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Judgment
P.K. Misra, J.—This appeal is filed by the defendant against the judgment and decree of the learned single Judge of this Court passed in
C.S. No. 2035 of 1995 dated 25.1.1999.
The plaintiff/Respondent had filed the aforesaid suit for recovery of sum of Rs. 10,32,24,989/-together with interest at the rate of 24% per
annum on Rs. 6,63,00,000/- from the date of filing of the suit till date of realisation. The suit was decreed as prayed for except in respect of the
transaction covered under Ex.A-4 for which direction has been made for calculation of pre-suit, pendente lite and future interest at 21% and not
24%.
The main contentions which have been pressed before us relate to the questions of jurisdiction of the trial court to deal with the suit, the
justification on the part of the plaintiff in appropriating certain repayments made by the defendants towards interest and the question of calculation
of pre-decree, pendete lite and future interest. For the purpose of deciding these questions, the facts can be noticed in brief.
Plaintiff is a Public Limited Company having its Registered Office in Chennai. Defendant is also a Public Limited Company having its Registered
Office at Hyderabad and Branch Office at No. 168, Linghi Chetty Street, Madras. The plaintiff has been investing its internally generated funds
with the defendant for placement as inter corporate deposits so as to get return at a specified percentage on such deposits. Such funds were
placed with the defendant for a specified period and the defendant used to return the funds together with the agreed rate of interest. As per such
mutual understanding, the plaintiff by letter dated 28.5.1992 had requested the defendant to invest Rs. 6,70,00,000/- as inter corporate deposit so
as to yield 24% return at the end of 90 days and such deposit was to fall due for repayment together with interest on 26.8.1992. A demand draft
had been handed over to the defendant and an acknowledgement receipt was issued by such defendant. A similar placement of Rs. 5,35,00,000/-
was made by the plaintiff by letter dated 22.6.1992 with a request to the defendant to place such amount as inter corporate deposit so as to yield
21% interest for the period from 22.6.1992 to 20.9.1992. The amount together with interest was due on 21.9.1992. The defendant has also
issued receipt acknowledging such placement. The total amount payable on these two deposits as on 21.9.2002 was Rs. 12,75,04,146/-. The
defendant had repaid a sum of Rs. 5,82,01,096/-, but had failed to pay the balance inspite of repeated demands made by the plaintiff. The plaintiff
addressed letter dated 10.9.1992 expressing its concern over the default made ""by the defendant and the latter sent a reply dated 18.9.1992
indicating therein that due to forgery and cheating committed on the defendant by M/s. Fair Growth Financial Services Limited, the funds got
locked up and therefore the defendant was unable to pay the amount and that the matter was brought to the notice of the Special Court constituted
under the Special Court (Trial of offences relating to Transactions in Securities) Ordinance, 1992 and had requested the Special Court to release
the securities and, therefore, the amount could not be paid immediately. After several correspondence, plaintiff issued legal notice dated 12.5.1993
calling upon the defendant to pay the amount together with interest calculated at 24% per annum as the transaction was commercial in nature. The
defendant gave a reply that it had delivered 9% IRFC bonds worth Rs. 17 crores against the security transactions of Rs. 16.65 crores (which is
the subject matter of connected O.S.A. Nos. 309 & 328/2001) and the excess delivery of bonds amounting to Rs. 35 lakhs should be adjusted
towards inter corporate deposit and the amount payable to the plaintiff after such adjustment works out to Rs. 5 crores. The defendant also
promised to make alternative arrangements. The plaintiff sent rejoinder dated 19.8.1993 stating that there is no excess delivery of IRFC bonds
amounting to Rs. 35 lakhs. It is further alleged by the plaintiff that the defendant had paid a sum of Rs. 70 lakhs on different dates, i.e., Rs. 30
lakhs on 12.5.1993, Rs. 20 lakhs on 19.7.1994 and Rs. 20 lakhs on 23.5.1994, which were adjusted towards part payment of interest. The
defendant by letter dated 24.1.1995 stated that their claim against Fair Growth financial Service Ltd. has not been settled and the defendant would
settle the principal outstanding under the inter corporate deposits after it realised the dues from M/s. Fair Growth Financial Services Ltd. The
plaintiff sent a reply dated 21.2.1995 to the effect that a sum of Rs. 9,49,5,170/- was due out of which Rs. 6,63,00,000/- was payable as
principal and balance amount of Rs. 2,86,15,170/- was adjusting a sum of Rs. 70 lakhs towards part of the interest. The defendant sent a reply
dated 28.2.1995 stating that the plaintiff has wrongfully adjusted the amount of Rs. 70,00,000/- towards interest contrary to the instructions issued
by the defendant and such amount should be adjusted towards the principal liability of the defendant. Regarding jurisdiction, it was averred that the
cause of action for the above suit arose at Madras, within the jurisdiction of Madras High Court where the Defendant carries on and where the
Plaintiffs invested the amounts with the Defendant and where the amounts became payable.
