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2003 DIGILAW 515 (KER)

Muhammed v. E. P. Brothers

2003-08-13

R.BHASKARAN

body2003
Judgment :- The only question to be considered in this appeal is as to whether the defendant/appellant is liable to pay interest on the amounts received by him on account of the failure to supply soft wood to the plaintiff as agreed by him in Ext.A1 agreement. The defendant received an amount of Rs.25, 000/- in two installments. Rs.15 000/ was received on 22-4-1986 and Rs.10, 000/- was received on 31-5-1986. Ext.A1 is the agreement. The defendant also executed a mortgage to secure the advance amount paid by the plaintiffs. Admittedly, the defendant did not supply the soft wood as agreed to. The plaintiffs filed the suit in 1989 and claimed interest on the amount due at 12% from the date of payment till realization. The trial court has passed a decree for Rs.33, 826/- and future interest at the rate of 12% per annum on the principal of Rs.25, 000/- against the defendant personally and by sale of the plaint schedule properties. 2. In this appeal, it is contended that the direction for payment of interest is unsustainable. According to the appellant, there was no evidence to show that the plaintiffs have sustained any damage by reason of the breach of contract and therefore no direction for payment of interest should have been made in the judgment. It is also contended that there was no agreement to pay interest on failure of compliance with the terms of the contract. 3. The points for consideration in this appeal are (1) whether the plaintiffs are entitled to claim any interest, and (2) if so, at what rate. 4. In Ext.A1 agreement, there is no provision for payment of interest for the amounts paid by the plaintiffs, but there is provision for payment of damages in case the defendant fails to comply with the terms of the agreement. Similar is the provision in the mortgage deed executed by the defendant. The learned counsel on both sides referred to S. 61 of the Sale of Goods Act. It contains two parts. Sub-section (1) of S.61 reserves the right of a seller or buyer to recover interest or special damages recoverable or to recover the money paid where the consideration for the payment of it has failed. The learned counsel on both sides referred to S. 61 of the Sale of Goods Act. It contains two parts. Sub-section (1) of S.61 reserves the right of a seller or buyer to recover interest or special damages recoverable or to recover the money paid where the consideration for the payment of it has failed. Sub-section (2) enables the court to award interest at such rate as it thinks fit on the amount of the price in the absence of a contract to the contrary from the date the payment was to be made. Therefore, sub-section (2) gives the court the power to award interest if there is no contract to the contrary. In this case, there is no contract to the contrary. 5. The learned counsel for the appellant relied on the decision of the Supreme Court in Union of India v. Rallia Ram (AIR 1963 SC 1685). In that case, the dispute was with reference to the loss on account of the supply of goods unfit for use. There was an arbitration clause in the agreement. Since there were disputes between the arbitrators the matter was referred to the umpire. Umpire awarded damages for the loss suffered with future interest and costs. Thereafter, petition was filed for setting aside the award in the Subordinate Judge’s Court, Delhi. While considering the correctness of the award, the Supreme Court held that the contract did not provide for payment of interest nor could interest be awarded under S. 61 of the Sale of Goods Act. The Supreme Court also stated that the right of the seller or buyer to recover interest or special damages where by law interest or special damages may be recoverable is not affected by the Sale of Goods Act and sub-section (2) of S.61 the Court can award interest at such rate as it thinks fit on the amount of the price in case of a breach of the contract on the part of the seller. In that case, the claim made was not for refund of the price. Therefore the ratio of the Supreme Court decision in Union of India v. Rallia Ram (AIR 1963 SC 1685) is not applicable to the facts of this case as the present suit is for refund of the price on account of the breach of the contract. 6. In that case, the claim made was not for refund of the price. Therefore the ratio of the Supreme Court decision in Union of India v. Rallia Ram (AIR 1963 SC 1685) is not applicable to the facts of this case as the present suit is for refund of the price on account of the breach of the contract. 