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In The High Court Of Karnataka At Bangalore
V. Gopala Gowda, J.
Sangli Bank Limited, Belgaum
V
Chandrashekar Channabasappa Karchi And Others
Regular First Appeal No. 140 of 2005.
29th June, 2005
Cases Referred: ILR 1993 Kar 2035; RFA No. 542 of 1999 dated 24-1-2001.
Marking of unregistered document
KARNATAKA STAMP ACT, 1957 - Section 34 -Marking of unregistered document -Mortgage by deposit of title deeds -Deed not registered -Cannot be marked as evidence.
[V. Gopala Gowda, J]: The Bank could not have prayed the relief as there is no registered simple mortgage deed for having deposited the title deed of the suit schedule property, since the document is not registered as required in law which is mandatory, the same cannot be marked as it is inadmissible under Section 34 of the Karnataka Stamp Act.
Cases Referred: ILR 1993 Kar 2035; RFA No. 542 1999.
Rate of
INTEREST
Rate of - Mortgage of property -Deed not registered -Bank cannot claim contractual rate of interest.
[V. Gopala Gowda, J]: From a plain reading of Section 34(1) it is clear that if the decree is for payment of money, the Court may order interest at such rate as the Court deems reasonable to be paid on the principal sum. But the rate of interest shall not exceed six per cent. The Trial Court exceed its jurisdiction by awarding higher rate of interest at 13.5% p.a. The respondents can challenge the same. The proviso to Section 34(1) CPC provides that the rate of interest may exceed six per cent but shall not exceed the contractual rate of interest. If there is no contractual rate, the rate of interest shall be the rate of which Nationalized Banks lent money on commercial transactions. "Commercial Transactions" is clarified in Explanation II as a transaction connected with the industry, trade or business. In the instant case, the amount borrowed being for construction of house, it is not connected with industry, trade or business and therefore it is not a "commercial transaction".
Cases Referred: ILR 1993 Kar 2035; RFA No. 542 1999.
Karnataka Stamp Act, 1957 - Section 34 - Marking of unregistered document - Section 34 -Marking of unregistered document -Mortgage by deposit of title deeds -Deed not registered -Cannot be marked as evidence. [V. Gopala Gowda, J]: The Bank could not have prayed the relief as there is no registered simple mortgage deed for having deposited the title deed of the suit schedule property, since the document is not registered as required in law which is mandatory, the same cannot be marked as it is inadmissible under Section 34 of the Karnataka Stamp Act.
Cases Referred: ILR 1993 Kar 2035; RFA No. 542 of 1999 dated 24-1-2001.
Mortgages - Mortgage by deposit of title deeds - Mortgage by deposit of title deeds -Deed not registered -Effect -No charge is created on property. [V. Gopala Gowda, J]: The mortgage deed is not registered. Therefore, there cannot be any charge on the mortgage property under Section 100 of Transfer of Property Act, 1882.
Cases Referred: ILR 1993 Kar 2035; RFA No. 542 of 1999 dated 24-1-2001.
Interest
CIVIL PROCEDURE CODE, 1908 - Section 34 -Interest -Mortgage of property -Deed not registered -Bank cannot claim contractual rate of interest.
[V. Gopala Gowda, J]: From a plain reading of Section 34(1) it is clear that if the decree is for payment of money, the Court may order interest at such rate as the Court deems reasonable to be paid on the principal sum. But the rate of interest shall not exceed six per cent. The Trial Court exceed its jurisdiction by awarding higher rate of interest at 13.5% p.a. The respondents can challenge the same. The proviso to Section 34(1) CPC provides that the rate of interest may exceed six per cent but shall not exceed the contractual rate of interest. If there is no contractual rate, the rate of interest shall be the rate of which Nationalized Banks lent money on commercial transactions. "Commercial Transactions" is clarified in Explanation II as a transaction connected with the industry, trade or business. In the instant case, the amount borrowed being for construction of house, it is not connected with industry, trade or business and therefore it is not a "commercial transaction".
Cases Referred: ILR 1993 Kar 2035; RFA No. 542 1999.
Sale of property
CIVIL PROCEDURE CODE, 1908 - Order 34, Rule 15 -Sale of property -Mortgage by deposit of title deeds -Deed not registered -No charge created on property -Property cannot be ordered to be sold.
[V. Gopala Gowda, J]: In the suit the Bank also sought for sale of the mortgaged property as provided under sub-rule (2), Rule 15 of Order 34 C.P.C. But, the same is not applicable to the present case as the mortgage deed is not registered as required under Section 17 of the Registration Act. In the absence of registered mortgage deed, the Bank should not have sought for sale of mortgaged property and the trial Court ought not to have granted the said prayer.
