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Judgment
S. Palanivelu, J.—This appeal has been preferred against the judgment and decree dated 13.11.2002 made in O.S. No. 8709 of 1998 on
the file of the VII Additional City Civil Judge, Chennai, insofar as it relates to the grant of interest at the rate of 15.5% p.a throughout and modify
the same by awarding interest at the rate of 6% p.a. from the date of plaint till the date of recovery and allow this first appeal accordingly.
The following are the averments in the amended plaint succinctly stated:
2.1. On 22.11.1995, the first Defendant availed a loan to the tune of Rs. 5,00,000/- towards housing loan for purchasing HIA A type flat at Plot
No. 431B, Flat G 5, Second Floor K-116, New Lotus Colony, Anna Nager East, Chennai-600 102 from the Plaintiff bank and the second
Defendant, namely, the Tamil Nadu Housing Board had allotted the house under G.O. Ms. No. 2D No. 478 dated 30.08.1995 in the name of the
Defendant. The first Defendant accepted the offer of loan agreeing to deposit the title deeds relating to his property more fully described in the
schedule as collateral security for the due repayment of the loan as per the terms and conditions prescribed in the letter of sanction dated
22.11.1995.
(ii) The Defendant has executed a promissory note in favour of the Plaintiff for the loan amount and promised to repay the loan with interest at
15.5 per cent per annum with half yearly interest, besides executing a letter of acceptance on 22.11.1995. The first Defendant executed a loan
agreement on 22.11.1995 in favour of the Plaintiff agreeing the principal sum 5,00,000/- of loan, interest and other charges and dues under this
agreement shall be secured by mortgage of the property purchased under the housing loan. The repayment of loan is to commence from
22.11.1995 and agreed to repay the loan in 144 equal monthly installments at the rate of Rs. 7,750/- per month. The allotment order and no
objection certificate has been deposited with the Plaintiff. In view of the deposit of title deeds of the properly on 24.11.1995, the Defendant
created a mortgage of the property described in the schedule as security for due repayment of the loan on terms and conditions thereof. Thus, the
Plaintiff is the mortgagee and the first Defendant is the morgager of the mortgaged property.
(iii) While the matter stood thus, the Defendant committed default since 1996 in due repayment of the instalments. Due to non-repayment of
loan, the Plaintiff issued a lawyer notice on 21.08.1998 calling upon him to repay the loan amount, but the effort of the Plaintiff went in vain. Hence,
the suit is laid for the following reliefs:
a) directing the first Defendant to pay a sum of Rs. 5,87,206/- towards the principal and interest as on date of plaint together with further interest at
15.5 per cent per annum with half yearly interest with the principal till date of payment together with additional interest of 2 per cent towards delay
in payment of monthly dues, failing which
b) a decree for sale of property described in the schedule hereunder and directing the sale proceeds to be applied for payment of the Plaintiff on
such date of sale
c) In case of the proceeds of sale are found to be insufficient to pay the amount due, to the Plaintiff, then the liberty be served to the Plaintiff to
apply for an order to recover the balance personally from the first Defendant.
The written statement filed by the first Defendant contains the allegations as follows:
3.1. The first Defendant has purchased the property in question by availing housing loan from the Plaintiff Bank. He had paid equal monthly
installments starting from December 1995 upto March 1998. Due to the attitude of the Managing Director of the Plaintiff bank, he stopped making
further payments.
3.2. The prayer for decree for sale of property is not maintainable in law. Further, personal recovery from the first Defendant by the Plaintiff is also
not permissible in law. As per the Supreme Court decision, the Plaintiff bank is entitled to claim interest at the rate of interest 6% and not more
than that. Therefore, the suit is without merit and is liable to be dismissed with costs.
In the written statement filed by the second Defendant, the contentions are as follows:
4.1. The suit is not maintainable in law since no notice is served as contemplated u/s 138 of the Tamil Nadu Housing Board Act 1961. The second
Defendant need not be in the proceedings since the transaction came between the Plaintiff and the allotted.
After analysing the pleadings and evidence on record, the learned VII Additional Judge, City Civil Court, Chennai has passed preliminary
decree for Rs. 4,97,206/- along with interest at the rate of 15.5 per annum granting three months time. There was no order as to costs. Aggrieved
against the rate of interest, the first Defendant is before this Court in this appeal.
a. The following point has arisen for consideration in this appeal what is the rate of interest payable by the Appellant from the date of filing of the
suit till the date of realisation?
Point:
The case has been laid on the basis of equitable mortgage dated 22.11.1995 executed by the Appellant in favour of the first Respondent on the
advancement of loan of Rs. 5,00,000/-. As far as the liability of the Appellant to pay principal is concerned, there is not much dispute. This Court
passed a common order in C.M.P. Nos. 18699 and 18700 of 2005, on 15.12.2005, directing the Appellant to deposit a sum of Rs. 5,00,000/-
to the credit of the case before the trial Court before 31.12.2005. Accordingly, he deposited Rs. 5,00,000/- on 27.12.2005, as evident from the
photocopy of the receipt issued by the trial Court on 27.12.2005. A memo of compliance was also filed by the Appellant and a copy of which was
also served upon the learned Counsel for the Respondent on 02.01.2006. The remaining dispute is only with regard to the rate of interest payable
by the Appellant.
