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2019 Supreme(Bom) 993
IN THE HIGH COURT OF JUDICATURE AT BOMBAY
SANDEEP K. SHINDE, J.
Rajesh Kishan Khanaj - Appellant
Versus
Federal Bank Limited Branch, Ichalkaranji - Respondent
Writ Petition No. 6979 of 2013
Decided On : 18-06-2019
Sudhir Prabhu, Adv., Vivek S Sawant, Adv.
In commercial transactions, the grant of interest at a reduced rate should be a rare exception.
Headnote:
Interest Rate Dispute - Recovery Suit - 21% p.a. - Section 34(2) of CPC - Future Interest - Commercial Transactions - Satish Solvant Extractsions Private Limited v. The New India Assurance Company Ltd. - Syndicate Bank v. M/s. W.B. Cements Ltd. And Ors.
Fact of the Case:
The respondent-Bank filed a suit for recovery of a due amount against the petitioner-Borrower and guarantors. The petitioner disputed the agreed rate of interest, claiming it was 14.5% and not 21%. The trial Court decreed the suit, and the petitioner challenged the recovery of future interest by the Bank.
Finding of the Court:
The Court found that the agreed rate of interest was 21% p.a. and that the Bank was entitled to claim future interest. It held that the recovery of interest at a reduced rate in commercial transactions should be a rare exception.
Issues: Dispute over the agreed rate of interest, entitlement of the Bank to claim future interest, and the rate of interest for recovery.
Ratio Decidendi: The Court held that the Bank was entitled to claim future interest and that in commercial transactions, the grant of interest at a reduced rate should be a rare exception.
Final Decision: The petition challenging the recovery of future interest was dismissed.
Based on the provided legal document, the key points are as follows:
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The suit was initiated by the respondent Bank for recovery of a due amount from the petitioner and guarantors, with the original loan agreement specifying an interest rate of 21% per annum (!) (!) .
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The trial court decreed the suit, allowing the Bank to recover the principal amount along with interest as per RBI norms, which would not exceed the agreed rate of interest (!) .
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The petitioner disputed the interest rate, claiming it was 14.5%, but the court found the agreed rate was 21% p.a., and the Bank was entitled to claim future interest (!) (!) .
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The decree included an order for the petitioner to repay the due amount within two months, with the interest to be calculated according to the norms of RBI, implying the Bank could recover interest at the contractual rate, including future interest (!) .
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The Bank had charged and recovered interest at a rate of 15% from the date of filing the suit, which was less than the contractual rate of 21%, and this was considered appropriate given the commercial nature of the transaction (!) (!) .
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The court emphasized that in commercial transactions, the grant of interest at a rate lower than the contractual rate post-decree should be a rare exception, and generally, interest at the contractual rate should be granted (!) (!) .
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The court clarified that the operative order did not explicitly segregate future interest from the interest accrued till the decree, but since the court held that the Bank was entitled to future interest, the decree was not silent on this aspect (!) (!) .
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The court reaffirmed the principle that in commercial transactions, the default position is that interest should be granted at the contractual rate, and any reduction should be an exception, justified only under specific circumstances (!) (!) .
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The petitioner's challenge to the recovery of future interest was dismissed, as the court found no error in the Bank's calculation or in the trial court's discretion, and the Bank's recovery at the contractual rate was justified (!) .
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Overall, the judgment underscores that in commercial loan transactions, interest at the contractual rate is the rule, and deviations require exceptional circumstances; the court upheld the Bank's right to recover the full interest as per the agreement (!) (!) .
These points encapsulate the court's reasoning, findings, and the legal principles applied in this case regarding interest recovery in commercial transactions.
JUDGMENT :
Sandeep K. Shinde, J.
1. Rule. Rule made returnable forthwith. By consent of parties, taken up for hearing immediately.
2. The respondent-Bank instituted the suit for recovery of the due amount against the petitioner-Borrower and guarantors in the Court of Civil Judge Senior Division, Ichalkaranji being Special Civil Suit No. 196 of 2005. The petitioner is hereinafter referred to as "the defendant no.1" and the respondent as "the Bank". Defendants no.1 and 2 are the real brothers and defendant no.3 is their real Uncle. They all were dealing with the business of transportation. In October, 1997, the Bank advanced term loan of Rs.1,66,000/- to the defendant no.1 to purchase a truck. Defendants no.2 and 3 voluntarily agreed as Guarantors. A secured term loan agreement was executed by all the defendants wherein the agreed rate of interest was 21% p.a. Letter of Guarantee executed by each Guarantor independently speaks about the agreed rate of interest as 21% p.a. Clause-3 of the term loan agreement shows that, Bank had liberty to charge 2% penal interest if the installment remains unpaid. The promissory note also states that agreed rate of interest was 21% p.a. The suit for recovery instituted by the Bank was decreed by the trial Court on 2nd May, 2006. The operative order reads as under :
"1. Suit is decreed with cost.
2. Defendants No.1 to 3 should jointly and severally repay the due amount of Rs.2,72,696/- (Rupees Two Lacs Seventy Two Thousand Six Hundred Ninety Six only) along with interest as per present norms of the R.B.I. which definitely shall not exceed the agreed rate of interest.
3. Defendant should repay the due loan amount within two months. Failing which plaintiff is at liberty to recover the same on the strength of this decree.
4. Decree be drawn accordingly."
3. XXX XXX XXX
4. XXX XXX XXX
5. In the suit, the petitioner disputed the rate of interest and claimed that the agreed rate of interest was 14.5% and not 21%. The learned trial Judge has held that, the Bank proved that agreed rate of interest was 21% p.a. with quarterly rests. Issue no.6 which is relevant for consideration in the present petition reads as under :
"Whether the plaintiff is entitled to claim future interest, if yes, at what rate?"
6. The issue is answered in the affirmative as per the present norms.
7. The Bank instituted Regular Darkhast No.21 of 2006 and claimed recovery of the following amount :
Rs.2,76,696/- as per the decree,
Rs.2,90,970/- interest pendenite lite i.e. from
17th January, 2002 to 11th July, 2006 (the date on which Darkhast is filed).
In addition, the Bank has also claimed future interest from 11th July, 2006.
8. The petitioner deposited Rs.4,23,981/- during November, 1990 till 13th August, 2012. On 28th August, 2012, he filed an application and disputed the calculations. He thus claimed that, Rs.81,170/- were deposited in excess of the agreed dues. The Executing Court rejected the said application vide order dated 5th October, 2010. The petitioner thereafter filed another application on 8th January, 2013 and disputed the calculations on two grounds, namely : (i) in terms of the provisions of Section 34(2) of the CPC where a decree is silent with respect to payment of future interest from the date of the decree to the date of payment, the Court shall deemed to have refused such interest and therefore the recovery of interest, for a period post decree was not permissible.
9. He therefore requested the Executing Court to direct the Bank to disclose the rate of interest charged and recovery from the petitioner from the date of the suit to the date of the decree.
10. The learned Judge rejected the said application on the ground that, very same issue was raised in the earlier application dated 28th August, 2012 and therefore second application dated 8th January, 2013 was not maintainable.
11. The petitioner being aggrieved by the order dated 11th February, 2013 passed below Exhibit-83 has preferred this petition.
12. The issue in the petition
