Research › Search › Judgment

Karnataka High Court · body

2010 DIGILAW 396 (KAR)

Kalachanda U. Thammaiah v. Indian Bank, Chennai-1

2010-03-26

K.GOVINDARAJULU, N.KUMAR

body2010
Judgment : N. Kumar, J. This is defendants’ appeal against the judgment and decree of the Trail Court which has decreed the suit of the plaintiff for recovery of money. For the purpose of convenience, parties are referred as they are referred to in the original suit. 2. The plaintiff-Indian Bank had filed the suit for recovery of Rs.3,51,921/- with interest at the rate of 17.85% plus 2% penal interest per annum with half yearly rests from the date of the suit till the date of realization and they also sought for preliminary decree in respect of the mortgaged suit property to recover the decretal amount if the amount is not paid. 3. The defendants 1 and 2 approached the plaintiff-Bank on 25-11-1991 for grant of agriculture development loan in a sum of Rs.3,59,000/- and have given necessary application on 25-5-1993. The plaintiff-Bank sanctioned the said loan. On said sanction, defendants 1 and 2 have executed the requisite documents acknowledging the grant of Rs.3,47,531/- and agreeing to repay the same with interest at 17.25% p.a. with ½ yearly rests. Defendants 1 and 2 also created an equitable mortgage in respect of the ‘A’ Schedule property by way of depositing the title deeds in the Bank. When the defendants could not repay the loan amount, they requested the plaintiff-Bank to sell 7.35 acres of land in K. Nidugane Village and adjust the sale consideration towards the loan amount. Permission was granted. A sum of Rs.2,50,000/- was deposited with the Bank. 1st defendant being the manager of the joint Hindu family had availed the said loan for the benefit of the undivided family. On 18-1-1995, defendants 1 and 2 have acknowledged the debt in a sum of Rs.2,24,499/- and again on 25-7-1996 they have acknowledged the liability of Rs.1,87,395/-. Defendants failed to pay the aforesaid amount to terms of the agreement. In fact, defendant 2 along with defendants 1(b) and 1(c)-mortgaged certain portions of land in Sy.No.34/8 measuring 16 acres in favour of defendant 3 without the knowledge and consent of plaintiff-Bank. In these circumstances, the plaintiff having no other way, has filed the suit for recovery of balance amount due with interest. 4. After service of summons, defendants entered appearance. In fact, they executed a power of attorney who in turn, filed a detailed statement contesting the claim. The loan was admitted. Mortgage is admitted. In these circumstances, the plaintiff having no other way, has filed the suit for recovery of balance amount due with interest. 4. After service of summons, defendants entered appearance. In fact, they executed a power of attorney who in turn, filed a detailed statement contesting the claim. The loan was admitted. Mortgage is admitted. But it was contended the agreed rate of interest is 14% p.a. and not 17.25% p.a. as claimed by the plaintiff. It was specifically pleaded that subsequent to the date of 25-5-1993, the plaintiff-Bank got signatures of the defendants on many papers and have not informed them why they obtained the signatures. According to them, they gave only 2 properties as simple mortgage in Sy-No.34/2 measuring 16.55 acres at Makkodlu Village and 7.35 acres of land in Kalakeri Nidugane Village. The area of 23.90 acres was sufficient for agreed loan. The plaintiff-Bank collected the documents viz., pronote, hypothecation deed, equitable mortgage, confirmation letter without their knowledge and stealthily. The plaintiff-Bank having violated the terms and conditions of the contract, the suit has been filed even before the completion of installments. The defendants have paid a sum of Rs.2,50,000/-before commencement of installments. The present suit is premature. The defendants are due in a sum of Rs.1,09,000/- as on June 1988 and not due in a sum of Rs.1,87,305/-as pleaded by the plaintiff-Bank. Therefore, they sought for dismissal of the suit. 5. Defendant 3-subsequent mortgagee filed a separate written statement defending the plaint allegations. They contended they have a first charge over all the properties in respect of which, the plaintiff claims that defendant 2 has mortgaged it in their favour. Defendant 3 has lent money to defendant 2 as all enquires made by defendant 3 did not disclose any notice of any encumbrance on the suit properties offered as security by way of mortgage. Therefore, 3rd defendant accepted the mortgage of the above properties as bona fide creditor. The 3rd defendant sought for dismissal of the suit. 6. On the aforesaid contentions, the Trail Court has framed 9 issues and 2 additional issues. The plaintiff-Bank in order to substantiate its claim, examined its Manager as P.W.1 and also produced 23 documents marked as Exs. P1 to P.23. On behalf of the defendants, no evidence was adduced. The 3rd defendant sought for dismissal of the suit. 6. On the aforesaid contentions, the Trail Court has framed 9 issues and 2 additional issues. The plaintiff-Bank in order to substantiate its claim, examined its Manager as P.W.1 and also produced 23 documents marked as Exs. P1 to P.23. On behalf of the defendants, no evidence was adduced. The Trail Court on appreciation of the oral and documentary evidence on record held the plaintiff has proved the execution of all documents and also the creation of an equitable mortgage by way of security by depositing the title deeds mentioned in Schedule A to the plaint. The defendants have failed to prove their case that their signatures have been taken without informing the contents of the documents