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2013 DIGILAW 634 (JK)

State Of J&K v. Jagdish Gupta

2013-11-04

JANAK RAJ KOTWAL

body2013
1. This is a Civil Revision petition by judgment-debtors against order dated 10.02.2012, whereby learned Executing Court has held that the interest chargeable under the decree was 21 per cent per annum with quarterly rests. 2. Heard. I have perused the record. 3. For back in the year, 1984, the Respondent/decree-holder had filed a suit against petitioners/judgment-debtors for recovery of Rs. 12,349.78/ on account of the supply of one Allwyn Refrigerator by him to petitioner No. 3. The suit amount sought to be recovered comprised of Rs. 7016.92/ as the principal and Rs. 5332.86/ as interest calculated by the decree holder at the rate of Rs. 24 per cent up to the date of suit. The suit was decreed by the Court of learned Sub-Judge (CJM), Jammu vide judgment and decree dated 29.02.2000. The decree provided for recovery of Rs. 12,349.78 along with costs and interest `as per Bank rate' from the date of institution of suit till final realization of the decreetal amount. The rate of interest allowed by the learned trial court became the bone of contention between the parties resulting into protracted litigation in execution proceedings commenced by the decree-holder leading to this Revision Petition by the judgment-debtors. 4. Learned trial court/executing court during currency of the execution proceedings seems to have entertained a review petition moved by the judgment-debtors and vide order dated 24.08.2002 modified the decree and fixed the rate of interest at 9 per cent instead of the Bank rate prevalent at the relevant time. This order, however, was set aside by this court vide order dated 30.04.2008 in Civil Revision No. 39/2004 holding that the decree could not have been modified in exercise of the review power otherwise than in removal of defects or mistakes apparent on the face of record or as a result of consideration of some fresh materials not available to interested party despite diligence. While setting aside the order dated 24.08.2002 this Court, however, had made an observation that judgment-debtors would not be prevented from seeking reduction in decreetal rate of interest through proper medium, if so advised. Thereafter the learned executing court passed an order dated 11.04.2009, thereby, holding that applicable rate of interest was 12.24 per cent per annum with quarterly rests. While setting aside the order dated 24.08.2002 this Court, however, had made an observation that judgment-debtors would not be prevented from seeking reduction in decreetal rate of interest through proper medium, if so advised. Thereafter the learned executing court passed an order dated 11.04.2009, thereby, holding that applicable rate of interest was 12.24 per cent per annum with quarterly rests. While passing this order, the learned executing court had taken into consideration the statement of one Raman Kachroo, Assistant, Advances of the State Bank of India, Branch, Kachi Chowni, Jammu produced by the decree-holder for determination of the Bank rate of interest prevalent at the relevant time and had, while rejecting his evidence, found that the rate of interest applicable was 12.24 per cent per annum. 5. Both the decree holder as well judgment-debtors questioned this order in separate revisions before this court and this court vide order dated 11.10.2010 allowed both the revision petitions observing that the question as to what was the prevalent rate of interest chargeable by the Banks at the relevant time vis a vis type of loan availed by the judgment-debtors had not been correctly addressed. This court also observed that it shall be quite appropriate if both the parties are given chance to clearly establish before the executing court as to what was the requisite bank rate of interest applicable and thereafter based on that rate of interest calculations are made and amount as shall be found recoverable is recovered from the judgment-debtors. This court had, therefore, while allowing the revision petitions, directed the executing court to ensure that the question of bank rate of interest as was prevalent at the relevant point of time is finalized within a period of four weeks. 6. Learned executing court took up the matter and this time vide order dated 21.05.2011 came to conclusion that rate of interest chargeable by the banks at the relevant date, that is, at the time of institution of the suit was 15 per cent per annum and the decree holder was entitled to calculate the decreetal amount by applying interest at the rate of 15 per cent per annum. 7. Both the parties again felt aggrieved of the order passed by the executing court and challenged the same before this court in separate revision petitions. When those revision petitions were being heard by this court on 19. 09. 