Punjab National Bank vs Shishu Punjab National Bank Vs Mian Singh

M.L. Singhal, J.—As the same question of law is involved in both these revisions, I would dispose of both these revisions through this common judgment.

Learned counsel for the petitioner submitted that it was not open to the Prescribed Authprity-cum-Sub Divisional Officer (Civil), Kaithal to tinker with the contractual rate of interest and reduce it to 6.5% per annum as it was a loan advanced by the bank. In support of this submission he has drawn my attention to State Bank of India Vs. Yasangi Venkateswara Rao, where the Hon''ble Supreme Court has held that the court cannot interfere and reduce the interest on the amount of loan advanced by the bank as that it is a matter of contract between the parties. The mortgaging of a property is with a view to secure the loan and has nothing to do with the quantum of interest to be charged. In State Bank of India v. Yasangi Venkateswara Rao (supra), suit was for the recovery of money by the State Bank of India. Trial Court passed a preliminary decree and the same was substantially upheld by the District Court. In the second appeal Which was filed, one of the contentions which was raised related to the charging of interest by the bank. After the decree of the trial Court by the Banking Laws (Amendment) Act I of 1984, new Section 21A was inserted in the Banking Companies Regulation Act.

The said Section reads as follows :-

"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."

Relying upon this provision, the contention of the appellant was that there would be no occasion for the court to reduce the rate of interest which the borrower had contacted to pay.

The High Court in the second appeal, entertained the plea regarding the validity of the said Section and observed as follows :-

"Considering the fact that grant of debt relief has always been treated in our country as a legislative subject to be passed upon by the regional Governments alone and that the words "Relief of Agricultural Indebtedness" were specially added by our Constitution to enable the State Legislatures to alleviate the suffering of the fanners from their agricultural indebtness and that the Constitutent Assembly had deliberately rejected an amendment moved seeking to transfer this item to the concurrent iist, I hold that Section 21A of the Banking Companies Regulation Act which forbids the courts from reopening the bank loans on the ground of excessive interest is not a law enacted by the Parliament with respect to the item of Banking."

The Hon''ble Supreme Court observed that the High Court could not come to the conclusion that the Parliament had no jurisdiction to enact Section 21A. There can be no doubt that Section 21A deals with the question of the rate of interest which can be charged by a banking company. Entry 45 of List of the Seventh Schedule clearly empowers the Parliament to legislate with regard to banking. The enactment of Section 21A was clearly within the domain of the Parliament. The section applies to all types of loans which are granted by a banking company, whether to an agriculturist of a non-agriculturist, and, therefore, reference by the High Court to Entry 30 of List II was of no consequence. Hon''ble Supreme Court held that the said Section 21A had been validly enacted. In this premises, the Ilon''ble Supreme Court allowed appeal of the State Bank of India and the decree passed by the High Court was set aside and that of the lower appellate court was restored.

Learned counsel submitted that in the face of Section 21A of the Banking Companies Regulation Act which is a special provision, the provisions of the CPC which are general provisions will not apply.

Learned counsel for the respondent, on the other hand, submitted that Section 21A does not come to the aid of the Banks vis-a-vis Order 34 Rule 11 CPC. He submitted that the question whether for the period during the pendency of mortgage suits in courts, the Courts'' discretion should continue or whether it should be fettered and if so to what extent and as to what rate of interest and whether there should be any distinction between different kinds of debtors-these are all matters of policy for the legislature and it will be for Parliament to lay down its policies and bring forward such legislation as it may deem fit in accordance with the provisions of the Constitution of India. In support of this submission, he drew my attention to N.M. Veerappa Vs. Canara Bank and Others, where it was held that the grant of interest @ 6% from the date of suit in mort-gage suits for the recovery of bank loans was proper. It was also held that provisions of Section 21A are not intended to over-ride Central legislation namely the CPC or the provisions of Order 34 Rule 11 CPC.

Learned counsel for the petitioner submitted that the law laid down in N.M. Veerappa v. Canara Bank (supra) decided on 27.1.1988 should not be followed but the law laid down in State Bank of India v. Yasangi Venkateswara Rao (supra) decided on 21.1.1999 should be followed as the decision in this case is later in point of time and also that the constitutionality of Section 21A was directly involved.

In Everest Industrial Corporation and Others Vs. Gujarat State Financial Corporation, the Hon''ble Supreme Court observed that proceedings instituted u/s 31(1) of the State Financial Corporation Act, 1951 is something akin to an application, for attachment of property in execution of decret at a stage posterior to the passing of the decree. No question of any order u/s 34 CPC would, therefore, arise since section 34 CPC would be applicable only at the stage of passing of the decree and not to any stage posterior to the decree. Moreover, even under the Code of Civil Procedure, question of interest payable in mortgage suits filed in civil courts is governed by Order 34 Rule 11 of the Code and not by Section 34 of the Code which should be applicable only to cases of final decrees passed under Order 34 Rules 6 CPC. It was held on facts that interest would be payable on the principal amount due in accordance with the terms of the agreement between the parties till the entire amount due was paid as per the order passed u/s 32 of the Act. In B. Shivananda Vs. Andhra Bank Ltd. and Another, the trial Court had not specified in the judgment with regard to rate of interest but in revision filed by the bank, the High Court granted interest @ 16.5% on the decretal amount. Dismissing the appeal, the Apex Court held as follows :-

"But in this case as seen that the claim for future interest at 16.5% was made in the suit itself, it admittedly is the contracted rate of interest. Therefore, the bank is entitled to claim interest in terms of the contract at 16.5% from the date of lending till the date of filing of the suit. However, the court has discretion u/s 34 CPC to award interest. Admittedly, the loan was taken for construction of factory. In other words, the loan was for a commercial transaction. In the facts and circumstances of the case, we consider it just and proper that the appellant should pay simple interest @ 16.5% on the principal amount claimed in the suit from the date of decree till realisation."

In view of the clear mandate of law laid down in State Bank of India v. Yasangi Venkateswara Rao (supra) where the Hon''ble Supreme Court has observed that charging of com pound interest by the Bank cannot be said to be excessive on the amount advanced against mortgage in view of the provisions of Section 21A of the Banking Regulation Act, it cannot be said that the awarding of interest at the contractual rate to the bank is illegal. So, this revision is allowed and the awarding of interest to the bank by the Prescribed Authority-cum-Sub Divisional Officer (Civil), Kaithal not at the agreed rate of interest but at the rate of 6.5% cannot be sustained. Bank had to be allowed agreed rate of interest from the date of suit till realisation on the principal sum adjudged which means the amount of loan originally advanced plus the interest that accrued thereon till the institution of suit (in this case application u/s 8(a)(i) of the Haryana Agricultural Credit Operation and Misc. Provisions (Banks) Act, 1973).

Petition allowed.