The defendant in its written statement raised several objections regarding merits of the plaintiff ''s case as well as relating to jurisdiction and claim
of interest. Regarding jurisdiction it was stated that the defendant had no place of business within the State of Tamil Nadu and the entire cause of
action arose only at Hyderabad. It was further alleged that the defendant had Registered Office at Hyderabad and there was no Branch Office for
this Defendant at No. 168, Linghi Chetty Street, Madras 600 001, as alleged. It was further averred that since no leave of the Court had been
obtained as required under Order III Rule 1 of the Original Side Rules and Clause 12 of the Letters Patent, the suit was not maintainable on the file
of this Court. Regarding interest it was stated that the payments made by the defendant has to be appropriated towards the principal and not
towards interest as claimed by the plaintiff. The claim of interest is usurious and the plaintiff is not entitled to the said rate and, therefore, the suit is
liable to be dismissed.
The trial court framed the following issues for consideration:
(1) Whether this Court has jurisdiction to entertain and dispose of the above suit?
(2) Whether the suit is liable to be dismissed for want of leave to sue?
(3) Whether the plaintiff is estopped from appropriating a sum of Rs. 6,12,00,000/- towards interest?
(4) Whether the discharge pleaded by the defendant is true?
(5) Whether the defendant has paid Rs. 35 lakhs by placing 9% IRFC Bonds in excess as stated in the written statement?
(6) Whether the interest is usurious as per R.B.I. Guidelines?
(7) Whether claim that there is a bar under the Special Court (Trial of Offences Relating to Transactions in Securities) Act, 1992? and
(8) Whether the suit is not maintainable for the reasons stated in paragraphs 6 and 9 of the written statement?
Under Issue Nos. 1, 2 and 8, the trial court held inter alia that all the'' transactions relating to the suit took place only at Madras and the Court
had the jurisdiction to entertain and dispose the suit and the leave as required under Clause 12 of the Letters Patent for filing of the suit before the
Madras High Court in its Original Side was not required.
Under Issue Nos. 3 & 4, it was held that the plaintiff was justified in appropriating the amount paid by the defendant first towards interest and
thereafter towards principal and those two issues were decided against the defendant and in favour of the plaintiff.
Under Issue No. 5, the trial court held as follows:
...IRFC bonds were given to the plaintiff towards some other transactions and therefore any alleged excess payment made towards that
transaction cannot be adjusted towards the plaint transaction and the defendant also has failed to establish that in fact there is excess of Rs. 35
lakhs IRFC bonds with the plaintiff even in connection with some earlier transactions. Therefore, this amount cannot be given credit and no
adjustment can be made towards the discharge of plaint debts. This issue is therefore answered in negative.
