Syndicate Bank vs Swadesamitran Limited

Ratnam, J.—The successful plaintiff in C.S. No. 472 of 1984 has preferred this appeal feeling aggrieved by the judgment and decree of the

learned judge determining the rate of interest payable by the first defendant, the respondent herein, at 13% per annum from the date of plaint till the

date of payment.

The plaintiff instituted the suit, C.S. No. 472 of 1984, praying for the recovery of a sum of Rs. 15,94,294.60 with interest at the rate of 18%

per annum with quarterly rests from the date of plaint till the date of payment. On September 1, 1972, the appellant advanced to the respondent

herein a loan of Rs. 6,00,000 carrying interest at 5% over the bank rate with a minimum of 11% per annum to be calculated with quarterly rests

and as security for the due repayment of the amount so advanced, the respondent deposited its title deeds relating to ""A"" schedule properties in the

plaint, in addition to offering the ""B"" schedule assets also as such security.

Several defences were raised by the respondent herein. Having regard to the limited dispute in this appeal, viz., the rate of interest payable by

the respondent between the date of suit and the date of decree, it would suffice to note the defence raised by the respondent in that regard,

according to which, the appellant was not entitled to claim interest at 18% per annum as per the contract. After the trial of the suit commenced and

PW-1 and DW-1 had been examined, on November 29, 1989, the respondent, through its counsel, made an endorsement to the effect that the

plaint suit claim is agreed to and that the interest rate alone is disputed. Pursuant to the endorsement so made, the respondent also expressed its

readiness to pay the entire amount due under the decree that may be passed with such rate of interest as may be fixed by the court as payable from

the date of plaint till the date of payment. Inasmuch as the amount claimed in the plaint included interest on the amount advanced at 18% per

annum with quarterly rests till the date of plaint and that liability was accepted by the respondent herein under the endorsement referred to above,

the court proceeded to determine the rate of interest payable by the respondent to the appellant from the date of plaint till the date of payment.

While doing so, the court took into account the payment of a sum of Rs. 5,00,000 made to the appellant by the respondent on April 10, 1987, and

also the expression of readiness and willingness to pay the balance of the amount that may be worked out after the rate of interest at 13% per

annum from the date of plaint till the date of payment. The respondent was also directed to file a calculation memo and also bring the amount as

per the calculation memo before the court the next day, i.e., November 30, 1989. Likewise, the appellant was also directed to bring the

documents of title deposited with it by the respondent, so that on receipt of the amount from the respondent the documents could be handed over

by the appellant to the respondent. Ultimately, the court directed the respondent to pay the appellant the amount claimed in the plaint with interest

at 13% per annum from the date of plaint till the date of payment as well as costs and the matter was directed to be posted on November 30,

1989. On that day, the respondent filed a memo of calculation, according to which, the total amount payable as per the order of the court dated

November 29, 1989, was shown as Rs. 21,31,747 and for that amount, a cheque was also handed over by the counsel for the respondent of the

counsel for the appellant. Thereupon, the court directed the appellant to hand over the documents of title deposited by the respondent on or before

December 2, 1989, and the respondent was also directed to get back the documents of title for counsel for the appellant. Yet another direction

that a fixed deposit receipt for Rs. 15,00,000 handed over by the respondent to the appellant should also be returned to counsel for the

respondent. The undertaking given by counsel for the appellant to return the documents of title was also recorded as part of that order. While

matters stood thus, the appellant preferred this appeal questioning the rate of interest awarded by the court at 13% per annum from the date of

plaint till the date of payment and claiming that interest at 18% per annum with quarterly rests between the date of suit and date of decree should

have been directed to be paid by the respondent.

