V. Pethaperumal and Others v. Syndicate Bank — 1995 DIGILAW 737 (MAD)

Judgment :- A. R. LAKSHMANAN J. Notice of motion was ordered returnable by four weeks on March 10, 1995. On service of notice the respondent entered appearance through counsel. By consent of both the parties the main revision itself is taken up for final hearing. The petitioners herein are the defendants in the suit. The respondent filed O. S. No. 180 of 1991 against the petitioners for recovery of money on the basis of a mortgage. The trial court passed a preliminary decree on January 14, 1992, on the basis of a joint endorsement made. According to the petitioners, they came to know of the decree that there were some clerical errors, viz., the subsequent interest is charged on the aggregate suit claim instead of the principal sum. Under those circumstances, they moved an application under section 152 of the Civil Procedure Code, 1908, for amending the decree on the basis of section 34 of the Civil Procedure Code. The application was resisted by the respondent-bank. The learned Subordinate Judge dismissed the application filed by the petitioners herein for amending the decree. Against the order passed by the lower court on September 26, 1994, the petitioners have filed the present revision in this court. As already stated, the suit was filed by the respondent-bank against the petitioners herein for recovery of a sum of Rs. 1, 16, 278.50 with subsequent interest at 18.5 per cent. per annum compounded quarterly from the date of plaint till the date of realisation and for other reliefs. No written statement was filed on behalf of the petitioners opposing the claim made by the respondent in the plaint claiming a sum of Rs. 1, 16, 278.50 as principal with subsequent interest on that amount at 18.5 per cent. per annum compounded quarterly from the date of plaint till date of realisation. On the basis of the joint endorsement made, the lower court decreed the suit in the presence of the counsel for the petitioners and also of the respondent-bank. The petitioners have filed I. A. No. 772 of 1994 under section 152 of the Civil Procedure Code, to amend the decree by correcting the principal sum instead of the aggregate amount as given in the decree and also to correct the subsequent rate of interest at 6 per cent. per annum instead of 18.5 per cent. The petitioners have filed I. A. No. 772 of 1994 under section 152 of the Civil Procedure Code, to amend the decree by correcting the principal sum instead of the aggregate amount as given in the decree and also to correct the subsequent rate of interest at 6 per cent. per annum instead of 18.5 per cent. per annum on the principal sum instead of the suit claim. It is stated in the affidavit that they came to know of the error only after obtaining a copy of the preliminary decree and, therefore, they filed the present application to correct the clerical error as mentioned above. According to them, the interest can be charged only on the principal sum and not on the suit claim which comprised principal and interest and that the court can grant interest only on the principal sum and not on the aggregate amount claimed in the suit. It is also stated that as per section 34 of the Civil Procedure Code, the court may order interest at such rate as the court deems reasonable to be paid on the principal sum adjudged from the date of suit to the date of the decree if the decree is for payment of money. In the present case, the court has awarded subsequent interest at 18.5% per annum and the said rate of interest from the date of the decree to the date of payment cannot be granted and while awarding interest at 18.5% per annum, the lower court has failed to exercise its jurisdiction which is given to it to fix the subsequent rate of interest from the date of the decree. It is also contended that the court has not given any reason for charging interest at 18.5 per cent. per annum compounded quarterly which is contrary to section 34 of the Civil Procedure Code. According to the petitioners, further interest from the date of suit to the date of realisation can be only simple interest as per section 34 of the Civil Procedure Code, and there cannot be a compound interest.The petition was resisted by the respondent-bank by filing a counter-statement. According to them, the principal amount is only a sum of Rs. 1, 16, 278.50 and that the bank is entitled to charge interest at the contract rate at 18.5 per cent. According to them, the principal amount is only a sum of Rs. 1, 16, 278.50 and that the bank is entitled to charge interest at the contract rate at 18.5 per cent. per annum from the date of the decree till realisation and that the court has rightly decreed the suit as prayed for on the basis of the joint endorsement made. It is also stated that the petitioners have availed of the loan on March 20, 1985, and did not make any payment from the date of borrowal, that the present application has been filed only to prolong the litigation and that the present application has also been filed after coming to know of the application filed by the respondent for passing a final decree. There is no merit in the application and according to the respondent, the application has no merit and, therefore, the same is liable to be rejected. There is