P. Sathasivam, J.
1. First defendant in O.S No. 391 of 84 on the file of the First Additional Subordinate Judge, Madurai, aggrieved by the grant of interest at 18 per cent for the suit claim from the date of the suit till date of payment, has filed the above appeal.
2. Necessary facts for the disposal of the appeal alone are briefly stated hereunder:-
The plaintiff/respondent herein filed the said suit for passing preliminary mortgage decree for sale of the hypotheca directing the defendants to pay the plaintiff a sum of Rs. 8,91,678.09 with subsequent interest thereon at 20 percent per annum from date of plaint till payment.
The plaintiff is a Bank incorporated under Banking Companies (Acquisition and Transfer of Undertakings Act V of 1970) with its Head Office at Mandvi, Baroda, Gujarat State and a branch at East Avanimoola Street, Madurai. First defendant applied to the plaintiff's branch at East Avanimoola street for the purpose of construction of a new hotel building, purchase of furniture etc. The plaintiff sanctioned the same on condition of execution of necessary instruments and on his creating equitable mortgage of items 1 and 2 described in plaint A Schedule. The first defendant executed a registered memorandum on 31.3.70 of equitable mortgage in respect of items 1 and 2. He also executed a demand promissory note on 1.4.70 to the plaintiff for Rs. 1,57,500 agreeing to repay the same with interest at 4 ½ per cent per annum above the Reserve Bank of India rate with a minimum of 91?2 per cent per annum with one half minimum interest clause applicable each quarter. The first defendant availed the loan and he was allowed to repay the loan in 120 equal monthly instalments at Rs. 3,000 each commencing from 4.3.1971 along with interest. In default, the first defendant was also liable to pay over due interest at 2 per cent per annum as agreed to. The account should be cleared by 4.3.1981 The first defendant applied for further loan of Rs. 60,000 from the plaintiff on the security of the same properties and executed a demand promissory note on 28.12.70 agreeing to repay it with interest 4 ½ per cent per annum above Reserve Bank of India with one half minimum interest clause applicable each quarter. The first defendant availed the loan. He also executed on 28.12.70 an agreement of hypothecation of the furniture and fittings in the hotel building as described in plaint B Schedule. The first defendant also requested the plaintiff to grant additional loan of Rs. 83,000 and offered security of his properties situate in the villages of Moolakkarai patti and Munanjipatti in Tirunelveli District. The first defendant executed a demand promissory note for Rs. 83,000 on 7.2.72 in favour of the plaintiff agreeing to repay the same with interest at 4*4 per cent per annum above the Reserve Bank of India rate with a minimum of 101?2 per cent per annum with quarterly rests and availed the loan.
3. In consideration of the plaintiff granting the loan, the first defendant deposited on 7.2.72 with the plaintiff's branch, the title deeds of the properties mentioned as items 3 to 16 in plaint A schedule. However, the first defendant did not clear the accounts as agreed to. The present rate of interest is 20 per cent per annum as per the directives of the Reserve Bank of India and the first defendant is bound to pay at that rate as agreed to. According to the ledger page of the first defendant in plaintiff's books of account as certified under the Banker's Books Evidence Act a sum of Rs. 5,15,127.88 on the loans dated 1.1.1970, 28.12.70 and a sum of Rs. 3,76,550.21 on the loan dated 7.2.72 are due from first defendant with interest made upto 26.4.84 which carries further interest till payment. The total amount is Rs. 8,91,678.09. The first defendant is also bound to pay insurance premium for the hypotheca every year. Therefore, the plaintiff has laid the suit for recovery of the amount due from the defendants with subsequent interest and costs by enforcing the mortgage.
4. The first defendant has filed a written statement wherein it is admitted that the defendant has applied for and obtained the 3 loans from the plaintiff for constructing the hotel building and purchase of furniture etc. He has also agreed that he has executed the promissory notes and other securities referred to in the plaint. The plaintiff is not entitled to claim any interest over and above the rates stipulated in the promissory notes executed by him. The first defendant never agreed to pay interest at 20 per cent per annum and it is not open to the plaintiff to claim unilaterally at that rate of his own record. The suit transaction is not a commercial transaction within the meaning of Section 34 of the Code of Civil Procedure. The plaintiff is therefore not entitled to claim any interest at more than 6 per cent per annum i.e, simple interest from and subsequent to the date of plaint. He also filed an additional written statement wherein it is stated that the claim towards insurance premium is not sustainable.
