Vs. Canara Bank  INSC 36 (27 January 1998)
Ahmad, M. Jagannadha Rao. M. Jagannadha Rao. J.
29TH DAY OF JANUARY, 1998 Present:
Mr. Justice S.Saghir Ahmad Hon'ble Mr. Justice M.Jagannadha Rao Ms. Lalita Kaushik,
Advocate for the appellant. Mr. Pradeep
Dewan, Ms. Amita Kapur and Mr. P.B.Aggarwala, Advocates for the respondents.
following Judgment of the Court was delivered:
granted, The appellant (Managing Partner) is the 2nd defendant in the suit. The
1st respondent-Bank filed a suit O.S. 101/1980
based on mortgage for recovery of Rs.7,82,881.78 against M/s. Shiva Rice
Industries (a partnership firm) (1st defendant), the appellant (defendant 2)
and defendants 3 to 10 (partners) on the file of the
Principal Civil Judge. Shimoga.
These defendants has taken a loan of Rs. 5 lakhs on 7.4.1976 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 by deposit of title deeds.
The defendants paid Rs.75.000/- on 6.11.1984, Rs,40.000/- on 21.12.1984,
Rs.15,000/- on 22.1.1985, Rs.20,000/- on 8.7.1985 and Rs.10.000/- on
14.11.1985, in all Rs. 1.60,000\-. The trial court passed a preliminary
mortgage decree on 4.7.1982 with porportionate 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 mortagage at yearly rests till date of suit. The amounts paid after
suit by the defendants were to be deducted as on the respective dated of
payment and interest was to be paid as per judgment and these figures were directd
to be computed. It was further directed, so far as future interest from dated
of suit was concerned, as followes:- "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".
other words, future interest from date of suit was to be only 6% per annum and
not at the contractual rate of 16.5%.
plaintiff Bank filed an appeal in the High Court as Regular First Aappal 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 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.
the above said judgment of the High Court, this appeal has been preferred by
the Managing Partner, the 2nd defendant contending that the High Court erred in
interfering wiith the discretion exercised by the trial Court in so far as pendente
lite interest was concerned.
argued for the appellant that the suit being one based on mortagage, the
provision applicable so far as pendente lite interest was concerned, was Order
34 Rule 11 CPC and not Section 34 CPC, as wrongly held by the High Court. It is
ponted out that under Order 34 Rule 11 the Court could exercise discretion, if
there were good reasons for doing so, to award a rater of interest which was
not necessarily the contractual rate out something less.
have heard the learned counsel for the respondent- Bank. Apart from contending
that Section 34 CPC is applicable, learned counsel contends that if the
contract rate of interest for the period during which the suit was pending is
not applied the Bank's interests would be seriously prejudiced and therefore
the High Court rightly applied the contract rate of interest. Learned counsel
for the Bank relied also 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 reopen the Banking transactions nor reduce the contractual rate of
interest. Counsel placed reliance upon a judgment of this Court in Corporation
Bank vs. D.S.Gowda & Another [1994 (5) SCC 213] in support of the above
adverting to the issues arising under Order 34 Rule 11, we may state that the
trial court considered the matter in some detail and noted in para 11 of its
judgment, a ruling of the Karnataka High Court State Bank of Mysore Court has a
discretion Order 34 Rule 11 for not granting contractual rate of interest for
the period after suit. The trial Court expressly held in para 11 that it was
exercising discretion to grant interest only at 6%. On the other hand, the High
Court held relying only on Section 34 C.P.C. - and without referring to Order
34 Rule 11 CPC- that the proviso to section 34 CPC enabled the Court to grant
interest at more than 65 pending suit, where commercial transactions were
involved. This conclusion was arrived even after noticing that the trial court
had said in para 11 of its judgment that it had discretion so far as pendente lite
interest was concerned because of State Bank of Mysore vs. G.P.Thulasi Bai [ILR
1985 Karn. 2976].
34 does not apply to mortgage suits:
34 of the Code of Civil Procedure applies to simple monies decrees and payment
of interest pending such suits. Order 34 Rule 11 CPC deals with mortgage suits
and payment of interest. It is obvious that so far as mortgage suits are
concerned, the special provision in Order 34 Rule 11 alone is applicable and
not Section 34. This has been laid down in several decisions of this Court and
also by the Karnataka High Court in Thulasi Bai's case.
34 Rule 11 CPC We shall be n ext refer to the provisions of Order 34 Rule 11
CPC, as amended in 1929 and 1956.