6. In Hirachand Kothari v. State of Rajasthan (air 1985 SC 998) it was held by the Supreme Court as follows: “We are clearly of the view that the plaintiff having been deprived of the property was entitled to a reasonable rate of interest on the amount found to be due to him” After referring to the decision of the Supreme Court in Satinder Singh v. Umrao Singh (AIR 1961 SC 908), the Supreme Court held that the Court has ample power under the proviso to S.1 of the Interest Act, 1839, to award interest on equitable grounds. It was found that the reasonable interest would be 6 per cent per annum. 7. In Thawardas v. Union of India (AIR 1955 SC 468), the Supreme Court was considering the scope of Interest Act, 1939. It was found that the following conditions must be fulfilled before interest can be awarded under the Act. (1) there must be a debt or a sum certain, (2) it must be payable at a certain time or otherwise, (3) these debts or sums must be payable by virtue of some written contract at a certain time, and (4) there must have been a demand in writing stating that interest will be demanded from the date of the demand. Since none of these allegations was present, it was held that the arbitrator erred in thinking that he had the power to allow interest. The Supreme Court was specifically referring to the power of the arbitrator to award interest and the fact that S.34 of the Code of Civil Procedure was not applicable to the proceedings before the arbitrator as the arbitrator is not a court was also taken not of. That decision will not in any way help the appellant to absolve himself from the liability to pay interest. 8. That decision will not in any way help the appellant to absolve himself from the liability to pay interest. 8. In Union of India v. W.P. Factories (AIR 1966 SC 395), one of the suits was filed against Government of India claiming damages for loss of goods, which were destroyed by fire on the railway platform at Morar Road Railway Station. The suit was filed for Rs.77, 000/- and odd with interest upto the date of the suit and interest pendente lite and future interest. The other suit related to the claim for damages with subsequent interest. One of the contentions before the trial court as well as the Supreme Court was that interest could not be awarded for the period before the suit on the amount of damages decreed. It was found that in the absence of any usage or contract, express or implied, or of any provision of law to justify the award of interest, interest by way of damages cannot be awarded. The Supreme Court referred to the decision of the Privy Council in Railway Bengal Nagpur Co. Ltd. V. Ruttanji Ramji (AIR 1938 PC 67), Thawardas Pherumal v. Union of India (AIR 1955 SC 468), Union of India v. A.L.Rallia Ram (AIR 1963 SC 1685) Union of India v. Watkins Mayor and Co. (AIR 1966 SC 275). All those involved suits for damages. The Supreme Court in these decisions found that interest could not be awarded upto the date of suit. Those decisions also will not help the appellant as in the present case Sec.61 of the Sale of Goods Act enables the court to award interest. Section 34 of the Code of Civil Procedure also enables the court to order interest at reasonable rate from the date of suit to the date of decree and with further interest not exceeding 6% from the date of decree to the date of payment. 9. The trial court has decreed the suit with interest at the rate of 12% per annum from the date of advances made on the principle amount of Rs.25, 000/-. The trial court in Catholic Syrian Bank v. N.V. Varkey (1987 KLJ 330). 9. The trial court has decreed the suit with interest at the rate of 12% per annum from the date of advances made on the principle amount of Rs.25, 000/-. The trial court in Catholic Syrian Bank v. N.V. Varkey (1987 KLJ 330). The Division Bench found that there is discretion in the court in awarding interest and since the plaintiff is a commercial bank taking amounts from the public offering to pay interest, the discretion has to be exercised taking into account that aspect also. In this case, it is not a case of money lending by bank, but the plaintiffs were entitled to reasonable interest. It is a fact that the agreement or mortgage deed did not provide for payment of any interest. There was also no evidence adduced with regard to the loss suffered by the plaintiffs. But at the same time, the plaintiffs were not supplied with soft wood as agreed to by the defendant and the amount advanced by them was of no use to them so far. Taking into all these aspects, I am of opinion that the discretion has to be exercised with respect to the interest after the filing of the suit till realization at 6%. In the result, the judgment and decree of the trial court is modified and the suit is decreed with costs for Rs.33, 826/- with future interest at 6% per annum on the principal amount of Rs.25, 000/- against the defendant personally by sale of the plaint schedule properties. In view of the modification made to the decree of the trial court, the parties shall bear their costs in this appeal.