7. Both the parties again felt aggrieved of the order passed by the executing court and challenged the same before this court in separate revision petitions. When those revision petitions were being heard by this court on 19. 09. 2012, learned counsel for both the parties agreed that the order, that is, order dated 21-05-2011 be set aside and executing Court be directed to reconsider the whole issue in the light of the further evidence which has been brought on record in the shape of information obtained from the Reserve Bank of India under RTI Act. This Court, therefore, allowed the revisions, set aside the order dated 21. 05. 2011 and directed the executing Court to `reconsider the whole issue in the light of the observation made in this order and after hearing the parties pass fresh order in accordance with law'. Thus, comes the order of the learned executing court dated 10.12.2012, impugned in this revision filed by the judgment- debtors. 8. The impugned order on perusal reveals that pursuant to order dated 19.09.2012 (supra) passed by this Court, the learned executing court again relied upon statement of Raman Kachroo, Assistant Advances, State Bank of India who had stated that the State Bank of India (nationalized Bank) used to charge 21 per cent per annum interest with quarterly rests on money lent or advanced at that time. The court also referred to a letter dated 01.12.2011 issued by the reserve Bank of India in response to a query under RTI Act clarifying that bank loans to micro and small enterprises entrepreneurs engaged in trading in Refrigerators and Motor Cycles are eligible to be classified under the priority sector provided they satisfy the conditions of micro and small (service enterprises) defined under the Micro, Small and Medium Enterprises Development Act 2006. 9. Learned executing court, therefore, took the view that since the case of the petitioner did not get classified as priority sector enterprises, therefore, general interest rate as applicable for non priority sector is to be allowed. Learned Court rejected judgment-debtor's contention that the decree holder was entitled to interest at the rate of 9 per cent per annum and held that `the rate of interest at the relevant point of time in fact and circumstances of the case was Rs. 21% per annum with quarterly rest and the decree holder is entitled to same'. Learned Court rejected judgment-debtor's contention that the decree holder was entitled to interest at the rate of 9 per cent per annum and held that `the rate of interest at the relevant point of time in fact and circumstances of the case was Rs. 21% per annum with quarterly rest and the decree holder is entitled to same'. The learned executing court, thus, directed the decree holder to submit the detailed calculation sheet of interest duly attested by the Charter Accountant after deducting Rs. 50,000/- deposited by the judgment-debtors on 31.07.2001. 10. The petitioners/decree-holders have assailed the impugned order mainly on following grounds: i) That the impugned order is illegal because in a similar case between the parties, the Hon'ble Supreme Court had settled the issue holding that the rate of interest was payable at the rate of 9 per cent per annum. ii) The learned executing court has acted without jurisdiction in explaining the term `Bank rate' by allowing interest at the rate of 21 per cent per annum with quarterly rests. iii) That with the depositing of Rs. 50,000/ towards the decreetal amount in the year 2001 by the judgment-debtors, the decree stands fully satisfied and payment made by the judgment debtors is more than the amount due under the decree. 11. Mr. Sachin Dogra, learned counsel for petitioner would say vehemently that learned executing court has fallen into serious error of law by holding that interest under the decree was available with quarterly rests because neither the trial court had awarded compound interest nor compound interest could have been awarded under section 34 of the Code of Civil Procedure (for short the CPC). Mr. Dogra made an attempt to challenge the correctness of rate of interest being 21 per cent per annum and also submitted that in a similar case between the same parties a Division Bench of this court had held that interest payable was 9 per cent and order of this court was upheld by the Supreme Court. In reply, Mr. V. Bhushan Gupta, learned counsel for respondent, would say with more vehemence that interest having been awarded as per bank rate contemplates rate of interest as well as compounding of interest. In reply, Mr. V. Bhushan Gupta, learned counsel for respondent, would say with more vehemence that interest having been awarded as per bank rate contemplates rate of interest as well as compounding of interest. He urged that interest in the decree has been awarded in the same manner as it is charged by the nationalized banks in commercial transactions and as it was found that compounding of interest is in vogue in the banks, learned executing court did not commit any error. 