[Cites 22, Cited by 0]

Bombay High Court

Shrinika Infra Limited vs Rajdhani Textiles Pvt. Ltd. on 28 January, 2026

      2026:BHC-OS:2766

                      sumedh                                          1-osial-27265-2024-J-F.doc

                                IN THE HIGH COURT OF JUDICATURE AT BOMBAY
                                   ORDINARY ORIGINAL CIVIL JURISDICTION

                                      INTERIM APPLICATION (L) NO.27265 OF 2024
                                                        IN
                                          COMMERCIAL SUIT NO.270 OF 2019
                      1.    Shrinika Infra Limited               ]
                      (Formerly, Lakshmi Properties              ]
                      Ltd.) a Company incorporated               ]
                      Under the Companies Act, 1956,             ]
                      Registered office at Industry              ]
                      House, 159, Churchgate                     ]
                      Reclamation, Mumbai.                       ]

                      2.    Mr. Yash Birla.                      ]
                      Adult, Indian Inhabitant,                  ]
                      residing at Birla House,                   ]
                      Napeansea Road,                            ]
                      Mumbai.                                    ]       ... Applicants
                      In the matter between:
                      Rajdhani Textiles Pvt. Ltd.                ]
                      A company incorporated under the           ]
                      Companies Act, 1956 and having its         ]
                      Registered officer at 702, 7th Floor,      ]
                      Samudra Setu, Near Parsi Agiary,           ]
                      Opposite Anand Bhavan, Opposite            ]
                      B.D. Desai, Mumbai - 400 026.              ]       ... Respondent

                                    V/s.
                      1.    Shrinika Infra Limited               ]
                      (formerly, Lakshmi Properties              ]
                      Ltd.) a Company incorporated               ]
                      Under the Companies Act, 1956,             ]
                      Registered office at Industry              ]
                      House, 159, Churchgate                     ]
                      Reclamation, Mumbai.                       ]

                      2.    Mr. Yash Birla.                      ]
                      Adult, Indian Inhabitant,                  ]
                      residing at Birla House,                   ]
                      Napeansea Road,                            ]
                      Mumbai.                                    ]       ... Defendants

         Digitally
         signed by

SUMEDH
         SUMEDH
         NAMDEO
                                                                                              1/27
NAMDEO   SONAWANE
SONAWANE Date:
         2026.01.31
         17:17:25
         +0530




                          ::: Uploaded on - 31/01/2026          ::: Downloaded on - 06/02/2026 21:33:54 :::
 sumedh                                                1-osial-27265-2024-J-F.doc

                               WITH
                  COMMERCIAL SUIT NO.270 OF 2019
                               WITH
              INTERIM APPLICATION (L) NO.25885 OF 2023
                               WITH
                  NOTICE OF MOTION NO.2454 OF 2019
                               WITH
                INTERIM APPLICATION NO.2874 OF 2022
                               WITH
              INTERIM APPLICATION (L) NO.22023 OF 2022
                               WITH
                INTERIM APPLICATION NO.5998 OF 2025
                    ______________________________________
Mr. Girish Godbole, Senior Advocate a/w. Adv. Rubin Vakil, Adv. Punit
Damodar, Adv. Akshay Dhayalkar i/by Kanga and Company for the
Plaintiff.
Mr. Kevic Setalwad, Senior Advocate a/w. Adv. Siddharth Mehta,
Adv. A.S. Pal, Adv. Jehan Lalkoka, Adv. Siddhartha Puthoor i/by
Mehta & Padamsey for the Defendants.
Mr. Mahendra Lodha, representative of Plaintiffs.
         _____________________________________________
                                 CORAM : KAMAL KHATA, J.
                             RESERVED ON : 11th December, 2025.
                          PRONOUNCED ON :28th January 2026.
JUDGMENT :

1. The Suit is filed for foreclosure of an English Mortgage also

seeks the following reliefs: a) Money decree for Rs. 44,05,62,418/-

with interest @ 21% p.a. (compound interest with quarterly rest as

per the Loan Agreement) from the date of filing of the Suit till

payment or realization together with additional interest as provided

in the Loan Agreement until the realization thereof. b) In the event of

failure to pay the aforesaid decretal amount, decree for enforcing the

mortgage and for that purpose, all necessary orders and directions

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including foreclosing Defendant No. 1's equity of redemption and

ordering sale of the mortgaged property. c) In the event the

attachment of the mortgaged property under MPID Act is vacated

either by the Competent Authority or the Court, declaration that the

Plaintiff would be entitled to sell the mortgaged property without

intervention of the Court.

