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Judgment
Anand Byrareddy, J.—Heard the learned counsel for the appellants and the learned counsel for the respondent.
The appellants were the defendants before the trial Court in a suit for recovery of money. The plaintiff-respondent was the LIC of India, Bangalore and was before the Court seeking recovery of money of Rs. 3,89,201/- together with costs and compound interest from the date of suit to the date of realization at the agreed rate of 18% namely 15.5.% regular interest with effect from 1.10.1991 plus 2.5% additional interest and for sale of suit schedule mortgaged property for realization of the decretal amount and for a personal decree against the defendants.
It transpires that the defendants had borrowed a loan of Rs. 2,50,000/- from the plaintiff towards construction of their residential house at No. 14, Kempanna Layout, I Main Road, Palace Guttahalli, Bangalore. Under loan offer-cum-agreement letter dated 18.9.1991 which prescribed the terms and conditions, a loan was extended in a sum of Rs. 1,50,000/- to the defendants towards the first installment out of the sanctioned loan on 6.12.1991, which was duly acknowledged under a receipt dated 6.12.1991. The defendants have also executed a promissory note in respect of the said debt in favour of the plaintiff of the said sum of Rs. 1,50,000/-. The property which was under construction was also mortgaged as security for the due repayment of the loan. A second installment of Rs. 70,000/- was released on 8.4.1992 and the defendants had similarly executed the promissory note and receipt in respect of the same. The amount was to be repaid within a period of 15 years in 30 equal half yearly installments commencing from the date of disbursement of the first installment.
It is alleged that the defendants have failed to clear the loan as agreed and committed default in payment from 6.6.1992. Plaintiff frequently made demands by letters dated 28.7.1992, 12.11.1992 and further registered letters dated 8.10.1993 and 19.7.1995 and on default on the part of the defendants had issued a formal legal notice in the year 1995 and thereafter had preferred the suit claiming total sum of Rs. 3,89,201/- as being due from the defendants.
Defendants had entered appearance and had filed written statement to state that they had availed loan of Rs. 2,20,000/- repayable with interest @ 15.5% per annum and that they have paid the following amounts towards the principle and interest in a sum of Rs. 70,000/- on 12.10.1995, Rs. 1,00,000/- on 22.11.2000 and Rs. 50,000/- on 27.11.2000, totally Rs. 2,70,000/- and therefore, claimed that the calculations put forward by the plaintiff in the suit claim was incorrect and exaggerated. It is stated that the default in repayment of the loan was on account of acute financial crisis which the defendants underwent. Therefore, were pleading with the plaintiff to charge simple interest on the loan amount and also modify the installments payable in order to enable them to repay the loan. However, plaintiff was not inclined to consider any such concession and therefore the suit.
On the pleadings of the parties, the Court below had framed the following issues:
(1) Whether the defendants prove that the calculations made by the plaintiff are misconceived and wrong and against the terms and conditions of the loan amount?
(2) Whether the plaintiff is entitled to recover the interest at the rate claimed?
(3) Whether plaintiff is entitled to recover the suit claim?
(4) Whether the defendants are entitled for easy installments as prayed?
and had answered issue Nos. 1 and 2 in the affirmative and held that the plaintiff was entitled to recover the amount due, with future interest @ 12% per annum from 10.11.2007 till realization of the entire decretal amount in answering issue No. 3 and answered issue No. 4 in the negative and decreed the suit. It is that which is under challenge in the present appeal.
The learned counsel for the appellants would seek to point out that apart from Rs. 2,70,000/- that was paid as on the date of filing the written statement, the appellants have further paid a sum of Rs. 5,00,000/- on 16.6.2008 immediately after the judgment and decree of the trial Court, which if taken into account would drastically reduce the burden of the appellants which would have to be taken into consideration. Further, learned counsel would place reliance on a constitution bench judgment of the Supreme Court in the case of Central Bank of India Vs. Ravindra and Others, AIR 2001 SC 3095 : (2001) 107 CompCas 416 : (2001) 9 JT 101 : (2001) 7 SCALE 351 : (2002) 1 SCC 367 : (2001) AIRSCW 4468 : (2001) 7 Supreme 764 wherein the Apex Court has held that award of interest pendente lite and post-decree is at the discretion of the Court, as it is essentially governed by Section 34 CPC de hors the contract between the parties. In a given case if the Court finds that the principal sum adjudged 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 and fanciful manner. Hence, the learned counsel would plead that the said procedure be applied in considering the exorbitant interest that is claimed by the plaintiff.
In seeking to compound the interest on the amount that is due and also what is charged as additional interest is penal interest, it is again referred to in the Apex Court decision, wherein it is said that though interest can be capitalized on the analogy that the interest falling due on the accrued date and remaining unpaid, partakes the character of an amount advanced on that date, yet penal interest, which is charged by way of penalty for non-payment, cannot be capitalized. Further, interest i.e., interest on interest, whether simple, compound or penal, cannot be claimed on the amount of penal interest. Penal interest cannot be capitalized. It will be opposed to public policy. Therefore, it is contended that the decree would have to be modified substantially in so far as imposition of varying rates of interest as reflected in the judgment and decree is concerned.
It is on this aspect that there were lengthy arguments by the counsel for the parties while the learned counsel for the plaintiff insisting that the plaintiff being a Government of India Undertaking is bound by its policy and is acting strictly on the terms and conditions of the contract and therefore, there is no illegality in the claim made by the plaintiff. This, however, would have to be read in the light of the observations made by the Apex Court. Therefore, award of interest is clearly within the discretion of this Court, notwithstanding the contract between the parties. Having regard to the fact that substantial amounts have been repaid by the appellants, it would necessarily require this Court to exercise its discretion in so far as modifying the decree as far as it requires the appellants to pay interest on the amount that is found due. The Court below has held that the agreed rate of interest was 15% per annum compounded half yearly at half yearly rests from the respective dates of disbursement till the loan has become due on the loan amount and at the rate of 17.5% per annum till 9.11.2007. After affording deductions for the payment made by the defendants in a total sum of Rs. 2,70,000/- and future interest @ 12% on the sum found due as per memo of calculations to be filed by the plaintiff as per clause No. 1 and granted six months time for the defendants to pay decretal amount, which is hereby modified since this Court find that the interest levied is exorbitant and also sought to be compounded at half yearly rests, which the Supreme Court held would not be permissible as it would be disproportionate with the component of the principal sum actually disbursed. Consequently, the defendants-appellants will pay interest @ 15% from the date of first installment i.e., 6.12.1991 till the date of suit and 12% per annum simple interest from the date of suit till the date of payment of Rs. 5,00,000/- and on the remaining outstanding amount @ 12% from the date of payment of Rs. 5,00,000/- till date of payment.
The appellants are granted four weeks time from the date of receipt of this judgment to pay the entire amount in one lumpsum, failing which, the rate of interest would be as applicable under the contract between the parties. The decree in so far as it pertains to cost payable by the appellants stands undisturbed.
Appeal stands disposed of accordingly.