1. Heard Sri S.A. Chari, learned counsel for the appellant.

2. This second appeal is directed against the judgment and decree dated 05-9-2008 in A.S.No.12 of 2007 passed by the Senior Civil Judge, Nandigama, Krishna district, in modifying the judgment and decree dated 13-4-2007 in O.S.No.451 of 2004 passed by the Junior Civil Judge, Jaggaiahpet by reducing the rate of interest.

3. The appellant herein is the plaintiff and the respondent is the defendant in the suit before the trial Court.

4. The suit is for recovery of money. The trial Court decreed the suit along with interest at the rate of 24% per annum, which is the specified rate of interest. On appeal the lower appellate Court having concurred with the judgment of the trial Court, only modified to the extent of reducing the rate of interest from 24% per annum to 12% per annum. Hence the second appeal.

5. The only substantial question of law that has been raised by the learned counsel for the appellant is – whether the lower appellate Court can reduce the rate of interest than the rate of interest specified in the instrument, on which strength the suit has been instituted?

6. It is the contention of the learned counsel for the appellant that as per Section 79 of the Negotiable Instruments Act, 1881 the rate of interest shall be as originally prescribed in the suit promissory note and the Courts cannot interfere with the terms of the contract.

7. Section 79 of the N.I.Act reads as under:

“79. Interest when rate specified: When interest at a specified rate is expressly made payable on a promissory note or bill of exchange, interest shall be calculated at the rate specified, on the amount of the principal money due thereon, from the date of the instrument, until tender or realization of such amount, or until such date after the institution of a suit to recover such amount as the Court directs.

8. No doubt, the Court has to fix the rate of interest as prescribed in the promissory note or bill of exchange without any deviation. However, the expression “or until such date after the institution of a suit to recover such amount as the Court directs” has to be essentially treated as an exception to the earlier part of the same provision, which mandates that the rate of interest should be fixed as prescribed in the promissory note or bill of exchange.

9. In other words, the Court has no option to fix the rate of interest but to fix as was originally prescribed in the instrument till the date of institution of the suit. When once a suit has been instituted the Court while passing the decree may fix the rate of interest as originally prescribed which may extend to a subsequent period or as fixed by the Court from the date of institution of the suit.

10. However, Section 34 of C.P.C., reads as under:

“34. (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 nationalized banks in relation to commercial transactions.

Explanation I: In this sub-section, “nationalized 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 o