2. By an Interim Application (L) No. 27265 of 2024 filed on 30 th

August 2024, the Defendants seeks a preliminary decree under

Order XXXIV of the CPC, contending that the suit is a redemption

action concerning the mortgaged property. The Defendants admit the

Loan Agreement and their obligation as a Guarantors under the Deed

of Guarantee dated 22nd March 2012.

3. By an Interim Application No.5998 of 2025 filed on 30 th

September 2024, the Plaintiff seek a decree on admission

considering the admissions made by the Defendants in Interim

Application (L) No. 27265 of 2024.

4. The issues that arise for determination are as under:

i. Whether interest after capitalization partakes the

character of principal; and

ii. Whether the Court should exercise its discretion to

reduce the contractual rate of interest;

sumedh 1-osial-27265-2024-J-F.doc

Issue (i) Whether interest after capitalization partakes the character

of principal

5. Mr. Setalvad, learned Senior Counsel appearing for the

Applicants/Org. Defendants, in support of the Interim Application

seeking a preliminary decree, submits that the Defendants' principal

grievance concerns the levy of contractual interest at the rate of 21%

per annum with quarterly rests, payable in advance, together with an

additional interest of 2% per month on arrears.

6. He submits that the Applicants are willing to pay the entire suit

claim of Rs. 44,05,62,418/- together with interest at the contractual

rate of 21% per annum with quarterly rests from the date of filing of

the suit. However, he seeks a waiver of pendente lite interest and all

other ancillary charges, or in the alternative, a reduction of interest

to a nominal banking rate.

7. He submits that the original loan advanced to Birla Power

Solutions Ltd. ("BPSL") was in the principal sum of Rs.21 crores,

carrying interest at 21% per annum with quarterly rests under the

Loan Agreement dated 22nd March 2012. On account of non-

payment of interest, the loan attracted further interest at the rate of

2% per month. According to him, BPSL paid an aggregate amount of

Rs.12,63,24,478/- during the period between 31st March 2012 to

30th September 2014. Notwithstanding the aforesaid payments, the

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Defendants express their willingness to pay the entire sum of

Rs.44,05,62,418/-, together with interest on the principal sum of

Rs.21 crores at such rate as this Court may determine.

8. Mr. Setalvad submits that the present suit is governed by the

provisions of Order XXXIV of the (CPC). He contends that Order

XXXIV Rule 7 pertains to the passing of a preliminary decree in a

suit for redemption. Under Rule 7(1)(a)(i), the Court is required to

direct that accounts be taken of what was due to the Plaintiff at the

date of such decree in respect of "principal and interest on the

mortgage". Under Rule 7(1)(b), the Court is required to declare the

amount so found due as on the date of the preliminary decree.

9. Placing reliance upon the decision in Union Bank of India v.

Dalpat Gaurishankar Upadyay,1 he submits that Rule 7 does not

envisage merger of interest into principal or the determination of a

consolidated amount representing both. According to him,

"principal" and "interest" are required to be separately ascertained

and declared under Order XXXIV Rule 7(1)(a)(i).

10. He further submits that Order XXXIV Rule 2 and Order XXXIV

Rule 7 are pari materia. He contends that although the judgment in

Union Bank of India (supra) was overruled by the Supreme Court in

Central Bank of India v. Ravindra 2 in the context of Section 34 of the

1 AIR 1992 Bom 482 2 (2002) 1 SCC 367

sumedh 1-osial-27265-2024-J-F.doc

CPC, the findings rendered in relation to Question (d) framed by the

Full Bench of this Court, particularly concerning the meaning of the

expression "principal" under Order XXXIV Rules 2 and 11, were not

disturbed and continue to operate as binding precedent.

