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State Bank of India V/S Jagdamba Medicos and Others.

    Appeal No. 173 of 2000

    Decided On, 28 March 2002

    At, Debt Recovery Appellate Tribunal At Delhi

    By, THE HONORABLE JUSTICE: K.S. KUMARAN. (CHAIRPERSON)

    S.L. Gupta, Adarsh B. Dial, Alok Dhir, Y.P. Marula, P.K. Aggarwal and Rajeeve Mehra, Advocates. For the Parties




Judgment Text


1. This appeal against order dated 1.8.2000 passed by Mr. S.N.P. Dave, Presiding Officer, Debts Recovery Tribunal, Jaipur in O.A. No. 4/2000, State Bank of India v. Jagdamba Medicos and Ors. has been filed by State Bank of India, which had filed the O.A.

2. The claim of the State Bank of India for a sum of Rs. 14.54.325/- along with costs and future interest @ 6% per annum from the date of institution of recovery proceedings, i.e. 13.12.1999 till realization from all the defendants jointly and severally has been decreed. It has further been directed that the Bank would also be entitled to recover this amount from the safe of hypothecated goods and mortgaged properties of the defendant Nos. 2 and 3.

3. The challenge in this appeal is only on the point of award of lesser rate of pendente lite and future interest. The Bank in this appeal has claimed pendente lite and future interest @ 16.32% with quarterly rests from the date of filing the suit till the date of realization, on the basis of contractual minimum rate of interest.

In the impugned order, the learned Presiding Officer, while granting pendente lite and future interest only @ 6% per annum gave the following reasons :

"It was also proved that to secure the due repayment of loan, the defendant Nos. 2 and 3 mortgaged their immovable property in favour of the application Bank."

"As the right of redemption remains with the defendants 2 and 3. Therefore, in my view, future interest should not exceed 6% per annum as decided by the Hon'ble Supreme Court in A.I.R. 1998 Supreme Court page 1101. In this case also the property was mortgaged, therefore, on the decretal amount of Rs. 14,54,325/- future interest should be 6% p.a."

4. Since Mr. S.N.P. Dave, the learned Presiding Officer of the Debts Recovery Tribunal, Jaipur had awarded pendente lite and future interest only @ 6% per annum in his final orders in several other Original Applications moved by several Banks and Financial Institutions against which appeals have been filed in this Appellate Tribunal solely on the point of grant of lesser rate of pendente lite and future interest, I considered it proper to hear arguments of all the respective Counsels and then to decide all such appeals at one point of time. Consequently, I listed several such appeals on a particular date and heard arguments of learned Counsels for the parties.

5. The moot question is whether the Banks and Financial Institutions have a right to claim pendente lite and future interest at the rate of interest agreed between the parties on the loans and facilities availed or the Presiding Officer of a Tribunal has discretion in the matter and, if so, whether the Tribunal cannot grant the same at a rate higher than 6% per annum.

