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2017 DIGILAW 1458 (JHR)

State Bank of India v. Bankim Majumdar

2017-08-17

APARESH KUMAR SINGH

body2017
ORDER : Heard learned counsel for the parties. 2. Plaintiff/Bank is in appeal against the judgment dated 7.5.1999 in Title(Mortgage) Suit No. 28 of 1997 as the learned Trial Court of Sub-Judge-III, Jamshedpur has while decreeing the suit on admission as against Defendant Nos. 1,2,6 and 7 with cost, and ex parte against Defendant nos. 3,4 and 5 with cost, holding them jointly and severally liable for the repayment of the dues of the Plaintiff-Bank, reduced the contractual rate of 16.5% per annum to 6% per annum from the date of suit till realization, on the principal amount i.e. the loan amount. However, the rate of interest prior to the institution of the suit shall be as per the loan agreement. 3. Facts of the parties as borne out from the pleadings on record are narrated in brief hereunder:- Defendant nos. 1 to 4/Respondents herein took Cash Credit Facilities to the limit of Rs. 6 lakhs against stocks and Rs. 3 lakhs against bills, total being Rs.9 Lakhs from the Plaintiff-Bank under agreement dated 2.6.1989 and created securities in favour of the Bank in the nature of property and assets of the Firm, M/s D.S.P. Constructions and letters of guarantee executed by Defendant no. 5 to 7. Since the Defendants failed to repudiate the loan amount and failed to maintain the accounts regularly, the Plaintiff-Bank instituted the suit after serving lawyers notice calling upon the Defendants to pay the entire dues of the Bank, which they failed to do. Defendant nos. 1,2,6 and 7 filed written statement and admitted the dues of the Plaintiff Bank. They contended that due to bad financial position they were not able to pay the dues of the Bank in time but they agreed to pay it in just, proper and reasonable installments. They however alleged that interest @ 16.5% per annum is too excessive, therefore interest should be calculated @ 6% per annum under the provision of Order 34 Rule 11 of the C.P.C. Defendant no. 3,4, and 5 did not appear to contest the suit which proceeded ex parte against them. Following issues were framed:- 1. Is the suit, as framed, maintainable? 2. Has the Plaintiff any cause of action for the suit? 3. 3,4, and 5 did not appear to contest the suit which proceeded ex parte against them. Following issues were framed:- 1. Is the suit, as framed, maintainable? 2. Has the Plaintiff any cause of action for the suit? 3. Is the Plaintiff entitled for a decree for realisation of Rs.7,10,448.57/- paise with interest pendente lite till realisation of the amount at the rate of 19% per annum against the defendants? 4. Is the plaintiff entitled for any other relief or reliefs as claimed in the plaint? The learned Trial Court upon consideration of the evidence of the parties and the documents exhibited on behalf of the Plaintiff including the admission of the Defendants held the Plaintiff entitled to a decree for realization of the amount due. 4. Learned counsel for the Appellant submits that in this appeal the entire issue revolves around the rate of interest, which should have been charged on the debtors/Defendants. The exercise of discretion by the learned Trial Court in reducing the contractual rate of interest of 16.5% per annum to 6% per annum is in teeth of the judgment rendered by the Hon'ble Supreme Court in the case of State Bank of India Vrs. Yasangi Venkateswara Rao reported in (1999) 2 SCC 375 , the relevant para 8 thereof is quoted hereunder:- “8. We also find it difficult to agree with the observation of the High Court that normally when a security is offered in the case of mortgage of property, charging of compound interest would be regarded as excessive. Entering into a mortgage is matter of contract between the parties. If the parties agree that in respect of the amount advanced against a mortgage compound interest will be paid, we fail to understand as to who the court can possibly interfere and reduce the amount of interest agreed to be paid on the loan so taken. The mortgaging of a property is with a view to secure the loan and has no relation whatsoever with the quantum of interest to be charged”. Appellant Bank has also relied upon a judgment rendered by the Apex Court in the case of Syndicate Bank Vrs. R. Veeranna & others reported in (2003) 2 SCC 15 , relevant para 8 and 9 are quoted hereunder:- “8. Appellant Bank has also relied upon a judgment rendered by the Apex Court in the case of Syndicate Bank Vrs. R. Veeranna & others reported in (2003) 2 SCC 15 , relevant para 8 and 9 are quoted hereunder:- “8. We may add that in the light of the acknowledgement of their liability by the defendants in 1978, it is not open to them now to deny to make payment of the amount due to the Bank on the ground that higher rate of interest could not be charged. It is clear from the judgment of this Court in Hiralal v. Badkulal that an unqualified acknowledgement of liability as in the present case by a party not only saves the period of limitation but also gives a cause of action to the plaintiff to base its claim. 