11. He submits that under Rule 11(a)(i), interest is payable only on

the principal amount found or declared to be due on the mortgage,

and under Rule 11(b), interest can be levied only on the aggregate of

the principal sums specified in clause (a). He argues that interest

accrued prior to the filing of the suit cannot be treated as principal

under Rule 11(a)(i) or Rule 11(b), as held in Union Bank of India

(supra).

12. Per contra, Mr. Godbole submits that the Defendant's

submissions are contrary to the settled position of law. He contends

that in a suit for foreclosure, Order XXXIV Rule 7 has no application.

He submits that although the Defendants rely upon Union Bank of

India (supra) and seek to contend that its overruling by Central Bank

of India (supra) was confined to issues arising under Section 34 of

the CPC, they are attempting to carve out an artificial distinction in

respect of the interpretation of the term "principal" under Rule 11 of

Order XXXIV. According to him, a plain reading of paragraph 36 of

the judgment in Central Bank of India (supra) clearly negates such a

submission. He submits that the expression "principal" in Rule 11(a)

sumedh 1-osial-27265-2024-J-F.doc

(i) necessarily includes interest that has been capitalized and has

assumed the character of principal. Consequently, the Plaintiff is

entitled to interest at the contractual rate of 21% per annum on

Rs.44,05,62,418/-, being the amount due as on the date of filing of the

suit.

13. I find merit in the submissions advanced by Mr. Godbole. The

Supreme Court in Central Bank of India (supra) was considering

whether interest capitalized upon periodical rests assumes the

character of principal. Although the opening portion of the judgment

is in the context of Section 34 of the CPC, the discussion on the

capitalization of interest is founded on first principles and is

provision-neutral. It therefore applies to all provisions where the

expression "principal" is employed, including those contained in

Order XXXIV. In paragraph 35, while adverting to the decision in

Union Bank of India (supra), the Supreme Court observed that the

judgment proceeded on the erroneous assumption that principal can

never include interest, irrespective of the agreement between the

parties. This assumption was expressly disapproved. Paragraphs 29

to 36 deal with Question (d) concerning the inclusion of interest in

principal, and in paragraph 36, the Supreme Court unequivocally

held that "interest once capitalized, sheds its colour of being interest

and becomes a part of the principal." Having considered and

sumedh 1-osial-27265-2024-J-F.doc

disagreeing with all the submissions advanced by Mr. Setalvad, in my

view, interest upon capitalization partakes the character of principal.

Issue (ii) Whether in the present case the Court must exercise its

discretion in reducing the Contractual rate of Interest;

14. Mr. Setalvad, placing reliance on the decisions in N.M.

Veerappa v. Canara Bank 3 and Soli Pestonji Majoo v. Gangadhar

Khomka,4 submits that the use of the word "may" in Order XXXIV

Rule 11 of the CPC makes it clear that the Court is not bound to

award pendente lite and subsequent interest on the "principal" at the

contractual rate. He submits that this discretion subsists irrespective

of whether the contractual rate is penal, excessive, or substantially

unfair within the meaning of the Usurious Loans Act, 1918.

15. He further submits that while determining the rate of pendente

lite and post-decree interest, due regard must be had to the value of

the security. In support of this proposition, reliance is placed on the

decision in Dawoodbhai Kassamji Matiwalla v. Shaikhali Alibhoy.5

16. He submits that the following circumstances warrant a

reduction in the rate of pendente lite and subsequent interest:

(i) The Defendants were not the principal borrowers. The principal borrower was BPSL, and the Defendants have

3 1998 2 SCC 317 4 1969 1 SCC 220 5 ILR 1953 Bom 29

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not derived any benefit from the amounts advanced by the Plaintiff.

(ii) There were continuous, without-prejudice settlement discussions between the parties, which, however, did not fructify.

(iii) The suit is at a nascent stage. Trial has not commenced. The Plaintiff has taken no effective steps to have the suit proceeded with, thereby permitting interest to continue to mount.

(iv) The Defendants, solely with a view to bring quietus to the dispute without entering upon the merits of the defences available to them, have filed the present Interim Application seeking redemption, thereby seeking to curtail the entire trial.

(v) Even otherwise, the Plaintiff stands to recover more than double the principal amount advanced, and has not suffered any demonstrable loss.