6. On the aforesaid question, I heard Mr. S.L. Gupta, Mr. Adarsh B. Dial, Mr. Alok Dh

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r, Mr. Y.P. Narula and Mr. P.K. Aggarwal, Counsels for the parties. Mr. Rajeeve Mehra, Advocate, on request was also permitted to make his submissions on the issue.7. From the side of the appellant-Banks it was vehemently contended that the Banks ought to have been awarded pendente lite and future interest at such rate and at such quarterly rests as had been agreed upon between the Bank and the borrower in respect of the loans and advances availed. From the side of the borrowers it was forcibly contended that so far as grant of pendente lite and future interest was concerned, it was within the discretion of the Presiding Officer of the concerned Tribunal and that it was not obligatory to grant pendente lite and future interest at such rate and such quarterly rests as was agreed upon between the parties in respect of the loans and advances. They also contended that where any property had been mortgaged, the claim of the Bank being based on mortgage, the suit would be a mortgage suit and, therefore, Order XXXIV Rule 11 of the Code of Civil Procedure would be applicable and the learned Tribunal below had reasonably granted pendente lite and future interest @ 6% per annum. They also contended that in view of the several judgments of the High Courts and the Supreme Court, the rate of pendente lite and future interest ought not be more than 6% and, therefore, if the learned Presiding officer had granted such interest @ 6%, only the same be upheld and the impugned judgment be not interfered with.8. From the reasoning given by the learned Presiding Officer for grant of pendente lite and future interest only at a rate of 6% per annum, I can reasonably infer that he considered himself to be bound to award pendente lite and future interest only at a rate of 6% in view of the law laid down by Hon'ble the Supreme Court of India in II (1998) SLT 361=I (1998) CLT 88 (SC)=AIR 1998 Supreme Court 1101. Therefore, in this judgment in appeal I will have to deal with the point whether the learned Presiding Officer was bound to award pendente lite and future interest at a rate not more than 6% or he was having the discretion to award such interest at a higher rate. For that, the provisions of the Recovery of Debts Due to Banks and Financial Institutions Act, 1993 and the provisions of Code of Civil Procedure relating to the grant of pendente lite and future interest will have to be seen and thereafter the law laid down by Hon'ble the Supreme Court of India in respect of all those provisions will have to be looked into for its application on the issue in hand.9. Recovery of Debts Due to Banks and Financial Institutions Act, 1993.Section 19, Sub-section (20) provides as follows :"The Tribunal may, after giving the applicant and the defendant an opportunity of being heard, pass such interim or final order, including the order for payment of interest from the date on or before which payment of the amount is found due up to the date of realization or actual payment, on the application as it thinks fit to meet the ends of justice."The Code of Civil Procedure.Section 34 of the Code provides as follows :"Interest(1) Whether and insofar as a decree is for the payment of money, the Court may, in the 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 not exceeding six percent per annum, as the Court deems reasonable on such principal sum, 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 per cent 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.(2) Where such a decree is silent with respect to the payment of further interest on such principal sum 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."Order XXXIV Rule 11 of the Code of Civil Procedure provides as follows :"Payment of interestIn any decree passed in a suit for foreclosure, sale or redemption, where interest is legally recoverable, the Court may order payment of interest to the mortgagee as follows, namely :(a) Interest up to the date on or before which payment of the amount found or declared due is under the preliminary decree to be made by the mortgagor or other person redeeming the mortgage--(i) on the principal amount found or declared due on the mortgage--at the rate payable on the principal, or, where no such rate is fixed, at such rate as the Court deems reasonable,and(iii) on the amount adjudged due to the mortgagee for costs, charges and expenses properly incurred by the mortgagee in respect of the mortgage security up to the date of the preliminary decree and added to the mortgage money--at the rate agreed between the parties, or, failing such rate, at such rate not exceeding six per cent per annum as the Court deems reasonable; and(b) subsequent interest up to the date of realization or actual payment on the aggregate of the principal sums