12. To summarize briefly, three important questions arise for determination in back drop of the learned trial/executing court awarding interest `as per the bank rate' and holding in the execution proceedings that bank rate of interest at the relevant point of time was Rs. 21 per cent per annum with quarterly rests. These questions are; i) Whether interest at bank rate could have been awarded in the decree? ii) whether rate of interest as per the Bank rate will be 21 per cent per annum? And iii) whether the interest, if to be paid at the rate of 21 per cent, shall be compounded with quarterly rests? 13. Before taking up these questions, it needs to be noticed, as obvious it is, that the learned trial/executing court while awarding interest in the decree has acted too enigmatically. Unmindfully, learned court has allowed interest at bank rate, little recording reasons for choosing the bank rate. This enigma rather seems to be the cause of eternal litigation between the parties. 14. Determination of questions, arising as they are from enigmatic approach of the trial court, necessities reference to sec. 34 of the State Code of Civil Procedure (for short the CPC) that governs the payment of interest in money decrees. This reference is necessary also for the reason that the trial/executing court firstly, had left open the determination of bank rate and later added a new dimension by ordering in the impugned order that the interest would be payable with quarterly rests meaning thereby the compound interest. 15. Section 34 CPC reads: "34. This reference is necessary also for the reason that the trial/executing court firstly, had left open the determination of bank rate and later added a new dimension by ordering in the impugned order that the interest would be payable with quarterly rests meaning thereby the compound interest. 15. Section 34 CPC reads: "34. Interest (1) Where and in so far as decree is for the payment of money, the Court may, in 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 as the Court deems reasonable on the aggregate sum so adjudged, 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 percent, 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 I. In this sub-section, "nationalized bank" means a corresponding new bank as defined in the Banking Companies (Acquisition and Transfer of Undertakings) Act 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 aggregate sum as aforesaid 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". 16. Section 34 (1) CPC on its plain reading would show that the court in a money suit has first of all to adjudge the principal sum payable by defendant to the plaintiff on the date of the suit. This includes the actual amount which the defendant is in debt to the plaintiff. 16. Section 34 (1) CPC on its plain reading would show that the court in a money suit has first of all to adjudge the principal sum payable by defendant to the plaintiff on the date of the suit. This includes the actual amount which the defendant is in debt to the plaintiff. For example, the actual amount of the loan obtained by the defendant from the plaintiff, actual price of goods purchased by the defendant etc. Besides, this includes the interest on the said actual sum accrued prior to the suit, which the plaintiff might have capitalized with the actual sum. For example, interest at the contractual rate on the loan incurred by the defendant or the permissible interest on any other liability which the plaintiff might be entitled to demand from the defendant. After, adjudging the principal sum payable by defendant to the plaintiff on the date of the suit, the court may in its discretion also award on the said principal sum interest pendente lite, that is, from the date of the suit to the date of the decree and further (future) interest from the date of decree to the date of the payment or to such earlier date as the court thinks fit. Besides adjudging the principle sum payable as on the date of suit, the court in some cases may also be called upon to adjudge interest due and payable by the defendant for any period prior to the suit, which, however will be other than the interest already capitalized by the plaintiff while filing the suit. 17. Section 34(1) of the Central Code of Civil Procedure (Central Code) as amended by 1956 Amendment came up for interpretation before a Constitution Bench of the Supreme Court in Central Bank of India v. Ravindera and ors. AIR 2001 SC 3095 . Their Lordships after paraphrasing section 34(1) have interpreted the same in para 41 which reads: "41. A few points are clear from a bare reading of the provision. While decreeing a suit if the decree be for payment of money, the Court would adjudge principal sum on the date of the suit. AIR 2001 SC 3095 . Their Lordships after paraphrasing section 34(1) have interpreted the same in para 41 which reads: "41. A few points are clear from a bare reading of the provision. While decreeing a suit if the decree be for payment of money, the