Naresh Kumar Aggarwal vs State Bank Of Patiala

S.N.H. Zaidi, J

This appeal has been remanded back to this Tribunal by the Hon'ble Delhi High Court, vide order dated 12.1.2012 passed in W.P.(C) No. 6729/2010, for examination as to how the rate of interest is established from the documents and also for considering the plea of the petitioner of reduced rate of pendente lite and future interest, especially in view of the deposits made by them. The circumstances of the case indicate that respondent Nos. 2 and 3 had availed certain credit facilities from the respondent No. 1 Bank to which Joti Parshad Aggarwal and Naresh Kumar Aggarwal had stood sureties and Om Prakash Aggarwal, through his attorney Naresh Aggarwal, and Joti Parshad, mortgaged their property as collateral security. When the borrowers failed to repay the loan the respondent Bank filed suit No. 2061/1993 before the Delhi High Court against the borrowers, guarantors and mortgagors for the recovery of Rs. 35,54,814.27 together with cost and pendente lite and future interest at the contractual rate of 23.75% p.a. with quarterly rests. However, on coming into force of the Recovery of Debts Due to Banks and Financial Institutions Act, 1993 (for short, the RDDBFI Act) the case was transferred to the DRT, Delhi where it was registered as O.A. No. 191/1995. As the defendants did not appear before the DRT despite service of notice, the OA proceeded ex parte against them and allowed as such for the recovery of the claimed amount with interest pendente lite and future @ 23.75% from the date of suit till its realization, vide order dated 11.3.1997.

Mr. Naresh Kumar Aggarwal, the defendant No. 4 and one of the guarantors, filed application for setting aside the ex parte order dated 11.3.1997 under Order 9 Rule 13 CPC before the DRT, but the application was dismissed, vide order dated 18.1.1999. The said order along with ex parte order dated 11.3.1997 was assailed by him before the Delhi High Court by way of a writ petition [W.P.(C) No. 2181/1999]. During the pendency of that writ petition, the petitioner deposited a sum of Rs. 10 lacs as per the direction of the Hon'ble Court. The said writ petition was disposed of on 15.2.2000 with the direction to the petitioner to file appeal before the DRAT, which was filed by him before the DRAT, Mumbai on 13.3.2000, wherefrom it was transferred to this Tribunal on 20.6.2000. The appeal was, however, dismissed by this Tribunal on 23.2.2001 for failure of pre-deposit of the amount under Section 21 of the RDDBFI Act as well as for default.

On 15.5.2007, Mr. Raj Kumar Aggarwal, the son of appellant Naresh Kumar Aggarwal, filed applications for his substitution in place of his deceased father for restoration of the appeal as well as for condonation of delay. He was initially substituted in place of the deceased appellant but later Smt. Nirmala, the widow of the appellant, was also substituted. Those applications were allowed and the appeal was restored on deposit of Rs. 15 lacs with the Bank, vide order dated 31.3.2010, which was duly deposited with the respondent Bank. Thereafter, the appellants were directed, by order dated 19.4.2010, to deposit a further sum of Rs. 15 lacs, which was also deposited by them. The appeal was, however, dismissed by this Tribunal, vide order dated 14.9.2010.

Feeling aggrieved, Mr. Raj Kumar Aggarwal assailed the above order before the Delhi High Court through W.P.(C) No. 6729/2010 and the Hon'ble Court while observing that (i) endeavour was made by the petitioner to settle the matter by submitting a proposal of Rs. 55 lacs to the Bank and by making payments of Rs. 30 lacs from time to time to it, which was recommended by the branch of the Bank but was turned down by its Head Office, (ii) the Counsel for the petitioner had submitted that neither the DRT nor the DRAT had examined the merit of the Bank's claim and the only controversy he sought to urge was the rate of interest which was not established as per the documents placed on record by the respondent Bank, (iii) the controversy qua the rate of interest is required to be examined by some forum by looking into the documents and to examine as to how the rate of interest is established as per those documents and also the plea of the petitioner of reduced rate of pendente lite and future interest especially in view of the deposits made by the petitioner is required to be considered, remanded the appeal back to this Tribunal for examination and consideration of the limited aspect of the matter, as aforesaid.

I have heard Mr. K. Kumar, the learned Counsel appearing for the appellant and Mr. Bharat Arora, the learned Counsel for the respondent Bank and perused the record, including that of the Tribunal below.