Under Issue No. 7, the trial court found that there was no frustration of contract on account of the scam relating to securities at that time and more
particularly relating to Fair Growth Financial Services Ltd., with whom the defendant had placed considerable amount. It was further held that
since the defendant was not a notified person within the meaning of Special Court (Trial of offences relating to Transaction and Securities) Act,
1992, it cannot be said that the properties of the defendant were attached and vested with the custodian and therefore the question of the plaintiff
approaching the Special Court did not arise. It was further held that since the defendant was not a notified person, it was liable to make good the
loss caused to the plaintiff and the defendant was definitely liable to pay the balance amount due to the plaintiff by paying back the inter corporate
deposits made by it.
Under Issue No. 6, the trial court negatived the contention of the defendant that interest claimed by the plaintiff is usurious. It was further held that
since as per the original agreement the defendant had agreed to pay interest at the rate of 21% and 24%, as the case may be, and such interest on
the amount due after the period stipulated has to be paid with interest at the agreed rate. On the aforesaid basis, the trial court decreed the suit in
part by holding that the calculation relating to second deposit covered under Ex. A-4 is to be made only at 21%. Such judgment and decree is
under challenge at the instance of the defendant.
Even though several grounds are taken and prayer has been made for setting aside the judgment and decree on merit, in the memo of valuation,
the defendant/appellant has specifically given the following valuation:
MEMO OF VALUATION
I.
(a) Value of Suit - Rs. 10,32,24,989.00
Court fee paid thereon - Rs. 10,35,775.00
II.
(b) Value of appeal
(confined to interest portion
and disallowed portion of
Rs. 70,00,000.00) - Rs. 9,95,88,332.00
Court fee paid thereon - Rs. 9,99,411.00
Learned Senior Counsel appearing for the appellant has submitted that the Head Office of the defendant is admittedly situated at Hyderabad
and even though some of the transactions/correspondence had taken place at Madras, where the Branch Office of the defendant was at the time of
transaction situated, there is nothing on record to indicate that in fact the defendant was at the time of institution of the suit staying at Madras. In this
connection it is pointed out that even though the defendant through its Branch Office had been sued, the actual notice had been served at
Hyderabad.
In this connection, C.M.P. No. 14064 of 1999 in O.S.A. No. 146 of 1999 has been filed to receive the Minutes Book of the
appellant/petitioner to show that the Madras Branch Office of the appellant was closed down by Resolution dated 10.5.1993 and therefore, on the
date of the filing of the suit on 31.7.1995, the appellant/defendant had no Branch Office within the jurisdiction of this Court.
C.M.P. No. 19953 of 2003 in O.S.A. No. 146 of 1999 has been filed to permit the appellant/petitioner to adduce additional evidence by
marking copy of the Board Notes No. 20 and 21, Minutes of the meeting dated 10.5.1993 and the third Annual Report of the petitioner for the
financial year 1993-1994 to submit that the Branch Office at Madras has already been closed and therefore, the question of jurisdiction will have
to be gone into.
It is therefore submitted by him relying upon Clause 12 of the Letters Patent that since the defendant was not actually residing within the
Original Jurisdiction of the Madras High Court at the time of actual institution of the suit, in the absence of leave as contemplated under Clause 12,
the suit is not maintainable.
Clause 12 of the Letters Patent is to the following effect:
Original jurisdiction as to suits - And We do further ordain that the said High Court of Judicature at Madras, in exercise of its ordinary original
civil jurisdiction, shall be empowered to receive, try, and determine suits of every description if, in the case of suits for land or other immovable
property, such land or property shall be situated, or, in all other cases, if the cause of action shall have arisen, either wholly, or, in case the leave of
the Court shall have been first obtained, in part, within the local limits of the ordinary original jurisdiction of the said High Court: or if the defendant
at the time of the commencement of the suit shall dwell or carry on business or personally work for gain, within such limits; except that the said
High Court shall not have such original jurisdiction in cases falling within the jurisdiction of the Small Cause at Madras, in which the debt or
damage, or value of the property sued for does not exceed hundred rupees.
