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State Bank of India v. South India Metal Industries and Others. (A. S. No. 203 of 1985) K. Manoharan v/s State Bank of India. (Indigent Appeal No. 1302 of 1989)

    Appeal No. 203 of 1985 and Indigent Appeal No. 1302 of 1989

    Decided On, 24 April 1998

    At, High Court of Judicature at Madras

    By, THE HONOURABLE MR. JUSTICE P.D. DINAKARAN

    R. Krishnamachari, Maninarayanan, R. Gopalakrishnan, Advocates.



Judgment Text

P.D. DINAKARAN, J.


Heard.


These appeals are directed against the judgment and decree dated March 29, 1984, made in O.S. No. 108 of 1978, on the file of the learned Principal Subordinate Judge, Pondicherry.


A.S. No. 203 of 1985 was filed by the plaintiff in suit O.S. No. 108 of 1978, against the said decree dated March 29, 1984, disallowing interest of 9 per cent. on the principal amount of Rs. 63, 014.05, from the date of the plaint till the date of payment as well as against the decree of Rs. 10, 000 granted in favour of the third defendant in his counter-claim for a sum of Rs. 94, 140.


A.S. No. 1302 of 1989 was filed by the third defendant against the disallowed counter-claim namely a sum of Rs. 84, 140 as well as against the decree granted in favour of the plaintiff for a sum of Rs. 70, 140.60 with interest at the rate of 9 per cent. per annum from the date of the plaint till the date of payment.


For the purpose of convenience the parties are described as per their rank in the suit.


The brief facts of the case are stated as follows :


Defendants Nos. 2 to 5 are partners of the first defendant firm. The third defendant is the managing partner. Defendants Nos. 1 to 5 availed of medium term loan of Rs. 23, 000 and cash credit for a sum of Rs. 50, 000, respectively. The sixth defendant stood as a guarantor for the said loan/cash credit and also deposited the title deeds in respect of the properties mentioned in A Schedule. Thus the defendants were allowed to operate the accounts after the sanction of the said two loans. But, the first defendant-firm committed default in payment of the instalments and therefore, the plaintiff claimed that defendants Nos. 2 to 5 were jointly and severally liable to the plaintiff-bank as partners and the sixth defendant was also liable to make payment to the plaintiff-bank. Since defendants Nos. 2 to 5 refused to make the payment in spite of lawyer's notice dated March 28, 1977, the plaintiff had filed the above suit.Separate written statements were filed by the third and sixth defendants. In the written statement, the third defendant made a separate counter-claim for a sum of Rs. 66, 619.88 with interest at 18 per cent. from the date of filing the written statement till the realisation of the entire amount. The said counter-claim of Rs. 66, 619.88 was towards the claim for damages of reputation, mental worries, annoyance, advance paid to the workers and estimated loss of profit, etc.


The plaintiff-bank examined two witnesses namely PWs.-1 and 2 and marked twenty-one documents as exhibits P-1 to P-21, on their behalf and the defendants examined four witnesses as DWs.-1 to 4 and marked 59 documents as exhibits B-1 to B-59, on their behalf.


In the light of the above evidences on record, the learned Principal Subordinate Judge, Pondicherry, in his judgment and decree dated March, 29, 1984, in O.S. No. 108 of 1978, decreed the suit in favour of the plaintiff for a sum of Rs. 70, 144.60 with interest at 9 per cent. per annum on Rs. 63, 014.05 from the date of the plaint till the date of payment and further held that the third defendant was entitled to nominal compensation not exceeding Rs. 10, 000, in the counter-claim preferred by the third defendant. Hence, the above appeals.


Learned counsel for the appellant in A.S. No. 203 of 1985, contends that the learned Principal Subordinate Judge, Pondicherry, ought to have granted relief, as prayed for in the suit, by passing a decree for the entire loan of Rs. 66, 619.88 with 18 per cent. interest per annum, from the date of the plaint till the date of realisation and the restriction as to the interest at the rate of 9 per cent. instead of 18 per cent. is erroneous and illegal inasmuch as the said loan and credit facility offered by the plaintiff-bank in favour of defendants Nos. 1 to 5 are admittedly commercial transactions and, therefore, in view of section 21A of the Banking Regulation Act, 1949, the plaintiff-bank is entitled to 18 per cent. interest on the claim amount.Learned counsel for the appellant in A.S. No. 203 of 1985 further contends that the grant of relief of nominal compensation, in favour of the third defendant, is also erroneous and without any basis as the third defendant had not proved his claim.


Learned counsel for the appellant in A.S. No. 203 of 1985 states that the reason given by the learned Principal Subordinate Judge, for awarding nominal compensation not exceeding a sum of Rs. 10, 000 is erroneous because the learned Principal Subordinate Judge himself has observed that in the peculiar situation, the plaintiff-bank is under a moral equitable obligation and, therefore, the plaintiff-bank has to share a nominal amount of expenses incurred by the third defendant, during the period when the factory was kept locked between March, 1977, to February, 1978.


Per contra, learned counsel for the appellant in A.S. No. 1302 of 1989 contends that the reasons weighed by the learned Principal Subordinate Judge for reducing the interest from 18 per cent. to 9 per cent. from the date of the plaint till the date of the realisation, on the principal amount of Rs. 63, 014.05 are fair and justifiable and, therefore, no interference is required by this court with regard to the disallowed interest.


Learned counsel for the appellant in A.S. No. 1302 of 1989 further contends that the refusal to award the entire counter-claim, namely to the tune of Rs. 66, 619.88 with interest at 18 per cent. per annum from the date of filing the written statement till the date of the realisation is erroneous and, therefore, the award of nominal compensation not exceeding a sum of Rs. 10, 000 is also erroneous.


