Union Bank of India vs Parasuram

S.B. Majage, J.—On the claim made for a sum of Rs. 30,203.65 with interest at 21% per annum by the respondent, who was plaintiff in O.S. No. 51 of 1992 on the file of the Court of Munsiff at Navalgund, the Appellate Court/III Additional Civil Judge (Senior Division) at Dharwad held in R.A. No. 19 of 1997 that he is entitled to a sum of Rs. 16,244/- with interest at 18% per annum from the date of suit to till its realisation, though the Trial Court had dismissed his suit. Hence, aggrieved by the said judgment and decree passed by the Appellate Court, the appellant, who was defendant in said suit and respondent before the first Appellate Court, has approached this Court by way of second appeal.

While admitting the appeal on 31-8-1999, this Court framed following substantial question of law for decision.--

"Whether the lower Appellate Court was justified in granting interest at 18% p.a. on the amount found due when the rate of interest that was agreed to be paid on such deposit was stated to be only 6% p.a. as per Clause (5) of the Appointment as Bank''s authorised agent for collection of Mini Deposit'' as per Ex. D. 1 which was alleged to have been issued by the appellant-Bank to the respondent-plaintiff, at the time of his appointment?"

Heard argument. According to the learned Counsel for appellant-defendant, the Appellate Court was wrong in awarding interest at 18% per annum as against the agreed rate of interest i.e., 6% per annum, more so, when the transaction was not a commercial transaction. On the other hand, the learned Counsel for the respondent-plaintiff, relying on a Division Bench decision of this Court and a decision of the Apex Court submitted that the rate of interest to be awarded in a money suit is within the discretion of the Court and the Appellate Court has rightly exercised its discretion giving reasons as to why the plaintiff is entitled to interest at 18% per annum and consequently, there is no infirmity in the impugned judgment and decree. Perused the records carefully.

Facts of the case have been narrated by the first Appellate Court. They are not disputed before this Court. Further, the appellant-defendant has not challenged the judgment and decree passed by the Appellate Court by which the respondent-plaintiff is held entitled to a sum of Rs. 16,244/-. The appeal is filed challenging the rate of interest awarded only. So, and in view of the short point involved, it is not necessary to repeat the facts.

What is relevant and necessary to note is that the sum adjudged as payable to the respondent-plaintiff by the appellant-defendant is Rs. 16,244/-. However, the agreed rate of interest between the parties is admittedly 6% per annum as per Ex. D. 1, but the Appellate Court has exercised its discretion and awarded interest at 18% from the date of suit to till realisation.

Now reference can be had to the provision contained in Section 34 of the Code of Civil Procedure, as it relates to and governs the rate of interest to be awarded in such cases:

"Section 34. Interest.--(1) Where and insofar 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 6% 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".

(emphasis supplied)

A plain reading of the said provision, makes it clear that it refers to interest in respect of three stages. One relates to interest prior to and till the date of suit, with which we are not concerned in the present matter. The 2nd stage is current or pendente lite interest from the date of suit to till the date of decree. This is purely within the discretion of Court and consequently, it may award interest at such rate as it deems reasonable on the principal sum adjudged. This is not circumscribed even by the express contract between the parties. The third stage relates to the interest from the date of decree till recovery or earlier date to be fixed by the Court, which cannot exceed 6% per annum unless the liability for the payment of money arises out of a commercial transaction in which event, as per the proviso to Section 34(1) of the CPC, it may exceed 6% per annum but shall not exceed the contractual rate of interest and if there is no such contractual rate of interest, the rate at which moneys are lent or advanced by nationalised Banks in relation to commercial transactions.

In the case of Canara Bank v. B. Seshagiri Prabhu and Ors. 1984(1) Kar. L.J. 121 even a Division Bench of this Court has held as under.--

".... Section 34 of the CPC refers to interest in respect of three stages. One relates to interest prior to and till the date of the suit; that is really outside the scope of Section 34 and is governed by substantive law. Interest prior to suit is awarded either under an agreement between the parties to pay interest or under some provision of law or on mercantile usage. Court of equity also awards interest under certain circumstances. The second stage as to interest is what is called the ''current'' or pendente lite interest, from the date of suit till date of decree. The third stage relates to the ''further'' interest or what is generally referred to as ''future'' interest awarded for the period between the date of the decree till the date of realisation. The Court below has referred, quite inaccurately, the latter two kinds together as ''further'' interest. So far as the current or pendente lite interest is concerned, it is wholly within the discretionary jurisdiction of the Court and that discretion operates even though there be an express agreement between the parties stipulating a particular rate of interest till the date of decree, should the matter go to Court. The contract between the parties will not circumscribe that discretion of the Court. Section 34 puts the matter in the area of judgment and takes it out of the area of contract. By the 1976 amendment to CPC, among other things, a proviso and two explanations are introduced in Section 34. The proviso is in relation to ''further'' interest or interest from the date of decree till the date of realisation which, otherwise under the terms of Section 34(1), should not exceed 6 per cent per annum. The proviso says that where the liability in relation to the sum so adjudged arises out of a commercial transaction, the rate of such further interest may exceed six per cent 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".

(emphasis supplied)

Recently, in the case of Central Bank of India Vs. Ravindra and Others, the Supreme Court has also held as under.--

"... Interest pendente lite and future interest (i.e., interest post-decree not exceeding 6 per cent per annum) shall be awarded on such principal sum i.e., the principal sum adjudged on the date of the suit. It is well-settled that the use of the word "may" in Section 34 confers a discretion on the Court to award or not to award interest or to award interest at such rate as it deems fit...".

Thus, the matter is no more res integra.

In the present matter, interest challenged is the interest at 18% awarded from the date of suit till realisation. If what has been provided in Section 34 of the CPC and noted above are considered, the discretion exercised by the first Appellate Court was well-within its power so far as the interest awarded (at 18% per annum) from the date of suit to till the date of decree is concerned, and it need not be interfered with by this Court. However, the same cannot be said with regard to the rate of interest awarded from the date of decree to till realisation, because the first Appellate Court had no discretion to award interest at rate exceeding 6% per annum from the date of decree as, admittedly, the amount adjudged as payable by the appellant was not out of commercial transaction as is clear from the case set up by the parties and as such, that requires to be restricted to 6% per annum only. To hold so, no detail discussion is necessary. Accordingly, the question of law has been answered partly in affirmative and partly in negative. No other point has been canvassed nor remained to be considered in the matter.

In the result, the appeal is allowed in part holding that the respondent-plaintiff is entitled to Rs. 16,244/- with an interest at 18% per annum from the date of suit to till the date of decree whereas, at 6% per annum from the date of decree till realisation on Rs. 16,244/- from the appellant-defendant and accordingly, the impugned judgment and decree stand modified. In the circumstances, parties are directed to bear their respective cost.