9. In the circumstances, in our view, the trial court as well as the High Court were clearly in error in refusing interest as claimed by the plaintiff Bank. Hence, this appeal is entitled to succeed. The impugned judgment and decree confirming the judgment and decree of the trial court so far as they relate to refusal of interest at the rate claimed by the Bank are set aside and the decree of the trial court as affirmed by the High Court stands modified to that extent. In other words, the plaintiff ’s suit is decreed for Rs 16,15,091.05/- instead of only for Rs 9,82,963.47/- and the decree of the trial court is modified on this basis while maintaining the current and future rates of interests as ordered by the trial court. The appeals are disposed of accordingly. No costs”. 5. Per contra learned counsel for the Defendants/Respondents has relied upon a judgment rendered by the Apex Court in the case of N.M.Veerappa Vrs. Canara Bank & others reported in (1998) 2 SCC 317 , relevant para 18 and 23 thereof is quoted hereunder:- “18. From the aforesaid rulings the following principles can be summarised. (a) Before 1929, it was obligatory for the Court to direct the contract rate of interest to be paid by the mortgagor on the sum adjudged in the preliminary decree, from the date of suit till the date fixed for payment as per Order 34 Rule 2(c)(i) or Order 34 Rule 4(1) or Order 34 Rule 7(c)(i), respectively in suits for foreclosure, sale or redemption. (b) But after the 1929 Amendment, because of the words used in the main part of Order 34 Rule 11, namely that “the Court may order payment of interest” it is no longer obligatory on the part of the Court while passing preliminary decree to require payment at the contract rate of interest from date of suit till the date fixed in the preliminary decree for payment of the amount. It has been so held in Jaigobind case by the Privy Council and by this Court in S.P. Majoo case that the new provision gives a certain amount of discretion to the Court so far as pendente lite interest is concerned and subsequent interest is concerned. (c) It is no longer obligatory to award the contractual rate after date of suit and up to the date fixed for redemption as above stated even though there was no question of the contractual rate being penal, excessive or substantially unfair within the meaning of the Usurious Loans Act, 1918. (d) Even if the Court otherwise wants to award interest, the position after the 1929 and 1956 Amendments is that the Court has discretion to fix interest from date of suit under Order 34 Rule 11(a)(i) up to date fixed for payment in the preliminary decree, the same rate agreed in the contract, or, if no rate is so fixed, such rate as the Court deems reasonable — on the principal amount found or declared due on the mortgagor is concerned. (e) The Court has also power to award from the date of suit under Order 34 Rule 11(a)(iii) a rate of interest on costs, charges and expenses as per the contract rate or failing such rate, at a rate not exceeding 6%. This is the position of the discretionary power of the Court, from the date of suit up to the date fixed in the preliminary decree as the date for payment. (f) Again under Order 34 Rule 11(b) so far as the period after the date fixed for payment is concerned, the Court, even if it wants to exercise its discretion to award interest up to date of realisation or actual payment, on the aggregate sums specified in clause (a) of Order 34 Rule 11, could award interest at such rate as it deemed reasonable”. 23. 23. We shall refer to the provision in Section 21-A of the Banking Regulation Act, 1949 as introduced by Act 1 of 1984, w.e.f. 15-2-1984. It reads: “21-A. Rates of interest charged by banking companies not to be subjected to scrutiny by courts.—Notwithstanding anything contained in the Usurious Loans Act, 1918 or any other law relating to indebtedness in force in any State, a transaction between a banking company and its debtor shall not be reopened by any court on the ground that the rate of interest charged by the banking company in respect of such transaction is excessive.” (emphasis supplied) Firstly, it will be noticed that the effect of the “non obstante clause” in Section 21-A is to override the Central Act, namely, the Usurious Loans Act, 1918 and any other “law relating to indebtedness in force in any State”. Obviously it does not expressly intend to override the Code of Civil Procedure among the Central statutes. It is now well settled that the scope and width of the non obstante clause is to be decided on the basis of what is contained in the enacting part of the provision. (Aswini Kumar Ghose v. Arabinda Bose.) Further, by no stretch of imagination can the Code of Civil Procedure, 1908 be described as a “law relating to indebtedness in force in any State”. As stated above, the provision in Section 21-A refers, so far as Central legislation is concerned, only to the Usurious Loans Act, 1918 and not to the Code of Civil Procedure, 1908 and it then refers to other laws relating to indebtedness in force in any State. Therefore, the provision of Section 21-A of the Banking Regulation Act, 1984 cannot be held to have intended to override a Central legislation like the CPC or Order 34 Rule 11 CPC”. 