specified in Clause (a) as calculated in accordance with that clause at such rate as the Court deems reasonable."10. On perusal of the above, it may be seen that in all the aforesaid provisions the word used is 'may' which may indicate that there is discretion with the Tribunal/Court in the award of pendente lite and future interest. So far as the provisions of Section 34 and Order XXXIV Rule 11 of the Code of Civil Procedure are concerned, Hon'ble the Supreme Court has already observed that under those provisions the Presiding Officer of the Court has discretion in the grant of pendente lite and future interest. The decisions are as under :11. In Central Bank of India v. Ravindra and Ors., VII (2001) SLT 400=IV (2001) CLT 127=JT 2001 (9) SC 101, Hon'ble Justice R.C. Lahoti speaking for the Constitution Bench has laid down as follows :"Award of interest pendente lite and post-decree is discretionary with the Court as it is essentially government by Section 34 of the CPC de hors the contract between the parties. In a given case if the Court finds that in the principal sum abjudged on the date of the suit the component of interest is disproportionate with the component of the principal sum actually advanced, the Court may exercise its discretion in awarding interest pendente lite and post-decree interest at a lower rate or may even decline awarding such interest. The discretion shall be exercised fairly, judiciously and for reasons and not in an arbitrary or fanciful manner,"12. In N.M. Veerappa v. Canara Bank, (supra) (which has been relied upon by the learned Presiding Officer in the impugned order), Hon'ble Mr. Justice M. Jagannadha Rao observed as follows :(1) "In view of what Federal Court has said in Jaigobind case : AIR 1940 FC 20) and what this Court has held in Soli Pestonji Majoo's case : AIR 1969 SC 600), it is clear that the word 'may' in the main part of Order 34, Rule 11 governs all sub-clauses of Order 34, Rule 11."(2) "Banking Regulation Act, 1949, Sections 21, 35 and Section 21A do not affect Order 34 Rule 11 of Code of Civil Procedure."(3) "For the aforesaid reasons, we therefore do not think that the above decision in Corporation Bank v. D.S. Gowda : (1994)5 SCC 213 (1994 AIR SCW 2721) can help the respondent-Bank to contend that Section 21A overrides the provision contained in Order 34 Rule 11, CPC.""In the present case before us, the Trial Court has gone into the contract rate was not to be granted and that as the Court had discretion to grant interest, it was granting interest only at 6% simple from date of suit. The Court followed State Bank of Mysore v. G.P. Thulasi Bai, ILR (1985) Kar. 2976. In that case, Jagannatha Shetti, J.(as he then was), speaking for the Bench, observed, referring to S.P. Majoo v. Gansadhar (1969) 3 SCR 33 : AIR 1969 SC 600, in which this Court has referred to the Privy Council decision of 1927 and the Federal Court's decision of 1927 and the Federal Court's decision of 1940, that it was no longer obligatory on the part of the Court to award the contractual rate, even if the rate was not penal, excessive or substantially unfair."(5) "From the aforesaid rulings the following principles can be summarized :(a) Before 1929 it was obligatory for the Court to direct the contractual 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 XXXIV Rule 7(c)(i) respectively in suits for foreclosure, sale or redemption.(b) But after 1929 amendment, because of the words used in the main part of the Order XXXIV Rule 11, namely, '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 contractual rate of interest from the date of suit till the date fixed in the preliminary decree for payment of the amount.(c) It is no longer obligatory to award the contractual rate after the date of suit and upto the date fixed for redemption as above.(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 the date of suit under Order XXXIV Rule 11(a)(i) up to the date fixed for payment in the preliminary decree, the same rate agreed in the contract, or, if no rate of interest was fixed, such rate as the Court deems reasonable.(e) The Court has also power to award from the date of suit under Order XXXIV Rule 11(a)(iii) a rate of interest on cases, charges and expenses as per contractual rate or failing such rate at a rate not exceeding 6%. This is the position of 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) Order XXXIV Rule 11(b) so far as the period after the date fixed for payment is concerned, the Court, even if it wants to exercise to award interest up to the date of realization or actual payment, on the aggregate sum specified in Clause (a) Order XXIV Rule 11 could award interest at such rate as it deem reasonable."13. From the aforesaid observation and the law laid down by the Hon'ble Supreme Court, it is now amply clear that if the Court is awarding pendente lite and future interest under the provisions of