Registration Act, 1908 - Section 17 - Sale of property - Section 17 -Sale of property -Mortgage by deposit of title deeds -Deed not registered -No charge created on property -Property cannot be ordered to be sold. [V. Gopala Gowda, J]: In the suit the Bank also sought for sale of the mortgaged property as provided under sub-rule (2), Rule 15 of Order 34 C.P.C. But, the same is not applicable to the present case as the mortgage deed is not registered as required under Section 17 of the Registration Act. In the absence of registered mortgage deed, the Bank should not have sought for sale of mortgaged property and the trial Court ought not to have granted the said prayer.
Transfer of Property Act, 1882 - Section 100 - Charge - Section 100 -Charge -Mortgage by deposit of title deeds -Deed not registered -No charge created on property. [V. Gopala Gowda, J]: The mortgage deed is not registered. Therefore, there cannot be any charge on the mortgage property under Section 100 of Transfer of Property Act, 1882.
INTEREST - Rate of - Rate of - Mortgage of property -Deed not registered -Bank cannot claim contractual rate of interest. [V. Gopala Gowda, J]: From a plain reading of Section 34(1) it is clear that if the decree is for payment of money, the Court may order interest at such rate as the Court deems reasonable to be paid on the principal sum. But the rate of interest shall not exceed six per cent. The Trial Court exceed its jurisdiction by awarding higher rate of interest at 13.5% p.a. The respondents can challenge the same. The proviso to Section 34(1) CPC provides that the rate of interest may exceed six per cent but shall not exceed the contractual rate of interest. If there is no contractual rate, the rate of interest shall be the rate of which Nationalized Banks lent money on commercial transactions. "Commercial Transactions" is clarified in Explanation II as a transaction connected with the industry, trade or business. In the instant case, the amount borrowed being for construction of house, it is not connected with industry, trade or business and therefore it is not a "commercial transaction".
Cases Referred: ILR 1993 Kar 2035; RFA No. 542 of 1999 dated 24-1-2001.
Charge
TRANSFER OF PROPERTY ACT, 1882 - Section 100 -Charge -Mortgage by deposit of title deeds -Deed not registered -No charge created on property.
[V. Gopala Gowda, J]: The mortgage deed is not registered. Therefore, there cannot be any charge on the mortgage property under Section 100 of Transfer of Property Act, 1882.
The appellant-Bank filed suit in O.S. No. 61 of 2003 against the respondents for recovery of Rs. 3,94,991/- towards the loan borrowed by them for construction of house, together with interest at the agreed rate of 19.25% p.a. and penal interest at 2%. The respondents denied the suit claim and prayed for dismissal of the suit. After contest, the Trial court decreed the suit with interest at 13.5% p.a. The appellant-Bank has filed this appeal only against the rate of interest awarded by the Trial Court.
2. The claim of the Bank is that the Trial Court ought to have awarded future interest at the contractual rate at 21.5% p.a. but the Trial Court committed an error by awarding only 13.5%. In support of the claim, learned Counsel for the appellant has cited the decision in Vijaya Bank, Bangalore v S. Bhathija and Another, wherein this Court has laid down the position regarding interest in paragraph 19 as under:
"19. Thus the following position emerges in regard to interest chargeable by Banks.-
(a) Banks are entitled to interest at contract rates, subject to the ceiling or limitations placed by the Reserve Bank of India in its circulars/directives;
(b) Whenever the contract provides for compounding of interest, either specifically or impliedly by use of the words "with rests", the Banks are entitled to compound interest, except in the case of agricultural advances;
(c) The Courts can only examine whether the rate of interest claimed is excessive or not with reference to the directives of Reserve Bank of India. The Courts cannot reduce the contract rate of interest either under the provisions of Usurious Loans Act or any other law relating to indebtedness or principles of equity;
(d) Normally in regard to Bank claims, the Courts should award current interest (from the date of suit to date of decree) and future interest (from the date of decree to date of realisation) under Section 34 of the Code of Civil Procedure, 1908, at the contract rates. 'Contract rate of interest' refers not only to the 'rate of interest', but refers also to compounding of interest. Thus, if contract provides for quarterly rests, the interest granted under Section 34 should be at the contract rate with quarterly rests (except in the case of agricultural advances). If the Courts want to reduce the rate of interest, either current or future, such reduction should be supported by reasons".
3. At the outset, it is to be held that the Bank is not entitled to contractual rate of interest for the following reasons.-
(i) Section 34 of CPC pertains to interest and the relevant portions of sub-section (1) thereof reads as under:
"34. Interest.-( 1) Where and insofar 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 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 exceeds 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 nationalised Banks in relation to commercial transactions.
Explanation I.-x x x x x x
Explanation II.-For the purposes of this section, a transaction is a commercial transaction, if it is connected with the industry, trade or business of the party incurring the liability". (emphasis supplied)
From a plain reading of Section 34(1), it is clear that if the decree is for payment of money, the Court may order interest at such rate as
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