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2000 DIGILAW 1016 (PNJ)

Punjab National Bank v. Shishu

2000-08-29

M.L.SINGHAL

body2000
Judgment M.L.Singhal, J. 1. As the same question of law is involved in both these revisions, I would dispose of both these revisions through this common judgment. 2. Learned counsel for the petitioner submitted that it was not open to the Prescribed Authority-cum-Sub-Divisional Officer (Civil), Kaithal, to tinker with the contractual rate of interest and reduce it to 6.5 per cent, per annum as it was a loan advanced by the bank. In support of this submission he has drawn my attention to State Bank of India v. Yasangi Venkateswara Rao [1999] 95 Comp. Cas. 805, where the Supreme Court has held that the Court cannot interfere and reduce the interest on the amount of loan advanced by the bank as that is a matter of contract between the parties. The mortgaging of a property is with a view to secure the loan and has nothing to do with the quantum of interest to be charged. In State Bank of Indias case (supra), the suit was for the recovery of money by the State Bank of India. The trial Court passed a preliminary decree and the same was substantially upheld by the district court. In the second appeal, which was filed, one of the contentions which was raised related to the charging of interest by the bank. After the decree of the trial court by the Banking Laws (Amendment) Act, 1984, (1 of 1984), new Section 21A was inserted in the Banking Regulation Act. The said section reads as follows : "Notwithstanding anything contained in the Usurious Loans Act, 1918 or any other law relating to indebtedness in force in any State, a transaction between a banking company and its debtor shall not be reopened by any Court on the ground that the rate of interest charged by the banking company in respect of such transaction is excessive. Relying upon this provision, the contention of the appellant was that there would be no occasion for the Court to reduce the rate of interest which the borrower had contracted to pay." (p. 806) 3. Relying upon this provision, the contention of the appellant was that there would be no occasion for the Court to reduce the rate of interest which the borrower had contracted to pay." (p. 806) 3. The High Court in the second appeal, entertained the plea regarding the validity of the said section and observed as follows : "Considering the fact that grant of debt relief has always been treated in our country as a legislative subject to be passed upon by the regional Governments alone and that the words relief of agricultural indebtedness were specially added by our Constitution to enable the State Legislatures to alleviate the suffering of the farmers from their agricultural indebtedness and that the Constituent Assembly had deliberately rejected an amendment moved seeking to transfer this item to the Concurrent List, I hold that Section 21A of the Banking Regulation Act which forbids the Courts from reopening the bank loans on the ground of excessive interest is not a law enacted by Parliament with respect to the item of banking." (p. 806) 4. The Supreme Court observed that the High Court could not come to the conclusion that Parliament had no jurisdiction to enact Section 21A. There can be no doubt that Section 21A deals with the question of the rate of interest which can be charged by a banking company. Entry 45 of List-I of the Seventh Schedule clearly empowers Parliament to legislate with regard to banking. The enactment of Section 21A was clearly within the domain of Parliament. The section applies to all types of loans which are granted by a banking company, whether to an agriculturist or a non-agriculturist, and, therefore, reference by the High Court to Entry 30 of List-II was of no consequence. The Supreme Court held that the said Section 21A had been validly enacted. In this premises, the Supreme Court allowed appeal of the State Bank of India and the decree passed by the High Court was set aside and that of the lower appellate court was restored. 5. Learned Counsel submitted that in the face of Section 21A of the Banking Regulation Act which is a special provision, the provisions of the Code of Civil Procedure which are general provisions will not apply. 6. 5. Learned Counsel submitted that in the face of Section 21A of the Banking Regulation Act which is a special provision, the provisions of the Code of Civil Procedure which are general provisions will not apply. 