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High Court Of Calcutta
S. K. HAZARI
BANK OF RAJASTHAN LTD - Appellant
Versus
S.K.TRADING CO. - Respondent
Suit 277 Of 1982
Decided On : 04/02/1986
INTEREST ON PRINCIPAL - BANKING LAW - SECTION 34 OF THE CODE OF CIVIL PROCEDURE - INTERPRETATION - INTEREST CAPITALIZED UNDER QUARTERLY RESTS - PRINCIPAL SUM INCLUDES CAPITALIZED INTEREST - INTEREST ON JUDGMENT AND INTERIM INTEREST - CALCULATION.
Fact of the Case:
The appellant-plaintiff bank and the defendant-respondents had an agreement for the plaintiff bank to lend advances to the defendant company. The agreement provided for interest at a specified rate on the principal amount, with quarterly rests. The bank filed a suit for a decree for the principal amount plus interest calculated up to the date of the suit. The trial court passed a final judgment and decree in favor of the plaintiff for a sum of Rs. 11,13,706.05p with further interest from 26th March 1982 at the rate of 12% per annum. The defendants filed an application for clarification and modification of the decree, which was allowed by the trial court. The plaintiff appealed the trial court's order.
Finding of the Court:
The High Court held that the principal sum for the purpose of section 34 of the Code of Civil Procedure (CPC) was Rs. 11,13,706.05p, which included the interest calculated up to the date of the suit. The Court found that the interest capitalized under quarterly rests became part of the principal amount and that the agreement between the parties provided for this capitalization. The Court also held that the trial court erred in calculating further interest from 26th March 1982 on the sum of Rs. 9,00,000 instead of Rs. 11,13,706.05p. The Court allowed the appeal and set aside the trial court's order to the extent that it calculated further interest on Rs. 9,00,000 instead of Rs. 11,13,706.05p.
Issues: 1. Whether the principal sum for the purpose of section 34 of the CPC included the interest capitalized under quarterly rests. 2. Whether the trial court erred in calculating further interest from 26th March 1982 on the sum of Rs. 9,00,000 instead of Rs. 11,13,706.05p.
Ratio Decidendi: 1. The Court held that the interest capitalized under quarterly rests became part of the principal amount and that the agreement between the parties provided for this capitalization. The Court relied on the case of Commissioner of Inland Revenue vs. Sir H. C. Holder BT. and Anr., where the Court of Appeal held that the system of Bankers in turning interest into capital was usual and binding on the parties who had acquiesced in it. The Court also noted that the House of Lords, in a subsequent decision, did not dissent from the Court of Appeal's finding on this point. 2. The Court held that the trial court erred in calculating further interest from 26th March 1982 on the sum of Rs. 9,00,000 instead of Rs. 11,13,706.05p. The Court found that the principal sum for the purpose of section 34 of the CPC was Rs. 11,13,706.05p, which included the interest calculated up to the date of the suit.
Final Decision: The High Court allowed the appeal and set aside the trial court's order to the extent that it calculated further interest on Rs. 9,00,000 instead of Rs. 11,13,706.05p. The Court held that the principal sum for the purpose of section 34 of the CPC was Rs. 11,13,706.05p, which included the interest calculated up to the date of the suit.
( 1 ) THIS appeal arises out of a Judgment and order passed by the learned Trial Court on 19th June 1984 in made by the defendant respondents herein. The facts of this case are very simple.
( 2 ) THERE was an usual agreement between the appellant-plaintiff bank and the defendant-respondents whereby the plaintiff bank agreed to lend advance to defendant No. 1 of which the defendants Nos. 2, 3,4, 5 and 6 were the partners and wherein the defendant No. 7 subsequently became a partner, originally, the transaction was in the Cash Credit Account and the bill discount account at its branch at 25, Strand Road, Calcutta after, with effect from 31st March 1978 by agreement between the said Cash Credit account of the defendant No. 1 was transferred from the Strand Road Branch of the plaintiff to the plaintiff's branch at Chowringhee Road, Calcutta and the agreements with the plaintiff continued.
( 3 ) WE are concerned with the Cash Credit account with the said transferred Branch only. The arrangement was to advance money in the said account at the said branch upto a limit of Rs. 900,000 on the following terms and conditions :" (A) The interest payable in the said account would be at the rate 6% per annum above the Reserve Bank of India rate subject minimum of 15% per annum with quarterly rests in respect of the advance as made against hypothecation of goods upto a limit of Rs. 4,00,000 ; (B) Interest would be paid at the rate of 6% per annul Reserve Bank of India rate with a minimum of 15% per annum with quarterly rests against advances made against hypothecation of book debts unto a limit of Rs. 5,00,000. "
( 4 ) THIS suit has been filed for a decree for Rs. 11,88,706. 91 further interest from 26th March 1982, interim interest and interest on judgment at the agreed rate of 19. 50% per annum. So far as the interest is concerned, averments were made in paragraph 28 of the plaint to the effect that interest in the said accounts was duly altered by agreement between the parties as follows : (a)From 13. 11. 76 till 28. 2. 78. . 16. 5% (b)From 1. 3. 78 till 12. 9. 79. . 15% (c)From 13. 7. 79 till 30. 6. 80. . 18% (d)From 1. 7. 80 till 1. 3. 81. . 19. 40% (e)From 2. 3. 81 (continuing ). . 19. 50%
( 5 ) A statement of account duly certified under the Banker's Book Evidence Act is annexed to the plaint which shows that from time to time withdrawals and deposits were made and that in accordance with the agreement at the end of each quarter the interest for the period was included in the principal amount lent and advanced. On such basis from the statement of account it appears that on the 26th March 1982 a sum of Rs. 11,88,706. 91p. was due which included interest under the aforesaid clause and which was included in the principal amount. After the institution of the suit the plaintiff made an interlocutory application wherein certain orders were passed.
( 6 ) THEREAFTER the plaintiff made an application for final judgment and upon hearing of which a decree was passed in favour of the plaintiff appellant on 31st January 1983 which we set out hereinbelow : there will be a final judgment and decree against the defendant Nos. 1 to 4 and 7 for Rs. 11,13, 706. 05p with further interest from March 26, 1982 at the rate of 12 per cent per annum and costs. The decree passed will not however, be executed if the defendants pay the said amount decree instalments of a sum of Rs. 20,000 beginning from the 15th day of February 1983 and pay the same each and every month until the end of 1983. The defendants will thereafter from the 15th of January 1984 pay a sum of Rs. 25,000 a month until the entire decretal dues are wiped off. The defendants, after payment of all the instalments directed to be paid will as the last instalment pay the entire interest due and owing at the time within Six months of the payment of the last instalment paid. In default of payment of any two successive instalments and/or the last instalment, the plaintiff wi
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