R.11: In any decree passed in a suit for foreclosure, sale or redemption, where
interest is legally recoverable, the Court may order payment of interest tot he
mortgages as follows, namely:
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 b y the mortgagor or
other person redeeming the mortgage—
the principal amount found or declared due on the mortgage-- at the rate
payable on the principal, or, where no such rate if fixed, at such rate as the
Court deems reasonable,
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 t
he 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 6
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 to the principal
sums specified in clause (a) as calculated in accordance with the clause at
such rate as the Court deems reasonable." The word `may' used in the main
part of the Section was introduced by the 1929 amendment.
provisions under Order 34 Rule 11.
of a date for payment.
will be noticed that under Order 34 deals with suits for foreclosure, sale and
redemption of mortgage and the passing of a preliminary decree and final decree
in each of these cases. Order 34 Rule 2(c)(i) which deals with suit for
foreclosure, requires the Court, to specify while passing a preliminary decree
for the payment of the amount due as mentioned in the provision that payment be
made before a particular date. Likewise, Order 34 Rule 4(1) which deals suits
for sale requires the fixation of a time form payment to be fixed. Then Order
34 Rule 7(c)(i) requires in suits for redemption, a date to be fixed for
payment of the amounts specified in the provision.
under Order 34 Rule 11; word `may' introduced by 1929 amendment Confers
discretionary power on Court under clause (a) and (b) of Order 34 Rule 11 in
regard to future interest;
introduction of the word `may' by the 1929 amendment in the main part of Order
34 Rule 11 has been explained by this Court in the under-mentioned case.
(3) SCR 33], the suit was filed on 5.8.1955 and a preliminary decree was passed
on 10.7.1958 for a sum of Rs.41,172.60 due as on 2.6.1958, and on appeal, the
Division Bench fixed the amount at Rs. 38.207 by judgment dated 17.1.1962 and
granted interest at 12% per annum with monthly rests even after the date of
suit. Before this Court, it was argued for the mortgagor that the High Court
ought not to have fixed the rate at 12% p.a. with monthly rests even after the
date of suit an d that he maximum rate which should have been fixed was 6%
simple on the principal sum a adjudged. This Court held that before 1929 the
position was that till the period for redemption expired, the matter was
considered to be in the domain of contract and therefore interest had to be
paid at the rates agreed to in the contract and that it was only after the
expiry of the redemption period, the matter would pass into the domain of the
Court from the domain of the contract. The rights of the mortgagee would
thereafter depend not on the contents of the bond but on the directions in the
decree. This Court referred to what was stated by the Privy Council in Jagannath
Prasad Singh Chowdhury vs. Surajmul Jalall 54 I.A.1]. But after 1929, a new
Rule 11 was introduced, which used the words. "the Court may order payment
of interest". The new Rule was explained by the Federal Court in Jaigobind
Singh vs. Lachmi Narain Ram [AIR 1040 FC 20] and it was held that his provision
gave a certain amount of discretion to the Court so far as interest after date
of suit was concerned an d it was no longer obligatory after the 1929 Amendment
on the Courts to direct 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 within the meaning of the Usurious
Loans Act. 1918. Approving the above observations of the Federal Court, this
Court held on facts, 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 form 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.
the Amendment of CPC in 1956 clause (a) had three sub-clauses (i) (ii) and
(iii). After the Amendment of 1956, clause (i) was retained, clause (ii) was
omitted and in clause (iii) the maximum rate was reduced from 9%. So far as
clause (b) is concerned, before the 1956 Amendment, it had two sub-clauses (i)
and which read as follows:- "(b) subsequent interest upto the date of
reduction or actual payment at such rate as the Court deems reasonable-- (i) on
the aggregated of the principal sums specified in clause (a) and of the
interest thereon, as calculated in accordance with that clause; and (ii) on the
amount adjudged due to the mortgage in respect of said further costs, charges
and expenses as may be payable under Rule 10." After t he 1956 Amendment,
clause (b) has been amended so as to provide for subsequent interest on the
amount awarded under Order 34 Rule 11 (a) (i) and (iii) - upto the date of realisation
or payment, at such rate as the Court may deem reasonable.
governs both clause (a) & (b) of Order 34 Rule 11 (A) Interest upto date
fixed in preliminary decree;
view of what the Federal Court has said in Jaigobind case an d what this Court
has held in Soli Pestonji Majoo's case, it is clear that the word 'may' in the
main part of Order 34 Rule 11 governs all sub-clauses of Order 34 Rule 11.
under Order 34 Rule 11, sub-clause (a) the Court may order payment of interest upto
the dated on or before which payment of the amount found or declared due as per
the preliminary decree. In regard to two distinct amounts: firstly under
dub-clause a(i) interest can in the Court's discretion, be directed to be paid
on "the principal amount found due on the mortgagee" - at the rate
payable on the principal or where no such rate is fixed, at such rate as t he
Court deemed reasonable; secondly under sub-clause (iii) interest can in the
Court's discretion, be directed to be paid on costs, charges and expenses at
such rate not exceeding 6% per annum as the Court may deem reasonable in both
these situations the discretion is to be exercised subject to the above
Interest after date fixed in preliminary decree; clause (b)" Then comes
sub-clause (b) of Order 34 Rule 11 which deals with interest for the period -
after the date fixed as above in the preliminary decree and upto date of
payment, on the aggregate of sums mentioned in clause (a), Here too, the Court
could in its discretion, direct payment at such rate as it deemed reasonable.
more rulings of this Court:
summarising the legal position, we shall refer to two other rulings of this
Court under Order 34 Rule 11.