Court would adjudge principal sum on the date of the suit. The court may also be called upon to adjudge interest due and payable by the defendant to the plaintiff for the pre-suit period which interest would, on the findings arrived at and noted by us hereinabove, obviously be other than such interest as has already stood capitalized and having shed its character as interest, has acquired the colour of the principal and having stood amalgamated in the principal sum would be adjudged so. The principal sum adjudged would be the sum actually loaned plus the amount of interest on periodical rests which according to the contract between the parties or the established banking practice has stood capitalized. Interest pendent lite and future interest (i.e. interest post-decree not exceeding 6 per cent per annum) shall be awarded on such principal sum, i.e. the principal sum adjudged on the date of the suit. It is well settled that the use of the word `may' in section 34 confers a discretion on the Court to award or not to award interest or to award interest at such a rate as it deems fit. Such interest, so far as future interest is concerned may commence from the date of the decree and may be made to stop running either with payment or with such earlier date as the court things fit. Shortly hereinafter we propose to give an indication of the circumstances in which the Court may decline award of interest or may award interest at a rate lesser than the permissible rate." 18. It is important to note, as it goes without saying, that with the filing of a money suit the contractual rate of interest on a loan or any other rate of interest permissible in the transaction from which the liability in question arises ceases to operate and payment of interest is governed under section 34 of the CPC (Central Code or the State Code as the case may be). The payment of pendent lite and the future interest in a decree for payment of money and the rate at which it may be paid is in the discretion of the court. Court may or may not award such interest and may award it at any rate as the Court deems reasonable. However, in reading section 34(1) CPC (State Code) in juxtaposition with its proviso, it would be clear that future interest, that is, the post decree interest cannot exceed six per cent, per annum, if the transaction in which the liability of defendant has arisen is not a commercial transaction. However, if the liability has arisen out of a commercial transaction, the future interest may increase six per cent per annum but shall not increase 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 relations to the commercial transactions (In the Central Code this position, however, is clearly stated). The term `commercial transaction' as contemplated under this proviso is defined under Explanation II to section 34(1) as a transaction, connected with the industry, trade or business of the party incurring the liability'. 19. There is another aspect in this regard, which needs to be stated contextually. The pendent lite interest under section 34(1) (Central Code or the State Code as the case may be) as explained by the Constitution Bench in Central Bank (supra) can be awarded on the principal sum adjudged, as explained above, that is, on the actual amount, which the defendant is in debt towards the plaintiff and the interest on the said actual amount accrued prior to the suit, which the plaintiff might have capitalized with the actual sum. However, there is a remarkable difference between the Central Code after 1956 amendment and the State CPC so for as the payment of future interest in a money decree is concerned. Under the Central Code, the further interest is payable on the above mentioned principal sum adjudged only whereas under the State CPC it is payable on aggregate sum adjudged as it used to be under the Central Code too prior to the 1956 amendment. Under the Central Code, the further interest is payable on the above mentioned principal sum adjudged only whereas under the State CPC it is payable on aggregate sum adjudged as it used to be under the Central Code too prior to the 1956 amendment. The term `aggregate sum so adjudged' as it exists in section 34(1) of the State CPC and earlier existed in the Central Code prior to 1956 amendment has been explained by High Court of Calcutta in Prabirendra Mohan v. Berhampore Bank Limited, AIR 1954 Cal 289 (295), which has been referred to with approval by the Constitution Bench in Central Bank (supra), as; " (i) the principal sum adjudged, (ii) the interest from the date of the suit to the date of decree and (iii) the pre suit interest''. Contextually, it would be in place to emphasize here that section 34(1) of the State CPC is peri materia with section 34(1) of the Central CPC prior to its 1956 amendment. 