Code of Civil Procedure, it has discretion to award the interest at such rate as it may deem reasonable. The only rider under Order XXXIV Rule 11 is that if any decree is also made for costs, charges and expenses properly incurred by the mortgagee in respect of mortgaged security up to the date of preliminary decree and added to the mortgage money, the pendente lite interest on that amount may be awarded at the rate agreed between the parties, or, failing such rate, at such rate not exceeding 6% per annum as the Court deems reasonable. Therefore, it is also clear that the maximum rate of 6% per annum for being granted as pendente lite and future interest would only be applicable only on the amount of award of costs, charges and expenses properly incurred by the mortgagee in respect of mortgaged security.14. After giving the legal position relating to the provisions of the Code of Civil Procedure in respect of grant of pendente lite and future interest now I come to the provisions of the Recovery of Debts Due to Banks and Financial Institutions Act, 1993 in that regard.15. Sub-section (20) of Section 19 of the Recovery of Debts Due to Banks and Financial Institutions Act, 1993 (for short 'the Act') provides that the Tribunal may pass such interim or final order, including the order for payment of interest from the date on or before which the payment of the amount is found due to the date of realization or actual payment as it thinks fit to meet the needs of justice. Such a provision under this Act is almost similar to the provisions of Section 34 and Order XXXIV Rule 11 of Code of Civil Procedure so far as the discretion part is concerned for grant of pendente lite and future interest.16. In view of what has been said above, I am of the view that the Tribunal below had the discretion to award pendente lite and future interest at the agreed rate of interest or at any rate lesser than that or not to have awarded pendente lite and future interest at all depending on the facts and circumstances of each case. But this discretion so exercised had to be fair, judicious, for reasons and not in an arbitrary or fanciful manner.17. Some of the learned Counsels who argued for the parties made submissions that since in the Bank cases properties are also generally mortgaged with the Bank as collateral security, the recovery applications moved by the Banks, where the Banks had taken mortgage of the properties in their favour, all such recovery applications come under the category of mortgage suits and, therefore, Order XXXIV Rule 11 of the CPC would be applicable. I have my own reservations on such submissions. Prior to the amendment made to the aforesaid Act w.e.f. 17.1.2001, it could be said that if the Tribunal was awarding pendente life and future interest, the same was being awarded under the provisions of the Code of Civil Procedure, that is to say, either under Section 34 of the Code or under Order XXXIV Rule 11 of the Code. The reason being that there was no specific provision in the 'Act' empowering the Tribunal to award pendente lite and future interest and, therefore, the Tribunal while awarding pendente lite and future interest could invoke the provisions of the Code of Civil Procedure. Section 22 of the Act says that the Tribunal shall not be bound by the procedure laid down by the Code of Civil Procedure, that is to say, that the Tribunal is not bound by such provisions of the Code of Civil Procedure which lay down the procedure for trial of a suit. The provision relating to grant of pendente lite and future interest is a substantive provision in the Code and, therefore, the Tribunal, before the aforesaid amendment in the Act, could invoke the provisions of Section 34 or Order XXXIV Rule 11, as the case may be, to exercise the discretion but after the amendment made in the 'Act' w.e.f. 17.1.2001, it is to be found that now in the 'Act' itself there is a specific provision empowering the Tribunal to award pendente lite and future interest. That provision is contained in Sub-section (20) of Section 19 and there the Tribunal has been given a discretion as the word used is "may".18. further, after the amendment in the 'Act', the definition of word 'debt', for which recovery applications are moved before the Tribunal, includes a claim on mortgage as well. Earlier the words 'or under a mortgage' were not there in the definition of the word 'debt'. Therefore, after the aforesaid amendment now Banks' cases under a mortgage are also governed by the provisions of the 'Act'.19. A question arises whether the Tribunal below will act under Sub-section (2) of Section 19 for grant of pendente lite and future interest or it is bound to follow the provisions of Section 34 of the Code of Civil Procedure, or as the case may be, the provisions of Order XXXIV Rule 11 of Code of Civil Procedure where the properties had been mortgaged with the Banks as collateral