So far as the controversy qua the rate of interest is concerned, it is to be seen as to what is the case of the respondent Bank in this regard? In Paragraph 5 of the plaint/O.A. it has been averred that one of the material terms of the sanction of the credit facilities was that the borrowers would pay interest as chargeable according to the rate prescribed from time-to-time and the Bank's practice, but since the Packing Credit Limit (PCL) was to be adjusted within the prescribed period, therefore, the rate of interest was chargeable as an export finance but, in default, the interest was chargeable at the Bank's usual rate. In Paragraph 6(a), it has been said that Demand Promissory (D.P.) Note dated 3.9.1990 for Rs. 15 lacs was executed by defendant No. 2 for and on behalf of defendant No. 1 in favour of defendant Nos. 3 and 4, who had endorsed the same in favour of the Bank and all these defendants had agreed to repay the loan amount along with interest @ 7.5% per annum with quarterly rests, as per the SBI Advance Rate prescribed from time-to-time. It has also been said that the said rate of interest was chargeable if the loan would be adjusted within 180 days, otherwise, the rate of chargeable interest would be usual which in this case was 23.75% per annum with agreed quarterly rests. In Paragraph 11 of the plaint the Bank has stated, as under:

That it was agreed that the rate of interest will be chargeable at the agreed rate of 7.50 % per annum with quarterly rest which rate of interest was subject to directive issued by R.B.I. from time-to-time. Since the defendant No. 1 being an export unit, therefore, the rate of interest was chargeable at the rate of 7.50% P.A. but in case of default in adjusting the amount within the given time of 180 days for which P.C.L. was allowed, the rate of interest was not chargeable as an export finance but at the rate of interest chargeable in the usual account. The defendant No. I was accordingly charged and interest was applied as per Bank practice norms in terms of the documents. The present rate of interest chargeable at present rate is 23.75% PA. and the defendants are labile to pay the rate of interest as applicable and being the transaction of the commercial nature, the plaintiff Bank is entitled for the said rate of interest.

In only two documents, out of many filed by the Bank, there is a mention of the rate of interest, namely, (i) 'D.P. Note' dated 3.9.1990 (Ext. P-12) executed by the borrower Mr. Ramesh Chand Aggarwal for Rs. 15 lacs in favour of the guarantors, who had endorsed the same in Bank's favour with interest @ 7.5% p.a. with quarterly rest, and (ii) the 'Agreement for Cash Credit' dated 3.9.1990 (Ext. P-14) also executed by the said borrower for his firm M/s. Vijay Art Handicraft with interest @ 7.5% p.a. with monthly rests. Except these two documents, the Bank has not filed any documentary evidence in support of its aforesaid averments to show that it was agreed that if the borrower would fail to adjust the loan amount within the prescribed period then the rate of interest would be the usual Bank rate, which at the time of filing the suit was @ 23.75%. It is pertinent to note that, as observed above, no rate of interest is mentioned in any other document filed by the Bank which were executed by the borrower, guarantors or the mortgagors, including the Deed of Guarantee dated 3.9.1990 (Ext. P-15) or the letter of delivery of title deed dated 4.9.1990 (Ext. P-19).

Mr. Arora has contended that in Clause 6 of the Undertaking dated 3.9.1990 (Ext. P-18) executed in respect of the PCL the borrower had undertaken that if he would fail to export goods within the expiry date of the contract/LC. and confirmed order, he would liquidate the advances and pay the interest at the Bank's usual rates, as such the appellant is liable to pay the interest at the Bank's rate. A perusal of the said clause would, however, show that payment of interest at Bank's rate was undertaken only if the borrower would fail to export the goods within the expiry date of the contract or the confirmed order and not in the event of failure to adjust the loan amount within the stipulated period of 180 days. In his affidavit, Mr. Pardeep Gupta, the Manager of the Bank, has not said that the borrower had defaulted in exporting the goods within the expiry date of the contract or the confirmed order. The liability of payment of interest at the claimed rate of 23.75%, therefore, cannot be said be proved from this document.

Mr. Arora has contended further that in Clause 4 of the 'Negotiation of Documentary Export Bills (Demand and Usance)' (Ext. P-24) dated 3.9.1990, the borrower had also undertaken that the proceeds of export bill would be got realized within a period of six months from the date of export, as provided in the Exchange Control Regulations and had further stated in Clause 10 that the benefits of subsidized interest, etc. would be available to him only for a period of 180 days whereafter he would not claim any such interest. This document appears to be relating to the facility of Foreign Bill Purchase (FBP) qua which Naresh Kumar Aggarwal, the predecessor of the appellant, had neither stood surety nor had executed any document, as such it cannot be accepted as an undertaking on the part of the guarantors for payment of the interest at the claimed rate of interest qua the facility of PCL. Moreover, as per the said undertaking, the proceeds of the export bill were to be got realized within six months from the date of export, but there is nothing on record to show that the proceeds of the export bill were not so realized. It is pertinent to mention that except the averments made in the plaint, as referred to above, there is no documentary evidence on record which could show that interest qua the PCL @ 7.5% per annum with quarterly rests was agreed to be charged because the borrower firm was an export unit or it was agreed that if the borrower would fail to adjust the loan amount within 180 days, the interest would be charged at the Bank's usual rate. As already stated, there was no agreement for payment of interest @ 23.75% with quarterly rests. In my opinion, even Clauses 4 and 10 of the 'Negotiation of Export Bill' (Ext. P-24) do not make the Bank entitled to claim interest at the said rate. It is also worth mentioning that in his affidavit dated 21.4.1995 the Bank's Manager had not said about the averments made in Paragraphs 5, 6 and 11 of the plaint, as referred to above, that the interest @ 7.5% was chargeable because the borrower firm was an export unit and the interest was charged @ 23.75% per annum with quarterly rests as the borrower had committed default in adjusting the dues within 180 days. Assuming for the argument's sake that interest at Bank's usual rate of 23.75% was chargeable in the event of the borrower's failure to adjust the loan amount qua the PCL within 180 days, but even then it cannot be accepted that the said rate of interest was agreed to be charged at quarterly rests also, which was agreed to be paid with interest @ 7.5 % p.a., as such the Bank is not proved to be entitled to claim interest at the claimed rate of 23.75% with quarterly rests. There is also no documentary evidence to show that the rate of interest charged/claimed was as per the R.B.I. directives.

