Punjab National Bank vs Prem De Vastra And Ors.
2000 Latest Caselaw 1163 Del

JUDGMENT

Devinder Gupta, J.

1. The short question arising for determination in this appeal filed under Section 96 of the Code of Civil Procedure against the judgment and decree passed by the trial Court by the plaintiff Bank against the defendants respondents is about the legality and validity of allowing pendente lite and future interest at the rate of 8% p.a. instead and in place of 19% p.a. as prayed by the plaintiff appellant.

2. Grievance of the plaintiff appellant is that the defendants had promised to pay interest @ 19.5% p.a. with quarterly rest on availing the credit facilities. Default was committed due to which suit had be filed by the Bank. Proceedings in the suit had dragged on for more than 12 years. As such the exercise of discretion by the trial court by allowing pendente and future interest only at the contractual rate of 8% p.a. in place of the contractual rate of at which it was claimed by the plaintiff in the suit i.e. 18% p.a. is bad in law.

3. Farts in brief are that credit facilities were obtained by the partnership firm between the period from 1-3-1982 to 11-8-1982 by defendant No. 1 a partnership firm comprising defendants 2 to 4 as its partners, wherein on 11-8-1982 when defendant No. 4 ceased to be a partner defendant No. 5 was taken as a new partner. Defendant firm offered guarantee of defendants 6 and 7, who had agreed to jointly mortgage their immovable property having 1/2 share each in the property. On 5-4-1982 equitable mortgage was created by deposit of title deeds by defendants 6 and 7. Defendant firm failed to make payment of the amount. Demand notice was served on the defendants to pay an amount of Rs. 4.49,120.20 along with interest at the rate of 18% p.a. with effect from 15-7-1996, the date of institution of the suit till realisation.

4. The suit was instituted initially on the Original Side in this Court. The suit was sent for trial on enhancement of pecuniary jurisdiction of subordinate courts. The suit at that stage was for admission/denial of documents. On being transferred to the subordinate courts, it was still at the stage of completion of service. One of the defendants had remained to be served. At that stage some of the defendants expressed their desire to settle the matter. Accordingly, on 26-2-1998 Shri S.K. Sehgal, defendant No. 2, made his statement admitting his liability towards the bank and undertook to make payment within six months from the date of passing of the decree. He prayed that as defendant No. 1 firm stood dissolved on account of set back received due to heavy losses, therefore, pehduncle lite and future interest be awarded only at the rate of 6% p.a. This statement was endorsed by Shri Mukesh Kumar, defendant No. 7. the guarantor, admitting his liability to pay amount. In the capacity as guarantor he agreed to satisfy the decree in case defendant No. 1 would fall to pay the decretal amount. Learned counsel for the appellant in his statement while agreeing to the aforesaid prayer further stated that admission of defendant No. 2 was sufficient to bind the remaining partners of the firm and prayed that as the pendente lite and future interest instead of 6% p.a. as prayed by defendant No. 2 was very less, therefore such admissible rate of interest be awarded at an admissible rate. He further stated that since decree was being passed against all the defendants excepting defendant No. 6, the guarantor, therefore, he was giving up defendant No. 6. He also stated that the Bank will release the title deeds deposited by defendant No. 7 on payment of the entire decretal amount.

5. In view of the statements aforementioned suit of the plaintiff Bank for an amount of Rs. 4,49,120.20 was decreed with costs in favour of the plaintiff bank and against defendants 2, 3, 4, 5 and 7. The suit was dismissed as against defendant No. 6. Considering the facts and circumstances, the Court allowed interest at the rate of 8% p.a. from the date of filing of suit till realisation and enjoined upon the Bank to release title deeds after decretal amount is paid. Feeing aggrieved this appeal was filed.

