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2013 DIGILAW 256 (CHH)

CENTRAL BANK OF INDIA v. LALIT AGARWAL

2013-08-30

N.K.Agarwal

body2013
JUDGMENT 1. Instant First Appeal filed by the plaintiff under Section 96 of CPC is directed against the judgment and decree dated 30.09.1997, passed by the District Judge, Rajnandgaon, in Civil Suit No. 1-B/1991. 2. Plaintiff-Bank sanctioned and granted loan/credit facilities to defendant No.1 to the limit of Rs.75,000/-. The defendant No.1 submitted all the necessary documents with the Bank on 23.05.1987. Because of certain reasons, the Murmura industry started by the defendant No. 1 suffered setback and closed in the year 1988. On 03.01.1989 an amount of Rs.1,46,108.35/- was due in cash credit account of defendant (Ex. P/11), however, the Bank neither settled the matter with the defendant nor instituted any suit immediately and the suit has been filed only on 02.05.1991 i.e. about 2-3 years after closure of industry. 3. As per plaintiff's case, on the date of suit, Rs.2,06,271.35/- was due in cash credit account of defendant. 4. The trial court, considering financial status of the defendant, the fact that defendant's industry was closed ever-since 1988-89 as well as that the cash credit limit of only Rs.75,000/- has been taken by the defendant, although granted a decree of Rs.2,06,271.35/- but awarded interest @ 6 percent per annum from the date of suit till its realization against the defendant No.1, also granted installment facilities for payment of decretal amount. 5. Feeling aggrieved and dissatisfied with the award of pendente lite and future interest @ 6 percent per annum, instant appeal has been preferred by the plaintiff-Bank. 6. It is contended by the appellant's counsel that in view of the proviso to Section 34(1) CPC, if the liability in relation to the sum adjudged had arisen out of commercial transaction, the rate of such further interest may exceed 6 percent per annum but shall not exceed the contractual rate of interest and the Bank is entitled to claim interest as per the contract. 7. On the other hand, learned counsel appearing for the respondent supported the judgment and decree impugned and submitted: the trial Court has rightly exercised its discretion in awarding interest @ 6% per annum from the date of the suit till its realization and no fault can be found in it. It was further contended that the defendant had already paid the entire decretal amount. 8. It was further contended that the defendant had already paid the entire decretal amount. 8. I have heard the counsel appearing for the parties and perused the judgment and decree impugned including record of court below. 9. The trial court, considering the facts that loan of Rs.75,000/- was sanctioned in the year 1987, immediately thereafter defendant's industry was closed in the year, 1988-89, suit was filed in the year 1991, and also considering the financial conditions of defendant, in its discretion has awarded pendente lite and future interest @ 6 percent per annum. 10. A bare reading of provision including its proviso, it would be clear as crystal that pendente lite as well as future interest on judgment rests entirely in the discretion of the court. The discretion, however, like all other discretions must be exercised judicially, reasonably and on sound legal principles. No rule of universal application can be laid down and each case will be decided on its own merits. 11. Constitution Bench of Supreme Court in the case of Central Bank of India Vs. Ravindra, 2002 (1) SCC 367 , formulated the following principles: "(1) Though interest can be capitalised on the analogy that the interest falling due on the accrued date and remaining unpaid, partakes the character of amount advanced on that date, yet penal interest, which is charged by way of penalty for non-payment, cannot be capitalised. Further interest i.e. interest on interest, whether simple, compound or penal, cannot be claimed on the amount of penal interest. Penal interest cannot be capitalised. It will be opposed to public policy. (2) Novation, that is, a debtor entering into a fresh agreement with a creditor undertaking payment of previously borrowed principal amount coupled with interest by treating the sum total as principal, any contract express or implied and an express acknowledgment, of accounts, are the best evidence of capitalisation. Acquiescence in the method of accounting adopted by the creditor and brought to the knowledge of the debtor may also enable interest being converted into principal. A mere failure to protest is not acquiescence. (3) The prevalence of banking practice legitimatises stipulations as to interest on periodical rests and their capitalisation being incorporated in contracts. Such stipulations incorporated in contracts voluntarily entered into and binding on the parties shall govern the substantive rights and obligations of the parties as to recovery and payment of interest. A mere failure to protest is not acquiescence. (3) The prevalence of banking practice legitimatises stipulations as to interest on periodical rests and their capitalisation being incorporated in contracts. Such stipulations incorporated in contracts voluntarily entered into and binding on the parties shall govern the substantive rights and obligations of the parties as to recovery and payment of interest. (4) Capitalisation method is founded on the principle that the borrower failed to make payment though he could have made