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2010 DIGILAW 1529 (PAT)

Central Bank Of India v. Mishra Oil Udyog

2010-07-13

MUNGESHWAR SAHOO

body2010
JUDGEMENT Mungeshwar Sahoo, J. 1. The plaintiff-appellant-Central Bank of India has filed this Appeal against that part of the Judgment and decree dated 18.03.1993 passed by the learned Subordinate Judge, 7th Siwan in Title Mortgage Suit No. 42 of 1990/85 of 1992 whereby the learned Court below disallowed the claim of interest pendente lite and future on the decreetal amount at contractual rate. 2. The plaintiff-appellant field the aforesaid suit for realization of a sum of Rs. 6,88,529.97/- from the defendants-respondents on account of the advance of loan to the defendants. The case of the plaintiff-appellant is that the defendant No. 1 is a proprietary firm and the defendant No. 2 is sole proprietor who carries on the business of oil milling in the name and style of defendant No. 1. The defendant No. 3 to 5 respondents are the guarantor of the loan advanced to the defendant No. 2. The defendant No. 2 applied for loan for the purpose of purchasing oil expeller and motor and a term loan of Rs. 26,000/- and a cash credit up to the limit of Rs. 10,000/- was sanctioned on 10.06.1979. The stock in trade was hypothecated in favour of bank as security and other terms were also there. The defendant No. 2 agreed to the terms and he executed relevant documents in favour of bank and created equitable mortgage dated 10th July, 1979. He also deposited title deeds with regard to his 1 biggahas 11 dhurs of land as security. The limits of cash credit was enhanced to Rs. 50,000/- on 05.05.1981 on execution of relevant document by defendant No. 2. On 03.12.1983, again the limit of cash credit was enhanced to Rs. 2 lakhs. The defendant No. 3 to 5 stood as guarantors. The defendant No. 2 purchased the machinery and the business flourished but in violation of the terms and conditions, the defendant No. 2 did not deposit the sell proceeds of the hypothecated goods, and because of that the account became irregular. On demands for regularizing the account, the defendant No. 2 only confirmed the balance and renewed the documents on 30.01.1986 and 07.03.1988. Legal notices were served but he did not pay the dues. 3. The defendant-respondent appeared and filed contesting written statement, however, he admitted to have taken loan. On demands for regularizing the account, the defendant No. 2 only confirmed the balance and renewed the documents on 30.01.1986 and 07.03.1988. Legal notices were served but he did not pay the dues. 3. The defendant-respondent appeared and filed contesting written statement, however, he admitted to have taken loan. He also admitted the execution of documents and enhancement of loan limit and purchase of machinery out of that loan. The further case of the defendant was that the business did not flourish and because of non-cooperating attitude of the bank, exorbitant rate of interest, the defendant could not succeed to meet their demand. 4. On the basis of the above pleadings, the learned Court below framed as many as 7 issues. Issue No. E is whether the rate of interest charged by the plaintiff is arbitrary and exorbitant? While deciding this issue, the learned Court below found that the rate of interest is a contractual rate and cannot be said as exorbitant. It may be Mentioned here that the initial agreed rate of interest was 12.5 per cent but when the limit was raised to 2 lakh, the defendant No. 2 executed Exhibit 1 agreeing to pay the rate of interest at the rate of 18 per cent. All other issues regarding maintainability of suit, payment of court fee, question of limitation and also the issue No. F i.e., whether the plaintiff is entitle to a decree prayed for have been decided in favour of the plaintiff-bank. However, in the last portion, i.e., in the result of the decision, the learned Courted below directed the defendant No. 2 to pay the amount claimed by the plaintiff, i.e., 6,88,529.97/- within one year from the date of the order and if the entire amount is not paid within one year then directed that the plaintiff will be entitled to realise 6 per cent simple interest per annum from the end of grace period till the realization of the entire amount. 5. The bank-plaintiff filed this Appeal on the ground that the learned Court below has gravely erred in not granting the contractual rate of interest and moreover the learned Court below has wrongly failed to grant interest, pendente lite and future. 6. 5. The bank-plaintiff filed this Appeal on the ground that the learned Court below has gravely erred in not granting the contractual rate of interest and moreover the learned Court below has wrongly failed to grant interest, pendente lite and future. 6. The learned Counsel for the appellant submitted that the learned Court below could have granted interest at the rate of 18 per cent per annum which was the agreed rate between the parties. And moreover even if 18 per cent was not granted the Court should have granted interest at the rate of 6 per cent per annum during the period when the suit was pending but without assigning any reason, the learned Court below has not granted any interest pendente lite and so far future interest is concerned, one year grace period has been granted. 7. It may be Mentioned here that when this First Appeal was heard, nobody appeared on behalf of the respondent, although, notices have already been validly served on the respondents. 8. In view of above facts and circumstances of the case, the only point arises for consideration in this Appeal is as to whether the plaintiff-appellant is entitled for interest during the pendency of the suit and post decree and if entitle for the interest at what rate and whether the learned Court below has rightly not granted pendente lite interest? FINDINDS 9. The learned Counsel for the appellant submitted firstly that the learned Court below should have granted rate of interest which was agreed between the parties, i.e. 18 per cent from the date of institution of the suit till the realization. Secondly, he submitted that at least if the agreed rate was not granted then the Court below should have granted 6 per cent from the date of institution of the 10. So far this question is concerned, it may be Mentioned here that the amount of loan was advanced for commercial purposes. 