security. Contesting arguments were advanced from both the sides.20. After careful consideration of the respective arguments, I am of the view that the Tribunal has the independent power to grant pendente lite and future interest under Subsection (2) of Section 19 of the 'Act' itself and the Tribunal is not bound to follow the provisions of the Code of Civil Procedure in its Section 34 of Order XXXIV Rule 11, as the case may be. The reason is that under Section 34 of the 'Act', which relates to the overriding effect of the 'Act', it is to be found that the provisions of the 'Act' shall have effect notwithstanding anything inconsistent therewith contained in any other law for the time being in force. The Acts which have been excluded from the purview of Section 34 of the 'Act' are the Industrial Finance Corporation Act, 1948, the State Financial Corporation Act, 1951, the Unit Trust of India Act, 1963, the Industrial Reconstruction Bank of India Act, 1984, the Sick Industrial Companies (Special Provisions) Act, 1985 and the Small Industries Development Bank of India Act, 1989. It is, thus, clear that the Code of Civil Procedure has not been excluded from the purview of said Section 34. That being so, the provisions of Subsection (2) of Section 19 of the 'Act' override the provisions of Section 34 and Order XXXIV Rule 11 of the Code of Civil Procedure.21. In view of the above discussion, the Tribunal under the Act has to act under Subsection (20) of Section 19 of the 'Act' for grant of pendente life and future interest and has its discretion in the matter.22. From the side of the appellant Banks it was vehemently contended that under Subsection (2) of Section 19 of the 'Act' the Tribunal was bound to grant pendente lite and future interest at the agreed rate of interest because the Tribunal had the only discretion to fix the date from which pendente lite and future interest was to be awarded and had no discretion in respect of the rate of interest. The contention is that the word 'interest' has come in the 'Act' at two places--one in Clause (g) of Section 2 and the other in Sub-section (20) of Section 19 and, therefore, the meaning of the word 'interest' should be the same. The argument was that in clause (g) of Section 2, the rate of interest would be only the rate of interest as agreed between the parties and, therefore, the word 'interest' in Sub-section (2) of Section 19 shall carry the same meaning. I am not inclined to accept this argument because the interpretation advanced from the side of the appellant Banks is too narrow. In my opinion, the discretion is there with the Tribunal in respect of the rate of interest as well as in respect of the date from which the pendente lite and future interest is to be awarded. The word 'interest' has not been defined in the 'Act' and therefore the meaning of the interest may be different at different places in the context in which the word has been used. Agreed rate of interest would be there till the filing of the suit but after the suit has been filed, for the period during which the suit remains with the Court and for the period till realization of the decreed amount, the discretion to grant interest is always with the Courts which decree the suits. In my view, the same principle and the spirit should be followed in the grant of pendente lite and future interest by the Tribunals under the 'Act'.23. It was also contended from the side of the borrowers/respondents that where a property is mortgaged with the Banks as security the pendente lite and future interest ought not to be more than 6% as provided in Order XXXIV Rule 11, CPC. It was urged that if under the Code of Civil Procedure pendente lite and future interest in mortgage-suits could not be granted at a rate more than 6% per annum, the provisions of the 'Act' relating to grant of pendente lite interest should have the same spirit and principle as is there in the relevant provisions of the Code and, therefore, the Tribunal, below was justified in not awarding pendente, lite and future interest at a rate more than 6% per annum.24. Though in view of what has been said above I am of the view that the Tribunals under the 'Act' have discretion in the matter of grant of pendente lite and future interest, yet I do not agree with the arguments from the side of the respondents that the pendente lite and future interest cannot be more than 6% per annum in those cases where the Banks have properties mortgaged with them as collateral securities for loan, etc, given. Even in the Code of Civil Procedure I do not find any such upper limit except on the amount of decree as costs, charges and expenses properly incurred by the mortgagee in respect of the mortgaged security and that also if there is no agreement between the parties regarding such interest. In that provision also, if there is agreed rate of interest between the parties, the Court