and why they have taken and now signatures are being used to create the suit documents. Defendants have failed to prove that only a sum of Rs.1,09,000/- is the capital and not Rs.1,87,305/- as contended by the plaintiff. The defendants have failed to prove that the suit is premature. Similarly when 3rd defendant has failed to prove that he is a bona fide mortgagee without the knowledge of the earlier mortgage. Accordingly the suit of the plaintiff was decreed directing the plaintiff-Bank to charge interest on annual rests on the due amount upto the date of the suit. Future interest was awarded at the rate of 6% p.a. 6 months’ time was granted to pay the decretal amount failing which, liberty was reserved to initiate final decree proceedings for sale of the mortgaged property. Aggrieved by the said judgment and decree of the Trail Court, the defendants have preferred this appeal. 7. The learned Counsel for the appellants/defendants assailing the judgment and decree of the Trail Court contended the loan in question is an agricultural loan. It is settled law that in respect of agricultural loan, compounding of interest is not permitted and therefore, the suit claim which is based on such compounding of interest is illegal and the Court below has committed serious error in not noticing the same and in decreeing the suit. It is settled law that in respect of agricultural loan, compounding of interest is not permitted and therefore, the suit claim which is based on such compounding of interest is illegal and the Court below has committed serious error in not noticing the same and in decreeing the suit. Secondly she contended there was a holiday period of 4 years for repayment of loan and the loan has to be repaid within 12 years of its grant and during the holiday period, Bank is not entitled to claim interest but the Bank has claimed interest for the said period. Further she submitted the interest at 17.25% p.a. claimed by the plaintiff-Bank is excessive, as the agreed rate of interest is only 14% p.a. Lastly she submitted the defendants are poor agriculturists, inspite of obtaining loan, they could not develop the agricultural land, sustained huge loss and if the Court does not show mercy on them, they will be ruined and therefore, the rate of interest may be modified and the appeal be allowed. 8. In the light of the aforesaid contentions of the parties, the point that arise for consideration in this appeal is as follows.- (a) Whether the Trail Court committed any error in decreeing the suit of the plaintiff by directing the plaintiff to calculate interest only on annual rests and in directing future interest at 6% p.a. from the date of suit till realization? 9. The facts are not in dispute. The defendants did borrow a sum of Rs.3,47,531/-. When they could not repay the loan, they requested the Bank to permit them to sell the mortgaged property and permission was granted. Accordingly 7.35 acres of land in K. Nidugane Village was sold and a sum of Rs.2,50,000/- was deposited with the Bank on 25-7-1996. Thereafter, admittedly, no payment is made. Merely because the plaintiff had granted a holiday period of 4 years that does not mean interest is not liable to be charged for the said period. As per the terms of the agreement, during the holiday period, the defendants are not liable to make the payments as the total agreed period was 12 years. The loan is of the year 1993. As on today, 17 long years have elapsed. Suit itself is filed six years after the grant of loan. Admittedly, the defendants have not repaid the money. The loan is of the year 1993. As on today, 17 long years have elapsed. Suit itself is filed six years after the grant of loan. Admittedly, the defendants have not repaid the money. The agreed rate of interest is 17.25% as is clear from the agreement and there is no merit in the defendants’ claim that agreed rate of interest is only 14%. The agreement shows that the defendants agreed to pay interest at the rate of 5.25% over and above the term lending rate fixed by the Reserve Bank. That is why, 17.25% interest is payable on the loan amount by the defendants to the plaintiff-Bank. In fact, the agreement stipulates compounding of interest half yearly. Whereas, the Court below while decreeing the suit has altered the said terms of the contract and has directed yearly rests which itself is a substantial benefit to the defendants even though such a benefit is impermissible in law in view of Section 21-A of the Reserve Banking Regulation Act. In addition to it, though the agreed rate of interest is 17.25% p.a., the Court below has granted the benefit of 6% interest p.a. from the date of the suit till the date of payment. When admittedly only a sum of Rs.2,50,000/- is deposited out of the total amount and the balance amount is not paid and accordingly total loan amount is not discharged, the Trail Court taking pity on the defendants who are agriculturists, has granted benefits more than what they deserve in law. In fact, the conduct of the defendants in not entering the witness-box though a detail statement is filed taking up all contentions, the said contentions have remained only as a plea unsupported by any documents. On the contrary, the plaintiff has produced documentary evidence which are duly executed by the plaintiff/defendants which stipulates the contract entered into between the parties. In that view of the matter, we do not find any justification to interfere with the judgment an decree of the Trail Court. The said judgment is based on legal evidence and the Trail Court has extended the maximum benefit to the defendants. Accordingly, the appeal is dismissed. No costs.