A fair reading of the aforesaid provision makes it clear that a suit can be filed in the Original Side of the Madras High Court if the cause of
action arises wholly within the jurisdiction of Madras High Court or if the defendant is a resident within the territorial jurisdiction of the Madras
High Court in its Original Side at the time of institution of the suit and in cases where the cause of action has arisen partly within the jurisdiction of
Madras High Court, such a suit can be filed only after obtaining leave as contemplated under Clause 12.
From the Memorandum of Appeal, particularly relating to valuation of the appeal, as already noticed, it is apparent that the appellant has filed
this appeal not against the entire decree but against a part of the decree challenging the judgment and decree so far as it relates to rate of interest
and to rejection of the contention of the defendant regarding the manner of apportionment of Rs. 70 lakhs paid by the defendant. In other words,
the defendant does not challenge the liability to pay the principal amount but the only contention is to the effect that the plaintiff should not have
adjusted any part of the amount repaid by the defendant towards interest component on the principal sum, but should have adjusted the entire
amount paid towards the outstanding principal amount, i.e. the amount deposited by the plaintiff and the interest as calculated as per the agreement
for the period in question, i.e., for a period of 91 or 92 days as the case-may be. As a matter of fact, the appeal has been valued on the aforesaid
basis and not against the entire decree.
Once this position is not disputed, the question of jurisdiction, however attractive it may prima facie appear to be, recedes into background. If the
contention of the appellant regarding lack of jurisdiction is to be accepted and it is to be held that the Madras High Court in its Original Side lacked
jurisdiction to deal with the suit in the absence of any leave as contemplated under Clause 12 of the Letters Patent, the resultant conclusion is likely
to give rise to two inconsistent decisions. The major portion of the liability is not in dispute. If the jurisdiction question is to be accepted, the entire
suit ought to be dismissed, but unfortunately the defendant/appellant cannot pray for dismissal of the entire suit as he had consciously and
deliberately valued the Memorandum of Appeal at a much lower figure by apparently challenging a part of the judgment and decree only i.e., in
respect of interest portion and disallowed portion of Rs. 70 lakhs.
The trial court has negatived the plea relating to lack of jurisdiction apparently on the finding that the entire cause of action arose within the
jurisdiction of Madras High Court. If the contention of the appellant would be accepted now, it would give rise to two inconsistent decisions. So
far as principal amount (subject to the question of adjustment of amount already paid) is concerned, it will be taken as if the court had jurisdiction,
whereas, so far as other contentions are concerned, such as grant of interest at a higher rate and the adjustment of amount paid first towards
principal would give rise to another inconsistent finding to the effect that the Madras High Court did not have jurisdiction to deal with the suit in the
absence of any leave as contemplated under Clause 12 of the Letters Patent. Obviously the Court cannot countenance such a contention which,
would give rise to two inconsistent conclusions. Therefore, the contention of the appellant, so far as jurisdiction is concerned, is bound to be
rejected. The C.M.P. Nos. 14064 of 1999 and 19953 of 2003 are therefore dismissed.
The second question relates to question of payment of interest and appropriation of the amounts repaid by defendants, first towards the interest
and then towards the principal. So far as the conclusion of the trial court regarding appropriation of the amount paid by the defendant is concerned,
we do not think any illegality has been committed by the trial court in its reasoned order. In the absence of specific contract agreed to by both the
sides, the creditor had the discretion to appropriate the repayment first towards interest and thereafter towards principal. This part of the
contention is therefore not acceptable.
The main contention of the appellant relates to pre-decree, pendente lite and post-decree interest calculated by the trial court. So far as the
pre-decree interest is concerned, it is submitted by the learned Senior Counsel appearing for the appellant that even though the defendant is liable
to pay the amount as per the original agreement, after the expiry of such period of 91 days, there is no right with the plaintiff to claim interest at the
exorbitant rate at 24% or 21% as the case may be. It is therefore submitted by him that, as per the agreement, the amount had been invested with
the defendant so as to give a product equivalent to 21% or 24% at the end of the agreed period, i.e., at the end, of 91 or 92 days and to that
extent the defendant is bound to pay the amount to the plaintiff. However, so far as the subsequent period is concerned, --i.e., after expiry of 91
days till filing of the suit, the plaintiff cannot claim interest at the exorbitant rate of 24% or 21%, as the case may be.
