The main legal point established is that in commercial transactions, the bank is entitled to receive the contractual rate of interest, and the interest at the agreed rate should be awarded to compel borrowers to pay promptly and reduce litigation.

( 1 ) THIS is one more of several cases wherein a bank is required to approach the High Court for rectification of the decree passed against a defaulting borrower only because the trial court has not awarded the rate of interest that the institution is entitled to receive in law. The solitary submission advanced by the appellant's learned Advocate is that the institution is the aggrieved party in this case insofar as the transaction was a purely commercial one, the money is having been borrowed for commercial purposes and in the event of non-payment, that no indulgence whatsoever can either be asked for or granted as this would be manifestly unjust to the lender institution. A division bench of this court recently had occasion to observe as follows in the decision in the case of Vijaya Bank Ltd. V. Ganapathy Filaments :"by restricting the rate of interest, the court will be encouraging the borrowers to commit defaults so that the banks would be constrained to approach the court for recovery and in that process the borrowers would stand to gain. Obviously to avoid such a situation and to compel the borrowers to pay interest promptly and to reduce the litigation, the proviso to Section 34 has provided for awarding the contractual rate of interest in case of commercial transactions. The courts cannot be unduly generous when the situation does not call for the application of any equitable doctrine. In a simple suit for the recovery of money from an industry or a commercial concern, it will not be inequitable to award the interest at the agreed rate".

( 2 ) THE court while considering the provisions of Section 34 of the C. P. C. , had occasion to take cognizance of the proviso to that Section and to hold that it is the contractual rate of interest that would be applicable, but what is significant is that the division bench also had occasion to observe that it is more an issue of propriety insofar as, the non-awarding of the higher rate of interest would encourage acts of dishonesty. I need to add to those observations to the extent of stating that given the present economic conditions, it would be a travesty of Justice if interest at the rate of 6% or some such figure were to be awarded to the institutions and this would make it more profitable for the borrowers to default rather than to repay the loans. Quite apart from that, having regard to the length of these litigations which the banks are forced into in such cases, it would virtually be doing an abnormally good turn to the defaulting party at the expense of a banking institution which is not and can never be the scheme of the law.

( 3 ) THE hearing of this appeal was expedited and on the last date of hearing, the respondents' learned Advocate requested the court not to dispose of the appeal on the ground that his client would approach the bank for an amicable settlement. That Order was passed on 29-3-1995 and the Order very clearly indicated that no further time would be granted if a solution had not been arrived at by 13-6-1995. The appeal has been listed for hearing today and has been called out and taken up in normal course. The appellant's learned Advocate is present, but neither the respondents nor their learned Advocate are present before the court. I have taken note of the fact that this case had proceeded ex parte before the trial court and it is very clear under these circumstances that the respondents have nothing to say.

( 4 ) THE disposal of this appeal is based on a clear point of lawand I am in total agreement with the submissions canvassed by the appellant's learned Advocate that the bank must be awarded the interest at the rate that the law entitles it to receive. That the interest ACT does not apply to these cases is well settled law, but for purposes of record, one may only refer to one of the earliest decisions of the privy council on this point in the case of Murtunjay Chuckerbutty v. John Cockrane, Official Assignee of the Estate of Mess