5. The plaintiff has filed a reply statement wherein it is stated that the first defendant is liable to pay interest with quarterly rests. In all the Banking transactions it is well known that interest is payable with monthly, or quarterly or half yearly rates. If interest is not paid either monthly or quarterly, or half yearly or annually as the case may be, this is added to the principal. The borrower is bound to pay such interest which becomes principal, if it is not paid immediately as agreed. The plaintiff Bank is bound by the Banking Regulation Act and is under the control of Reserve Bank. It has no option to charge simple interest. Every time Reserve Bank of India increases the rate, it is published in news papers. The Bank also informs the parties. The allegation that the suit transaction is not a commercial transaction within the meaning of Section 34, C.P.C and that the plaintiff is entitled to claim interest at 6 per cent per annum alone subsequent to the date of the plaint is untenable. Further, at no point of time first defendant objected to the claim regarding interest. Likewise, the first defendant never questioned the correctness of the account.
6. Before the Court below, one S. Ramakrishnan was examined as P.W.1 and Exs. A-1 to A-48 were marked on the side of the plaintiff Bank. On the other hand, on the side of the defendants, first defendant alone was examined as D.W.1 and no document was filed. The learned Subordinate Judge after framing necessary issues and after considering the oral and documentary evidence, decreed the suit with interest at 18 per cent per annum from the date of the suit till payment. As stated above, with regard to grant of interest at the rate of 18 per cent per annum from the date of suit till date of payment the first defendant alone has filed the present appeal.
7. Heard the learned counsel for the appellant as well as respondent.
8. Learned counsel appearing for the appellant has raised the following contentions-
(i) The Court below committed an error in granting insurance amount of Rs. 3,228 which was paid by the plaintiff without the consent of the appellant and without giving intimation and granting 18 per cent interest on the said insurance amount cannot be sustained;
(ii) inasmuch as the sanctioned loan is not a commercial transaction. the Court below ought to have given only 6 per cent interest from the date of suit to the date of decree and committed an error in granting interest at the rate of 18 per cent per annum for the said period, on the other hand, learned counsel appearing for the respondent Bank would contend that in the light of the provision for payment of interest in Ex.A-5 in terms of directions of the Reserve Bank of India and the same having been agreed to by the appellant herein, the Court below is fully justified in granting 18 per cent interest for the suit claim from the date of suit till date of payment; accordingly prayed for dismissal of the appeal.
9. We have carefully considered the rival submissions,
10. With regard to the first contention. namely, claim for payment of insurance amount and grant of 18 per cent interest on the said amount. it is not disputed that under Ex.A-5 Mortgage deed dated 28.12.70, it is the responsibility of the appellant to pay insurance premium to the insurance company in respect of the properties mortgaged. Since the appellant failed to keep the insurance policy alive and the same having been paid by the Bank, undoubtedly, they are entitled to the policy amount and interest for the same. Accordingly, we do not find any merit in the contention raised by the appellant and we are In agreement with the conclusion arrived by the learned subordinate Judge.
11. Regarding the other contention, namely, grant of 18 per cent interest for the suit claim from the date of suit till date of payment, there is no dispute that in the Mortgage Deed as well as promissory note executed by the first defendant-appellant herein to the plaintiff Bank wherein the former (first defendant) agreed to repay the loan amount with interest at 4*4 per cent per annum above the Reserve Bank of India rate with a minimum of 91?2 per cent per annum with one half minimum interest clause applicable each quarter. It is the case of the plaintiff Bank that as per the directions of the Reserve Bank of India, the rate of interest is 20 per cent per annum and the first defendant is bound to pay at that rate as agreed to. With the said conditions, the first defendant had availed the loan. Further, though it is stated by the appellant that the transaction is not a commercial transaction, it is clear from the materials that the first defendant applied to the plaintiff's branch at East Avani Moola Street. Madurai for Bank facilities for the purpose of construction of a new hotel building, purchase of furniture etc. This has been admitted by the first defendant in para 2 of his written statement filed before the Court below. From the materials placed, particularly from the suit promissory note and Mortgage deed as well as the averments in the plaint and written statement, we hold that the suit transaction is a commercial transaction.