In N.M. Veerappa Vs. Canara Bank and Others, , while dealing with Sections 34 and Order 34, Rule 11 of CPC and Sections 21-A and 35 of
Banking Regulation Act, 1949, the Supreme Court has held that as far as the suit on mortgage filed by Bank is concerned, the direction for
payment of interest during of such suit is within the discretionary power of the Court and the Court would determine the rate of interest and
provision of Section 21-A of Banking Regulation Act 1949 does not come to the aid of Banks vis-a-vis Order 34, Rule 11 of the Code of Civil
Procedure.
The Supreme Court after elaborately dealing with the above case referring to the decisions of the Federal Court, the Supreme Court and
Karnataka High Court had held as follows:
From the aforesaid rulings the following principles can be summarised, (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 as
per 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 that ""the Court may order payment of interest"" it
is no longer obligatory on the part of the Court while passing 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 AIR 1940 20 (Federal Court) by the Privy Council
and by this Court in Soli Pestonji Majoo and Others Vs. Gangadhar Khomka, that the new provision gives a certain amount of discretion to the
Court so far as pendent lite interest is concerned and subsequent interest is concerned, (c) It is no longer obligatory to award the contractual rate
after 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 discretion to fix interest from date of suit under Order 34, Rule 11(a)(i) up to
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 mortgagor is concerned, (e) The Court has also power to award from the 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%. 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 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.
To appreciate the facts of the case, a reference may also be made to the relevant provisions governing direction for payment of interest which
are as follows:
Order 34 Rule 11: In any decree passed in a suit for foreclosure, sale or redemption, where interest is legally recoverable, the Court may order
payment of interest to the mortgagee as follows, namely:
(a) interest up to the date on or before which payment of the amount found or declared due is under the preliminary decree to be made by the
mortgagor or other person redeeming the mortgage-
(i) on the principal amount found or declared due on the mortgage, - at the rate payable on the principal, or, where no such rate is fixed, at such
rate as the Court deems reasonable,
(ii) ***, and
(iii) on the amount adjudged due to the mortgagee for costs, charges and expenses properly incurred by the mortgagee in respect of the mortgage-
security up to the date of the preliminary decree and added to the mortgage-money, - at the rate agreed between the parties, or, failing such rate,
at such rate not exceeding 6 per cent per annum as the Court deems reasonable; and
(b) subsequent interest up to the date of realisation or actual payment on the aggregate of the principal sums specified in Clause (a) as calculated in
accordance with the clause at such rate as the Court deems reasonable.
9.1. It is useful to refer to the provision in Section 21-A of the Banking Regulation Act, 1949.
21-A. Rates of interest charged by banking companies not to be subjected to scrutiny by Courts.- Notwithstanding anything contained in the
Usurious Loans Act, 1918 or any other law relating to indebtedness in force in any State, a transaction between a banking company and its debtor
shall not be reopened by any Court on the ground that the rate of interest charged by the banking company in respect of such transaction is
excessive.
A Division Bench of this Court in its judgment reported in 2001 (1) CTC 662 : 2001 2 L.W. 165, (A.S. Ramakrishnan v. Bank of Baroda,
Madurai), has held, following the decision in N.M. Veerappa''s case (cited supra) that Order 34, Rule 11 CPC in suit on mortgages in respect of
interest for period after filing of the suit is not overridden by Banking Regulation Act and that the Court can direct payment of interest at 6% per
annum from the date of suit and not on contractual rate.
10.1. The operative of portion of the said judgment after discussion as to the earlier judgments of the Apex Court is as follows:
Though the decisions in A.K. Sarma and Another Vs. Union of India Another, and Corporation Bank Vs. D.S. Gowda and Another, support the
case of the Respondent bank, in view of the direct decision of the Supreme Court in N.M. Veerappa Vs. Canara Bank and Others, , wherein it
has been held that after the 1929 and 1956 amendments, the Court has discretion to fix pendent lite interest and subsequent interest under Order
34, Rule 11 Code of Civil Procedure. we are of the view that Order 34, Rule 11 CPC alone applies to the present suit which is based on
mortgage deed. Accordingly, we hold the Plaintiff Bank is entitled interest only at the rate of 6 per cent per annum from the date of suit till date of
payment. Consequently, the direction of the Court below granting 18 per cent interest from the date of suit till date of payment cannot be sustained.
In view of the above said illuminating judicial pronouncements, in the mortgage suits instituted by the banks, the Court can exercise its power to fix
the rate of interest as per its discretion under Order 34, Rule 11 Code of Civil Procedure.
As far as the present case is concerned, since it is not a Court does not commercial transaction, this find any legal embargo to fix the rate of
interest at 6% to be payable by the Appellant from the date of filing of the suit till the date of realisation.
The Appellant has filed a memo of calculation stating that on 18.11.2004 he has paid Rs. 50,000/-. But he has not stated in his evidence such
payment nor he had pleaded in his written statement. In such view of this matter, the appeal has to be allowed.
In fine, the appeal is allowed without costs. The interest at the rate of 6% shall be calculated for the principal from the date of filing of the suit
till the date of realisation. The payment of Rs. 5,00,000/- shall be given credit to by the first Respondent and the interest shall be calculated
adjusting the principal amount from 27.12.2005. Consequently, connected M.P. is closed.