6. Learned counsel for the Respondents has argued that the judgment relied upon by learned counsel for the Appellant however do not refer to the earlier judgment passed by the Apex Court in the case of N.M. Veerappa (supra). The judgment rendered in the case of N.M.Veerappa has considered the provisions of Order 34 Rule 11, which apply to the mortgage suit. The provisions of Section 21 A of the Banking Regulation Act, 1949 has also been considered by the Hon'ble Court in the said judgment. The judgment rendered in the case of N.M.Veerappa has considered the provisions of Order 34 Rule 11, which apply to the mortgage suit. The provisions of Section 21 A of the Banking Regulation Act, 1949 has also been considered by the Hon'ble Court in the said judgment. Learned Trial Court has rightly exercised its discretion in the context of the pleadings and evidences on record to reduce the rate of interest to 6% per annum as their financial position is not good. Same therefore does not merits interference. 7. Learned counsel for the Appellant however submits that later judgments of the Apex Court do not permit any reduction in the contractual rate between the parties. No grounds have either been made by the Defendants to support the plea of reduction of rate of interest. The Bank being a financial institution which offers loan out of public exchequer, default by such borrower should not be encouraged by reducing rate of interest. Therefore the exercise of discretion is also not proper in the eye of law. 8. I have considered the submission of learned counsel for the parties and gone through the relevant materials and pleadings on record including the judgments relied upon by the parties. There is admission on the part of the contesting Defendants of the dues of the Plaintiff-Bank. There is also an admission that they are unable to pay the outstanding dues due to bad financial position. The Cash Credit Facilities under the loan agreement totaling Rs. 9 Lakhs is dated 2.6.1989. The Title (Mortgage) Suit was instituted in the year 1997 by the Plaintiff -Bank after all efforts to persuade the borrowers to repay the loan and maintain the accounts in regular manner failed. The learned Trial Court does not appear to have taken into account the conduct of the borrowers in repayments of the dues which become outstanding to the tune of Rs. 7,10,448.57/- paise out of total Cash Credit Facilities of Rs.9 lakhs available under the loan agreement dated 2.6.1989. The written statement of the Defendants are also silent on the issue relating to payment of the loan amount on regular basis. 7,10,448.57/- paise out of total Cash Credit Facilities of Rs.9 lakhs available under the loan agreement dated 2.6.1989. The written statement of the Defendants are also silent on the issue relating to payment of the loan amount on regular basis. The plea of bad financial position taken by the Defendants in not repaying the loan over the period of time, in such circumstances, should not be construed in favour of the borrowers to such an extent to the detriment of the Bank or Financial Institutions. It could amount to encouraging the wrong doings of defaulters. 9. The exercise of discretion under order 34 Rule 11 of the C.P.C has to be based on judicious grounds. It is true that learned Trial Court has power in terms of Order 34 Rule 11 of the CPC to exercise his discretion in the matter of fixation of rate of interest to be paid on the adjudged amount pendente lite till it is finally paid. The judgment of the Apex Court relied upon by the Respondents in the case of N.M.Veerapa (supra) does declare the position of law so far as the discretion of the learned Trial Court in awarding lesser rate of interest then the contractual rate of interest in a mortgage suit. Para 18 of the report containing the 'opinion' of the Apex Court has also been quoted herein above. Learned Trial Court however in the facts and circumstances of the case, has straightway reduced the contractual rate of interest from 16.5% to 6% per annum, minimum permissible under Order 34 Rule 11 C.P.C, which does not appear to be a sound exercise of judicial discretion on the basis of the available pleadings and evidence on record reflecting the conduct of the parties. 10. Upon consideration of all the relevant material pleadings and documents on record, this Court in exercise of appellate jurisdiction, therefore, considers it proper to prescribe the rate of interest @ 10% per annum on the principal amount from the date of suit till its realization. The impugned judgment dated 7.5.1999 passed in Title (Mortgage) Suit No. 28 of 1997 stands modified to that extent. The appeal is partly allowed. Decree accordingly.