Important Point
The discretionary power conferred on the Civil Court under Order 34 Rule 11 of the Civil Procedure Code, 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 there even if there is no question of the rate being penal, excessive or substantially unfair within the meaning of the Usurious Loans Act, 1918.

Headnote:Civil Procedure Code, 1908-Order 34 Rule 11-Bank suit for recovery of loan-Equitable mortgage was created-Interest upto date fixed in preliminary decree-Discretion of Court-It is no longer obligatory to award contractual rate after date of suit and upto date fixed for redemption or upto date of realisation or actual payment-Sections 21, 35 and 21-A of Banking Regulation Act, 1949 do not affect Order 34 Rule 11 ref=act:10444>CPC-Discretionary power given to the Court under Order 34 Rule 11 is an independent power. (Banking Regulation Act, 1949).
       Held : 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 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. (C) It 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. (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 mortgager 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. (Para 17)
       Further held 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”. Obviously 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 v. Arabinde Bose (1953 SCR 1). Further, by no 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 refers to other laws relating to indebtedness in force in any State. Therefore, the provision of Section 21A 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. (Para 22)
       The discretionary power given to the 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. (Para 23)
       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 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 provisions of the Constitution of India. (Para 26)

Judgment

M. Jagannadha Rao, J.-Leave granted.

2. 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 had 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 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. The amounts paid after suit by the defendants were to be deducted as on the respective dates of payment and interest was to be paid as per judgment and these figures were directed to be computed. It was further directed, so far as future interest from date of suit was concerned, as follows:-

“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 .

3. 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. However, 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.

4. Against 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 interferring with the discretion exercised by the trial Court in so far as pendente lite interest was concerned.

5. It is 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 CPC and not Section 34 CPC, as wrongly held by the High Court. It is 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.

6. We 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 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. 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 v. D.S. Gowda & Anr.1, in support of the above contention.

7. Before adverting to the issues arising under Order 34 Rule 11, we may state that the trial Court considered the matter in some detail

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1998 Supreme(SC) 120

Cases Referred (6)