Mahalaxmi Engineering Co., Karimanagar Dist. and another vs State Bank of India, Karimnagar

This appeal is field against the judgment and decree dated 7-12-1987 passed in OS No.20 of 1987 by the teamed District Judge at Karimnagar. The appellants are the defendants in the suit. The respondent-plaintiff filed the suit OS No.20 of 1987 for recovering a sum of Rs.1,60,332-60 Ps. with interest at the rate of 19.5% per annum from the date of filing of the suit till the date of realisation.

It is the case of the Bank that the appellants herein defendants in the suit were accommodated with a monetary adjustment of Rs.50,000/- to the credit of their current account and that the defendants failed to pay the amounts as per the terms of the contract entered into between the parties and therefore the suit was laid for recovery of the said sum together with interest.

The lower Court basing on the respective contentions and pleadings framed the following issues:

Whether the plaintiff has provided the over draft facility to the defendant and the latter has drawn the amount on 4-8-1980?

Whether the defendant has agreed to pay the interest as per bank rate?

Wheter any documents were executed by the defendant in favour of the plaintiff-Bank?

Whether the interest of 19% is permissible; and

To what relief?

The lower Court after considering the evidence on record found that the defendants are liable to pay a sum of Rs.1,60,332-60 Ps. Accordingly a decree was granted directing the defendants to pay the aforesaid amount together with contractual rate of interest at the rate of 19.5% per annum from the date of filing of the suit till the date of decree and future interest at the rate of 6% per annum from the date of decree till the date of realisation. Aggrieved by the said judgment and decree the defendants have filed this present appeal.

Learned Counsel for the appellants defendants only submits that the judgment and decree of the Court below to the extent directing the calculation of contractual rate of interest at 19.5% per annum from the date of accommodation that is 2-11-1979 till the date of decree is illegal and arbitrary when the suit was laid only on the basis of an entry made in the bank accounts of the appellants making a adjustment of Rs.50,000/- and that there is no such stipulation or any such documents between the parties agreeing to pay the contractual rate of interest charged by the Bank and that only a pro note was executed by the defendants agreeing to pay the amount with 2% interest over and above the RBI notified interest and therefore he submits that in the absence of any specific stipulation, it is not open for the respondent Bank to award the contractual rate of interest when the contract itself is not established, and therefore the judgment and decree under appeal is liable to be set aside. In support of this contention he relied on a judgment of the Supreme Court rendered in the case of State Bank of India, Bhubaneswar Vs. Ganjam District Tractor Owners'' Association and Others, . There is no dispute about the proposition laid down by the Supreme Court that in the absence of a provision in the contract stipulating the rate of interest between the parties, the contractual rate of interest is to liable to be paid by the borrower. But the question is what is the rate of interest that is liability to be paid by the defendants. Admittedly, no documents were filed before the Court to show that the defendants agreed to pay the interest at the rate of 19.5% per annum from 2-11-1979 till the date of filing of the suit and from the dale of filing of the suit till the date of judgments and decree. It is now settled by the Apex Court that it is always open for the Bank to award contractual rate of interest till the date of filing of the suit. But from the date of filing of the suit till the date of judgment and decree and from the date of judgment and decree till the date of realisation it is the discretion of the Court to decide the rate of interest. But in the instant case, the question is whether the rate of interest awarded by the Court below at 19.5% from 2-11-1979 is justified or not.

Learned Counsel appearing on behalf of the Bank submits that though there is no stipulation or document to establish that the defendants are liable to pay the interest at the rate of 19.5% per annum from 2-11-1979, under the terms of the pro note, the defendants have agreed to pay the amount at 2% per annum over and above the RBI notified interest, but the pro note was not made a basis for awarding the rate of interest at 19.5% per annum inasmuch as the suit was not laid on the basis of the pro note and therefore the judgment and decree under appeal cannot be said to be illegal and contrary to law.

I have given my anxious consideration to the respective contentions raised by the learned Counsel. I am not in a position to accept the contention raised by learned Counsel for the Rank. The contractual rate of interest is liable to be paid only if the contract is established. If the contract is not established, then it is the discretion of the Court to decide the rate of interest. Inasmuch as the suit is to based on the pro note which contains the rate of interest, the suit is based only on the basis of the entries made in the bank accounts of the defendants, the rate of interest as stipulated and agreed to between the parties in the pro note cannot be applied. Admittedly, the claim is made on the basis of a monetary accommodation made by the Bank which is reflected In the bankers books. In such situation, it would not be appropriate to award interest at the rate of 19.5% per annum from 2-11-1979. Thus, the judgment and decree of the lower Court in awarding interest at the rate of 19.5% per annum from 2-11-1979 till the date of judgment and decree is illegal and arbitrary. But instead of remanding the matter for consideration by the lower Court after a lapse of number of years, and as the issue is settled that the Courts are entitled to award interest by exercising power under Order 34, Rule 11 CPC, this Court is inclined to exercise the powers under Order 34, Rule 11 CPC regarding fixing the rate of interest from 2-11-1979 till the date of judgment and decree. This Court finds it fair and reasonable to fix interest @ 6% per annum from 2-11-1979 till the date of decree. Accordingly the judgment and decree of the lower Court is set aside as far as it relates to interest and the respondent Bank is entitled for interest at 6% per annum from 2-11-1979 till the date of decree.

The appeal is allowed to the extent indicated above and in other respects, the appeal stands dismissed. The amount already deposited by the appellants defendants to the extent of Rs.35,000/- may be taken note while calculating the decretal amount. No costs.