6. Learned counsel for the respondent, on the other hand, submitted that Section 21A does not come to the aid of the banks vis-a-vis Order 34 Rule 11 of the Code of Civil Procedure. He submitted that the question whether for the period during the pendency of mortgage suits in courts, the Courts discretion should continue or whether it should be fettered and if so to what extent and as to what rate of interest and whether there should be any distinction between different kinds of debtors - these are all matters of policy for the Legislature and it will be for Parliament to lay down its policies and bring forward such legislation as it may deem fit in accordance with the provisions of the Constitution of India. In support of this submission, he drew my attention to N.M. Veerappav. Canara Bank[l998] 92 Comp. Cas. 467 (SC) where it was held that the grant of interest at 6 per cent from the date of suit in mortgage suits for the recovery of bank loans was proper. It was also held that provisions of Section 21A are not intended to override Central legislation namely the Code of Civil Procedure or the provisions of Order 34 Rule 11 of the Code of Civil Procedure. 7. Learned counsel for the petitioner submitted that the law laid down in N.M. Veerappas case (supra); decided on January 27, 1998, should not be followed but the law laid down in State Bank of Indias case (supra) decided on January 21, 1999, should be followed as the decision in this case is later in point of time and also that the constitutionality of Section 21A was directly involved. 8. In Everest Industrial Corporation v. Gujarat State Financial Corporation [1987] 62 Comp. Cas. 513; the Supreme Court observed that proceedings instituted under Section 31(1) of the State Financial Corporations Act, 1951, is something akin to an application for attachment of property in execution of decree at a stage posterior to the passing of the decree. 8. In Everest Industrial Corporation v. Gujarat State Financial Corporation [1987] 62 Comp. Cas. 513; the Supreme Court observed that proceedings instituted under Section 31(1) of the State Financial Corporations Act, 1951, is something akin to an application for attachment of property in execution of decree at a stage posterior to the passing of the decree. No question of any order under Section 34 of the Code of Civil Procedure would, therefore, arise since Section 34, of the Code of Civil Procedure would be applicable only at the stage of passing of the decree and not to any stage posterior to the decree. Moreover, even under the Code of Civil Procedure, the question of interest payable in mortgage suits filed in civil courts is governed by Order 34 Rule 11 of the Code and not by Section 34 of the Code which should be applicable only to cases of final decree passed under Order 34 Rule 6 of the Civil Procedure Code. It was held on facts that interest would be payable on the principal amount due in accordance with the terms of the agreement between the parties till the entire amount due was paid as per the order passed under Section 32 of the Act. In B. Shivananda v. Andhra Bank Ltd.[1994]4 SCC 368, the trial court had not specified in the judgment with regard to rate of interest but in revision filed by the bank, the High Court granted interest at 16.5 per cent on the decretal amount. Dismissing the appeal, the Apex Court held as follows (page 369): "But in this case as seen that the claim for future interest at 16.5 per cent was made in the suit itself, which admittedly is the contracted rate of interest. Therefore, the bank is entitled to claim interest in terms of the contract at 16.5 per cent from the date of lending till the date of filing of the suit. However, the Court has discretion under Section 34 of the Civil Procedure Code to award interest. Admittedly, the loan was taken for construction of theatre. In other words, the loan was for a commercial transaction. However, the Court has discretion under Section 34 of the Civil Procedure Code to award interest. Admittedly, the loan was taken for construction of theatre. In other words, the loan was for a commercial transaction. In the facts and circumstances of this case, we consider it just and proper that the appellant should pay simple interest at the rate of 16.5 per cent per annum on the principal amount claimed in the suit from the date of the decree till the realisation." 9. In view of the clear mandate of law laid down in State Bank of Indias case (supra); where the Supreme Court has observed that charging of compound interest by the bank cannot be said to be excessive on the amount advanced against mortgage in view of the provisions of Section 21A of the Banking Regulation Act, it cannot be said that the awarding of interest at the contractual rate to the bank is illegal. So, this revision is allowed and the awarding of interest to the bank by the Prescribed Authority-cum-Sub-Divisiorial Officer (Civil), Kaithal, not at the agreed rate of interest but at the rate of 6.5 per cent cannot be sustained. The bank had to be allowed the agreed rate of interest from the date of suit till realisation on the principal sum adjudged which means the amount of loan originally advanced plus the interest that accrued thereon till the institution of suit (in this case application under Section 8(a)(i) of the Haryana Agricultural Credit Operation and Miscellaneous Provisions (Banks) Act, 1973).