(vi) An amount of Rs.12,63,24,478/- has admittedly been received by the Plaintiff during the period between 31st March 2012 and 30th September 2014.

17. He submits that in the aforesaid circumstances, this Court ought

to exercise the discretion vested in it under Order XXXIV Rule 11 of

the CPC to reduce the rate of pendente lite and post-decree interest.

18. In support of the submission that Courts have, in appropriate

cases, reduced the rate of interest notwithstanding contractual

stipulations, reliance is placed on the following decisions:

i. N.M. Veerappa vs. Canara Bank: 1998 2 SCC 317 ii. Soli Pestonji Majoo VS. Gangadhar Khomka :1969 1 SCC 220 iii. LIC of India vs. Vaila Lakshmi Bai :2003 SCC Online

sumedh 1-osial-27265-2024-J-F.doc

AP 163 iv. Anaparthi Satyanarayana VS. Majeti Panduranga Rao : 2022 SCC Online AP 696 v. Dawoodbhai Kassamji Matiwalla VS. Shaikhali Alibhoy : ILR 1953 Bom 29 vi. Kalaanjaneya vs. K Shakshavali :2023:KHC-D:8897 vii. Srinivasavarachariar & Ors VS. Gopal Menon :1966 SCC Online SC 250 viii. M. Venkata Reddy vs. SBI :2024: APHC:22059 ix. PNB vs. Prem de Vastra :2000 SCC Online Del 882

19. Per contra, Mr. Godbole submits that the present suit is one for

foreclosure under Order XXXIV Rule 2 of the CPC and not a suit for

redemption, as contended by the Defendants. He submits that the

Defendants cannot claim a reduction of interest as a matter of right.

The power under Order XXXIV Rule 11 of the CPC is discretionary

and its existence is not in dispute. He submits that discretionary

relief can be granted only where the facts of the cases relied upon are

substantially identical. In the present case, the conduct of the party

seeking such discretion assumes decisive significance and warrants

close scrutiny.

20. Mr. Godbole submits that to persuade the Court to exercise

discretion under Rule 11(a) and award interest at a rate lower than

the contractual rate, the mortgagor must plead and establish

circumstances justifying a lenient view. Such circumstances,

according to him, would include: (i) cogent material demonstrating

sumedh 1-osial-27265-2024-J-F.doc

such dire financial incapacity of the borrower as would render

performance of the contract impossible; and (ii) conduct of the

borrower reflecting honesty, fairness, and bona fides in its dealings

with the lender. Reliance is placed on the judgment of the Karnataka

High Court in Syndicate Bank v. M. Jeevandar Kumar6, particularly

paragraphs 16 to 20 thereof.

21. He submits that while the existence of discretionary power

under Rule 11 cannot be disputed, the exercise of such discretion

cannot be claimed as a matter of entitlement. Being equitable in

nature, the exercise of discretion necessarily depends upon the facts

of each case, including the conduct of the party seeking relief, the

nature of the transaction, and the financial means available to such

party. The very invocation of equitable discretion presupposes that

the party seeking such relief establishes a factual foundation

warranting its exercise.

22. It is submitted that no discretionary relief can be sought merely

by citing judicial precedents unless it is demonstrated that the facts

of the cases relied upon are substantially identical. In the present

case, the Defendants have conspicuously refrained from placing any

material facts before the Court that would justify the exercise of

discretion in their favour. The facts of the case and the conduct of the

party seeking equitable relief are required to be examined in their 6 ILR 1994 Kar 3603

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entirety.

23. Mr. Godbole further submits that the conduct of the Defendants

in the present case disentitles them from any relief by way of

reduction of the contractual rate of interest. The present suit has

been filed, inter alia, seeking a decree directing the Defendants, as

guarantors, to pay a sum of Rs.44,05,62,418/- together with interest

at the rate of 21% per annum in respect of the loan advanced by the

Plaintiff to BPSL under the Loan Agreement dated 22nd March 2012.

The suit was instituted in the year 2019. After service of summons,

the Defendants first filed an Interim Application seeking condonation

of delay in filing the written statement, followed by another Interim

Application seeking rejection of the plaint on frivolous grounds.