Learned counsel appearing for the sixth respondent contends that the liability of the guarantor can be restricted only in the event the bank failed to realise the amount as against defendants Nos. 1 to 5.I have given careful consideration to the submissions of all sides.


With regard to the rate of interest awarded by the learned Principal Subordinate Judge, I am obliged to refer to the latest decision of the apex court in N. M. Veerappa v. Canara Bank, wherein the apex court has dealt with the powers of the civil court under section 34 of the Civil Procedure Code read with Order 34, rule 11 as well as under section 21A of the Banking Regulation Act, and K. Manickchand v. Elias Saleh Mohamed Sait 1969 (2) SCR 1061, the apex court was pleased to formulate the following principles relating to Order 34, rule 11 of the Civil Procedure Code (headnote page 467) :



"(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, under 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, 'the court may order payment of interest', it is no longer obligatory on the part of the court while passing a 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 Singh v. Lachmi Narain Ram, 1940 AIR(FC) 20, by the Privy Council and by this court in Soli Pestonji Majoo v. Ganga Dhar Khemka, 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 the 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 the discretion to fix interest from the date of suit under Order 34, 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 is so fixed, such rate as the court deems reasonable - on the principal amount found or declared due on the mortgage concerned.


(e) The court has also power to award from 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 per cent. 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 the 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."


In the decision N. M. Veerappa v. Canara Bank the apex court, after referring to the decision in Corporation Bank v. D. S. Gowda , was pleased to hold that (page 478) :



"Firstly, it will be noticed that the effect of the 'non obstante clause' in section 21A 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 Ghosh 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 21A 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 21A of the Banking Regulation Act, 1949, cannot be held to have intended to override a central legislation like the Civil Procedure Code or Order 34, rule 11 of the Civil Procedure Code.Secondly, as stated by the Federal Court in Jaigobind's case, 1940 AIR(FC) 20, and by this court in Soli Pestonji Majoo's case, the discretionary power conferred on the civil court under Order 34, rule 11 to cut down the contract rate of interest for the period from the date of suit and even up to the date fixed for redemption by the court is very much there, even if there was no question of the rate being penal, excessive or substantially unfair within the meaning of the Usurious Loans Act, 1918. This court observed in Soli Pestonji Majoo's case, as follows :


'It is apparent that the new rule as inserted by the Amending Act 21 of 1929 provides that the court "may" order payment of interest to the mortgagee up to the date fixed for payment at the rate payable on the principal. It was held by the Federal Court in Jaigobind Singh v. Lachmi Narain Ram, 1940 AIR(FC) 20, that the language of the rule gives a certain amount of discretion to the court so far as interest pendente lite and subsequent interest is concerned and it was no longer absolutely obligatory on the courts to decree interest at the contractual rates up to the date of redemption in all the circumstances even if there is no question of the rate being penal, excessive or substantially unfair within the meaning of the Usurious Loans Act, 1918.'


In other words, the discretionary power given to the court under Order 34, rule 11 is an independent power and the power is neither traceable to section 74 of the Contract Act nor to any power in the Usurious Loans Act, 1918, nor to any State statutes permitting a court to scale down contractual rates of interest."


The apex court in N. M. Veerappa v. Canara Bank was also pleased to hold that the decision in Corporation Bank v. D. S. Gowda cannot help the bank to contend that section 21A of the Banking Regulation Act overrides the provision contained in Order 34, rule 11 of the Civil Procedure Code and has held as follows (page 480) :



"If, therefore, section 21A of the Banking Regulation Act, 1949, does not come to the aid of banks vis-a-vis Order 34, rule 11 of the Civil Procedure Code, the question whether for the period during the pendency of mortgage suits in courts, the courts discretion should continue or whether it should be fettered and if so to what extent and as to what rate of interest and whether there should be any distinction between different kinds of debtors - these are all matters of policy for the Legislature and it will be for Parliament to lay down its policies and bring forward such legislation as it may deem fit in accordance with the provisions of the Constitution of India."


The above decision governs the power of the civil court under section 34 read with Order 34, rule 11 of the Civil Procedure Code irrespective of section 21A of the Banking Regulation Act. Following the above decision of the apex court, I am satisfied that the learned Principal Subordinate Judge has properly exercised his discretion by reducing the interest from 18 per cent. per annum to 9 per cent. per annum from the date of the plaint till the date of realisation, on the principal amount claimed.


The learned Principal Subordinate Judge has awarded nominal compensation not exceeding a sum of Rs. 10, 000 on equity basis

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as the first defendant factory was kept locked at the instance of the plaintiff from March, 1977, to February, 1978, and the first defendant suffered loss on account of the closure of the factory, as per the evidence of the plaintiff-bank themselves. In this connection, even though learned counsel for the appellant in A.S. No. 1302 of 1989 canvasses for a higher amount of compensation, I do not find any evidence on record to grant any higher amount of compensation except to modify the judgment and decree that the defendant shall be entitled to compensation of a sum of Rs. 10, 000 with interest at 9 per cent. from the date of the plaint till the date of realisation.Before concluding, I am obliged to observe that the plaintiff-bank shall set off the claim awarded in favour of the third defendant and recover the balance amount as against defendants Nos. 1 to 5, jointly and severally. In the event any amount could not be recovered from defendants Nos. 1 to 5, the plaintiff is entitled to recover the balance from the sixth defendant personally or alternatively by bringing the A schedule property for sale. The third defendant shall pay the court fee within three months from the date of receipt of a copy of this order. In view of the above discussions, the remaining claim of the appellants in both the appeals are rejected. The judgment and decree of the court below stands modified to the extent indicated above. In the result, A.S. No. 203 of 1985 is dismissed and A.S. No. 1302 of 1989 is allowed. No costs.
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