12. in order to appreciate the rival contentions regarding rate of interest for the suit claim from the date of suit till date of payment, it is useful to refer the relevant provisions from the Code of Civil Procedures -
“Section 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 percent 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:
Provided that where the liability in relation 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 nationalised banks in relation to commercial transactions
Explanation I; In this sub-section, “nationalised bank” means a corresponding new bank as defined in the Banking Companies (Acquisition and Transfer of Undertakings) Act, 1970 (5 of 1970).
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.
(2) Where such a decree is silent with respect to the payment of further interest on such principal sum from the date of the decree to the date of payment or other earlier date, the Court shall be deemed to have refused such interest, and a separate suit therefor shall not lie.”
Order 34, C.P.C deals with suits relating to mortgages of immovable property. Among other clauses we are concerned with Order 34, Rule 11, which refers payment of interest.
“Order 34, Rule 11, 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 up to 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) and
(iii) on the amount adjudged due to 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; and
(b) subsequent interest up to the date of realisation or actual payment on the aggregate of the principal sums specified in clause (a) as calculated in accordance with the clause at such rate as the Court deems reasonable.”
Learned counsel appearing for the appellant would contend that with regard to the suits relating to mortgages of immovable property, the relevant provision applicable is Order 34 and payment of interest is governed as per Rule 11. Since in our case, the present suit had been laid by the plaintiff Bank for sale of hypotheca in terms of the Mortgage deed, Order 34, Rule 11, C.P.C alone applies for payment of interest and, according to the learned counsel for the appellant, as per Order 34, Rule 11 (a) (iii), the Court can grant interest not exceeding 6 per cent per annum from the date of suit till date of payment. In support of his said contention, he relied upon a decision of the Apex Court in the case of N.M Veerappa v. Canara Bank, A.I.R 1998 S.C 1101: 1998 (1) CTC 219. in that case, the first respondent Bank filed a suit based on mortgage for recovery of Rs. 7,82,881.78 against first defendant, 2nd defendant (appellant) and defendants 3 to 10 on the file of the Principal Civil Judge, Shimoga. The defendants had taken a loan of Rs. 5 lakh on 7.4.76 agreeing to repay in 52 monthly instalments each of Rs. 8000 from 7.4.1977 with interest at the end of each quarter. The plaint schedule properties were offered as security and an equitable mortgage was created as per Ex.P-4 therein by deposit of title deeds. The trial Court passed a preliminary mortgage decree on 4.7.1982 with proportionate costs but the decree-holder Bank was directed to file a fresh memo of calculation calculating the interest on the balance of principal amount due at 16.5% per annum from the date of the equitable mortgage at yearly rests till date of suit. With regard to future interest from date of suit, the trial Court has directed that,
“The plaintiff is entitled to future interest from the date of suit at 6% per annum on the principal amount due from the defendants till date of recovery of full amount.”
