UCO Bank vs Bhagwant Singh

R.P. Sethi, J.—The suit for the recovery of Rs. 82,780- was decreed by the trial Court with costs and pendente-lite and future interest on the principal amount at the rate of 10-1/2 percent per annum. The appeal of the bank was dismissed vide the judgment impugned in this second appeal The main contention of the appellants is that the courts below had no jurisdiction to grant lessor rate of interest than the one which was agreed to be paid by the respondents at the time of taking of the loan. It is contended that while granting pendente-lite and future interest, the Court has no jurisdiction, to reduce the rate of interest and is under an obligation to grant the interest at the contracted rate only. It is further submitted that as the suit was based upon Negotiable Instruments Act, 1981, the provisions of Section 34 of the CPC were not applicable.

Section 34 of the CPC provides:-

"34. Interest. - (1) Where and in so far as a 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 adjudged on such principal sum for any period prior to the institution of the suit (with further interest at such) rate not exceeding six percent, per annum, as the Court deems reasonable on such principal sum) from the date of the 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 percent, 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.

(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."

The grant or refusal to grant interest pendete lite is governed by the provisions of Section 34 of the Code which provides that where and in so far as the decree is for 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 adjudged on such principal sum for any period prior to the institution of the suit. It is well settled proposition of law that interest payable to the date of suit is a matter of substantive law and is outside the scope of Section 34 of the C.P.C. The awarding of interest alter the discretion to award or refuse to award the interest after the institution of the suit. Future interest after the institution of the suit is generally granted by the Court according to the agreements of the parties and can be refused if the circumstances of the case so warrant. The plaintiff is not entitled as to claim the contract rate of interest after the institution of the suit and the Court has full discretion in the matter or grating or refusing to grant the contracted rate of interest after the filing of the suit. The Court; is not bound to award interest in all cases at the contract rate. As the awarding of interest from the date of the decree to the date of payment is in exercise of the Courts power conferred by Section 34 of the CPC and not under the terms of the contract between the parties, it has to be seen as to whether the discretion exercised is in accordance with the settled propositions of law and based upon the facts of the case or not. Once it Is proved that the discretion has been exercised on sound judicial principles, the same cannot be interfered with in an appeal.

In a case filed on the basis of Negotiable Instruments Act, 1881 a plea was raised that as the provisions of Section 79 of the Act were applicable, the grant of interest would not be governed by the provisions of Section 34 of the CPC The matter was considered by a Division Bench of the J and K High Court in United Commercial Bank Vs. Hans Raj Saraf and Others, which relied upon an earlier Division Bench of that Court in Jammu and Kashmir Bank, Ltd v. Bashir Ahmed Qazi 1987 SL.J. 249 and Piara Lal Khanna Vs. S. Herchand Singh Jaiji, wherein it was held that awarding of interest after the date of the suit was within the discretion of the Court and no party could insist for the grant of the interest at the contracted rate.

A Full Bench of the Patna High Court in Deo Nandan Prosad Vs. Ram Prasad, , held that Section 79 of the Negotiable Instruments Act was not absolute and could be subject to the other statutory provisions enacted for the particular purpose. In that case it was held that Sections 7 and 8 of the Money Lenders Act had an overriding effect upon Section 79 of the Negotiable Instruments Act.

The learned counsel appearing for the appellant has relied upon a judgment in '' Everest Industrial Corporation and Others Vs. Gujarat State Financial Corporation, to urge that as the suit was based upon Negotiable Instruments Act and the Mortgage deed the provisions of Section 34 of the Act were not applicable. The facts of the case relied upon by the learned counsel for the appellant are distinct and not applicable to the facts of the present case. In that case, the proceedings had been initiated u/s 31(1) of the State Financial Corporation Act which were akin to an application for attachment of property in execution of a decree at a stage posterior to the passing of the decree and no question of passing any order u/s 34 of the C.P.C. could, therefore, had arisen since Section 34 of the C.P.C. could be applicable only at the stage of the passing of the decree and not to any stage posterior to the decree. The facts of that case were that respondent Everest Industrial Corporation Pritchard Ltd. had borrowed from the Corporation a sum of Rs. 6 lacs for the acquisition of fixed assets and had agreed to an equitable mortgage mortgaging the land and the factory building by depositing the original title deeds of the property with the Corporation by signing the letter evidencing the said deposit of the deeds. The loan was to be re-paid in instalments. As defaults were committed in the payment of instalment and interest due to the Corporation, an application u/s 31 of the State Financial Corporation Act was filed claiming that in view of the default, the entire outstanding loan, interest and the commitment charges had become due and payable. A compromise was arrived at between the parties where the Everest Industrial Corporation undertook to pay a sum of Rs. 15,000/- every-month towards the claim of the Corporation and further agreed that if there was default in payment of any two instalments at a time, then the Corporation could recover the entire outstanding amount then due forthwith. When despite compromise, the appellant failed to pay the amount as ordered by the Court, an application was filed by the Corporation u/s 32(8) of the Corporation Act before the District Judge Baroda praying that the property hypothecated in favour of the Corporation be directed to be sold by the Commissioner to be appointed by the Court An order directing the sale of the property was passed and before the property could be sold, the borrower raised an objection regarding the actual amount which could be realised by the Corporation by the sale of the mortgaged property in its favour. The objection regarding the payment of interest was also raised. The Court dealt with the plea raised and came to the conclusion that as the proceedings pending before the Court were not a suit, the provisions of Section 34 of the Code were not applicable. In the instant case, the disputed rate of interest is admittedly for the period after the institution of the suit and decree has been passed in a regular suit filed for the recovery of the money. The provisions of Order 34 Rule 11 of the C.P.C. were, therefore, not applicable.

Similarly in Corporation Bank v. D.S. Gowda 1994 I.S.J 59 the main question related to the interpretation of Section 21-A of the Banking Regulation Act, 1949, and the Court held that on commercial loans the banks were entitled to charge interest with quarterly or longer rests. The question of grant of pendente-lite interest was neither in issue nor adjudicated by the Supreme Court. In the instant case, the trial court as well as the first appellate Court has accepted the plea of the appellant-bank for grant of contractual rate of interest till the date of the filing of the suit. However, the trial court as well as the first appellate court in their discretion decided to grant interest pendente-lite and future interest at the rate of 10-1/2 percent per annum on the principal amount of Rs. 31,378/- with a direction to the judgment-debtor to pay the decretal amount within a period of five months from the date of the decree failing which the plaintiff-appellant was held entitled for the realisation of the amount by sale of the mortgaged property.

There is no merit in this appeal which is hereby dismissed in limine.