(1) SCR 721], this Court was dealing not only with the substantive interest
prior to suit (which was reduced to 10% compound) but also with interest after
suit. In para 11 of the Judgment, this Court observed that the discretion
exercised by the High Court under order 34 Rule 11 in that case reducing the
interest to 6% from date of suit to date of payment was not liable to be
interfered with even though the High Court had not given reasons. It was said
that it was obvious, on facts, that the mortgages were executed as far back as
1936 and 1938 and the creditor had waited till 1956 for filing the suit and
would, in any event, get interest substantially exceeding the principal amount
of the Another [1969 (2) SCR 1061] also related to question of interest before
suit and after suit. So far as the interest after suit was concerned, the High
Court had granted interest at 6% from the date fixed for redemption till date
of realisation. The date of suit was 10.1.1950. the date of decree of the trail
Court was 27.3.1952. This Court observed that the High Court had arrived at the
principal sum as Rs.37,971.50 and fixed the date for payment as 19.3.1959. So far
as interest under Order 34 Rule 11 (a) (i) was concerned. It was to be 9% per
annum. So far as interest under Order 34 Rule 11 (a) (ii) is concerned, on
costs, charges and expenses, interest at 6% as fixed by the Code would be
payable. So far as interest under Order 34 Rule 11(b) is concerned, interest
from the date fixed in the preliminary decree upto date of realisation was to
be 6% as it was a reasonable rate.
Legal Position under Order 34 Rule 11 CPC:
the aforesaid rulings t he following principles can be summarised.
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) or Order 34 Rule 7(c)(i), respectively in
suits for foreclosure, sale or redemption.
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 had been so held in Jaigobind's Case by the Privy Council [AIR
1940 FC 20] 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.
is no longer obligatory to award the contractual rate after date of suit and uptodate
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.
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 mortgager is concerned.
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 no exceeding 65. 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.
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.
facts of this case.
present case before us, the trial Court has gone into the facts and stated that
the contract rate was not to be granted and that as the Court had discretion to
grant interest, it was granting interest only at 6% simple form date of suit.
The Court followed State Bank of Mysore vs. G.P.Thulasi Bai [ILR 1985 Karn.
2976]. In that case, Jagannatha Shetty, J.(as he then was), specking for the
Bench, observed, referring to S.P.Majoo vs. Gangadhar [1969 (3) SCR 33] in
which this Court referred to the Privy Council decision of 1927 and the Federal
Court's decision of 1940, the at it was not longer obligatory on the part of
the Court to award the contractual rate, even if the rate was not penal,
excessive or substantially unfair. In that Karnataka case too, the trial
Judge's award at 6% per annum simple from date of suit till date of realisation
was affirmed. Unfortunately, the learned Single Judge of the High Court, in the
present case before us, though he referred to the above Division Bench
Judgment, still said that Section 34 CPC was applicable. This was obviously
wrong and contrary to the decisions of this Court and of the Karnataka High
here point cut that so far interest prior to suit is concerned, the trial Judge
in para 9 of h is Corporation Bank [AIR 1983 Karnataka 143]. (This aspect we
shall refer again when we come to Section 21-A of the Banking Regulation Act,
1949). That part of the judgment in the said case has no doubt been since
reversed by this Court trial Court in para 11 of its Judgment in the present
case did not rely on D.S.Gowda's care so far as future interest was concerned.
Hence reversal of D.S. Gowda case has no bearing on this case so fare as future
interest from date of suit is concerned.
Banking Regulation Act, 1949: Section 21, 35 and Section 21-A- do not affect
order 34 Rule 11 CPC.
counsel for the Bank of suit could at the interest rates from the date of suit
could at the discretion of Court be reduced as stated above, serious prejudice
would be caused to all Banks particularly because suits are generally pending
in Courts for a long number of years.
counsel placed strong reliance also upon the recent decision of this Court in
Corporation Bank vs. D.S. Gowda & another [1994 (5) SCC 213] which dealt
with Section 21 and 35 and also Section 21-A of the Banking Regulation
notice the contention that if the Court has discretion to reduce the interest
from date of suit and direct payment at a rate below the contractual rate,
there could be considerable financial loss to the Banks. But initially we have
to deal with the question as one of law and see if Section 21A of the Banking
Regulation Act, 1949, as it now stands, would or would not help the Bank as
against Order 34 Rule 11 CPC.