The question of payment of interest for the period prior to filing of the suit is governed by the provisions contained in the Interest Act, 1978,
whereas the question of pendente lite and post-decree interest is covered u/s 34 of C.P.C.
Section 3 of the Interest Act is extracted hereunder:
Power of court to allow interest.-
(1) In any proceedings for the recovery of any debt or damages or in any proceedings in which a claim for interest in respect of any debt or
damages already paid is made, the court may, if it thinks fit, allow interest to the person entitled to the debt or damages or to the person making
such claim, as the case may be, at a rate not exceeding the current rate of interest, for the whole or part of the following period, that is to say,-
(a) if the proceedings relate to a debt payable by virtue of a written instrument at a certain time, then, from the date when the debt is payable to the
date of institution of the proceedings;
(b) if the proceedings do not relate to any such debt, then, from the date mentioned in this regard in a written notice given by the person entitled or
the person making the claim to the person liable that interest will be claimed, to the date of institution of the proceedings:
Provided that where the amount of the debt or damages has been repaid before the institution of the proceedings interest shall not be allowed
under this section for the period, after such repayment.
(2) Where, in any such proceedings as are mentioned in Sub-section (1) , -
(a) judgment, order or award is given for a sum which, apart from interest on damages, exceeds four thousand rupees, and
(b) the sum represents or includes damages in respect of personal injuries to the plaintiff or any other person, or in respect of a person''s death,
then, the power conferred by that Sub-section shall be exercised so as to include in that sum interest on those damages or on such part of them as
the court considers appropriate for the whole or part of the period from the date mentioned in the notice to the date of institution of the
proceedings, unless the court is satisfied that there are special reasons why no interest should be given in inspect of those damages.
(3) Nothing in this section, -
(a) shall apply in relation to-
(i) any debt or damages upon which interest is payable as of right, by virtue of any agreement; or
(ii) any debt or damages upon which payment of interest is barred, by virtue of an express agreement;
(b) shall affect-
(i) the compensation recoverable for the dishonour of a bill of exchange, promissory note or cheque, as defined in the Negotiable Instruments Act,
1881 (26 of 1881); or
(ii) the provisions of Rule 2 of Order II of the First Schedule to the Code of Civil Procedure, 1908 (5 of 1908);
(c) shall empower the court to award interest upon interest.
The relevant provision of Section 3 of the Interest Act is to the effect that in any proceedings for the recovery of any debt, a claim for interest
in respect of such debt is made, the court, if it thinks fit, allow interest to the person entitled to the debt at a rate not exceeding the current rate of
interest, for the whole or part of the period specified in Clause (a) or Clause (b). As per Clause (a), if the proceedings relate to a debt payable by
virtue of a written instrument at a certain time, the interest is payable from the date when the debt became payable to the date of institution of the
proceedings and under Clause (b) if the proceedings do not relate to any debt covered by such written instrument, from the date indicated in the
written notice to the date of filing of the proceedings. As per the proviso to Section 3, where the amount of the debt is repaid before the institution
of the proceedings, interest shall not be allowed for the period after such repayment. u/s 3(3), however, it has been made clear that the provisions
contained in Section 3 shall not apply in relation to any debt upon which interest is payable as of right by virtue of any agreement or any debt upon
which payment of interest is barred by virtue of an express agreement. Section 3(c), proscribes the court from awarding interest upon interest.
As per Section 2(b), ""current rate of interest"" means the highest of the maximum rates at which-interest may be paid on different classes of
deposits (other than those maintained in savings account or those maintained by charitable or religious institutions) by different classes of scheduled
banks in accordance with the directions given or issued to banking companies generally by the Reserve Bank of India under the Banking
Regulation Act, 1949 (10 of 1949).
As per Section 2(c) ""debt"""" means by liability for an ascertained sum of money and includes a debt payable in kind, but does not include a
judgment debt.