and thereby rendered himself a defaulter. To hold an amount debited to the account of the borrower capitalised it should appear that the borrower had an opportunity of making the payment on the date of entry or within a reasonable time or period of grace from the date of debit entry or the amount falling due and thereby avoiding capitalisation. Any debit entry in the account of the borrower and claimed to have been capitalised so as to form an amalgam of the principal sum may be excluded on being shown to the satisfaction of the court that such debit entry was not brought to the notice of the borrower and/or he did not have the opportunity of making payment before capitalisation and thereby excluding its capitalisation. (5) The power conferred by Sections 21 and 35-A of the Banking Regulation Act, 1949 is coupled with duty to act. Reserve Bank of India is the prime banking institution of the country entrusted with a supervisory role over banking and conferred with the authority of issuing binding directions, having statutory force, in the interest of the public in general and preventing banking affairs from deterioration and prejudice as also to secure the proper management of any banking company generally. Reserve Bank of India is one of the watchdogs of finance and economy of the nation. It is, and it ought to be, aware of all relevant factors, including credit conditions as prevailing, which would invite its policy decisions. RBI has been issuing directions/circulars from time to time which, inter alia, deal with the rate of interest which can be charged and the periods at the end of which rests can be struck down, interest calculated thereon and charged and capitalised. It should continue to issue such directives. Its circulars shall bind those who fall within the net of such directives. It should continue to issue such directives. Its circulars shall bind those who fall within the net of such directives. For such transactions which are not squarely governed by such circulars, the RBI directives may be treated as standards for the purpose of deciding whether the interest charged is excessive, usurious or opposed to public policy. (6) Agricultural borrowings are to be treated on a pedestal different from others. Charging and capitalisation of interest on agricultural loans cannot be permitted in India except on annual or six monthly rests depending on the rotation of crops in the area to which the agriculturist borrowers belong. (7) Any interest charged and/or capitalised in violation of RBI directives, as to rate of interest, or as to periods at which rests can be arrived at, shall be disallowed and/or excluded from capital sum and be treated only as interest and dealt with accordingly. (8) Award of interest pendente lite and post-decree is discretionary with the court as it is essentially governed by Section 34 CPC 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 the 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." 12. As per above case, award of interest pendente lite and post decree is discretionary with the court as it is essentially governed by Section 34 of CPC de hors the contract between the parties. 13. By drawing my attention to the decision of Supreme Court in the case of Syndicate Bank, Chennai Vs. Mohan Brothers and others, 2004 (10) SCC 549 , it is contended by appellant counsel that in view of the proviso to Section 34(1) CPC, if the liability in relation to the sum adjudged had arisen out of commercial transaction, the rate of such further interest may exceed 6 percent per annum but shall not exceed the contractual rate of interest and the Bank is entitled to claim interest as per the contract. 14. 14. It is true that in this decision, a three-Judge Bench, after finding that the decision in Central Bank of India’s case, 2002 (1) SCC 367 , shows that no reference has been made to the proviso which specifically deals with the awarding of interest arising out of commercial transaction, referred the issue to a larger Bench. 15. Learned counsel for the appellant did not inform about any decision by a larger Bench contrary to the decision in Central Bank of India’s case, 2002 (1) SCC 367 . Even otherwise, considering the factual aspects, I feel that the court below has fairly neutralized the claim of the Bank as well as the suffering of the defendant and passed a workable order by awarding interest @ 6 percent per annum for pendente lite and future period and also by awarding payment facility in installments. 16. The Supreme Court in the case of Punjab and Sind Bank Vs. Allied Beverage Company Private Limited and other, 2010 (10) SCC 640 , after considering the judgments passed in Central Bank’s case, 2002 (1) SCC 367 and Syndicate Bank’s case, 2004 (10) SCC 549 , has affirmed the view taken by the High Court, in a case where due to financial difficulties and other circumstances, the High Court has reduced the interest and allowed simple interest @ 14 percent per annum. In the instant case also, the trial Court, after considering the facts and circumstances of the case, in proper exercise of discretion, has granted interest 6% per annum from the date of institution of suit till its realization, which, in the facts and circumstances of the case, cannot be said to be contrary to law. 17. In view of above, I do not find any merit in the appeal. The appeal is, therefore, liable to be and is hereby dismissed. 18. No order as to costs. 19. A decree be drawn accordingly. Appeal Dismissed.