has discretion to grant that agreed rate. Only when there is no agreed rate of interest on the decree for costs, charges and expenses properly incurred by the mortgagee in respect of mortgaged security then the Court cannot grant pendente life and future interest at a rate exceeding 6% per annum. Thus, it is clear that in the Code of Civil Procedure as well, on the amount decreed as principal sum and interest thereon, there is no upper limit of 6% per annum because that upper limit is only in respect of costs, charges and expenses properly incurred by the mortgagee in respect of mortgaged security.25. Even in N.M. Veerappa 's case the Hon'ble Supreme Court had not directed that in mortgage suits the pendente life and future interest could not be more than 6% per annum. The issue at hand before the Hon'ble Supreme Court was whether the concerned Bank was entitled to pendente lite and future interest at the contractual rate of interest or not. The Trial Court had granted pendente lite and future interest @ 6% per annum but in the first appeal the Hon'ble High Court agreeing with the Bank granted pendente lite and future interest at the contractual rate. In the S.L.P. filed before the Hon'ble Supreme Court Their Lordships of the Supreme Court held that Banking Regulation Act, 1949, Sections 21, 35 and 21A did not affect Order XXXIV Rule 11 of the Code of Civil Procedure. They further held that after the 1929 and 1956 amendments the Court had discretion to fix interest from the date of suit under Order XXXIV Rule 11(a)(i) up to the date fixed for payment in the preliminary decree at the rate agreed in the contract or if no rate of interest was fixed at such rate as the Court deemed reasonable and for the period after the date fixed for payment in the preliminary decree, the Court could award interest at such rate as it deemed reasonable. After laying down such law by interpreting the provisions of Code of Civil Procedure, Their Lordships of the Supreme Court allowed the appeal and restored the rate of 6% from the date of the suit as had been fixed by the Trial Court. In that case the Trial Court had gone into the facts and stated that the contractual rate was not to be granted and that as the Court had discretion to grant interest, it was granting interest only @ 6% simple from the date of the suit. The Trial Court followed State Bank of Mysore v. G.P. Thulasi Bai, ILR (1985) Kar 2976 in which it was held that it was no longer obligatory on the part of the Court to award the contractual rate, even if the rate was not penal, excessive or substantially unfair.26. From the above, it would appear that the Trial Court in N.M, Veerappa's case had only exercised its discretion and had come to a conclusion that the pendente lite and future interest ought to be granted only @ 6% per annum. It does not appear that he was under any compulsion not to grant pendente lite and future interest at a rate more than 6% per annum.27. Further, in State Bank of India v. Vasangi Vankatesam Rao, I (1999) SLT 284=1 (1999) CLT 105 (SC)=( 1999) 2 Supreme Court Cases 375, Hon'ble Mr. Justice B.N. Kirpal observed as under :"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."28. Therefore, in my view, the learned Presiding Officer was not under any compulsion to grant pendente lite and future interest at a rate not more than 6% per annum because of the judgment of the Hon'ble Supreme Court in N.M. Veerappa's case.29. The position which crystallizes is that the learned Presiding Officer, in the matter of grant of pendente lite and future interest, does not appear to have exercised his discretion on the basis of the facts and circumstances of the cases. He appears to have understood N.M. Veerappa's case in a manner that pendente lite and future interest could not exceed 6% per annum. Thus, the award of rate of pendente lite and future interest needs reconsideration by the learned Presiding Officer of the Tribunal below. He has to look into the facts and circumstances of each case for award of such interest. Accordingly, the impugned order is partly set aside so far as it relates to the grant of pendente life and future interest and the matter of the grant of pendente lite and future interest is remanded to the Tribunal below for decision afresh according to law in the light of the observations made above.30. The parties are directed to appear before the Tribunal below on 1.5.2002.31. Since all the respondents have been served in this appeal and had also appeared, there would be no need for the Tribunal below to issue fresh notices to the respondents.32. Copy of this order be sent to the respondents by registered post, be given Dasti to the appellant-Bank and if not taken Dasti within a week from the date of this order, the same be sent to it by registered post.Copy of this order be sent to the concerned Tribunal.
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