BANK OF BARODA v. TIGER ELECT. MOTORS COMPANY — 1985 DIGILAW 72 (GUJ)

R. A. MEHTA, J. ( 1 ) THIS appeal by the original plaintiff (Bank of Baroda) is directed against the judgment and decree which reads as under ;"defendants do pay Rs. 3 78 56. 41 with 9% interest from date of suit i. e. 26-9-78 till realisation with cost of suit in 10 equal annual instalments commencing from 1-1-84 with the condition that if they failed to pay any one instalment the plaintiff shall be at liberty to recover the remaining whole amount at a time". The plaintiff is at liberty to recover the decretal amount by sale of hypothecated and mortgaged properties. The plaintiff Bank is aggrieved by the direction in the decree regarding instalments as well as interest rate which is less than the contractual rate of interest. ( 2 ) RESPONDENT-DEFENDANT No. 1 is the principal debtor a Private Limited Co. Respondent No. 3 has been deleted. Respondents Nos. 2 4 and 5 are the Directors of the principal debtor Private Limited Co. and are also the guarantors. Respondent No. 2 seems to be a past director but he has also given a guarantee and that also continues. All the defendants have been held liable for the decretal amount. The suit was not a simple money suit. It was suit for recovery of monetary dues secured by mortgage of land factory and building as also hypothecation of raw materials semi-finished goods and finished goods and the other pledged goods and they have also been secured by necessary letters of continuing securities as well as personal guarantees by the other defendants. The contractual rate of interest was 14 1/2% compound interest with quarterly rests. The appellant-plaintiff prayed for a decree for sale of the mortgage property and hypothecated properties and to realise these dues. Thus the aforesaid suit was a mortgage suit. In such a suit decree for instalments could not have been passed. ( 3 ) THE learned counsel for the appellant has drawn our attention to Division Bench judgment in the case of Bank of Baroda v. M/s. Manva Bone Mills and others 1983 (3) GLR 1025 (= 1983 GLH 603 ) wherein it has been held that the court has no power to grant any instalment while passing the preliminary decree in a suit in respect of equitable mortgage. Another Division Bench has also taken a similar view in the case of M/s jr. Another Division Bench has also taken a similar view in the case of M/s jr. p. Steel lndustries v. State Bank of Saurashtra 1978 (19) GLR 998 wherein also it has been held that in case of decree to recover mortgage amount no instalment can be granted and this stands to reason because the mortgage security is taken with a view to secure full payment of the dues. It is only because that property has been given in security as mortgage that the amount has been advanced to a party and if that security is not allowed to be enforced the very purpose of taking the security is lost. ( 4 ) THE learned trial Judge has in fact reserved to the plaintiff the liberty to recover the decretal amount by sale of hypothecated and mortgaged property. It appears that the plaintiff bank has misapprehended and connected this unconditional liberty with the default in payment of instalments. Clearly this is misapprehension on the part of the plaintiff Bank. As far as recovery by sale of hypothecated and mortgaged properties is concerned the learned trial Judge has not connected the same with default in payment of instalments. However in view of our conclusion that the decree for instalments could not have been passed in a mortgage suit that direction is required to be quashed and instead of that a preliminary decree for sale under order 34 Rule 4 C. P. C. will have to be passed. ( 5 ) ON the question of interest in a mortgage suit the relevant provisions are Order 34 Rules 2 4 and 11. Rule 4 provides that in a mortgage suit for sale the court should pass a preliminary decree to the effect mentioned in Rule 2 (1) Clauses (a) (b) and (c ). Rule 2 (1) (a) (i) provides that the court shall pass a preliminary decree ordering that an account be taken of what was due to the plaintiff at the date of such decree for principal and interest on the mortgage. Therefore if an account were to be taken on the date of the preliminary decree the interest could be naturally at the contractual rate being a matter of account between the parties and the rate of interest would also necessarily be the rate agreed between the parties. Therefore if an account were to be taken on the date of the preliminary decree the interest could be naturally at the contractual rate being a matter of account between the parties and the rate of interest would also necessarily be the rate agreed between the parties. RULE 11 provides as under:"11 In any decree passed in a suit for foreclosure sale or redemption where the interest is legally recoverable the court may order payment of interest to the mortgagee as follows namely; (a) interest upto 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; (ii) xxx xxx xxx 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-security upto the date of the preliminary decree and added to the mortgage-money at the rate agreed between the parties or failing such rate at such rate not exceeding six percent per annum as the court deems reasonable; and (b) subsequent interest upto 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. ( 6 ) THE learned counsel for the appellant Bank has submitted that in view of the aforesaid provisions the trial court has erred in decreeing the interest at 9% from the date of the suit till realisation and he has submitted that interest from the date of the suit upto the date of the preliminary decree ought to have been awarded at the contractual rate namely the rate at which the interest is payable on the principal as fixed by the parties and the court is not having any discretion for awarding the interest at a reduced rate. In the present case the agreed rate of interest is 14 1/2% per annum. In the present case the agreed rate of interest is 14 1/2% per annum. Rate 2 (1) (a) (i) read with Sub-clause (i) of Clause (a) of Rule 11 clearly supports the argument of the appellant-plaintiff that on the principal amount found or declared due on the mortgage interest has to be decreed at the rate payable on the principal and only where no such rate it fixed by the-parties the court may have discretion to award interest at such rate as the court deems reasonable. Clause (iii) lends further support to this line of reasoning because there also the interest is awardable on the amount adjudged due to the mortgagee for costs charges and expenses properly incurred by the mortgagee and added to the mortgage decree at the rate agreed between the parties and only failing such agreed rate at such rate not exceeding 6 % per annum as the court deems reasonable. ( 7 ) IN the case of Subhanand Chowdhary and Another v. Apurba Krishna Mitra end Another AIR 1940 Federal Court 7 the Federal Court observed that under Order 34 Rule 11 C. P. C. the court may order payment of interest upto the date