. 1,2,3 and 5 are dispensed with by this Court on 23-4-08. The impugned Judgment has been challenged on various grounds but at the time of final hearing, the Counsel for the appellant submits that he is challenging only the rate of interest which was awarded by the Trial Court contrary to the provisions of Section 34 of CPC.

The main contention of the learned Counsel for the appellant is that being a commercial transaction, provisions of Section 34 of CPC will not be attracted because for the purpose of commercial transaction, the rate of interest would prevail, which was accepted by the parties during transaction. He referred to documents (Exhs. P-2 and P-3). Exh. P-2 is an agreement in which in Clause 6 it is laid down that the borrower shall also pay interest at the rate of 1-1/2% per cent below the State Bank of India Advance Rate with a minimum of 15 per cent per annum rising and failing therewith calculated respectively on the daily balance of the amount due alongwith the repayment of installments of the principal amount of the loan as aforesaid and shall pay compound interest at the rate aforesaid in default of payment of any installment of simple interest on the date fixed for payment thereof. Similar condition was mentioned in Exh. P-3.

In spite of the above contention, learned Counsel for the appellant relied on the decision of this Court dated 8-5-07 pronounced in F.A. No. 88/97 (State Bank of India v. Naresh Kumar Singh and Anr.) in which it was observed by the Court that when it is proved that transaction is commercial one then the borrower is bound to pay the interest at the rate agreed in the agreement and the interest will be paid on the principal amount. In that case, the Court allowed the interest to the tune of Rs. 12.5% per annum as agreed by the parties. He also relied on various decisions of the Apex Court in which it is categorically held that if a loan is for commercial transaction, the plaintiff is entitled for contractual rate of interest and the Court cannot limit rate of interest to 6% per annum from the date of decree till realization of amount. He also relied on Hotel Seaking and Others Vs. Kerala Financial Corporation, in which the Apex Court has held as under:

After analyzing the rulings referred to by both the sides and perusing the records we are of the opinion that the judgment of the High Court is correct. The view taken that Section 34, CPC cannot be invoked in proceedings instituted u/s 31 of the Act and interest will be payable in accordance with the terms of the agreement is right. The question has been squarely answered in Everest Industrial Corpn. which was in turn based on the principle laid down in Natson Manufacturing Co. (P) Ltd. The rulings cited by learned Counsel for the appellants have no relevance in this case as pointed out earlier.

The District Court having found on the facts that the appellants had not made out a case for reduction of interest was in error in reducing the rate of interest for the period from the date of the petition to the date of the order u/s 34, Civil Procedure Code. The name is contrary to the law laid down by this Court. Hence we agree with the High Court that the interest should be paid at the rate of 15% till the debt is discharged.

In view of the above principle laid down by the Apex Court and by this Court, I am of the view that appellant is entitled to interest at the rate of contractual rate of interest on 15% per annum from the date of decree till realization of the amount, therefore, the learned Trial Court committed error in awarding interest at the rate of 6% per annum to the appellant.

Consequently, this appeal is allowed.

The impugned judgment and decree passed by the learned Trial Court is modified to that extent only with enhancement of the rate of interest from 6% per annum to 15% per annum from the date of decree passed by the learned Trial Court till realization. Decree be drawn up accordingly. No order as to costs.