11) Section 34 C.P.C. reads as follows: 34. Secondly, he submitted that at least if the agreed rate was not granted then the Court below should have granted 6 per cent from the date of institution of the 10. So far this question is concerned, it may be Mentioned here that the amount of loan was advanced for commercial purposes. 11) Section 34 C.P.C. reads as follows: 34. Interest - (1) Where and in so far as a decree is for the payment of money, the Court may, in the decree, order interest at such rate as the Court deems reasonable to be paid on the principal sum adjudged, from the date of the suit to the date of the decree, in addition to any interest adjudged on such principal sum for any period prior to the institution of the suit, (with further interest at such rate not exceeding six per cent. annum as the court deems reasonable on such principal sum), from the date of the decree to the date of payment, or to such earlier date as the Court thinks fit: (Provided that where the liability in relation to the sum so adjudged had arisen out of a commercial transaction, the rate of such further interest may exceed six per cent. Per annum, but shall not exceed the contractual rate of interest or where there is no contractual rate, the rate at which moneys are lent or advanced by nationalized banks in relation to commercial transactions. Explanation IIn this Sub-section, "nationalized bank" means a corresponding new bank as defined in the Banking Companies (Acquisition and Transfer of Undertakings) Act, 1970 (5 of 1970). Explanation II - For the purposes of this section, a transaction is a commercial transaction, if it is connected with the industry, trade or business of the party incurring the liability.). (2) Where such a decree is silent with respect to the payment of further interest (on such principal sum) from the date of the decree to the date of payment or other earlier date, the Court shall be deemed to have refused such interest, and a separate suit therefore shall not lie 11. From a bare reading of the provision, it becomes clear that while decreeing the suit for payment of money, the Court would adjudge the principal sum on the date of the suit. From a bare reading of the provision, it becomes clear that while decreeing the suit for payment of money, the Court would adjudge the principal sum on the date of the suit. The Court is also called upon to adjudge interest due and payable by the defendant for the pre-suit period and interest pendente lite and future. Interest pendente lite and future not exceeding 6 per cent per annum shall be awarded on such principal-sum, adjudged on the date of the suit. It is well settled that the use of the word "May" in Section 34 C.P.C. confers a discretion on the Court to award or not to award interest or to award interest at such rate as it deems fit. In the present case at our hand, the suit has been filed including the interest agreed between the parties and, therefore, the amount claimed by the plaintiff is the sum actually loaned plus the amount of interest of periodical rest which according to the contract between the parties has stood capitalized. Now, therefore, the Court was required to determine the rate of interest. No doubt the grant of interest is discretionary but the discretion is required to be exercised fairly, judiciously and for reasons and not in an arbitrary and fanciful manner. 12. In the present case, the learned Court below after trial found that the agreed rate of interest is not exorbitant but however, while decreeing the suit, no pendente lite interest was awarded. It may be Mentioned here that since there was agreement between the parties which was found to be not exorbitant and the power is vested on the Court to grant interest under Section 34 of the Code of Civil Procedure. It was incumbent upon the Court below to have recorded reasons for not exercising the jurisdiction to grant interest. 13. In a decision reported in 2002 (1) (S.C. Cases) 367, Central Bank of India V/s. Rabindra and Ors. the Honble Supreme Court at paragraph 55(8) has held that award of interest pendente lite and post decree is discretionary with the Court as it is essentially governed by Section 34 C.P.C. dehors the contract between the parties. 13. In a decision reported in 2002 (1) (S.C. Cases) 367, Central Bank of India V/s. Rabindra and Ors. the Honble Supreme Court at paragraph 55(8) has held that award of interest pendente lite and post decree is discretionary with the Court as it is essentially governed by Section 34 C.P.C. dehors the contract between the parties. In a given case, if the Court finds that in the principal sum adjudged on the date of the suit component of interest is disproportionate with the component of the principal sum actually advanced the Court may exercise its discretion in awarding interest pendente lite and post decree interest at a lower rate or may even decline awarding such interest. The discretion shall be exercised fairly, judiciously and for reasons and not in an arbitrary or fanciful manner. 14. At paragraph 58(2), the Honble Supreme Court has held that the principal sum so adjudged is "such principal sum" within the meaning of Section 34 of the C.P.C. on which interest pendente lite and future interest i.e., post decree interest at such rate and for such period which the Court may deem fit may be awarded by the Court. 15. In view of above settled principal of law as laid down by the Honble Supreme Court, the plaintiff was entitled to the interest pendente lite also. Since the award of interest pendente lite and post decree is essentially governed by Section 34 C.P.C. dehors the contract between the parties, in my opinion, the plaintiff-appellant was entitled for a simple interest pendente lite and future at the rate of 6 per cent per annum till realization. There is no reason as to why this relief could have been refused by the Court below. I, therefore, find and hold that the plaintiff-appellant is entitled to interest pendente lite and future at the rate of 6% per annum on the principal sum claimed. 16. In the result, this Appeal is allowed in part. The impugned Judgment and decree of the learned Court below is modified to the extent that the defendant No. 2-respodnent is directed to pay the amount claimed and decreed by the Court below with simple interest at the rate of Rs. 6 per cent per annum from the date of institution of the suit till its payment. The rest portion of the Judgment and Decree are hereby confirmed.