on or before which the payment of the amount found due (is under the preliminary decree) to be made by the mortgagor at the rate payable on the principal or where no such rate is fixed at such rate as the court may deem reasonable. The Federal Court having regard to all the circumstances thought that justice of the case would he met by allowing the plaintiff simple interest at 12% per annum rather than the 12% compound interest specified in the contract upto the date fixed for payment in the decree and from the later date interest at 6% per annum till the date of realisation or payment. Following this judgment in the case of Jaigobind Singh and Others v. Lachmi Narain Ram and Other AIR 1940 Federal. Court 20 the Federal Court again observed that Order 34 Rule 11 gives a certain amount of discretion to the court so far as interest pendente lite and subsequent interest are concerned and it was not absolutely obligatory to decree interest at the contractual rate in all circumstances upto the date of redemption. Court 20 the Federal Court again observed that Order 34 Rule 11 gives a certain amount of discretion to the court so far as interest pendente lite and subsequent interest are concerned and it was not absolutely obligatory to decree interest at the contractual rate in all circumstances upto the date of redemption. ( 8 ) IN the case of Soli Pestonji Majao v. Ganga Dhar Khemka AIR 1969 SC 600 the Supreme Court followed the Federal Court judgment in the case of Jaigobind Singh (supra) and held that in respect of interest from the date of the suit the court has certain amount of discretion and it was not absolutely obligatory on the court to decree interest at contractual rates upto the date of redemption in all circumstances. ( 9 ) IN the case of State Bank of India v. Gujarat Oil Engines Pvt. Ltd. and Others 1983 (2) GLR 1019 and in the case of Bank of Baroda v. M/s Manava Bone Mills and Others 1983 (2) GLR 1025 (= 1983 GLH 603 ) the same view has been taken. Therefore it is not possible to accept the submission that the court is bound to award in all cases and all circumstances interest at contractual rate from the date of the suit till the date of the preliminary decree but at the same time it is to be noted that right from the Federal Court it has been emphasised that the discretion is very limited (certain amount of discretion) and not absolutely obligatory in all circumstances ). This very limited discretion is a judicial discretion and is required to be exercised on judicial principles. The guidance is available from O. 34 itself. Rules 2 and 4 provide for preliminary decree in a suit for foreclosure or sale and the court is required to pass a preliminary decree ordering that an account to be taken of what is due to the plaintiff at the date of such decree for principal and interest on the mortgage. Thus on the date of the preliminary decree the account of principal and interest on -the mortgage is a matter of account between the parties and the rate of interest is not a matter of decision or discretion of the court. Thus on the date of the preliminary decree the account of principal and interest on -the mortgage is a matter of account between the parties and the rate of interest is not a matter of decision or discretion of the court. In Rule 11 (a) (i) also reference is to interest at the rate payable on the principal or where no such rate is fixed at such rate as the court deems reasonable. Here also the reference is first to the rate payable and fixed between the parties and failing such agreed rate at such rate as the court deems reasonable. Therefore although if there is discretion under Rule 11 that the court may order payment of interest at the contractual rate on the principal amount found due strong reasons will be required to make a departure for exercising any discretion for not awarding interest at that contractual rate. 1 ( 10 ) FOR guiding judicial discretion the nature of the transaction should also be a very important factor such as when the loan is taken from nationalised bank and on a security and for a commercial purpose. The interest would be payable at the contractual rate and it will continue to be the same till the date of discharge of the loan. An honest and a regular businessman would pay up the principal and the interest at the agreed rate without default and without forcing the nationalised bank to go to the court. On the other hand there might be other businessman who having taken similar loan may commit default in payment of the dues of the bank and the bank would be required to file a suit to enforce security and recover the amount. In such a case if the court were to exercise discretion in favour of such defaulting debtors the result would be that such defaulting debtors would be paying interest at lesser rate as against the businessman who paid honestly and regularly and dis-charged the liability. The judicial discretion should not result in such unjust inequitable and favourable treatment to debtors committing defaults. The judicial discretion should not result in such unjust inequitable and favourable treatment to debtors committing defaults. therefore ordinarily interest in such commercial transactions should be awarded at the contractual rate from the date of the suit till the date of the preliminary decree and also upto the date on or before which the payment found or declared due under the preliminary decree is to be made by the mortgagor. If the prevailing rate of interest by the nationalised banks for commercial transactions and the agreed rate of interest are disturbed and lowered in absence of any compelling reasons it would be the society which will be bearing the burden of such difference and not the defaulting debtor. Therefore in absence of special and strong reasons the court would not be justified in awarding lesser rate of interest in the name of exercise of discretion. ( 11 ) IN the present case no reasons much less any compelling reasons have been given for not awarding the interest at the contractual rate and for exercising judicial discretion for awarding at the lesser rate of 9%. Such exercise of discretion is certainly no judicial discretion and therefore that direction for payment of interest at 90% is required to be modified and the rate is required to be substituted with 14 1/2% which is contractual rate. ( 12 ) IN the result the appeal is required to be allowed and the judgment and decree of the lower court is required to be modified so as to modify the direction regarding the rate of interest from 9 to 14 1/2% and by deleting and setting aside the direction regarding payment by instalments. The rest of the decree is confirmed and therefore a preliminary decree for sale in terms of Order 34 Rule 4 C. P. C. and in Form No. 5-A in Appendix D to C. P. C. is directed to be drawn and passed. The defendant would be required to pay into the court on or before 31st July 1985 or any later date upto which time for payment may be extended by the court. Appeal is accordingly allowed with costs. Appeal allowed. .