In view of the above discussion and on a careful examination of the documents/evidence available on record, I have come to the conclusion that the respondent Bank's claim of pendente lite and future interest @ 23.75% with quarterly rests is not established and as per the agreement, the borrower/guarantors are liable to pay interest @ 7.5% per annum only with quarterly rests.

The Hon'ble Supreme Court, while considering the contention of the appellant in C.K. Sasankan v. Dhanalakshmi Bank Ltd.,  I (2009) CLT 368 (SC)=I (2011) BC 122 (SC)=II (2009) SLT 449=AIR 2009 SC 3171, which was also a case under the RDDBFI Act, that the grant of interest @ 25% from the date of filing of the suit till the date of judgment and @ 19.4% thereafter till its realization was exorbitant and contrary to the provisions of Section 34 of the CPC, has held that the quantum and rate of interest should be in accordance with Section 34, CPC, according to which, the interest is to be awarded at a reasonable rate and on the principal amount. The Apex Court has further observed that although the award of the interest from the date of filing of the suit till the date of decree and thereafter till realization is in the discretion of the Court, as is confirmed by the use of the word 'may', but such discretion has to be exercised by the Court properly, reasonably and on sound legal principles and not arbitrarily and while doing so the Court is also to consider the parameter, scope and ambit of Section 34 of the CPC. In Paragraph 9 of the judgment, the Court has observed that:

The aforesaid scope and ambit of Section 34 of the Code has been the subject of discussion in many cases of this Court. We are inclined to refer to the decision in Clariant International Ltd. v. Securities & Exchange Board of India,  (2004) 8 SCC 524, where it was held by this Court that the interest can be awarded in terms of an agreement or statutory provisions and it can also be awarded by reason of usage or trade having the force of law or on equitable considerations but the same cannot be awarded by way of damages except in cases where money due is wrongfully withheld and there are equitable grounds therefor, for which a written demand is mandatory. It was further held that in absence of any agreement or statutory provision or a mercantile usage, interest payable can be only at the market rate and such interest is payable upon establishment of totality of circumstances justifying exercise of such equitable jurisdiction. It was also held that in ascertaining the rate of interest the Courts of law can take judicial notice of both inflation as also fall in Bank rate of interest. The Bank rate of interest both for commercial purposes and other purposes has been the subject-matter of statutory provisions as also the judge-made laws. In the said case reference was made to the decisions in Kaushnuma Begum v. New India Assurance Co. Ltd.  (2001) 2 SCC 9, H.S. Ahammed Hussain v. Irfan Ahammed,  (2002) 6 SCC 52 and United India Insurance Co. Ltd., v. Patricia Jean Mahatan, (2002) 6 SCC 281 and it was observed that even in cases of victims of motor vehicle accidents, the Courts have upon taking note of the fall in the rate of interest held 9% interest to be reasonable. Direction to pay such rate of interest is also found to be reasonable and fair as the plaintiff was deprived to utilize and roll its money in commercial transaction and kept out of it due to wrongful withholding of the same by the defendant.

In the (sic) of the above proposition of law and in view of my finding qua the rate of interest, as recorded above, the respondent Bank does not appear to be entitled to pendente lite and future interest @ 23,75% per annum with quarterly rests. However, considering the circumstance that the credit facilities were availed in 1990 @ 7.5% per annum with quarterly rests, which appears to be on the lower side and the nature of the availed credit facilities was commercial, the payment of interest @ 12% per annum with quarterly rests from the date of filing of the suit till its realization appears reasonable. The order impugned dated 11.3.1997 passed by the Tribunal below is accordingly modified to the extent that the claimed amount shall be payable with interest @ 12% per annum with quarterly rests with effect from the date of institution of the suit till the final realization of the entire amount. Rest of the terms of the order impugned shall remain undisturbed. The R.C. issued shall stand modified as above. The amounts already deposited with the Bank subsequent to the order impugned shall be adjusted towards the recovery of the amount of R.C. and the parties shall bear their own cost of this appeal. The appeal stands disposed of accordingly.

Copy of this order be furnished to the parties as per law and be also sent to the Tribunal below as well as to the R.O.