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2001 Supreme(Raj) 880
Supreme Court
Honble S.P. BHARUCHA, CJI K.T. THOMAS, R.C. LAHOTI, N. SANTOSH HEGDE & S.N. VARIAVA, JJ.
Central Bank of India - Appellant
Versus
Ravindra & Ors. - Respondents
Civil Appeal No. 3964 of 1992, 3967 of 1992, S.L.P. (C) No. 3954 of 1994, 9082 & 9088 of 1995, , 4562 of 1998, Civil Appeal No. 4716 of 1994 and 2496 of 1993
Decided On : August 18, 2001
Harish N. Salve, Solicitor General, Rakesh Dwivedi, K.N. Bhat, Sr. Advocates. Ranjit Kumar, Sr. Advocate (AC). J.B. Dadachanji & Co., Advocates. Janendra Lal, Yasmin Tarapore, Siddarth Goswami, Siddharth Choudhary, Aprajita Singh, Gayatri Goswami, Prikesh
Headnote:(a) C.P.C., Sec. 34 (after Amendment of 1956) – Capitalisation of interest debited on periodical rests – Practice of charging interest at reasonable rates on periodical rests and capitalising the same on remaining unpaid are approved by the Apex Court both for banks and non-banking money lending transactions. (Para 36)(b) C.P.C., Sec. 34 (After Amendment of 1956) – Meaning of phrases ``the principal sum adjudged and ``such principal sum – It is the principal sum actually advanced coupled with the interest on periodical rests and also capitalised on remaining unpaid – ``Such principal sum, on which interest pendente lite and future interest i.e. post decree interest which the Court may deem fit, may be awarded by the Court. (Para 58)
The English decisions and the decisions of this Court and almost all the High Courts of the country have noticed and approved long established banking practice of charging interest at reasonable rates on periodical rests and capitalising the same on remaining unpaid. Such a practice is prevalent and also recognised in non-banking money lending transactions. Legislature has stepped in from time to time to relieve the debtors from hardship whenever it has found the practice of charging compound interest and its capitalisation to be oppressive and hence needing to be curbed. The practice is permissible, legal and judicially up-held excepting when superseded by legislation. There is nothing wrong in the parties voluntarily entering into transactions, evidenced by deeds incorporating covenant or stipulation for payment of compound interest at reasonable rates. and authorising the creditor to. capitalise the.interest on remaining unpaid so as to enable interest being charged at the agreed rate on the interest component of the capitalised sum for the succeeding period., Interest once capitalised, sheds its colour of being interest and becomes a part of principal so as to bind the debtor/borrower. (Para 36)
(1) Subject to a binding stipulation contained in a voluntary contract between the parties and/or an established practice or usage interest on loans and advances may be charged on periodical rests and also capitalised on remaining unpaid. The principal sum actually advanced coupled with the interest on periodical rests so capitalised is capable of being adjudged as principal sum on the date of the suit,.
(2) The principal sum so adjudged is such principal sum within the meaning of Section 34 of the Code of Civil Procedure, 1908 on which interest pendente lite and future interest i.e. post-decree interest, At such rate and for such period which the Court may deem fit, may be awarded by the Court. (Para 58)
(2). It will be useful to reproduce the order of reference dated 7.05.1996 [since reported as ((1996) 5 SCC 279) (1) so as to highlight the nature and scope of controversy arising for decision before the Constitution Bench
``ORDER
After hearing learned Attorney General and amicus curiae S/Shri A. Subba Rao Ranjit Kumar and K.M.K. Nair on (the interpretation of the provisions of Section 34 CPC on ``the principal sum adjudged the matter is required to be considered by a Constitution Bench. The learned Attorney General has drawn our attention to the judgments of this Court in Corpn. Bank vs. D.S. Gowda and Bank of Baroda vs. Jagannath Pigment & Chem. wherein lie sought to draw the deduction that the principal sum adjudged and the principal sum mentioned later would be the same. He seeks to take support from the word `such in support of his contention. Preceding Amendment Act 66 of 1956, the words were ``aggregate sum so adjudged and after amendment, were substituted with the words ``the principal sum adjudged, from the date of tie 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 the suit (with further interest on such date as the court deems reasonable on the ``principal sum)*. The distinction, therefore, was not drawn to the attention of this Court in the aforesaid two judgments in particular the later one. As a fact no argument in this behalf appears to have been canvassed. Interpretation of the liability of the borrower to pay interest on the principal sum to include interest that became merged with the principal sum adjudged or principal sum as lent, is required to be authoritatively laid down by a Bench of five Judges.
The Registry is directed to place the matter before the Honble the Chief Justice for constituting the Constitution Bench,
*[Sic., should have been - with further interest at such rate not exceeding six per cent per annum, as the Court deems reasonable on such `principal sum, in our opinion].
Section 34(1) of C.P.C. and 1956 Amendment
(3). Sub-section (1) of Section 34 above said, as it stood prior to the 1956 amendment, and as it stands amended, are reproduced in juxta position hereunder:
Prior to amendment As amended by Act No.66 of 1956
34.(1) Where and in so far 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 my period prior to the institution of the suit, (with further interest at such rate as the Court deems reasonable on the aggregate sum so adjudged.] from the date of the decree to the date of payment, or to such earlier date as the Court thinks fit. (1) Where and in so far 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 the 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.
(2) Where such a decree is silent wit
