IMPORTANT POINT
The court clarified that while contractual interest is enforceable, penal interest cannot be capitalized, ensuring fair treatment in loan recovery cases.

JUDGMENT :

V. GOPALA KRISHNA RAO, J.

1. This Appeal, under Section 96 of the Code of Civil Procedure [for short ‘the C.P.C.’] is filed by the Appellant/defendant challenging the Decree and Judgment, dated 30.03.1999, in O.S. No. 41 of 1997 passed by the learned Senior Civil Judge, Puttur [for short ‘the trial Court’]. The Respondent herein is the plaintiff in the said Suit.

2. The respondent/plaintiff filed a Suit for recovery of Rs.2,88,667.50 paise being the principal and interest due on an agreement of hypothecation dated 27.02.1993 executed by the defendant in favour of plaintiff’s bank for Rs.1,70,000/- payable with interest at 15.5% p.a. and for further interest and for costs.

3. Both the parties in the Appeal will be referred to as they are arrayed before the trial Court.

4. The brief averments of the plaint, in O.S. No. 41 of 1997, are as under:

The plaintiff bank at the request of the defendant extended its financial assistance by granting an agricultural term loan of Rs.1,70,000/- for the acquisition of tractor and trailer and accessories. The plaintiff bank opened a ledger account in the name of defendant and sanctioned the loan amount. The defendant has executed an agreement for the hypothecation undertaking to repay the loan amount of Rs.1,70,000/- with interest at 15.5% p.a. and also executed a revival letter dated 11.01.1995, subsequently, the defendant failed to discharge the suit debt to the plaintiff bank. Inspite of demands, through registered notices, the defendant has not chosen to discharge the amount of Rs.2,88,667.50 paise as on 13.07.1997. Hence the plaintiff bank is constrained to file the suit.

5. The defendant filed a written statement denying all the contents of the plaint and further contended as under:

The ledger extract and account copy of plaintiff bank are highly suspicious, mala-fide and misleading. The plaintiff is not entitled to claim interest on 1/2 years rests and the rate of interest is excessive and unreasonable.

6. Based on the above pleadings, the trial Court framed the following issues:

(i) Whether the plaintiff is entitled the suit claim?

(ii) To what relief?

7. During the course of trial in the trial Court, on behalf of the Plaintiff, PW1 to PW3 were examined and Ex.A1 to Ex.A14 were marked. On behalf of the Defendant DW1 was examined and Ex.B1 was marked.

8. After completion of the trial and on hearing the arguments of both sides, the trial Court decreed the suit vide its judgment, dated 30.03.1999, against which the present appeal is preferred by the appellant/defendant in the Suit questioning the Decree and Judgment passed by the trial Court.

9. Heard Sri M. Vengaiah, learned counsel representing Sri V. Jagapathi, learned counsel for appellant and Sri Venkata Rama Rao Kota, learned counsel for the respondent.

10. The learned counsel for appellant would contend that the decree and judgment passed by the Court below is illegal, improper and contrary to the evidence on record and the probabilities of the case and he would further contend that the trial Court did not appreciate the evidence of both sides properly. He would further contend that the balance sheet of the defendant’s account reveals that it did not account for the amount deposited by the appellant nor interest was properly calculated.

11. Now, in deciding the present appeal, the point that arise for determination are as follows:

Whether the trial Court is justified in decreeing the suit and whether the decree and judgment passed by the trial court needs any interference?

12. Point:

The case of the plaintiff is that the plaintiff bank at the request of the defendant extended its financial assistance by granting agricultural term loan of Rs.1,70,000/- for acquisition of tractor and trailer and accessories and the defendant has executed an agreement of hypothecation undertaking to repay the loan amount of Rs.1,70,000/- availed with interest at 15.5% p.a. and he deposited title deeds relating to landed properties at Pudi village with an inte