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High Court Of Delhi
SYNDICATE BANK - Appellant
Versus
WEST BENGAL CEMENTS LIMITED - Respondent
Suit 348 of 1980
Decided On : 10/10/1988
PRINCIPAL SUM - INTEREST - SECTION 34 OF CODE OF CIVIL PROCEDURE - COMMERCIAL TRANSACTION - CONTRACTUAL RATE OF INTEREST - SICK UNIT - ADJUSTMENT OF PAYMENT - BANKING PRACTICE - INTERPRETATION OF WORDS - PRINCIPAL SUM - INTEREST - SECTION 34 OF CODE OF CIVIL PROCEDURE - COMMERCIAL TRANSACTION - CONTRACTUAL RATE OF INTEREST - SICK UNIT - ADJUSTMENT OF PAYMENT - BANKING PRACTICE - INTERPRETATION OF WORDS
Fact of the Case:
The plaintiff, Syndicate Bank, filed a suit for recovery of Rs. 33,39,026.75p. The defendants, in consideration of the overdraft limit, executed a demand promissory note for said sum of Rs. 10,00,000.00 carrying interest at 10% per annum for the time being. The defendants acknowledged their liabilities in writing to the extent of Rs. 11,83.327.95 p. as on 31st of December, 1974 by acknowledgment of debt dated 31st of January, 1975. The defendants again acknowledged their liabilities in respect of the said overdraft account and also confirmed the previous acknowledgment dated 31st of January, 1975. By acknowledgment of debt dated 16th of November, 1977 defendants admitted their liabilities to the extent of Rs. 17,38,401.85p. as on 31st of December, 1976 with interest thereon from 1st of January, 1977 under the promissory note dated 2nd of February, 1972. The defendants failed to pay anything despite the bank writing numerous letters to them.
Finding of the Court:
The court held that the principal sum is the amount claimed by the bank, which includes interest from the date of advance till the date of the suit. The court further held that the defendants are liable to pay interest on the principal sum at the contractual rate from the date of the suit to the date of realization. The court also held that the defendants are not entitled to any reduction in the rate of interest on the ground that they are a sick unit. The court further held that the amount of Rs. 7,40,000.00 paid by the defendants during the pendency of the suit is liable to be adjusted towards the interest.
Issues: 1. Whether the principal amount as claimed by the Bank is not principal amount on the ground that it includes interest added from the date of advance till date of the suit? If so, what is its effect? 2. Whether there are special circumstances for disallowing interest payable to the plaintiff from the date of the filing of the suit to the date of the decree and from the date of the decree till the date of the payment and, in any case, for charging the same at reduced rate or rates of interest? 3. Whether the amount paid by the Defendant during the pendency of this suit is liable to be adjusted against the principal amount or towards interest?
Ratio Decidendi: 1. The principal sum under Section 34 of the Code of Civil Procedure includes interest from the date of advance till the date of the suit. 2. In commercial transactions, the contractual rate of interest should be the rule and the grant of interest at a reduced rate a rare exception. 3. The existence of exceptional or special circumstances will depend on the facts and circumstances of each case. 4. In the absence of any instructions from the defendants, the bank could apply the amount paid by the defendants at its discretion to any lawful debt actually due and payable to it from the defendants.
Final Decision: The court passed a decree in favor of the plaintiff and against the defendants for a sum of Rs. 33,39,026.75 p. with interest thereon at the rate of 16% per annum from the date of suit to the date of realization. The plaintiff was also entitled to its costs.
( 1 ) THE plaintiff, Syndicate Bank, has filed this suit for recovery of Rs. 33,39,026. 75p. The case as set up in the plaint is that the bank amongst various other facilities sanctioned overdraft limit of Rs. 10,00,000. 00 to defendant 1 company against hypothecation of fiat cars, jeeps and commercial vehicles. The defendants, in consideration of the said overdraft limit, executed a demand promissory note dated 2- 2-1972 for said sum of Rs. 10,00,000. 00 carrying interest at 10% per annum for the time being. The defendants also executed further documents as set out in the plaint and availed of the said overdraft limits of Rs. 10,00,000. 00. The defendants acknowledged their liabilities in writing to the extent of Rs. 11,83. 327. 95 p. as on 31st of December, 1974 by acknowledgment of debt dated 31st of January, 1975. It is further claimed that in spite of acknowledgment of liability the defendants failed to deposit money in the said over draft account and when called upon to deposit the sale proceeds of the hypothecated vehicles, the defendants stated that the same had been utilised elsewhere and they were not in a position to pay the same to the bank. By Resolution dated 7th of January, l977,defendants again acknowledged their liabilities in respect of the said overdraft account. Once again by Resolution dated 14th of November, 1977 the defendants acknowledged their liabilities in respect of the said overdraft account and also confirmed the previous acknowledgment dated 31st of January, 1975. By acknowledgment of debt dated 16th of November, 1977 defendants admitted their liabilities to the extent of Rs. 17,38,401. 85p. as on 31st of December, 1976 with interest thereon from 1st of January, 1977 under the promissory note dated 2nd of February, 1972. The defendants failed to pay anything despite the bank writing numerous letters to them. The bank further claims that originally the rate of interest was 10% per annum and because of enhancement in the bank rate, by Reserve Bank of India, the interest chargeable from the defendants also stood enhanced and the defendants had agreed to be bound by the various rules and regulations of the bank regarding enhancement of interest and the same has been charged at the rate of 16% per annum and has been computed accordingly in the statement of account filed in the suit. Accordingly it is claimed that a sum of Rs. 33,39,826. 75 p. is due from and payable by the defendants to (he bank.
( 2 ) THE written statement on behalf of defendant 1 was filed about four years after service of summons on the said defendant. Although adjournment was taken to file written statement on behalf of other defendants but no written statement was filed. The plea taken by the defendant 1 in the written statement is that the said defendant became a sick unit and as such is no- liable to pay any interest. The averments made in the plaint were not specifically controverted as required by R. 5 of 0. 8 of Code of Civil Procedure. The rate of interest was also not specifically controverted nor execution of the-various documents. The substance of the plea of defendant 1 is given in additional pleas in the written statement in the following words:
"that the answering Defendant took diverse amounts from the Plaintiff Bank from time to time which are subject matter of this suit as well as the other suits filed by the plaintiff. The answering Defendant is always ready to pay the principal amount and being a sick unit is not liable to pay any interest. The answering Defendant became a sick unit but although it has since substantially recovered but is still a sick unit for purposes of payment of the amount, which is subject matter of the present suit as well as the connected suits. The plaintiff is, therefore, not entitled to charge any interest and can claim only the principal amount. A proposal has already been submitted by the answering Defendant to the Plaintiff Bank in which in order to settle the matter th
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