also no clerical error in the decree. The First Additional Subordinate judge by his order dated September 26, 1994, dismissed the application stating that the Presiding Officer of the said court had applied his mind in awarding the rate of interest and that there is no clerical error in the decree. Aggrieved by the said order, the present revision has been filed. Mrs. Pushpa Satyanarayanan, learned counsel for the petitioner, submitted that the learned Subordinate Judge has passed the order in question, which is materially irregular and contrary to law. The lower court, which is mainly governed by the principles embodied in the Code of Civil Procedure, ought to have awarded interest only at 6 per cent. per annum on the principal sum after the date of the decree and as per section 34 of the Civil Procedure Code, the decree holder cannot claim more than 6 per cent. per annum on the principal sum. According to learned counsel, the other reasons assigned by the lower court in support of his conclusion are erroneous and unsustainable in law.Mr. B. Ravindran, learned counsel for the respondent-bank, would urge that the civil revision petition itself is not maintainable since the petitioner has filed only an application to amend the decree without filing an application to amend the judgment and, therefore, the present petition to amend the decree is not maintainable since the decree can only be drafted in accordance with the judgment. He also cited a judgment of Abdul Hadi J. reported in K. A. Kunjalu v. V. V. Jose [1993] II MLJ 454 (Mad). I see merit in the contention of learned counsel for the respondent. It is the usual practice of bankers to debit the accrued interest to the borrower's current account at regular periods and the same is a recognised practice in the bankers' world, which practice is also recognised by the Reserve Bank of India. Admittedly, in this case the petitioners have agreed to pay compound rate of interest on the amount advanced by the respondent-bank. "Compound rate" has been defined as follows : "Compound interest is interest on interest . . . accrued interest added to the principal sum and the whole treated as new principal for the calculation of interest for the next period." * (emphasis supplied) From the aforesaid definition, it is clear that the difference between simple and compound interest is that in the case of simple interest, the interest is computed only on the principal sum whereas for computation of compound interest the accrued interest is also added to the principal sum. The resultant amount arrived at by the addition of accrued interest in the principal sum is treated as new principal only for the limited purpose of calculation of the interest for the next period. Halsbury's Laws of England also refers to the practice of the bankers to debit accrued interest to the borrowers' regular account for the next period and says that the effect of such debit is to add interest to the principal in which case it loses its quality as interest and becomes capital. As already seen, compound interest means interest on interest and the interest that is earned generates further interest on this earning. Black's Law Dictionary (Fifth edition) defines these expressions as follows : "'Interest'. --- Interest is the compensation allowed by law or fixed by the parties for the use or forbearance or detention of money---Payments a borrower pays a lender for the use of the money." * Therefore, there is difference between simple interest which is paid on the principal lent as distinguished from compound interest, which is interest paid on unpaid interest. --- Interest is the compensation allowed by law or fixed by the parties for the use or forbearance or detention of money---Payments a borrower pays a lender for the use of the money." * Therefore, there is difference between simple interest which is paid on the principal lent as distinguished from compound interest, which is interest paid on unpaid interest. Where accrued interest is added to the principal sum and the whole treated as new principal for the calculation of the interest for the next period, interest added to principal as interest becomes due and, thereafter, made to bear interest. In the instant case the bank has calculated interest on interest as per the contract and added the accrued interest to the principal sum and treated the said sum, namely, Rs. 1, 16, 278.60 as new principal for the calculation of interest for the subsequent period. There is no objection on the side of the petitioners herein for calculating interest on interest which is the regular usual and established practice adopted by the banks in our country. The contention raised by learned counsel for the petitioners that the bank is not entitled to charge interest at 18.5 per cent. per annum for the subsequent period after the decree is also not tenable. Admittedly, the petitioners have agreed to pay contract rate of interest on the amounts sanctioned by the bank. Since the amount advanced was for a trading purpose, viz., for the purpose of carrying on toddy business by the petitioners, the bank is entitled to charge interest at the contract rate even after the decree till realisation. There are no merits in the civil revision petition and, therefore, it fails and is dismissed. No costs.