State Bank Of India v. Mohammed Habhee — 1987 DIGILAW 110 (MAD)

JUDGMENT S.A. Kader, J. 1. The appeal is against the judgment and decree of the Court of the Subordinate Judge, Padmanabhapuram in O.S. No. 92 of 1977. The plaintiff is the appellant. 2. This is a suit on a mortgage for sale of the mortgage property and for a personal decree against the defendants. The plaintiff, which is the State Bank of India, Nagercoil Branch, granted to the 1st defendant who is a small scale manufacturer of handloom textiles a cash credit special hypothecation advance up to a limit of Rs. 15,000 on 4.10.1973. The 1st defendant executed a promissory note in favour of the 2nd defendant guarantor for a sum of Rs. 15,000 agreeing to repay the sum with interest at one per cent below the State Bank of India advance rate with a minimum of eight per cent per annum with monthly rests. The 2nd defendant endorsed the said promissory note in favour of the plaintiff and offered the same as collateral security. The 1st defendant executed an agreement hypothecating the goods, machinery, book debts and other assets stored at the 1st defendant's factory at Vadasery. The 2nd defendant who stood as guarantor, deposited in 4/10/1973 with the plaintiff her title deeds as security for the cash credit facility afforded to the 1st defendant up to a limit of Rs. 15,000. Subsequently at the request of the 1st defendant, the plaintiff enhanced the credit facilities to a limit of Rs. 25,000. A fresh promissory note for Rs. 25,000 was executed by the 1st defendant in favour of the 2nd defendant guarantor and this promissory note was also endorsed by the 2nd defendant in favour of the plaintiff. On 20.6.1974, 1st defendant executed an agreement hypothecating the goods, machinery, book debts and other assets. On 20.6.1974, the 2nd defendant declared in the presence of the Branch Manager and Field Officers that the benefit to the Bank of the mortgage by deposit of title deeds relating to the plaint schedule properties shall apply for and stand extended to and cover the enhanced aggregate limit of Rs. 25,000. On 20.1.1975, the 1st defendant acknowledged in writing that a sum of Rs. 25,000.97 was due from him as on 31.12.1974. He has also acknowledged on 7.12.1977 that a sum of Rs. 31,027.35 was due as per the cash credit account as on 31.12.1976. According to the plaintiff, a sum of Rs. 25,000. On 20.1.1975, the 1st defendant acknowledged in writing that a sum of Rs. 25,000.97 was due from him as on 31.12.1974. He has also acknowledged on 7.12.1977 that a sum of Rs. 31,027.35 was due as per the cash credit account as on 31.12.1976. According to the plaintiff, a sum of Rs. 34,283 is due from the defendants to the plaintiffs as per its accounts. Inspite of notice, the amounts have not been paid. Hence the suit. 3. The 1st defendant remained absent and was set Ex Parte 4. The 2nd defendant raised the following contentions: The plaintiff ought to have taken steps for the realisation of the amount due from the goods, machinery, book debts and other assets of the 1st defendant duly hypothecated to the plaintiff. Without taking such steps, the plaintiff has allowed the dues to continue for years together. The 2nd defendant also claimed that she was entitled to the benefit of Act IV of 1938. She also disputed that the plaintiff was entitled to claim interest at 12% as claimed in the plaint. The interest claimed has to be limited to 6.25 per cent per annum, or at the most 9 per cent per annum. The 2nd defendant also prayed that she may be permitted to pay the amount in half-yearly instalments of Rs. 3,000 each. 5. In her additional written statement, the 2nd defendant contended that the interest claimed by the plaintiff was usurious. 6. On the above pleadings, the following issues were framed for trial: (i) What is the correct amount due to the plaintiff? (ii) Whether the 2nd defendant is an agriculturist and if so whether he is entitled to the benefits of the Agriculturist Relief Act? (iii) Whether the plaintiff is entitled to a personal decree against defendants 1 and 2, and for a preliminary mortgage decree as claimed in the plaint? (iv) Whether the 2nd defendant can be permitted to pay the amount due to the plaintiff in half yearly instalments of Rs. 3,000 each? (v) Relief and costs. Additional issues: (vi) Whether the interest claimed is usurious? (vii) Whether the plaintiff is entitled to claim only 9% interest at the most? On issue 2, the learned Subordinate Judge held that the 2nd defendant failed to prove that she was entitled to the benefit of Act IV of 1938. 3,000 each? (v) Relief and costs. Additional issues: (vi) Whether the interest claimed is usurious? (vii) Whether the plaintiff is entitled to claim only 9% interest at the most? On issue 2, the learned Subordinate Judge held that the 2nd defendant failed to prove that she was entitled to the benefit of Act IV of 1938. He also held that the plaintiff was entitled to personal decree against both defendants on issues 2 and 3. On issue 4, the learned Subordinate Judge found that the 2nd defendant was not entitled to instalment payment, but held that it was reasonable to grant four month's time for payment. On issues 1, 6 and 7, the Court below found that a sum of Rs. 34,283 was due to the plaintiff with interest at 12% till the date of plaint and thereafter at 6% till the date of realisation. A preliminary decree was passed accordingly. Aggrieved against the grant of interest at 6% from the date of plaint till date of realisation, the plaintiff has come forward with this appeal. The defendants have not preferred any cross appeal or cross-objections. 