During inspection of documents, objections were raised as to the

validity and genuineness of the Plaintiff's documents. Having

adopted such inconsistent and obstructive positions, the Defendants

have now, under the present Interim Application, admitted the claim

and sought waiver of interest.

24. He submits that Defendant No. 2, Mr. Yash Birla, is the head of

a corporate group comprising several companies, including BPSL

(now in liquidation), Zenith Birla (India) Limited, Birla Shloka

Edutech Limited, Birla Cotsyn (India) Limited, and other entities

including Shrinika Infra Limited, Defendant No. 1 herein.

sumedh 1-osial-27265-2024-J-F.doc

25. In the year 2012, BPSL availed of a bridge loan of Rs.21 crores

from the Plaintiff for meeting urgent requirements relating to

completion of a project for launching diesel pump sets and power

tillers and for setting up a solar project. The loan carried an agreed

rate of interest at 21% per annum with quarterly rests, payable in

advance. At the relevant time, the credit rating of the group

companies was extremely poor, with BPSL being rated 'CARE C' and

'CARE D', indicating a very high risk of default.

26. As security for the said loan, land bearing Survey No. 35, Hissa

No. 1, CTS Nos. 569 and 568/1 to 568/13, situated at Birla Lane,

Village Juhu, Taluka Andheri, Mumbai, admeasuring approximately

6,460 square metres and comprising three bungalows standing

thereon, namely Bungalow Nos. 1, 3 and 4, together with an outhouse

and three closed garages, and subject to right of way in favour of the

owners of Bungalow No. 2 (hereinafter referred to as "the mortgaged

property"), was offered as security. A registered English mortgage

was executed on 22nd March 2012 along with related documents.

The mortgaged property is one of the most prime properties in Juhu,

abutting the seashore and comprising three bungalows. A brief note

on the conduct of the Defendants, placed at Annexure D to the

written submissions, demonstrates that far from making out any

case for reduction of interest, the conduct of the Defendants, both

sumedh 1-osial-27265-2024-J-F.doc

prior to and subsequent to the filing of the suit, disentitles them from

any equitable relief. Even the Defendants' own assertions regarding

the value of the mortgaged property demonstrate their financial

capacity to discharge the mortgage in accordance with its terms.

27. Mr. Godbole further submits that Parliament has enacted the

Commercial Courts Act, 2015 with the object of improving efficiency

and expediting disposal of commercial disputes. The Statement of

Objects and Reasons emphasises that early resolution of commercial

disputes is intended to foster investor confidence in the Indian legal

system. The conduct of the Defendants in protracting the present

proceedings, he submits, ought to disentitle them from any relief in

exercise of discretionary jurisdiction, as grant of such relief would

place a premium on dilatory conduct and defeat the legislative intent

underlying the enactment.

28. He further refutes the contention of the Defendants that the

decision in State Bank of India (supra) is per incuriam on the issue of

absence of any correlation between the value of the mortgaged

property and the rate of interest. He submits that the judgment of the

Supreme Court in Jayant Verma v. Union of India7 holds that the

observation in paragraph 7 of State Bank of India (supra) cannot be

treated as binding on the interpretation of Section 21-A of the

Banking Regulation Act, 1949. There is no discussion or disapproval 7 2018 4 SCC 743

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of the principle laid down in paragraph 8 of the said judgment, which

is the principle relied upon by the Plaintiff.

29. In the aforesaid circumstances, it is submitted that the

Defendants' Interim Application is liable to be dismissed and that the

Plaintiff is entitled to a decree on admission in terms of prayer

clauses (a) to (c) of the plaint, based on the unequivocal admissions

contained in Interim Application (L) No. 27265 of 2024 filed by the

Defendants.

30. I find merit in the submissions advanced by Mr. Godbole. Order

XXXIV Rule 11 of the CPC vests a discretion in the Court to provide

for payment of interest at a rate lower than the contractual rate on

the amount found or declared due under a preliminary decree. Clause

(a) of Rule 11 deals with interest payable up to the date on or before

which payment is ordered under the preliminary decree, commonly

referred to as the date fixed for redemption. Clause (b) of Rule 11

governs interest payable thereafter, that is, from the date fixed for

redemption until realization or actual payment.