In other words, future interest from date of suit was to be only 6% per annum and not at the contractual rate of 16.5%. The plaintiff Bank filed an appeal in the High Court as Regular First Appeal No. 1 of 1988 and a learned Single Judge of the High Court allowed the appeal and held that the plaintiff was entitled to future interest also at the contractual rate of interest of 16.5% from date of suit till date of realisation with costs because of Section 34, CPC. The learned Judge has also observed that the defendants could, if they so desired, move the Circle office of the Bank for reduction of this rate of interest and it would then be for the Bank to consider it favourably but in accordance with law. Against the said judgment of the High Court, the above appeal has been preferred before the Supreme Court by the Managing partner, the 2 defendant contending that the High Court erred in interfering with the discretion exercised by the trial Court in so far as pendente lite interest was concerned. It was argued for the appellant that the suit being one based on mortgage, the provision applicable so far as pendente lite interest was concerned, was Order 34, Rule 11, C.P.C and not Section 34, C.P.C, as wrongly held by the High Court. It was pointed out that under Order 34, Rule 11 the Court could exercise discretion, if there were good reasons for doing so, to award a rate of interest which was not necessarily the contractual rate but something less. Apart from contending that Section 34, C.P.C is applicable, learned counsel contends that if the contract rate of interests for the period during which the suit was pending is not applied the Bank's interest would be seriously prejudiced and therefore the High Court rightly applied the contract rate of interest. The learned counsel for the Bank also relied on Section 21-A of the Banking Regulation Act, 1949 to contend that Section 21-A overrides Order 34, Rule 11, CPC and hence Courts cannot re-open the Banking transactions nor reduce the contractual rate of interest. In the light of the said factual position and contentions made. Their Lordships, after extracting Section 34 and provisions with regard to interest under Order 34, Rule 11 as well as 1929 Amendment, have concluded thus:- (para 17)
“Resulting legal position under Order 34, Rule 11, CPC:
17. From the aforesaid rulings the following principles can be summarised. (a) Before 1929. it was obligatory for the Court to direct the contract rate of interest to be paid by the mortgagor on the sum adjudged in the preliminary decree, from the date of suit till the date fixed for payment as per Order 34, Rule 2(C) (i) or Order 34, Rule 4(1) of Order 34, Rule 7(C) (i). respectively in suits for foreclosure, sale or redemption, (b) But after the 1929 Amendment, because of the words used in the main part of Order 34. Rule 11. namely that “the Court may order payment of interest” it is no longer obligatory on the part of the Court while passing preliminary decree to require payment at the contract rate of interest from date of suit till the date fixed in the preliminary decree for payment of the amount. It has been so held in Jaigobind's Case, AIR 1940 FC 20 by the Privy Council and by this Court in S.P Majoo's Case, 1969 (3) SCR 33 that the new provision gives a certain amount of discretion to the Court so far as pendente lite interest is concerned and subsequent interest is concerned, (C) it is no longer obligatory to award the contractual rate after date of suit and up-to-date fixed for redemption as above stated even though there was no question of the contractual rate being penal, excessive or substantially unfair within the meaning of the Usurious Loans Act, 1918. (d) Even if the Court otherwise wants to award interest, the position after the 1929 and 1956 Amendments is that the Court has discretion to fix interest from date of suit under Order 34, Rule 11 (a) (i) upto date fixed for payment in the preliminary decree, the same rate agreed in the contract, or, if no rate is so fixed, such rate as the Court deems reasonable - on the principal amount found or declared due on the mortgagor is concerned, (e) The Court has also power to award from date of suit under Order 34 Rule 11 (a) (iii) a rate of interest on costs. charges and expenses as per the contract rate or failing such rate, at a rate not exceeding 6%. This is the position of the discretionary power of the Court, from date of suit upto date fixed in the preliminary decree as the date for payment, (f) Again under order 34 Rule 11 (b) so far as the period after the date fixed for payment is concerned, the Court, even if it wants to exercise its discretion to award interest upto date of realisation or actual payment, on the aggregate sums specified in clause (a) of Order 34, Rule 11, could award interest at such rate as it deemed reasonable.-
13. In the present case before us, the trial Court without-reference to any of the above mentioned provisions, after noting that the contractual rate of interest is 20 per cent, awarded interest at the rate of 18 per cent per annum from the date of suit till date of payment. It is true that except a plea of pendente lite at 6 per cent, the same has not been elaborated or substantiated by the plaintiff before the trial Court.
14. With regard to the contention raised on the side of the respondent Bank that the Banking Regulation Act. 1949 overrides the Code of Civil Procedure, particularly Order 34, Rule 11, the same question has been considered in the very same judgment and in para 22, after referring Section 21-A of the Banking Regulation Act, 1949 as well as the earlier decision of the Supreme Court in Aswini Kumar Ghosh v. Arabinde Bose, 1953 SCR 1, Their Lordships have held as follows:-
“22 .. As stated above, the provision in section 21-A refers, so far as Central legislation is concerned, only to the Usurious Loans Act, 1918 and not to the ‘Code of Civil Procedure, 1908 and it then refers to other laws relating to indebtedness in force in any State. Therefore, the provision of Section 21-A of the Banking Regulation Act, 1984 cannot be held to have intended to override a Central legislation like the CPC or Order 34, Rule 11 CPC.”