shall refer to the provision in Section 21A of the Banking Regulation Act, 1949
as introduced by Act 1/1984, w.e.f. 15.2.84. It reads :
21A: Rates of interest charged by banking companies not to be subjected to
scrutiny by Courts :
anything contained in the Usurious Loans Act. 1018 or any other law relating to
indebtedness in force in any State, a transaction between a banking company and
its debtor shall not be re-opened by any court on the ground that the rate of
interest charged by the banking company in respect of such transaction is
excessive." Firstly, it will be noticed that the effect of the "non-obstante
clause" in Section 21-A is to override the Central Act, namely, the
Usurious Loans Act, 1918 and any other "law relating to indebtedness in
force in any State".
it does not expressly intend to override the Code of Civil procedure among the
Central statutes. It is now well settled that the scope and width of the non-obstante
clause is to be decided on the basis of what is contained in the enacting part
of the provision. (Aswini Kumar Ghosh vs. Arabinde Bose [1953 SCR 1]. Further,
by n o stretch of imagination can the Code of Civil Procedure. 1908 be
described as a 'law relating to indebtedness in force in any State'. As stated
above, the provision in Section 21A 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 referes to other laws relating to indebtedness in
force in any State. Therefore, the provision of section 21A held to have
intended to override a Central legislation like the CPC or Order 34 Rule 11
as stated by the Federal Court in Jaigobind's case [AIR 1940 FC 20] and by this
Court in Soil Pistonji Majoo's case [1969 (3) SCR 33, the discretionary power
conferred on the Civil Court under Order 34 Rule 11 to cut down the contract
rate of interest for the period from date of suit and even upto the date fixed
for redemption by the Court is very much there, even if there was no question
of the rate being penal. excessive or substantially unfair within the meaning
of the Usurious Loans Act, 1918. This Court observed in Soil Pestonji Majoo's
case [1969 (3) SCR 33] as follows:
is apparent that the new rule as inserted by the Amending Act 21 of 1929 provides
that the Court 'may' order payment of interest to the mortgagee upto the date
fixed for payment as the rate payable on the principal. It was held by the
Federal Court in Jaigobind Singh that the language of the rule gives a certain
amount of discretion to the Court so far as interest pendente lite and
subsequent interest is and it was no longer absolutely obligatory on the Courts
to decree interest at the contractual rates upto the date of redemption in all
the circumstances even if there is not question of the rate being penal,
excessive or substantially unfair within the meaning of the Usurious Loans Act.
other words, the discretionary power given tot he Court under Order 34 Rule 11
is an independent power and the power is neither traceable to Section 74 of the
Contract nor to any power in the Usurious Loans Act. 1918 nor to any State
statutes permitting a Court to scale down contractual rates of interest.
to the decision of this Court in D.S.Gowda's Case, it turned upon the power of
the Court to re-open transactions of loan between Banks and its debtors and it
was held that the directives/circulars issued by the Reserve Bank to Banks in
respect of rates of interest under Section 21 of the Banking Regulation Act.
1949 could not be declared by the Court as unfair or excessive and those
directives/circulars were not violative of the Mysore Usurious Loans Act. 1923.
This Court referred to section 21A of the Banking Regulation Act, 1949 also but
said that even if Section 21A was not applicable, there was no evidence adduced
by the debtor that interest fixed in the directives/circulars of Reserve Bank
of India were not fair.
held that Court could not question Reserve Bank directives as being irrational.
At the same time, it was also held that the Banks could not also ignore Reserve
Bank directives/circulars and in a given case, a Bank ignored the Reserved Bank
circular/directives, the Court could reopen the transaction as to rate of
interest, notwithstanding Section 21-A. We may also state that in and earlier
case in where Section 21-A fell for consideration, the question which has now
arisen before us did not arise. The above two rulings are therefore not helpful
to the respondent-Bank.
the aforesaid reasons, we therefore do not think that the above decision in
Corporation Bank vs. D.S.Gowda [1994 (5) SCC 213] can help the respondent-Bank
to contend that Section 21-AS overrides the provision contained in Order 34
Rule 11 CPC.
therefore, Section 21A of the Banking Regulation Act. 1949 does not come to the
aid of Banks vis-a-vis Order 34 Rule 1 CPC, the question whether for the period
during the pendency of mortgage suits in Courts, the Courts discretion should
continue or whether it should be fettered and if so to what extent and as to
what rate of interest and whether there should be any distinction between
different kinds of debtors - these are are all matters of policy for the
legislature and it will be for Parliament to lay down its policies and bring
forward such legislation as it may deem fit in accordance with the provision of
the Constitution of India.
the aforesaid reasons, the appeal is allowed and the rate of 65 from date of
suit fixed by the trial Court is restored. There shall be no order as to costs.