20. The legal position under section 34 of the State CPC arising in light of the interpretation given to section 34(1) of the Central CPC in Central Bank of India (supra) and meaning of the term "aggregate sum so adjudged", still existing in the J&K CPC, explained in Prabirendra (supra) can be summarized as: In a money suit court will first of all adjudge the principal sum payable by the defendant to the plaintiff as on the date of the suit. This will comprise of the principal amount which the defendant is in debt or owes to the plaintiff and interest thereon as accrued up to the date of the suit, which the plaintiff has capitalized with the principal amount. This in common legal phrasing is called as the suit amount claimed by the plaintiff. Court in some cases may also be called upon to adjudge interest due and payable by the defendant to the plaintiff for any pre-suit period, other than the interest for that period already claimed by the plaintiff as a component of the suit amount. This, however, will be a rare situation, which may arise when it could not have been possible for the plaintiff to calculate interest for any portion of the pre-suit period. This, however, will be a rare situation, which may arise when it could not have been possible for the plaintiff to calculate interest for any portion of the pre-suit period. On the principal sum so adjudged, the court may in its discretion award interest, on such rate as the court may deem fit from the date of the suit till the date of the decree, what is called as the pendent elite interest. Besides, court may in its discretion also award future interest called as post decree interest from the date of the decree to the date of payment or such other date as the court thinks fit on the aggregate amount, that is, the principal sum adjudge (suit amount), pre-suit interest, if any, and interest from the date of the suit to the date of decree. Rate of the future interest again is in the discretion of the court but it cannot be more than six per cent if the transaction in which liability has arisen is not commercial transaction. In case of commercial transaction, however, the further interest may exceed six per cent, 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. 21. In backdrop of the legal position discussed and stated above and even the plain reading of section 34(1) CPC, question does arise about the correctness of awarding the interest at the bank rate for entire period right from the date of suit till realization of the decreetal amount without recording any finding as to whether the transaction from which liability of defendants has arisen was commercial or not. This question in this petition, however, is rendered academic only because decree of the court has attained finality as it was never challenged in proper manner by the judgment debtor. Having not challenged the decree at proper time in proper manner, the judgment debtors now cannot be heard assailing the rate of interest, that is, the bank rate awarded by the learned trial/executing Court. It is not even possible to assail the rate of interest in execution proceedings on the ground that in a similar case between the parties lesser rate was allowed by this court, which was upheld by the Supreme Court. 22. It is not even possible to assail the rate of interest in execution proceedings on the ground that in a similar case between the parties lesser rate was allowed by this court, which was upheld by the Supreme Court. 22. That the prevalent bank rates at the relevant time was 21 per cent, calls for no interference by this court. Finding to this extent has been recorded by the learned trial/executing court after appreciation of the unrebutted material produced by the decree-holder and there is no serious challenge in this revision petition to the finding in that behalf. The question, however, which is important indeed, is whether the payment of interest "as per bank rate' as provided under the decree would also mean the compounding of the interest with quarterly rests as held by the learned trial/executing court earlier in its order dated 11.04.2009 and later by the impugned order. 23. In the judgment and the decree learned trial court has awarded interest `as per bank rate'. However, in the executing proceedings learned trial/executing court, firstly, vide order dated 11.04.2009 fixed the rate of interest as 12.24 per annum with quarterly rests and subsequently vide the impugned order dated 19.09.2012 held that rate of interest at the relevant time was 21 per cent per annum with quarterly rest. The finding of learned trial/executing court to the extent that the interest was payable with quarterly rests calls for determination by this court. 24. The question arising is, whether interest at the rate of 21 per cent per annum is payable by compounding the same with quarterly rests. To say otherwise, question is, whether interest payable at bank rate is to be the simple interest or compound interest. 25. Section 34 of CPC (Central or State) in its plain reading does not provide for awarding compound interest in a decree. Though the courts have been given power and discretion to award pendent lite and future interest but such interest has to be simple only. Award of compound interest is not contemplated under section 34 CPC. In State of Haryana v. M/S. S.L. Arora and Company, AIR 2010 SCW 1715, Their Lordships of the Supreme Court in para 9, while explaining the concept of compounding of interest have observed: "9. Compound interest refers to a method of charging interest where interest is computed not only on the principal, but also the accrued interest. In State of Haryana v. M/S. S.L. Arora and Company, AIR 2010 SCW 1715, Their Lordships of the Supreme Court in para 9, while explaining the concept of compounding of interest have observed: "9. Compound interest refers to a method of charging interest where interest is computed not only on the principal, but also the accrued interest. For this purpose, periodical rests are provided for computation of interest, say yearly, or quarterly or monthly. At the end of the first `rest', the interest accrued till then is added to the principal, so that for the second interest bearing period, the aggregate of the original principal and interest thereon becomes the enhanced principal. At the end of the second rest, the accrued interest on the enhanced principal is added to the enhanced principal so that such further enhanced principal becomes the principal for charging the interest for the third period. It goes on in this manner until repayment, by progressively enlarging the principal base by adding interest at regular intervals. As a result, the debtor is made to pay interest not only on the original principal, but on the interest on the principal, and on the interest upon the interest on the principal and so on. A variant of compound interest, involves limited compounding, where interest is not added to be principal with periodical rests, but only once or twice at agreed stages. For example, where a loan is repayable within one year, if a provision is made in the contract that in the event of the loan not being repaid within one year, the interest which had accrued during the one year period will be added to the principal, and as a consequence, after one year, interest will be payable on the aggregate of the principal and the interest for one year. It is a provision for interest upon interest. Compound interest can be awarded only if there is a specific contract, or authority under a Statute, for compounding of interest. There is no general discretion in courts or tribunals to award compound interest or interest upon interest. 26. Learned trial/executing court has decreed the respondent's suit for Rs. 12,349. 78/ with interest "as per the bank rate". Compound interest can be awarded only if there is a specific contract, or authority under a Statute, for compounding of interest. There is no general discretion in courts or tribunals to award compound interest or interest upon interest. 26. Learned trial/executing court has decreed the respondent's suit for Rs. 12,349. 78/ with interest "as per the bank rate". In the executing proceedings, the court, while holding that the bank rate prevalent at the relevant time was 21 per cent per annum, has, however, fallen into error by adding that the interest was payable with quarterly rests, that is, compound interest was payable. Compounding of interest as a matter of fact was neither provided in the decree nor could it have been, under section 34 CPC. Learned executing court it appears has failed in making out the difference between the rate of interest and the mode of interest. Rate of interest in context of a decree means the rate at which interest on the decreetal amount shall be payable whereas the mode means the manner in which the interest shall be computed, that is, whether interest shall be simple or compounded after a particular period of rest, quarterly, half yearly, rests. By holding that 21 per cent interest was payable with quarterly rests learned executing court has gone beyond the decree, which is not permissible. 27. The interest payable under the decree, for the above mentioned, is the simple interest at the rate of 21 per cent per annum. 28. Learned executing Court has fallen into error of law by holding in the execution proceedings that interest was payable with quarterly rests meaning thereby that respondent was entitled to compounding of interest with quarterly rests and the impugned order dated 10.12.2012 to that extent is bad in law and not sustainable. 29. The impugned order is, therefore, modified by setting aside insofar as it provides for compounding of interest with quarterly rests. To make it clear, the respondent under the decree is entitled to 21 per cent simple interest on the decreetal amount of Rs. 12,349.78/. Learned trial/executing court shall calculate the amount payable under the decree accordingly, having regard to the amount, whatsoever, deposited in the court during execution proceedings and dispose of the matter expeditiously.