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Judgment
Both these appeals are filed by defendants against the preliminary decrees in pursuance of the mortgages in the suit filed by the respondent-Banks for recovery of certain amounts on the basis of mortgage towards the financial assistance given to the appellants herein.
There is not much dispute as to the main transactions as such. In AS No.250 of 1992, the loan was taken for the purpose of digging a bore well whereas in the other appeal i.e., AS No.1209 of 1986 the loan was taken for commercial purpose. The respondents'' claim has been substantiated by the documents produced in respect of the mortgage. The only controversy which is sought to be raised is against granting of interest both prior to the suit and subsequent to the filing of the suit.
Therefore, the question now falls for consideration is whether in respect of the mortgage transactions between the plaintiffs and the defendants, the Bank is entitled to the contract rate or any other benefit can be conferred to the defendant prior to and subsequent to filing of the suit.
As regards the first aspect, it is no longer res-integra. I have already held in Union Bank of India and Others Vs. G. Shiva Reddy and Others, , that in view of amending Section 21-A of the Banking Regulation Act, 1949, the provisions of Usurious Loans Act, 1918 or the Act No.4 of 1938 have no application to the banking transactions and the interest charged in pursuance of the said transactions is valid. Further, in respect of agricultural transactions, interest has to be calculated on the yearly rests and not with quarterly or half-yearly rests. However, as regards the commercial transactions are concerned, the Bank is entitled to charge the interest with quarterly or any other longer rests as per the contract.
In view of the same it has to be held that prior to the tiling of the suit the Bank is entitled to the interest as per the contract. But, in the first case i.e., AS No.250 of 1992, the loan having been advanced for the purpose of digging bore well i.e., for agricultural purpose, the interest has to be only on yearly rests, but not as per the half-yearly or quarterly rests, as agreed to under the contract. In the other case, i.e., AS No.1209 of 1986 the transaction being one for commercial purpose, the claim of the Bank on the basis of the contract is valid.
Now coming to the question as to whether the Court can grant any lesser interest subsequent to filing of the suit u/s 34 of the Code of Civil Procedure. This aspect has come up for consideration before the Supreme Court in N.M. Veerappa Vs. Canara Bank and Others, , wherein the Supreme Court on considering the said provisions vis-a-vis Order 34, Rule 11 CPC, held that the amending provision u/s 21-A of the Banking Regulation Act has not taken away the power of Court, but the Court can exercise discretion and grant any lesser interest. It was also held that the expression used u/s 21-A only applies to the law relating to indebtedness in force and does not take away the discretionary power u/s 34 read with Order 34, Rule 11 CPC. In that case the trial Court granted 6% interest subsequent to the filing of the suit and it was held that the discretion exercised by the trial Court cannot be interfered with.
A similar question has again come up for consideration in State Bank of India Vs. Yasangi Venkateswara Rao, , wherein it was held by the Supreme Court that entering into agreement is a matter of contract between the parties and if the parties agree that in respect of the amount advanced against a mortgage, compound interest will be paid, the Court cannot interfere and reduce tile amount of interest agreed to be paid on the loan so taken. Though the provisions of Section 34 or Order 34 read with Rule 11 CPC have not come up directly for consideration, but placing reliance on Section 21-A of the Banking Regulation Act, the preliminary decree passed by the lower Court on the basis of the contract was held to be correct.
In AS No. 1324 of 1992, a Division Bench of this Court in Namburi Appala Raju and another v. State Bank of India, has reiterated the principles in the decision of the Supreme Court in Corporation Bank Vs. D.S. Gowda and Another, , which has already been relied upon in my judgment Union Bank of India''s ease cited (supra).
In these two cases, there is no evidence or material to show social circumstances to warrant any such indulgence being shown to the appellants herein. Neither there is any specific plea, nor any foundation is laid for awarding the lesser interest. Therefore, I hold that the discretion exercised by the Court below in granting the interest at the contract rate pending the suit is valid.
The appeal in AS No.250 of 1992 is allowed partly only to the extent of interest which shall be calculated on the yearly rest and there shall be a decree accordingly. The appeal in AS No.1209 of 1986 is dismissed. However, in the circumstances, there shall be no order as to costs in both the appeals.