Learned counsel for the appellant, Mr. S. Kannan, first contended referring to section 34(1), Civil Procedure Code, that the transaction entered

into by the respondent was a commercial transaction with a nationalised bank and, therefore, under the proviso to that section, the court should

have awarded interest at the contractual rate and not at a reduced rate. Reliance in this connection was also placed by learned counsel upon the

decisions in Central Bank of India, Kutch Vs. P.R. Garments Industries Pvt. Ltd., Surendranagar and Others, , Syndicate Bank v. West Bengal

Cements Ltd., Air 1989 Delhi 107; [1991] 71 Comp Cas 602 and State Bank of Travancore, Tirupur Branch Vs. K. Vinayachandran and

Another, . On the other hand, Mr. G. Subramaniam, learned counsel for the respondent, submitted that the suit was instituted on the foot of a

mortgage for the recovery of the amounts due thereunder and in view of the special provisions under Order 34, rule 11, Civil Procedure Code, the

proviso to section 34(1), Civil Procedure Code, could not be pressed into service to claim that interest should be paid at the contractual rate, viz.,

18% per annum. Reference in this connection was made to the decisions in Jagannath Prosad Singh Chowdhury v. Surajmul Jalal [1927] 52 MLJ

373 AIR 1940 20 (Federal Court) and Pentala Githavardhana Rao and Others Vs. The Andhra Bank Ltd. and Others, .

We find on a consideration of the basis on which the suit had been laid that it is a suit on an equitable mortgage for the realisation of the amounts

due under such a mortgage. In other words, the suit is not one for recovery of money simpliciter. The opening words in section 34(1), Civil

Procedure Code, clearly state that the rate of interest as provided thereunder and in the proviso could be awarded, if the decree is one for

payment of money. On the other hand, Order 34, rule 11, Civil Procedure code, is a special provision relating to the payment of interest in actions

on a mortgage by the institution of suits for foreclosure, sale or redemption. While section 34(1), CPC and the proviso thereunder provide for

payment of interest in respect of money-decrees, Order 34, rule 11, Civil Procedure Code, makes a similar provision for payment of interest in

mortgage suits. Thus, section 34(1), Civil Procedure Code, is in the nature of a general provision in respect of money-decrees, while Order 34,

rule, 11, Civil Procedure Code, is a special provision relating to the payment of interest in mortgage actions. Which of the two provisions should be

applied to the instant case, is the question. It is in this connection that the decision of the Privy Council in Jagannath Prosad Singh Chowdhury v.

Surajul Jalal [1927] 52 MLJ 373 is relevant. It was pointed out by the Privy Council that Order 34, Civil Procedure Code, determines the

question of the rate of interest, whether it be simple or compound, in the particular case of mortgages and differs from the general provisions of

section 34, Civil Procedure Code, and so the particular avoids the general. Though this decision of the Privy Council was rendered prior to the

amendment of Order 34, rule 11, Civil Procedure Code, by the amending Act 21 of 1929, that does not in any manner affect Order 34, rule 11,

Civil Procedure Code, which is a special provisions relating to mortgage and thus, excluding the applicability of section 34(1), Civil Procedure

Code. Again in AIR 1940 20 (Federal Court) , the Federal Court pointed out, referring to the general provision u/s 34, Civil Procedure Code, and

the special provision under Order 34, rules 2 and 4, Civil Procedure Code, prior to and after the amendment in 1929, that the special provision

under Order 34, Civil Procedure Code, had to be applied in preference to the general provision u/s 34, Civil Procedure Code. To similar effect is

the decision in Pentala Githavardhana Rao and Others Vs. The Andhra Bank Ltd. and Others, , where it has been pointed out that the provisions

of section 34, Civil Procedure Code, are not applicable to cases of mortgages and the award of interest is governed in such cases by the

provisions of Order 34, rule 11, Civil Procedure code. We, therefore, hold that having regard to the nature of the suit instituted by the appellant in

C.S. No. 472 of 1948, viz., on the foot of a mortgage for the recovery of the amounts due thereunder, the provision that would govern the award

of interest would only be order 34, rule 11, Civil Procedure Code, and not section 34, Civil Procedure Code. We may now refer to the decisions

relied on by learned counsel for the appellant. In Central Bank of India, Kutch Vs. P.R. Garments Industries Pvt. Ltd., Surendranagar and Others,

, the court considered the rate of interest with reference to section 34, Civil Procedure Code, and not Order 34, rule 11; Civil Procedure Code.