31. A plain reading of Rule 11(a) indicates that the discretion

conferred on the Court while awarding interest in mortgage suits

operates at two levels. First, where no rate of interest is stipulated in

the contract, the Court may award interest at such rate as it deems

reasonable. Second, even where the contract stipulates a rate of

sumedh 1-osial-27265-2024-J-F.doc

interest, the Court retains a discretion to award interest at a rate

different from the contractual rate. However, the existence of such

discretion does not imply its routine exercise. The power to override

the contractual rate must be exercised sparingly, on sound judicial

principles, and for cogent reasons.

32. This discretionary power is a result of the statutory

amendment to Order XXXIV Rule 11 introduced by Act 21 of 1929.

The scope and nature of this discretion was recognised by the Federal

Court in Jai Gobind Singh& Ors. v. Lachmi Narain Ram & Ors , 8 and

subsequently followed in Soli Pestonji Majoo (Supra). The same

position stands affirmed by the Supreme Court in N.M. Veerappa

(supra).

33. Where the contract fixes the rate of interest, the normal rule is

that the Court will respect the contractual bargain and award

interest at the agreed rate up to the date fixed for redemption, as

contemplated under Rule 11(a). Any departure from the contractual

rate, therefore, must be an exception and not the rule. The discretion

under Rule 11(b), which relates to interest payable after the passing

of the preliminary decree, is comparatively wider, though it too must

be exercised on well-recognised equitable considerations.

34. In the present case, it is not in dispute that the Loan Agreement

8 AIR 1940 FC 20

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dated 22nd March 2012 expressly stipulates interest at the rate of

21% per annum with quarterly rests. The contract further provides

for additional interest at the rate of 2% per mensem, with monthly

rests, for the period of default.

35. A mortgage arising out of a commercial transaction stand on a

different footing from a mortgage in a non-commercial context.

Though Section 34 of the Code has no application to mortgage

decrees, it is significant that the Legislature, by the amendment of

Section 34 in 1976, has consciously excluded any discretion to

reduce the contractual rate of interest in commercial transactions.

This legislative policy underscores the principle that commercial

bargains, particularly between parties dealing at arm's length, are

ordinarily to be enforced according to their terms.

Order XXXIV Rule 11(a) does not permit waiver of Interest

36. In my view, Order XXXIV Rule 11(a) does not contemplate or

permit a complete waiver of interest in a mortgage decree. Any such

interpretation would run contrary to the plain language of the

provision. It would also render Order XXXIV Rule 2 otiose and

unworkable, and would amount to the Court rewriting the statute,

contrary to legislative intent.

37. Order XXXIV Rule 11 merely regulates the manner and rate at

which interest is to be awarded. Order XXXIV Rule 2, on the other

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hand, mandates the passing of a preliminary decree directing

accounts to be taken of what is due to the mortgagee and declaring

the amount so due, which necessarily comprises both principal and

interest on the mortgage. Rule 11 cannot, therefore, be read in

isolation but must be construed harmoniously with Rules 2 and 3 of

Order XXXIV. Significantly, the Defendants have not instituted any

independent suit for redemption.

38. The legislative intent governing the award of interest in

commercial transactions is further reinforced by the amendment to

Section 34 of the Code by the Code of Civil Procedure (Amendment)

Act, 1976. By the introduction of the proviso to Section 34, the

Legislature expressly empowered Courts, in commercial

transactions, to award post-decree interest at a rate exceeding 6%

per annum, subject to the contractual rate. This marked a conscious

departure from the earlier regime, under which post-decree interest

was capped at 6%. Though Section 34 does not strictly apply to

mortgage decrees, the underlying legislative policy is unmistakable--

commercial obligations are to be enforced in accordance with their

terms, and default is to attract stringent consequences. This policy is

echoed in the scheme and objects of the Commercial Courts Act,

2015, which seeks expeditious and effective enforcement of

commercial rights.

sumedh 1-osial-27265-2024-J-F.doc

The Master Circular of Reserve Bank of India dated 2 nd July 2012

provides for charging of interest at monthly rests and charging of

penal rate of Interest.