15. Though learned counsel appearing for the respondent Bank has very much relied on a judgment of the Supreme Court in Corporation Bank v. D.S Gowda and another, 1994 (5) SCC 213 and contended that Section 21-A of the Banking Regulation Act. 1949 overrides Order 34, Rule 11, C.P.C in view of the specific answer by the Supreme Court in para 22 of the above decision M.M Veerappa's case, AIR 1998 SC 1101: 1998 (1) CTC 219. the said contention is liable to be rejected. As a matter of fact, in that case the very same decision D.S Gowda's case, 1994 (5) SCC 213. has been considered and negatived. After laying down the law, ultimately the Supreme Court has allowed the appeal and restored the rate of interest at 6 per cent from the date of suit as fixed by the trial Court. The said decision applies in all force for our case.
16. Learned counsel appearing for the respondent Bank by relying on a subsequent decision of the Supreme Court in State Bank Of India v. Yasangi Venkateswara Rao, AIR 1999 SC 897, would contend that inasmuch as the appellant has agreed in respect of the amount advanced against the mortgage including the rate of interest repayable, the Court cannot interfere and reduce the amount of interest agreed to be paid on the loan so taken. No doubt, in the said decision in the light of Section 21A of the Banking Regulation Act, Their Lordships expressed the view that.
“…Entering into a mortgage is a matter of contract between the parties. If the parties agree that in respect of the amount advanced against a mortgage compound interest will be paid. we fail to understand as to how the Court can possibly interfere and reduce the amount of interest agreed to be paid on the loan so taken. The mortgaging of a property is with a view of secure the loan and has no relation whatsoever with the quantum of interest to be charged,-in this regard, it is pertinent to mention that D.S Gowda's case has been very well considered by the Supreme Court in N.M Veerappa's case, AIR 1998 SC 1101: 1998 (1) CTC 219. After referring the said decision as well as the decision of the Privy Council in Jagannath Prasad Singh Chowdhury v. Surajmul Jalal, 54 I.A 1, the decision of the Federal Court in Jaigobind Singh v. Lachmi Harain Ram, AIR 1940 FC 20 the effect of 1929 Amendment introduced in Rule 11, the Supreme Court in categorical terms has concluded that,
“….the mortgagee should be granted interest on the principal sum at the contractual rate till date of suit and only simple interest at 6% p. a. on the principal sum adjudged from the date of suit till date of preliminary decree and again at same 6% p. a. from date of preliminary decree till date of realisation.”
Though the decisions in State Bank Of India v. Yasangi Venkateswara Rao, AIR 1999 S.C 897 and Corporation Bank v. D.S Gowda and another, 1994 (5) SCC 213: JT 1994 (7) S.C 87 support the case of the respondent Bank, in view of the direct decision of the Supreme Court in N.M Veerappa's case, AIR 1998 SC 1101: 1998 (1) CTC 219, wherein it has been held that after the 1929 and 1956 Amendments, the Court has discretion to fix pendente lite interest and subsequent interest under Order 34, Rule 11 C.P.C, we are of the view that Order 34, Rule 11 C.P.C, alone applies to the present suit which is based on mortgage deed. Accordingly, we hold the plaintiff Bank is entitled interest only at the rate of 6 per cent per annum from the date of suit till date of payment. Consequently, the direction of the Court below granting 18 per cent interest from the date of suit till date of payment cannot be sustained.
17. In the light of what is stated above the judgment and decree of the Court below granting interest at the rate of 18 per cent is set aside and the same is modified that the plaintiff will be entitled interest only at the rate of 6 per cent per annum from the date of suit till date of realisation. Appeal is allowed to this extent. Since the above modification is occasioned due to the development of law made at the instance of the Hon'ble Supreme Court, the parties are directed to bear their respective costs in the appeal.