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2006 DIGILAW 237 (KER)

P. K. Thankachan v. Catholic Syrian Bank Ltd

2006-04-05

C.N.RAMACHANDRAN NAIR

body2006
Judgment :- Petitioner is challenging Ext.P2 judgment of the Debt Recovery Appellate Tribunal, Chennai, partly allowing the appeal filed by the petitioner against Ext.P1 award of the Debt Recovery Tribunal. I heard counsel appearing for the petitioner and standing counsel appearing for the respondent-Bank. The first petitioner availed a loan of Rs.15 lakhs from the respondent-Bank on 16.3.1998 repayable in 10 monthly installments and petitioners 2 and 3 stood as sureties for the loan by creating equitable mortgage of immovable properties in favour of the Bank. The first petitioner repaid substantial amounts though not strictly in accordance with schedule of repayment agreed with the Bank. When the dafault persisted and petitioners refused to settle the liability, the Bank filed O.A. before the DRT under the Recovery of Debts (due to Banks and financial Institutions) Act, 1993, hereinafter called the "DRT Act". Though written statement was filed by the petitioners they did not chose to cross-examine the Manager of the applicant Bank or file proof affidavit in support of the contentions raised in the written statement. The major objection raised by the petitioners in the written statement against the claim of interest at 26.27 per cent by the Bank is that neither the Pro-note executed by the petitioners nor the loan agreement, contained rate of interest payable for the loan. The DRT though in principle agreed with the petitioners against the demand of interest at 26.27 per cent by the Bank until filing of the suit, the DRT, in the absence of any rate of interest in the Pro-note or loan agreement applied section 80 of the Negotiable Instruments Act, 1881, hereinafter called the "NI Act", and granted interest at 18% per annum till date of filing of the suit. Besides this the DRT decreed interest at 14% pendente lite and 12% post-degree till realization. On appeal by the petitioners, the DRAT confirmed the order of the DRT granting interest at 18% upon the date of application under section 80 of the NI Act. However, DRAT reduced the interest pendenyte lite and post decree to a flat rate of 10%. This W.P. is filed challenging the order of the DRAT to the extent of award of interest till date of filing of the OA and thereafter. 2. However, DRAT reduced the interest pendenyte lite and post decree to a flat rate of 10%. This W.P. is filed challenging the order of the DRAT to the extent of award of interest till date of filing of the OA and thereafter. 2. Counsel appearing for the petitioners relied on the decision of the Madras High Court in Syndicate Bank V. Kalyani Raghavan, AIR 1983 Madras 254 and contended that no interest under section 80 of the NI Act can be decreed by the court upto the date of filing of the suit. Counsel for the Bank on the other hand contended that the decision of the Madras High Court relied on by the petitioners does not lay down correct law and according to him the rate of interest under section 80 of the NIT Act is a substitute for contract rate of interest and the same in rightly awarded by the DRT and DRAT upon the date of filing of the suit. 3. On going through the decision above referred I find the Madras High Court has granted interest in a similar case at 6% that was the rate provided under section 80 of the NI Act prior to it's amendment in 1988 only from the date of the suit and not any period to it. The question therefore to be considered is whether section 80 provides for interest only for the period from the date of filing of the suit, or from due date for payment of loan till date of filing of the suit. 4. In order to appreciate the rival contentions, section 80 of the NI Act has to be referred to and for easy reference section 80 is extracted hereunder: 80. Interest when no rate specified. - When no rate of interest is specified in the instrument interest on the amount due thereon shall, notwithstanding any agreement relating to interest between any parties to the instrument, be calculated at the rate of eighteen per centum per annum, from the date at which the same ought to have been paid by the party charged, until tender or realization of the amount due thereon, or until such date after the institution of a suit to recover such amount as the court directs. Explanation. Explanation. - When the party charged is the endorser of an instrument dishonoured by non-payment, he is liable to pay interest only from the time that he receives notice of the dishonour. On going through the above provision, it is clear that rate of interest provided therein is in substitution for the rate which the parties are free to prescribe in the loan instrument. So far as the period for which interest is payable, what is stated in the section is that interest at 18% should be calculated from the date on which the same ought to have been paid by the party charged until tender or realization of the amount due thereon. Or until such date after the institution of the suit recovery such amount as the court directs. In other words, interest is payable until the loan with interest is tendered by the person liable or until it is realized from such person. While these two are situations where the borrower either tenders the loan amount with interest or it is otherwise realized by the creditor through any other method, except through institution of a suit. When suit is filed the interest payable at 18% per annum under section 80 is only upon the sate of institution of the suit. The interest from the date of institution of the suit is not covered by section 80 of the NI Act. This is obviously because interest pendente lite is subject to discretion of the court as provided under section 34 of the CPC. In other words, when no interest in provided under the loan instrument, namely, pro-note, the creditor applicant can claim interest at the rate provided under section 80 of the NI Act only upon the date of filing of the suit and thereafter liability for interest pendente lite is governed by section 34 of the CPC and it would be open to the court, if justified, to