39. Clause 2.9.1 of the Master Circular dated 2nd July 2012

provides as under:

"2.9 Charging of Interest at Monthly Rests 2.9.1 Banks were advised to charge interest on loans/advances at monthly rests with effect from April 01, 2002. Interest at monthly rests shall be applied in case of all new and existing term loans and other loans of longer / fixed tenor. In the case of existing loans of longer / fixed tenor, banks shall move over to application of interest at monthly rests at the time of review of terms and conditions or renewal of such loan accounts, or after obtaining consent from the borrower."

40. Further, Clause 2.5 of the Master Circular dated 2nd July 2012

provides as under:

"2.5 Levying of Penal Rates of Interest Banks are permitted to formulate a transparent policy for charging penal interest with the approval of their Board of Directors. However, in the case of loans to borrowers under priority sector, no penal interest should be charged for loans up to Rupees 25,000. Penal interest can be levied for reasons such as default in repayment, non-submission of financial statements, etc."

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Interplay between Prime Lending Rate and Lending Rate

41. It would be apposite to briefly record the submissions advanced

by Mr. Godbole explaining the manner in which banks and financial

institutions determine lending rates, taking the Prime Lending Rate

as the base, and the methodology ordinarily followed for pricing

credit.

42. He submits that the Prime Lending Rate constitutes the

foundational benchmark for loan pricing, representing the minimum

rate at which a bank lends to its most creditworthy borrowers. To

this base rate, banks add a risk premium or spread, which reflects

the credit risk associated with the particular borrower and

transaction. The risk premium represents the additional return

required by the lender over and above a risk-free investment, such as

government securities, to compensate for the possibility of default.

43. He submits that a borrower's credit rating is a key determinant

of the risk premium charged. Credit ratings assess the likelihood of

default and directly influence the cost of borrowing. Borrowers with

higher credit ratings attract lower risk premiums and

correspondingly lower interest rates, whereas borrowers with lower

credit ratings are charged higher risk premiums to offset the

increased probability of non-payment.

sumedh 1-osial-27265-2024-J-F.doc

44. Credit ratings, he submits, are assigned by recognised rating

agencies based on an assessment of factors such as repayment

history, existing debt obligations, cash flows, and overall financial

stability. A high credit rating signifies strong creditworthiness and a

low risk of default, while a low rating indicates elevated credit risk.

The credit risk premium or credit spread is thus the additional

interest component built into the lending rate to compensate the

lender for assuming such risk.

45. Lenders use risk-based pricing, where they adjust the loan

interest rate based on the perceived risk of the borrower.

 High Credit Rating (Low Risk): A borrower with a good credit

rating is considered a lower credit risk. This results in a

smaller or lower credit risk premium being added to the Prime

Lending Rate of the Lender.

 Low Credit Rating (High Risk): A borrower with a poor credit

rating is seen as a higher credit risk. They will be assigned a

higher risk premium, leading to a significantly higher interest

rate on their loan.

In essence, credit ratings act as a key determinant in a lender's

decision to charge a risk premium to the Prime Lending Rate.

46. It is submitted, and not disputed, that the credit rating of the

principal borrower, BPSL, at the time of availing the loan was CARE

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"C", which denotes the lowest rating category, signifying a very high

risk of default in the timely servicing of financial obligations.

47. The reliefs sought in Interim Application (L) No. 27265 of 2024

proceed on an erroneous premise. The present suit is a foreclosure

suit seeking a decree for Rs.44,05,62,418/- together with interest at

the rate of 21% per annum from the date of filing of the suit till

realization, in addition to further contractual interest, and, in the

event of default, enforcement and sale of the mortgaged property. It

is, therefore, not a suit for redemption governed by Order XXXIV

Rule 7, as contended by the Defendants.

48. The Defendants' offer to pay a sum of Rs.44,05,62,418/- with

interest computed only on the original principal of Rs.21 crores is

wholly inconsistent with the Plaintiff's claim for interest on the

amount found due as on the date of filing of the suit. A preliminary

decree cannot be sought on the basis of an amount unilaterally

chosen by the Defendants, in derogation of the amount claimed by

the Plaintiff and supported by the contractual terms.

49. Prima facie, the conduct of the Defendants, as borne out from

the pleadings and record, disentitles them from any equitable relief

of reduction of interest, particularly after the lapse of more than a

decade from the date of borrowing. A bridge loan of Rs.21 crores was

availed by BPSL in the year 2012 at a contractual rate of 21% per

sumedh 1-osial-27265-2024-J-F.doc

annum with quarterly rests, payable in advance, and secured by an

English mortgage over the mortgaged property.