Judged in the light of the aforesaid provisions, it is evident that in the present case the amount repayable by the defendant at the end of the
stipulated period indicated in the agreement is obviously a debt and such amount was payable by virtue of a written instrument at a particular time,
i.e., at the end of 91st or 92nd day, as the case may be. Therefore, the principal amount is the amount payable by the plaintiff plus the amount
payable by the defendant at the end of the stipulated period so as to give a return of 21% or 24% as the case may be. This amount is the debt
payable. Such amount is obviously payable on the expiry of the period of the agreement, i.e., expiry of 91st or 92nd day, as the case may be.
The crucial question, however, is at what rate such pre-decree interest is to be calculated? As per Section 3(1) of the Interest Act, the Court
may allow interest or may not allow interest. To that extent, it comes within the discretion of the court. However, such discretion cannot be
arbitrary. The rate of interest allowable by the court is also to some extent discretionary, but such rate should not exceed the current rate of
interest. As already noticed, the current rate of interest means the highest of the maximum rate paid on different classes of deposits other than those
maintained in the savings account or those maintained by charitable or religious institutions, the interest payable by scheduled banks on the deposit
and not on any lending transaction. However, Section 3(3) makes it clear that such provision relating to payment of interest as contemplated in
Section 3(1) - [we are not concerned with Section 3(2)] - shall not apply in relation to any debt upon which interest is payable as of right by virtue
of any agreement. Section 3(3)(a)(ii) excludes the applicability of Section 3(1) to any debt upon which payment of interest is barred by virtue of an
express agreement. Since Section 3(3)(a) (if) refers to ""express agreement"" and Section 3(3)(a)(i) refers merely to ""any agreement"", it is obvious
that Section 3(3)(a) is applicable even to implied agreement. If it is found that there has been any agreement, whether expressed or implied,
regarding payability of interest and the rate of interest, obviously such agreement would hold the field and the provisions contained in Section 3(1)
would be of no consequence.
In the present case, two deposit agreements in question indicate that at the end of the period of the deposit, the defendant is required to give
return at the rate of 21% or 24% as the case may be. There is, however, no stipulation that if the defendant failed to pay such amount along with
the return as per the agreement, such amount shall carry any further interest at any particular rate. It cannot be also spelt out that there is any
implied agreement to pay interest at a particular rate. Thus, in our opinion, the question of pre-decree interest is to be considered keeping in view
Section 3(1) of the Interest Act.
C.M.P. No. 10451 of 2005 in O.S.A. No. 146 of 1999 has been filed to substantiate the plea that the rate of interest claimed at 24% and
21% should be restricted only to the period of 90 days and cannot be extended beyond the period. In this regard, the appellant/petitioner wanted
to submit several documents to show that the appellant had settled similar claims on maturity of ICDs in respect of Nuclear Power Corporation of
India, HUDCO and National Thermal Power Corporation Ltd., whereunder the contract rate was paid only upto the period of contract and not
beyond. It is further contended that between the period 1995 and 2002, the Bank rate fluctuated between 9% and 12% and on this plea, counsel
would submit that these settlements which had been arrived after the decree in the present suit, should be considered as a guiding factor for arriving
at a reasonable rate of interest.
In this case, the learned Senior Counsel appearing for the appellant placed before us a chart reflecting the rate of interest applicable to the
deposits in the scheduled banks during the relevant period. This chart is not disputed by the other side. The chart indicates that the rates varied
from time to time. Instead of making a cumbersome calculation of interest payable during different period, we feel interest of justice would be
served by directing that the amount payable at the end of the stipulated period of 91 or 92 days has to carry interest at a flat rate of 12% from the
date of such stipulated period till the date of institution of the suit. In the above connection, we are not accepting the submission made by the
appellant that by virtue of the scam relating to securities and the Ordinance issued by the Central Government, there was frustration of the contract
as contemplated u/s 56 of the Contract Act as all such events are post the IC Deposits which deposits matured long before. However, the
contention of the appellant is to be accepted and the calculation of interest on the principal amount payable i.e., the amount deposited along with
the product for 91 days at the rate of 21% or 24% as the case may be, is the principal amount on which further interest is to be calculated at the
rate of 12%. In this connection, we also make it clear that the amount which was payable to the plaintiff after the expiry of 91 days cannot be
strictly construed as interest a debt in terms of Section 2(c) of the Interest Act on the amount deposited by the plaintiff and therefore the direction
to pay interest on this debt should not be construed as award of interest upon interest as contemplated u/s 3(3)(c) of the Interest Act.