Likewise, in the other decisions in Syndicate Bank Vs. West Bengal Cements Lts. and others, and State Bank of Travancore, Tirupur Branch Vs.

K. Vinayachandran and Another, , the court considered the rate of interest awardable under the decree in a case falling u/s 34, Civil Procedure

Code. Thus, none of the decisions relied on by learned counsel for the appellant can have any application in this case. We, therefore, hold that the

instant case would be governed by the provisions of Order 34, rule 11, Civil Procedure Code, in the matter of the award of interest from the date

of plaint till the date of decree and not by section 34, Civil Procedure Code, and there is, therefore, no question to the appellant being entitled to

claim interest at the contractual rate on the basis of the proviso to section 34(1), Civil Procedure Code, labelling the transaction as a Commercial

one with a nationalised bank.

Learned counsel for the appellant next contended that even if the provisions of Order 34, rule 11, Civil Procedure Code, would apply, the court

is bound to allow interest between the date of plaint and the date of decree as agreed to between the parties. In answer to this, learned counsel for

the respondent contended that under Order 34, rule 11, Civil Procedure Code, a discretion is vested in the court to award such rate of interest as

the court may fix having regard to all the circumstances of the case and that it is not obligatory that the court should award interest at the

contractual rate even in cases falling under Order 34, rule 11, Civil Procedure Code. Strong emphasis was laid upon the use of the expression

may"" occurring in Order 34, rule 11, Civil Procedure Code. Our attention in this connection was also drawn to the decisions in AIR 1940 20

(Federal Court) , Soli Pestonji Majoo and Others Vs. Gangadhar Khomka, , Pentala Githavardhana Rao and Others Vs. The Andhra Bank Ltd.

and Others, and Punjab National Bank Ltd. Vs. Udyog Silpa Pvt. Ltd. and Others, .

We may observe that under Order 34, rule 11, Civil Procedure Code, the court may order payment of interest as indicated thereunder. The use

of the expression ""may"" indicates that it is not intended that in all cases, the court is obliged to decree interest at the contractual rate. A certain

amount of discretion is undoubtedly vested in the court in so far as the payment of interest pendente lite and subsequent interest are concerned. If

the court was bound, as claimed by learned counsel for the appellant, even under Order 34, rule 11, Civil Procedure Code, to award pendente lite

interest at the contractual rate, then, the language employed would have been different and the expression ""may"" would not at all have been used.

The expression ""may"" used also postulates that the court is not bound to exercise its powers relating to the award of interest and the language as it

is found in Order 34, rule 11, Civil Procedure Code, can only mean that the court has a discretion to order the payment of interest either at the

contractual rate or even at a rate which the court deems reasonable, having regard to the circumstances of the case. We may in this connection

refer to the decisions relied on by learned counsel for the respondent. In AIR 1940 20 (Federal Court) , interpreting the provisions of Order 34,

rule 11, Civil Procedure Code, the Federal Court pointed out that the special provision under Order 34, rule 11, Civil Procedure Code, gives a

certain amount of discretion to the court in so far as interest pendente life and subsequent interest are concerned and it is no longer absolutely

obligatory on the part of the court to decree interest at the contractual rate in all circumstances, even if there be no question of the rate of interest

being penal, excessive or substantially unfair. The principle so laid down by the Federal Court was reaffirmed by the Supreme Court in the decision

reported in Soli Pestonji Majoo and Others Vs. Gangadhar Khomka, . Referring to Order 34, rule 11, Civil Procedure Code, and the decision of

the Federal Court in AIR 1940 20 (Federal Court) , the Supreme Court pointed out that the new rule under Order 34, rule 11, Civil Procedure