50. Persistent defaults in payment of interest culminated in the

filing of the suit in the year 2019. Thereafter, the Defendants failed to

file their written statement within time, sought condonation of delay,

filed an application for rejection of the plaint, raised objections

during inspection of documents, and denied liability in their written

statement. Such conduct has effectively deprived the Plaintiff of the

amounts legitimately due under the contract for a prolonged period.

51. It is only after more than a decade from the date of

disbursement of the loan, and nearly five years after institution of

the suit, that the Defendants have offered to deposit the amount

claimed while simultaneously seeking concessions on interest under

Order XXXIV Rule 11. I find merit in the submission of Mr. Godbole

that the present attempt appears to be motivated by the desire to

secure release of the mortgaged property at a time when property

values have substantially appreciated.

52. In State Bank of India v. Yasangi Venkateswara Rao 9, the

Supreme Court has authoritatively held, particularly in paragraph 8

thereof, that the value of the security has no correlation with the rate

of interest chargeable under a mortgage, since the mortgage is

9 (1999) 2 SCC 375

sumedh 1-osial-27265-2024-J-F.doc

intended only as a security for repayment of the loan. The said

principle has been consistently followed by various High Courts,

including in Bank of India v Laldhar Tiwari & Ors 10.and Raja Modern

Rice Mill & Anr. v. Tamil Nadu Industrial Investment Corporation

Ltd. & Anr. 11

53. In view of the above legal position, the reliance placed by the

Defendants on Dawoodbhai Kassamji Matiwalla (supra) is

misconceived. Any approach that seeks to justify reduction of

interest solely on the basis of the value of the security would lead to

anomalous results, benefitting borrowers with high-value security

while prejudicing lenders in cases where the security is of lesser

value.

54. At no stage have the Defendants pleaded that the contractual

rate of interest was excessive, unconscionable, or otherwise contrary

to law. Such a plea is conspicuously absent from the written

statement. The explanations now offered, namely liquidity

constraints and the pendency of multiple litigations, do not

constitute exceptional circumstances warranting any reduction or

waiver of pendente lite or future interest. A party that has neither

discharged the principal nor serviced interest for over a decade

cannot, in the absence of compelling equities, seek indulgence of this

10 2000 SCC Online Cal 479 11 2022 SCC OnLine Mad 5501

sumedh 1-osial-27265-2024-J-F.doc

Court for reduction of interest. The timing and tenor of the present

IA, seeking redemption after prolonged default, indicate that the

relief is sought primarily to secure release of the mortgaged property

at a time when its market value has appreciated exponentially,

rather than to bona fide discharge contractual obligations.

55. In view of the aforesaid discussion, the following Order is

passed:

::ORDER::

1. Interim Application (L) No.27265 of 2024 by the Defendant is

dismissed.

2. The Plaintiff is entitled to a decree on admission in terms of

prayer clauses (a) (without additional interest provided under

the Loan Agreement) to (c) of the plaint.

3. Defendants to pay the decretal amount to Plaintiffs within a

period of four weeks from the date of uploading of this

Judgment on the website of Bombay High Court.

4. In the meantime, Defendants shall not in any manner sell,

dispose of, alienate, transfer, or create any right, title or

interest in the suit property consisting of four bungalows

known as Birla House situated in Birla Lane including

ownership of land bearing Survey No. 35, Hissa No.1, CTS Nos.

sumedh 1-osial-27265-2024-J-F.doc

569,56811 to 568113, situated at Birla Lane, Village Juhu,

Taluka Andheri, Mumbai, admeasuring 6460 square meters or

thereabout along with all the structures situated on the said

land.

5. Preliminary decree shall be drawn up accordingly.

6. List the Commercial Suit No. 270 of 2019, along with Interim

Application No. 2874 of 222, Interim Application (L) No.22023

of 2022, Interim Application No.5998 of 2024 and Notice of

Motion No.2454 of 2019 on 24th February 2026.

(KAMAL KHATA, J.)

Judgements Relied: