Dhanalakshmi Bank Ltd.  INSC 434 (27 February 2009)
IN THE SUPREME COURT
OF INDIA CIVIL APPELLATE JURISDICTION CIVIL APPEAL No. 1317 OF 2009 (Arising
out of SLP (C) No. 30832 of 2008) C.K. Sasankan ...Appellant Versus The
Dhanalakshmi Bank Ltd. ...Respondent
appeal arises out of the judgment and order dated 17.07.2008 passed by the
Division Bench of the High Court of Judicature at Madras in Writ Petition
(civil) No. 28664 of 2003 dismissing the writ petitions filed by the appellant
and confirming the judgment passed by the Debt Recovery Appellate Tribunal,
Chennai (hereinafter referred to as the `Appellate Tribunal').
appellant is the son of late C.V. Kunjikuttan, who was carrying on business as
a civil contractor. Said C.V. Kunjikuttan carried on business of contracts in
his individual capacity. He died on 8th September, 1989 and on his demise, the
business was taken over by his legal heirs.
Kunjikuttan was alive he had availed of certain facilities from Dhanalakshmi
Bank Ltd., Cherthala Branch, Alappuzha District - Respondent herein (for short
the `Bank'). The respondent is a scheduled bank and has its principal place of
business at Thrissur in Kerala and Branches in various other places. C.V.
Kunjikuttan approached the respondent - bank in 1973 for sanction of an over
draft financial facility.
The Bank sanctioned
him an overdraft facility of Rs. 3 lakh. The overdraft facility allowed to C.V.
Kunjikuttan was secured by security of immovable property, which was collateral
security. On 30.10.1980, the Bank granted an enhanced overdraft facility of Rs.
9 lakh which was secured by late C.V. Kunjikuttan and his children including
the appellant herein.
the said amount was not repaid the bank filed a suit being O.S. No. 176 of 1991
on the file of sub-court, Cherthala. Subsequently the proceedings were
transferred to Debts Recovery Tribunal (for short "DRT") on its
formation under the Recovery of Debts Due to Banks and Financial Institutions
Act, 1993. The relief prayed by the Bank was to realize a sum of Rs.
28,50,707.03 from the appellants, if necessary, by sale of the suit / scheduled
properties. The DRT vide Judgment dated 10.08.2001 allowed the proceedings
initiated by the Bank and accordingly declared that the debts due to the bank
is Rs. 28,50,707.03 together with interest @ 25% per annum compounding with
quarterly rests from 17.7.1991 i.e. from the date of filing of the suit till
the date of the Judgment with a simple interest at the rate of 19.4% per annum
from 11.08.2001 till realisation. The appeal from the said order was dismissed
by the Appellate Tribunal as also by the Division Bench of the High Court of
learned counsel appearing for the appellant contended before us that the grant
of interest @ 25% from the date of filing of the suit till the date of judgment
and at 19.4%, thereafter till its realisation is exorbitant and contrary to the
provisions of Section 34 of the Code of Civil Procedure (for short the `Code').
It was further submitted that as per the said section the interest has to be
reasonable and at prevalent bank rate of interest.
learned counsel appearing for the respondent on the other hand supported the
judgments of the courts below and submitted that the courts below were
justified in granting the said rate of interest as the appellants have failed
to re-pay the amount which was obtained by them under the overdraft facility.
order to appreciate the aforesaid contention, we are required to consider the
scope and ambit of Section 34 of the Code which gets attracted in the instant
case. The provisions of Section 34 of the Code are reproduced hereinbelow :
"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:
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.
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).
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
(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 therefore shall not lie."
quantum and rate of interest which the appellant in the present case is
entitled to would be in accordance with the provisions of Section 34 of the
Code. According to the provisions of Section 34 of the Code interest is to be
awarded at a reasonable rate and on the principal amount.
It is needless to
point out that although the amount of interest from the date of filing of the
suit till the date of the decree and thereafter till realisation is in the
discretion of the court as is confirmed by the use of the word `may' but such
discretion has to be exercised by the court properly, reasonably and on sound
legal principles and not arbitrarily and while doing so the court is also to
consider the parameter, scope and ambit of Section 34 of Code.
aforesaid scope and ambit of Section 34 of the Code has been the subject of
discussion in many cases of this Court. We are inclined to refer to the
decision in Clariant International Ltd. v. Securities & Exchange Board of
India, (2004) 8 SCC 524, where it was held by this Court that the interest can
be awarded in terms of an agreement or statutory provisions and it can also be
awarded by reason of usage or trade having the force of law or on equitable
considerations but the same cannot be awarded by way of damages except in cases
where money due is wrongfully withheld and there are equitable grounds
therefor, for which a written demand is mandatory. It was further held that in
absence of any agreement or statutory provision or a mercantile usage, interest
payable can be only at the market rate and such interest is payable upon
establishment of totality of circumstances justifying exercise of such
equitable jurisdiction. It was also held that in ascertaining the rate of
interest the courts of law can take judicial notice of both inflation as also
fall in bank rate of interest. The bank rate of interest both for commercial
purposes and other purposes has been the subject-matter of statutory provisions
as also the judge-made laws. In the said case reference was made to the
decisions in Kaushnuma Begum v. New India Assurance Co. Ltd. (2001) 2 SCC 9,
H.S. Ahammed Hussain v. Irfan Ahammed (2002) 6 SCC 52 and United India
Insurance Co. Ltd. v. Patricia Jean Mahajan (2002) 6 SCC 281 and it was
observed that even in cases of victims of motor vehicle accidents, the courts
have upon taking note of the fall in the rate of interest held 9% interest to
be reasonable. Direction to pay such rate of interest is also found to be
reasonable and fair as the plaintiff was deprived to utilize and roll its money
in commercial transaction and kept out of it due to wrongful withholding of the
same by the defendant.
the facts and circumstances of the present case, we find that the rate of
interest as awarded for pendente lite and future interest is exorbitant and
thus we direct that pendente lite and future interest at the rate of 9% shall
be paid which is found to be just, proper and reasonable.
appeal stands allowed to the aforesaid extent.