State Bank of India vs The Karnataka Housing Board and Others

K.L. Manjunath, J.—In these two appeals, the appellant-Bank is questioning the legality and correctness of the Judgment and decree passed by the Civil Judge, (Sr.Dn.), Mangalore dt. 22.4.2009 passed in O.S. No. 31/2008 and the Judgment and decree passed on 19th September 2009 in O.S. No. 187/2005. At the time of admission of these appeals, the appeals were admitted only to consider the legality and correctness of the interest awarded by the Trial Court at 18% p.a. from the date of the suit. Therefore, these two appeals are taken up together since the question arises in both the appeals is only in regard to the rate of interest payable by the appellant - Bank to the respondents-plaintiffs.

The admitted facts are as hereunder:

The appellant -State Bank of India for due performance of the contract by the 2nd defendant - M/s. Anchor Lines (P) Ltd. issued Bank guarantee in favour of the plaintiffs - Karnataka Housing Board. The Karnataka Housing Board on the ground that the contractor M/s. Anchor Lines (P) Limited did not perform its part of the obligation invoked the back guarantee issued by the appellant - Bank. The same was not honoured by the Bank on the ground that the Bank guarantee issued by the appellant-Bank was not an unconditional guarantee it was a conditional bank guarantee.

In the circumstances, the Karnataka Housing Board filed two suits to recover the amount covered under the Bank guarantee along with interest at 18% p.a. till the date of suit and to grant 18% p.a. on the aforesaid amount of damages and principal amount from the date of the suit till the date of realization.

The matter was contested by the appellant-Bank. The Trial Court decreed both the suit as prayed for. Therefore, the present appeals are filed.

As stated supra, the appeals were admitted only to consider the interest payable by the appellant from the date of suit till the date of realization at 18% p.a.

So far as this point is concerned, Mr. Ravishankar, learned counsel for the appellant contends that the awarding of interest at 18% p.a. on the Bank guarantee issued by the appellant is erroneous and incorrect since there is no agreement between the Bank and plaintiff-Karnataka Housing Board to pay any interest in the event of not honouring the Bank guarantee invoked by the Housing Board. He further submits that the issuance of Bank guarantee by the appellant - defendant in favour of the Housing Board cannot be treated as a commercial transaction, as such Bank guarantee would be issued by the Bank only for the welfare and benefits of its customers and as a result of which the Bank is not going to be benefited in any manner. In the circumstances, he requests the court to reduce the interest from 18% to 6% p.a. as required u/s. 34 of CPC.

Per contra, the learned counsel appearing for the Housing Board submits that since the contract was entered into between the appellant and 2nd defendant - M/s. Anchor Lines (P) Limited, is a commercial venture and for due performance of the commercial venture, a Bank guarantee was issued by the appellant - Bank, such transaction has to be treated only as a commercial transaction and awarding of interest at 18% p.a. from the date of suit till the date of realization need not be interfered by this court in these appeals. In the circumstances, he requests the court to dismiss the appeals.

Having heard the counsel for the parties, the only question that is to be considered in these appeals is:

1) Whether the interest awarded at 18% p.a. is on higher side or requires to be interfered?

We have seen the evidence let in by the Housing Board. Except filing an affidavit in lieu of examination-in-chief, the Housing Board has not let in evidence to show how it can claim interest at 18% p.a. from the date of suit till the date of realization. On further perusal of affidavit of PW1, it is clear that the Government as a welfare measure in order to construct houses for the economically weaker section of the community entrusted the constructional activities to the 2nd defendant. Therefore, the transaction between the plaintiff-Housing Board and that of the Contractor cannot be termed as a commercial venture because the Housing Board is not going to be benefited in any manner. In addition to that when once we hold that it is not a commercial transaction, as the Bank as a welfare measure for the welfare of its customer has issued Bank guarantee and when there is no stipulation to pay interest, the awarding of current interest at 18% p.a. would be on higher side. Therefore, we are of the view, the same is required to be reduced to 9%. Accordingly, these appeals are allowed. The Judgment and decree passed by the Civil Judge, (Sr.Dn.), Mangalore in O.S. No. 31/2008 dt. 22.4.2009 and O.S. No. 187/2005 dt. 19.9.2009 are hereby confirmed. The current interest awarded at 18% from the date of suit till the date of realization is reduced from 18% to 9% p.a. Parties to bear the costs. The original copy shall be kept in the first appeal and carbon copy of the Judgment shall be kept in the second appeal.

It is needless to state that the appellant Bank to calculate the interest from the date of suit, if any amount is deposited by the Bank before this court.