AI Structured Summary
Not yet generated for this judgment
Judgment
V. Gopala Gowda, J.—The Appellant Bank filed suit in O.S. No. 61/2003 against the respondents for recovery of Rs. 3,94,991/- towards the loan borrowed by them for construction of house, together with interest at the agreed rate of 19.25% p.a. and penal interest at 2%. The respondents denied the suit claim and prayed for dismissal of the suit. After contest, the trial Court decreed the suit with interest at 13.5% p.a. The Appellant Bank has filed this appeal only against the rate of interest awarded by the trial Court.
The claim of the Bank is that the trial Court ought to have awarded future interest at the contractual rate at 21.5% p.a. but the trial Court committed an error by awarding only 13.5%. In support of the claim, learned counsel for the Appellant has cited the decision reported in Vijaya Bank Vs. S. Bhathija and another, Wherein this Court has laid down the position regarding interest in paragraph 19 as under:
"19. Thus the following position emerges in regard to interest chargeable by banks"
(a) Banks are entitled to interest at contract rates, subject to the ceiling or limitations placed by the Reserve Bank of India in its circulars/ directives;
(b) Whenever the contract provides for compounding of interest, either specifically or impliedly by use of the words "with rests", the Banks are entitled to compound interest, except in the case of agricultural advances;
(c) The Courts can only examine whether the rates of interest claimed is excessive or not with reference to the directives of Reserve Bank of India. The Courts cannot reduce the contract rate of interest either under the provisions of Usurious Loans Act of any other law relating to indebtedness or principles of equity;
(d) Normally in regard to Bank claims, the Courts should award current interest (from the date of suit to date of decree) and future interest (from the date of decree to date of realization) u/s 34 of the Code of Civil Procedure, at the contract rates, ''Contract rate of interest'' refer not only to the ''rate of interest'', but refers also to compounding of interest. Thus if contract provides for quarterly rests, the interest granted u/s 34 should be at the contract rate with quarterly rests (except in the case of agricultural advances). If the Courts want to reduce the rate of interest, either current or future, such reduction should be supported by reasons".
At the outset, it is to be held that the Bank is not entitled to contractual rate of interest for the following reasons:
i) Section 34 C.P.C pertains to interest and the relevant portions of Sub-section (1) thereof reads as under:
"34. Interest: (1) Where and in so far as a decree is for the payment of money, the Court may, in the decree, order interest at such rate as the Court deems reasonable to be paid on the principal sum adjudged, from the date of the suit to the date of the decree, in addition to any interest adjudged on such principal sum for any period prior to the institution of the suit, (with further interest at such rate not exceeding six per cent, per annum, as the Court deems reasonable on such principal sum), from the date of the decree to the date of payment, or to such earlier date as the Court thinks fit;
(Emphasis supplied)
Provided that where the liability to the sum so adjudged had arisen out of a commercial transaction, the rate of such further interest may exceed six per cent, per annum, but shall not exceed the contractual rate of interest or where there is no contractual rate, the rate at which moneys are lent or advanced by nationalized banks in relation to commercial transactions.
Explanation I: xxx xxx
Explanation II: For the purposes of this section, a transaction is a commercial transaction, if it is connected with the industry, trade or business of the party incurring the liability.
From a plain reading of Section 34(1) it is clear that if the decree is for payment of money, the Court may order interest at such rate as the Court deems reasonable to be paid on the principal sum. But the rate of interest shall not exceed six per cent. The Trial Court exceed its jurisdiction by awarding higher rate of interest at 13.5% p.a. The respondents can challenge the same.
ii) The proviso to Section 34(1) CPC provides that the rate of interest may exceed six per cent but shall not exceed the contractual rate of interest. If there is no contractual rate, the rate of interest shall be the rate of which Nationalized Banks lent money on commercial transactions. "Commercial Transactions" is clarified in Explanation II as a transaction connected with the industry, trade or business. In the instant case, the amount borrowed being for construction of house, it is not connected with industry, trade or business and therefore it is not a "commercial transaction". Therefore, it is to be seen whether the Bank is entitled for contractual rate of interest.
iii) The Bank granted loan by obtaining promissory note and simple mortgage by deposit of title deeds as collateral security. Order 34 Rule 15(1) C.P.C. reads thus:
"15. Mortgages by the deposit of title-deeds and charges : (1) All the provisions contained in this Order which apply to a simple mortgage shall, so far as may be, apply to a mortgage by deposit of title-deeds within the meaning of Section 58, and to a charge within the meaning of Section 100 of the Transfer of Property Act, 1882 (4 of 1882).
The mortgage deed is not registered. Therefore, there cannot be any charge on the mortgage property u/s 100 of Transfer of Property Act, 1882.
In the suit the Bank also sought for sale of the mortgaged property as provided under Sub-rule (2), Rule 15 of Order 34 C.P.C. But, the same is not applicable to the present case as the mortgage deed is not registered as required u/s 17 of the Registration Act. In the absence of registered mortgage deed, the Bank should not have sought for sale of mortgaged property and the trial Court ought not to have granted the said prayer. In view of the above reason the claim of contractual interest rate at 21.5% under Order 34 Sub-rule (1) Clause (i) is not tenable in law, as the Bank could not have prayed the relief under the above provision of CPC as there is not registered simple mortgage deed for having deposited the title deed of the suit schedule property, since the document is not registered as required in law which is mandatory, the same cannot be marked as it is inadmissible u/s 34 of the Karnataka Stamp Act, which relevant portion reads as under:
"Section 34. Instruments not duly stamped inadmissible in evidence, etc: No instrument chargeable with duty shall be admitted in evidence for any purpose by any person having by law or consent of parties authority to receive evidence, or shall be acted upon, registered or authenticated by any such person or by any public officer, unless such instrument is duly stamped:
(a) xxxxxx
(b) to (d) xxxxxx
Therefore the Bank cannot claim agreed rate of interest nor seek sale of the property on the basis of inadmissible document, namely the unregistered mortgage deed, which is not even produced. Even the decree of the trial Court relating to this also can be challenged by the respondents.
For the reasons stated above, the decision reported in Vijaya Bank Vs. S. Bhathija and another, and another unreported decision of this Court in Canara Bank v. K.B. Seethamma, RFA No. 542/1999 disposed of on 24-1-12001, are not applicable to the case on hand. It is pertinent to note that even the contractual rate of interest can be reduced by the Courts by giving supporting reasons. The same is clear from the last sentence in Clause (d) of the decision which is extracted above in paragraph 2 of this judgment at page 5 from Vijaya Bank Vs. S. Bhathija and another, . Viewed from this point, the Trial Court has recorded valid and cogent reasons for awarding lesser interest than the contractual rate of interest. Therefore, there is no merit in the appeal and the same is liable to be dismissed.
Accordingly, the Appeal stands dismissed subject to the observations made at the end of sub-paras (i) and (iii) of paragraph 3 of this judgment.