Code, inserted by the amending Act 21 of 1929 gave a certain amount of discretion to the court so far as interest pendente lite and subsequent

interest are concerned. Again, in Pentala Githavardhana Rao and Others Vs. The Andhra Bank Ltd. and Others, , the principal laid down in the

decision of the Supreme Court in Soli Pestonji Majoo and Others Vs. Gangadhar Khomka, , was applied and it was laid down that there is no

obligation cast on the courts to award pendente lite and subsequent interest only at the contractual rates and that courts have a discretion vested in

so far as the interest payable subsequent to the date of suit is concerned. To similar effect is the decision in Punjab National Bank Ltd. Vs. Udyog

Silpa Pvt. Ltd. and Others, , where it has been pointed out that Order 34, rule 11, Civil Procedure Code, is not mandatory in character and that it

is open to a court to vary the rate of interest in so far as the period between the date of suit and the date fixed for redemption in a preliminary

decree is concerned, even in a case where the interest is legally recoverable and the rate of interest is not penal, unconscionable or otherwise

excessive. Thus, on a consideration of the language employed in Order 34, rule 11, Civil Procedure Code, and the interpretation thereof in the

manner aforesaid by the decisions referred to earlier, we are of the view that even in a case to which the provision under Order 34, rule 11, Civil

Procedure Code, stands attracted, the court has a discretion to award pendente and post-decree interest at a rate lower than the contractual rate.

We now proceed to consider the propriety of the award of interest at the rate of 13% per annum from the date of plaint till the date of decree,

as has been done by the trial judge. We find from the record that the respondent had become a sick unit and had also stopped its business since

August, 1977. Towards the amount of Rs. 6,00,000 advanced by the appellant to the respondent in September 1, 1972, even prior to the

institution of the suit, more than Rs. 10,00,000 had been paid. Pending the suit, the respondent had paid a further amount of Rs. 5,00,000.

Besides, the respondent had accepted the claim as made in the plaint, but had disputed only the rate of interest and after so accepting its liability, it

had prayed only for the exercise of the discretion of the court in the matter of payment of interest from the date of plaint to the date of decree.

There is one other circumstance which also establishes that the respondent deserved to be relieved of the payment of interest at the contractual rate

of 18% per annum with quarterly rests and that is the expression of the readiness and willingness of the respondent to pay the entirety of the

amount after accepting the amount claimed in the plaint, though the rate of interest was disputed. The respondent had also carried out this

expression of its willingness into action by paying the entire amount of Rs. 21,31,747 the very next day after submitting to a decree. Considering

the amount of loan advanced by the appellant to the respondent in a sum of Rs. 6,00,000 and the amount repaid by the respondent to the appellant

in a total sum of nearly Rs. 36,00,000, we feel that the pendente lite interest was rightly fixed at 13% per annum from the date of plaint till the date

of payment, i.e. November 30, 1989. We may also observe that the discretion exercised by the trial judge in the matter of fixing the rate of interest

at 13% per annum cannot in any manner be characterised as either capricious or arbitrary. We, therefore, hold that no case is made out for

interfering with the exercise of discretion by the learned judge in fixing the rate of interest payable by the respondent to the appellant at 13% per

annum from the date of plaint till the date of payment especially when we find that the entire amount of principal and interest had also been paid on

November 30, 1989. Inasmuch as the respondent had paid the entire amount, the learned judge rightly directed the appellant to return the

documents of title deposited by the respondent and also return the fixed deposit receipt Rs. 15,00,000 with the Bank of India. Since the time

granted by the learned judge in his order dated November 30, 1989, for doing so had expired, we direct the appellant to return the documents of

title and other documents deposited by the respondent and also the fixed deposit receipt for Rs. 15,00,000 to it on or before December 31, 1989,

in accordance with the undertaking given by counsel for the appellant before the learned judge and recorded in the order passed on November 30,

1989. We, therefore, dismiss this appeal with costs.