The next question is relating to pendente lite and post-decree interest. Such question has to be answered keeping in view Section 34 C.P.C.,
which is extracted hereunder:
Interest.- (1) Where and in so far 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 per cent 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 nationalised banks in relation to commercial transactions.
Explanation 1: In this sub-section, ""nationalised bank"" means a corresponding new bank as defined in the Banking Companies (Acquisition and
Transfer of Undertakings) Act, 1940 (5 of 1970)
Explanation 2: For the purpose of this section, a transaction is a commercial transaction, if it is connected with the industry, trade or business of the
party incurring the liability.
(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.
A perusal of the aforesaid provision makes it clear that in addition to any interest adjudged on the principal sum for any period prior to
institution of the suit, the court may award interest on such principal amount from the date of the suit till the date of the decree. The rate of
pendente lite interest is within the discretion of the court as evident from the expression ""interest at such rate as the Court deems reasonable"". Even
though the post-decree interest has been pegged at 6% per annum at the maximum, the proviso to Section 34, however, makes it clear that where
the sum adjudged arises out of a commercial transaction, the rate of future interest may exceed 6%, but shall not exceed, the contractual rate of
interest or where there is no contractual rate, the rate at which money was lent or advanced by nationalised banks in relation to commercial
transactions. In the present case, the trial court decreed pendente lite and future interest at the same rate, i.e., at the rate of 21% and 24% in the
respective two IC Deposits.
Keeping in view the peculiar facts and circumstances of the case, we do not think that the direction for payment of pendente lite and future,
interest at the rate of 21% & 24% can be said to be sound exercise of jurisdiction. Even though the security scam and passing of the Special
Courts (Trial of offences relating to Transactions in Securities) Act did not have the effect of frustrating the. contract, it is obvious that the
defendant''s investment in M/s. Fair Growth Financial Services Limited, which had come within the scanner of the Special Court, had the
unfortunate result of freezing the liquidity of different investments made by the defendant Bank and willy-nilly the defendant was unable to pay
different amounts to different organisations. The defendants were also aware of such situation.
Having regard to all these aspects, we feel pendente lite interest also should be calculated at the rate of 12% on the principal sum adjudged. So
far as future interest is concerned, the transaction can be considered to be a commercial transaction and, therefore, future interest need not be
pegged at 6%. In the interest of justice, we feel that future interest also should be pegged at 12%.
For the aforesaid reasons, we allow in part the appeal on the following terms:
(a) The direction of the trial court that the defendant is liable to pay to the plaintiff the interest at the rate of 21% or 24%, as the case may be, on
the amounts deposited by the plaintiff as inter corporate deposits for the period stipulated in the agreements, is confirmed.
(b) The conclusion of the trial court that the plaintiff was within its right to adjust the payment made by the defendant, first towards interest and
balance towards principal, is confirmed.
(c) On the basis of the aforesaid calculation, principal sum is to be ascertained and the direction of the trial court on this aspect is also confirmed.
(d) On such principal amount adjudged, the plaintiff is entitled to receive interest at the rate of 12% as pre-decree interest, pendente lite interest as
well as future interest.
(e) Since success in this appeal is divided, it is directed that the parties shall bear their own costs so far as this appeal is concerned.
With the above directions, the appeal is allowed in part. Consequently, C.M.P. No. 10451 of 2005 is closed.