grant the same rate of interest as provided under section 80. Petitioners in support of their contentions relied on the last limb of section 80 which provides that interest at the rate provided under section 80 is payable until such date after the institution of the suit to recover such amount as the court directs. Petitioners in support of their contentions relied on the last limb of section 80 which provides that interest at the rate provided under section 80 is payable until such date after the institution of the suit to recover such amount as the court directs. This part of the Section only means that the court, while exercising discretion to fix the rate of interest pendente lite under section 34 of the CPC, can order the same rate of interest provided under section 80 of the NI Act upon such date it chooses to fix. In other words, in exercise of discretion under section 34 if the court so chooses it can adopt the same rate of interest as provided under section 80 from the date of suit till such date the court fixes. In fact, counsel for the Bank rightly pointed out that the wording of section 79 of the NI Act in regard to rate of interest pendente lite is the same. Section 79 of the NI Act covers a situation where the rate of interest is expressly mentioned in the pro-note, bill of exchange, etc., based on which suit is instituted. As in section 80, it is stated in section 79 that interest at the agreed rate is payable from due date until tender or realization of such amount, or until such date after the institution of a suit to recover such amount as the court directs. Therefore both under section 79 and section 80, the rate of interest pendente lite is within the decretion of the court, which is only a recognition of the authority of the court conferred under section 34 of the CPC. In other words, when rate is specified in the instrument, then it is a situation covered by section 79 of the NI Act but it is still within the discretion of the court to grant it pendente lite and if the court feels it can limit it to the same rate upon the date fixed by the court from the date of suit. In either case, interest from the date of suit can be awarded either at the agreed rate or in its place the rate of interest provided under section 80. In either case, interest from the date of suit can be awarded either at the agreed rate or in its place the rate of interest provided under section 80. Supreme Court also in the decision reported in Central Bank of India V. Ravindra, (AIR 2001 SC 3095) held that interest under section 34 of the CPC pendente lite and post decree are subject to Section 34 of the CPC. Therefore section 79 and 80 have to be understood in the light of section 34 of the CPC and therefore the award of interest at 18% per annum up to the date of suit under section 80 in the case of the petitioner is rightly upheld by the DRT and DRAT. In view of the above finding, I am of the view that the decision of the Madras High Court relied on by the petitioners does not lay down correct interpretation of section 80 of the NI Act. The contention of the petitioners in this regard is therefore rejected and Exts.P1 and P2 are confirmed to the extent of award of interest at 18% till date of filling of application by the respondent-Bank. 5. So far as the challenge against award of interest at 10% pendente lite and post decree I fell petitioners' case calls for some consideration. Petitioners' case that DRAT has not exercised its discretion calls for consideration. It is clear from the findings and the statement of accounts produced that petitioners have made substantial payments in the accounts and even prior to filing of the application, an amount of Rs.10,70,439/- was paid by the first petitioner. It is to be seen that substantial debit balance was there in the account only because the Bank has charged interest at 26.27 per cent per annum on the outstanding amount. Further, pursuant to the interim orders of this court, during the pendency of the WPC, petitioners have paid Rs.3.5 lakhs. Above all this court has only now confirmed the award of interest at 18% till date of filing of the application. Therefore I feel the award of 10% interest pendente lite and post decree till realization by the DRAT is on the high site. Counsel for the Bank pointed out inordinate delay in the matter at all levels and he has pointed out that if the petitioners have honoured their commitment, Bank would realized the entire arrears by March, 1999. Therefore I feel the award of 10% interest pendente lite and post decree till realization by the DRAT is on the high site. Counsel for the Bank pointed out inordinate delay in the matter at all levels and he has pointed out that if the petitioners have honoured their commitment, Bank would realized the entire arrears by March, 1999. Counsel for the petitioners on the other hand pointed out that petitioner were engaged only in retail business of Indian Made Foreign Liquor and after the business was completely taken over the Beverages Corporation, petitioners are out of business and is in financial difficulty. Considering all these aspects, I feel, a conditional reduction of interest pendente lite and post decree can be granted to the petitioners, provided they voluntarily pay the balance amount with reduced interest in six equal monthly installments, first of which will be paid on or before 15th June, 2006 and the balance on or before 15th of five succeeding months. Rate of interest pendente lite and post decree is reduced to a flat rate of 8% on condition of payment and settlement of liability as above. However, I make it clear that if the petitioners commit default in payment of any of the installments then reduction in interest granted conditionally as above will stand automatically vacated and recovery officer will proceed for recovery of amount in terms of Ext.P2 award of the DRAT without any delay. Bank will rework the balance liability after giving credit for the payments made already, and give a statement of accounts to the petitioners within ten days from the date of production of a copy of this judgment by the petitioners for the petitioners to settle liability as above W.P. is disposed of as above.