6. We have heard learned counsel for the parties.

7. Learned counsel for the plaintiff/ appellant submitted that loan facilities were availed in 1982. The loan amount was secured by the guarantors by equitably mortgaging their properties. Despite repeated demands when amount was not paid suit had to be filed in the year 1986. The defendants had agreed to repay the amount with interest at the rate of 191/2% p.a. with quarterly rests but in the suit the plaintiff had confined its claim for interest only @ 18% p.a. The defendants in the written statement had denied their liability to pay amount claimed by the plaintiff due to which the proceedings in the suit got delayed. The Court ultimately proceeded to dispose of the suit only on the admission made by defendants Nos. 2 and 7. The Court granted only a simple money decree. Therefore, considering the facts and circumstances of the case, the Court ought to have exercised discretion in favour df the plaintiff Bank by allowing pendente lite and future interest at contractual rate or at a rate at which the interest had been claimed by the plaintiff In the suit. Discretion was not properly exercised by the trial court. Reliance was placed by learned counsel for the appellant on the decision of learned Single Judge of this Court in Canara Bank v. Marshall Cycle (1998) 73 DLT 44 on the manner in which discretion is to be exercised in such like matters.

8. Learned counsel for the respondents contended that the suit was still at the initial stage when the defendants admitted their liability to pay the amount. They however, pointed the hardship and other relevant circumstances to enable the trial Court to exercise its judicial discretion in the matter of pendente lite and future interest. Discretion having been exercised properly is not liable to be interfered with by this Court.

9. Admittedly, it was a mortgaged suit in which the plaintiff had claimed a preliminary decree against the defendants for sale of the property mortgaged by defendants 6 and 7 with the plaintiff Bank by way of equitable mortgage and in the event of default in the payment of decretal amount with interest a final decree for sale of the mortgaged property. Section 34 of the Code of Civil Procedure governs award of interest in a simple money decrees whereas Order 34 of the Code deals with mortgage suits. Award of interest is governed by Rule 11 of Order 34 of the Code. As such in so far as mortgage suit is concerned special provisions of Order 34 Rule 11 C.P.C. alone are applicable and not those of Section 34. While reiterating this position in law, the Supreme Court in N.M. Veerappa v. Canara Bank held that Court has discretion both under Clause (a) and Clause (b) of Rule 11 of Order 34 to order payment of interest at a rate lower than the contractual rate. Discretionary power under Rule 11 of Order 34 C.P.C. was held to be independent of Section 74 of the Contract Act and is not affected by Section 21-A of the Banking Regulation Act. The Apex Court summarised the legal position as follows :-- at Page 1105 of AIR

"(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 for closure, sale or redemption.

(b) But after the 1929 Amendment, because of the word used in the main part of Order 43 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 (Jaigobind Singh v. Lachmi Narain Ram AIR 1940 FC 20) by the Privy Council and by this Court in S.P. Majoo case (Soli Paestonji Majoo v. Gangadhar Khomka that the new provision gives a certain amount of discretion to the Court so far as pendente lite 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 Clauses (a) of Order 34 Rule 11, could award interest at such rate as it deemed reasonable."

10. In view of the aforementioned legal position, there is no manner of doubt that it being a mortgage suit. Court had discretion in the matter of awarding pendente lite and future interest. On behalf of the appellant also it was not disputed that the Court had discretion but it was submitted that the discretion has not been exercised properly.

11. Having considered the submissions made at the bar and having gone through the facts of the case and in the light of the position in law, we are of the view that no ground has been made out to interfere with the exercise of discretion by the trial Court. The relevant factors being that defendant No. 2 in his statement had prayed that interest be allowed at the rate of 6% p.a.; and in which suit one of the defendants in the suit had not yet been served and the trial had yet to take place at the initial stage that defendant No. 2 came forward and made statement. After the Court had recorded the statement of defendant No. 2 and that of defendant No. 7, statement was also recorded of the plaintiffs counsel, who did not insist for contractual rate of interest but prayed that admissible rate of interest be awarded. In that view of the matter, in case instead of 6% as claimed by the defendants, the trial Court proceeded to allow 8% interest, it cannot be said that discretion was not properly exercised.

12. Needless to add that pursuant to trial Court's decree defendant No. 7 has on 5-4-2000 made full payment of the decretal amount along with up to date interest as per the decree of the trial court by making a total of Rs. 9,56,273/-.

13. Consequently, we find no merit in the appeal, which is hereby dismissed and we also hereby certify that decree stands fully satisfied on defendant No. 7 having made full payment.

CMs. 593 and 594/2000

14. Dismissed as infructuous, as appeal stands dismissed and decree stands fully satisfied.

15. Documents of title are directed to be returned to defendants 6 and 7 in accordance with law without any other reservation.