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2015 DIGILAW 798 (BOM)

Mahindra & Mahindra Limited v. NEPC Micon Limited

2015-03-20

ROSHAN DALVI

body2015
JUDGMENT: 1. The plaintiff has sued for recovery of Rs.1.06 crores upon the principal sum of Rs.60 lakhs with interest @ of 18% p.a from the filing of the suit till realisation. 2. The defendant has accepted the plaintiff's claim of the principal amount which was under a bill discounting facility. The plaintiff has claimed interest @ 30% p.a on the principal amount from 15th May, 1998 till the filing of the suit after adjusting the margin retained by the plaintiff. 3. The defendant claims that the interest is incorrectly charged and is exorbitant. The parties have been at issue only with regard to the interest in the trial. 4. The plaintiff has led oral evidence. The plaintiff's witness is cross examined. The plaintiff has produced the documents relating to the bill discounting facility granted, the interest defaulted, the payment of interest expressly admitted, the debit note which has been received, but not disputed and the consequent legal notice making the demand for payment of the unpaid principal amount along with interest, all of which are at different percentage. 5. Based upon the pleadings between the parties and the aforesaid documents the only material issue that arises is : Whether the plaintiff is entitled to be paid interest upon the defaults admittedly committed by the defendant and at what rate ? 6. The issue can be decided essentially upon the documentary evidence of the plaintiff read with a few admissions of the plaintiff in the cross examination of the plaintiff's witness. 7. Issue relating to interest: The bill discounting advice Exhibit1 shows the bill of exchange / hundi drawn for Rs. 1 crore with discounting charges at Rs.6.16 lakhs having a 3day margin of 27% on Rs.22192/resulting in a net payment made by the plaintiff at Rs.93.59 lakhs on the bill of exchange of Rs. 1 crore. The bill discounting advice specifically shows the rate of discounting at 25%. The Counsel on behalf of the plaintiff explained that at such rate of discounting of 25%, Rs.1 crore would be Rs.25 lakhs for a period of one year. The bill was due within 90 days and hence the corresponding discounting amount is 25% of 25% which is Rs.6.16 lakhs shown as discounting charges. The Counsel on behalf of the plaintiff explained that at such rate of discounting of 25%, Rs.1 crore would be Rs.25 lakhs for a period of one year. The bill was due within 90 days and hence the corresponding discounting amount is 25% of 25% which is Rs.6.16 lakhs shown as discounting charges. She explained the discounting under the bill of exchange to show that upon the defendant would require to pay Rs.1 crore on 4th February, 1996 which was the due date of the bill of exchange. Hence upon the plaintiff having paid them Rs.93.59 lakhs the defendant would pay Rs.1 crore after 90 days. This, it is contended, is the rate of interest that the plaintiff would have, and which would be 25% calculated for 90 days. 8. The defendant defaulted in the payment of the principal amount as also interest amount. The defendant admitted its liability under the bill discounting facility for repayment of Rs. 1 crore and offered to repay by 12th February, 1996 under its letter dated 5th February, 1996 Exhibit10. Thereafter under its letter dated 13th March, 1996 it requested rollover of the facility for another 90 days which would imply nonpayment of principal and the interest amount and assured the plaintiff to pay the full amount on or before 20th April, 1996 along with overdue interest. This overdue interest would be the contractual rate of interest or the usual commercial rate of interest. 9. Under its further letters dated 17th April, 1996 and 9th May, 1996 Exhibits13 and 14 the defendant similarly assured payment with overdue interest. 10. In the debit note issued by the plaintiff for settlement of the bills discounted the plaintiff claimed the agreed rate of 25% the margin of 27% for 3 days and the delayed payment charges of 30% upon inter alia the suit bill. This has been received and acknowledged by the defendant but not replied. 11. The discount rate is the contractual rate reflected in the bill discounting advice. The margin is also the contractual rate for 3 days specified in the bill discounting invoice. The delayed payment charges which would tantamount to interest is not contractual. It is not reflected in the bill discounting advice. The delayed payment charges have been expressly admitted and set out in the aforesaid letters of the defendant. However the rate was not set out. The delayed payment charges which would tantamount to interest is not contractual. It is not reflected in the bill discounting advice. The delayed payment charges have been expressly admitted and set out in the aforesaid letters of the defendant. However the rate was not set out. That rate has been mentioned in the settlement of bills discounted upon the debit note of the plaintiff dated 16th April, 1997, Exhibit24 for the first time. Thereafter the remainder of the principal amount as also the interest amount not having been paid, the legal demand is made in the plaintiff's Advocate's notice dated 2nd January, 1998 Exhibit26. The interest claimed upon such demand is at the rate of 27% which is the margin rate for 3 days for the contract between the parties. The suit is under Section 3 of the Interest Act, 1978. 12. The oral evidence of the plaintiff's witness shows that the defendant agreed to pay the outstanding amount with overdue interest without mentioning the rate in the letters of the defendant. It also shows that the bill discounting charges were 25% p.a and the margin rate was 27% for 3 days. The defendant's case put to the plaintiff was that no rate of interest was mentioned in the bill discounting advice. The plaintiff's witness has contended that by convention the agreed rate of interest would be the rate of discount. The interest @ 30% of delayed payment has not been mentioned in any document. The plaintiff's witness has claimed that the market practice was to charge penal interest upon default. 13. The contractual rate of interest is, therefore, to be determined. The parties entered into a commercial contract. The plaintiff gave a financial facility. The plaintiff is not expected to advance such a facility without interest. The bill was discounted. It was discounted at the specified rate. That was the rate of 25%. 25% would be per annum. The margin of 27% for 3 days having been worked out to be Rs.22192/- would be the interest. At such rate the bill was discounted for 90 days. If it was honoured, though the plaintiff paid Rs.93.59 lakhs the plaintiff would receive Rs.1 crore. Consequently the difference would tantamount to interest, by whatever name called. It would be at the particular percentage. At such rate the bill was discounted for 90 days. If it was honoured, though the plaintiff paid Rs.93.59 lakhs the plaintiff would receive Rs.1 crore. Consequently the difference would tantamount to interest, by whatever name called. It would be at the particular percentage. The discounting charges of Rs.16438/on a bill of Rs.1 crore for 90 days would reflect 25% discount which would tantamount to interest at that rate p.a calculated for 90 out of 365 days. It is the quarter amount of the total amount of the discount. 14. The parties, therefore, mentioned a specified rate of interest in the contract calling it the rate of discount. That rate of interest is 25%. For that rate of interest as contracted to be paid p.a and calculated in absolute figures was payable for a period of 90 days which was the period of the bill of exchange. 15. If the defendant honoured the bill of exchange it would pay that rate of interest. There is no reason why if the defendant dishonoured the bill of exchange it should not pay that rate of interest, that being the contract which the defendant agreed when the defendant accepted the facility of the amount from the plaintiff. The overdue interest which the defendant admitted to be payable must, therefore, be at that rate. 16. The margin to be offered to the defendant of 3 days would be in the nature of grace period with a slightly higher interest and would not determine the contractual rate of interest. The admission of the receipt of the amount and the offer of repayment would show the payment to be made and the amount received together with the interest and all other charges, if any, at the rate under contract, neither more nor less. The plaintiff, therefore, would be entitled to claim interest at 25% and not at 27% or 30% which was the margin or the non-agreed rate claimed by the plaintiff. The non-contractual rate or the grace allowed is not legally enforceable. 17. The plaintiff, however, would be entitled to claim interest under Section 3 of the Interest Act, 1978. That would be from the date of the demand. The plaintiff's attorneys notice of demand claimed interest at 27% p.a which was not replied but which has been refuted by the defendant in the suit. 17. The plaintiff, however, would be entitled to claim interest under Section 3 of the Interest Act, 1978. That would be from the date of the demand. The plaintiff's attorneys notice of demand claimed interest at 27% p.a which was not replied but which has been refuted by the defendant in the suit. Since that was a higher amount of interest it would be over the contractual interest agreed upon by the parties. Such interest also may not be allowed. 18. However there is nothing between the parties to show why interest at the agreed rate specified as the rate of discounting and not the rate of interest but calculated as aforesaid is not enforceable and cannot be granted after the defaults committed by the defendant. The Court would be only exercising its discretion in not granting contractual rate of interest. Such discretion would be arbitrary and not judicious. There is no provision of law which allows the Court to use such arbitrary discretion. The Court would, therefore, refratin from using it as that would be an alegal order. 19. Consequently upon the evidence produced by the plaintiff, oral and documentary, the rate of interest required to be granted to the plaintiff upon the unpaid principal amount is 25% p.a from the date of the default until the filing of the suit. 20. The plaintiff has claimed interest @ 18% p.a after the filing of the suit and until realisation under Section 34 of the CPC. That rate is a reasonable rate to be paid at the principal adjudged from the date of the suit in a commercial contract between two commercial parties. That rate has not being challenged and is granted as prayed. 21. The aforesaid issue is, therefore, answered to declare that the plaintiff is entitled to interest on the principal amount of Rs.60 lakhs @ of 25% p.a from the date of the default until the filing of the suit and thereafter @ of 18% p.a from the date of the filing of the suit until realisation. Order accordingly. 22. The suit is disposed off accordingly. 23. The plaintiff shall be returned the original documents produced by the plaintiff upon submission of photocopies thereof.