- (1.) THIS suit is filed by a Nationalised Bank for recovery of a sum of Rs. 74,81,271. 40p. together with interest at 25% per annum with quarterly rests by sale of the mortgage properties and also personally from the defendants.
(2.) THE facts which are not disputed are, that the first defendant availed financial assistance from the Bank of Tamil Nadu which is now merged with the plaintiff-Bank. It is said that as per three financial facilities of Rs. 5,50,000 Rs. 7,50,000 and Rs. 1,77,000 amountswere due from the defendants. It is also said that an equitable mortgage has been created by deposit of title deeds by defendants 2 and 3. THE facilities were availed for construction of a cinema theatre and for purchase of machineries for the same. It is also averred that the contract rate of interest was 19 1/2% per annum with quarterly rests. Since the Bank is supervised and controlled by the reserve Bank of India, they are bound to implement the rates of interest as revised from time to time. It is said that from 12. 4. 1982 till 3. 7. 1991 the defendants are liable to pay interest at 91/2% per annum with quarterly rests and from 3. 7. 1991 they are (plaintiff) entitled to calculate interest at 25% per annum with quarterly rests. On the basis of calculation, it is said that the defendants are liable to pay an amount of Rs. 74,81,271. 40p. It is said that various demands were made for settling the transaction. But in spite of the same, the defendants have not cared to do so, which necessitated the filing of the suit. It is also averred that the defendants had been renewing the documents from time to time. In the written statement filed by the defendants, the transaction is not disputed. They only say that the rate of interest calculated is excessive. According to the defendants, the suit claim is isolated and loaded with interest much more than the borrowed sum that the plaintiff-Bank has a special financial role to play in the economic life of the people, that it is not a money lender only bent upon earning interest, that the industrial finance has different legal incidents, and that the straight and bonafide course for such a Bank is to call for the discharge of the loan if the operation of the account has been irregular, if the project has become a failure, and if the securities have depleted. On the basis of the pleadings, the following issues have been raised: - (1) Whether the interest claimed by the plaintiff/bank is excessive" and (2) (2) To what relief, if any, is the plaintiff entitled" By consent of parties, Ex. P-1 to P-78 are marked. They are documents filed by the plaintiff bank to prove the transaction and also the circulars from time to time regarding the rate of interest. Even though the amount borrowed is only Rs. 14 lakhs, the amount now claimed is more than Rs. 74 lakhs, i. e. , more than Rs. 60 lakhs is claimed towards interest, and that is challenged by the defendants in the written statement. Issue Nos. 1 and 2. In the documents executed by the defendants, the rate of interest is mentioned as 19 1/2 per annum with quarterly rests. The lender Bank was the plaintiffs predecessor, namely, Tamil nadu Bank Limited. The defendants have executed various documents evidencing same.
(3.) SINCE the suit is for recovery of money by sale of mortgage properties, the provisions of Section 34 of the Code of Civil procedure may not apply. We are governed by Order 34, Rule 11, C. P. C. and also section 21-A of the Banking Regulation Act. SINCE Order 34, Rule 11, C. P. C. governs the matter, it is better we consider that provision before going to the case-law on the point. It reads thus:- Payment of interest- 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 upto 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) xxxxx (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 six per cent, per annum as the Court deems reasonable; (b) subsequent interest upto the date of realisation or actual payment on the aggregate of the principal sums specified in clause (a)as calculated in accordance with that clause at such rate as the court deems reasonable. In Soli Pestonji Majoo v. Ganga Dhar, Khemka, AIR 1969 sc 600 their Lordships held thus:- 'order 34, R. 2 and 4 which applies to a mortgage suit, enjoins the court to order an account to be taken of what is due to the plaintiff at the date of such decree for principal and'interest on the mortgage'. The special provisions in O. 34 has therefore to be applied in preference to the general provisions in S. 34. Till the period for redemption expires the matters is considered to remain in the domain of contract and interest has to be paid at the rate and with the rests specified in the contract of mortgage but after the period for redemption has expired the matter passes from the domain of contract to that of judgment. The right of the mortgagee will henceforth depend not on the contents of his bond but on the directions of the decree. Order 34, R. 1 1 gives a certain amount of discretion to the court so far as interest pendente lite and subsequent interest is concerned and it is no longer absolutely obligatory on the courts to decree interest at the contractual rates upto the date of redemption in all circumstances even if there is no question of the rate being penal, excessive or substantially unfair. It was held so in M/s. Everest Industrial Corporation and others v. Gujarat State Financial Corporation, 1987 (3) SCC 597 also. Their lordships held that Section 34 of the C. P. C. is not applicable, and 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. Their lordships were considering the provisions of State Financial Corporations Act, 1951. In the said decision, their Lordships held thus:- 'section 34 of the Code is not applicable to this case. The proceeding instituted under Section 31 (1) of the Act is something akin to an application for attachment of property in execution of a decree at a stage posterior to the passing of the decree. Therefore, no question of passing any order under Section 34 of the Code would arise since section 34 of the Code would be applicable only at the stage of the passing of the decree and not to any stage posterior to the decree. Moreover, even under the Code the 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 may be applicable only to cases of personal decrees passed under Order 34, Rule 6 of the Code. Therefore, 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. The decision reported in Soli Pestonji Majoo v. Ganga dhar, Khemka, A. I. R. 1969 S. C. 600 was followed by the Kerala High Court in nafeesumma v. Indian Overseas Bank, 1974 KLT 853 and the Lordships held thus:- 'it is true that award of interest under S. 34 after the date of suit is entirely in the discretion of the court. The discretion must be exercised on sound judicial principles. However this general provision regarding fixation of interest can have no application in the case of mortgage suits where there is a particular provision in Order 34 regarding fixation of interest after date of suit. This may as in this case, differ from the general provision of S. 34 of the Code. The particular avoids the genera l. Till the period of redemption has expired the matter remains in contract and the interest has to be paid at the rate and with the costs specified in the mortgage. ;