7. The only point which arises for consideration is whether the grant of interest by the Court below at 6% per annum from the date of plaint till realisation is correct. Point: 8. It is contended by the learned Counsel for the appellant-plaintiff that the Court below ought to have awarded contractual rate of interest from the date of plaint till the date on or before which, payment of the amount found due under the preliminary decree is to be made and the learned Subordinate Judge erred in awarding interest only at 6%. Reliance is sought to be placed on the decision of the Judicial Committee of the Privy Council in Jagannath PrasadSingh Chowdhuryury v. Surajmal Jalal, 56 M.L.J. 485 : A.I.R. 1929 P.C. 1. Reliance is sought to be placed on the decision of the Judicial Committee of the Privy Council in Jagannath PrasadSingh Chowdhuryury v. Surajmal Jalal, 56 M.L.J. 485 : A.I.R. 1929 P.C. 1. It was held therein that till the period for redemption expired, the matter remained in contract and the interest had to be paid at the rate and with the rests specified in the contract of mortgage, but after the period of redemption had expired, the matter passed from the domain of the contract to that of judgment and the right of the mortgagees should thenceforth depend not on the contents of his bound, but on the directions in the decree But this decision has been rendered before Order 34, Rule 11 of the Code of Civil Procedure was amended by the Amending Act 21 of 1929. Prior to the aforesaid amendment, Rule 11 of Order 34 did riot deal with the question of interest. The said Rule dealt only with the right of mesne mortgagee. Act 21 of 1929 repealed this rule and reenacted it as Section 94 of the Transfer of Property Act and in the place of old Rule 11, the present Rule has been introduced. Hence, prior to the amendment of Rule 11 by Act 21 of 1939, the question of grant of interest in a mortgage suit was governed only by Section 34, the Code of Civil Procedure. After this amendment, the special provisions contained in Rule 11 of Order 34 have to be applied for the grant of interest in mortgage suits in preference to the general provisions contained in Order 34 of the Code of Civil Procedure. Hence, the rule laid down by the Judicial Committee of the Privy Council in Jagannatha Prasad Singh Chowdhury v. Surajmal Jalal A.I.R. 1927 P.C. 1 can have no application after the amendment of Order 34, Rule 11, which can alone govern the grant of interest in mortgage actions. 9. Hence, the rule laid down by the Judicial Committee of the Privy Council in Jagannatha Prasad Singh Chowdhury v. Surajmal Jalal A.I.R. 1927 P.C. 1 can have no application after the amendment of Order 34, Rule 11, which can alone govern the grant of interest in mortgage actions. 9. Order 34, Rule 11 as amended by Act 21 of 1929 lays down that In any decree passed in a suit for foreclosure, sale or redemption, where interest is legally recoverable, the Court may order payment of interest to the mortgagee as follows, namely: (a) interest up to the date on or before which payment of the amount found or declared due is under the preliminary decree to be made by the mortgager or other person redeeming the mortgage-(1) 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. (b) subsequent interest up to 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. The question whether in a mortgage decree, the Court is bound to grant interest at the contractual rate from the date of suit till the date fixed for payment of the mortgage money, or at such rate as the Court deems reasonable, came up for consideration before the Supreme Court in Soli Pestonji Majee v. Ganga Dhar Khemka. The learned judges have observed as follows: It is apparent that the new Rule 11 as inserted by the Amending Act 21 of 1929 provides that the Court "May" order payment of interest to the mortgagee up to the date fixed for payment at the rate payable on the principal. The learned judges have observed as follows: It is apparent that the new Rule 11 as inserted by the Amending Act 21 of 1929 provides that the Court "May" order payment of interest to the mortgagee up to the date fixed for payment at the rate payable on the principal. It was held by the Federal Court in Jaigobind Singh v. Lachminarain Ram (1940)1 M.L.J. (Supp) 14 : A.I.R. 1940 F.C. 20 that the language of the rule gives a certain amount of discretion to the Court so far as interest Pendente Lite and subsequent interest is concerned and it was no longer absolutely obligatory on the Courts to decree interest at the contractual rate up to the date of redemption in all circumstances, even if there is no question of the rate being penal, excessive of substantially unfail within the meaning of the Usurious Loans Act, 1918. In view of the Principal laid down by the Federal Court in this decision we are of opinion that in the circumstances of the present case the respondent should be granted interest on the principal sum due at the contractual rate till the date of realisation. In the case before the Supreme Court, the High Court granted interest to the respondent at the rate of 12 per cent with monthly rests ever after the date of suit. The Supreme Court pointed out that in their opinion, there was no justification for the High Court to allow interest at the contractual rate from the date of suit on the amount adjudged. The Supreme Court has thus clearly laid down that in a mortgage action the grant of interest from the sate of suit till the date fixed for payment is in the discretion of the Court and it is not necessary for the Court in all circumstances to grant interest of the contractual rate. The learned Subordinate Judge has exercised his discretion and granted interest only at 6% per annum from the date of suit till realisation. There is nothing to show that the discretion exercised by the Court below is any way erroneous or unfair and the decision of the Subordinate Judge is not liable to be impugned. The point is found against the appellant. 10. In the result, the appeal fails and is dismissed, but in the circumstances without costs.