The central legal point established in the judgment is the determination of the applicable interest rate and penal interest on a borrowed sum, based on the agreement between the parties and the circumstances of the case.

(Prayer: Appeal Suit filed under Section 96 and under Order 41 Rule 1 of Civil Procedure Code to set aside the judgment and decree of the Sub Court, Ranipet made in O.S. No. 550/91, dated 17.02.94.)

1. Aggrieved over the judgment and decree dated 17.02.1994, passed in O.S. No.550 of 1991, on the file of the Subordinate Court, Ranipet, the plaintiff has come forward with the present first appeal.

2. For the sake of convenience, the parties are referred to as per their rankings in the trial Court.

3. Suit for recovery of money based on mortgage.

4. Shorn of unnecessary details, according to the plaintiff, the defendants availed loan facilities from the plaintiff's bank for establishing a new Auto Service Station and accordingly, mortgaged their properties in favour of the plaintiff's bank by way of depositing the title deeds and as per the terms of the loan sanctioned, it is stated that the plaintiff had disbursed a total sum of Rs.1,00,250/- as loan to the defendants for the abovesaid business venture and the defendants agreed to repay the borrowed sum in easy installments as agreed to and accordingly, it is the case of the plaintiff that in respect of the loan availed, the defendants executed a mortgage deed dated 22.03.84 for the principal sum of Rs.1,00,250/- and further, according to the plaintiff, the defendants had agreed to repay the sum with interest at 13.5% per annum subject to variations as fixed by the Reserve Bank of India now and then, hence, according to the plaintiff, as per the prevailing rate of interest, the defendants are liable to pay the borrowed sum at 16% per annum and further, according to the plaintiff, inasmuch as the defendants had failed to repay the borrowed sum in installments as promised and undertaken, as per the circular of the Reserve Bank of India, the defendants are also liable to pay penal interest at 2% and accordingly, it is the case of the plaintiff that the defendants are liable to pay a total sum of Rs.2,94,024.59 and accordingly, put forth the case that inasmuch as the defendants had failed to pay the above said borrowed sum, despite the issuance of the legal notice, according to the plaintiff, it has been necessitated to levy the suit against the defendants for the recovery of above said amount with future interest at 18% and the costs of the suit.

5. The defendants 1,2,4 and 5 resisted the plaintiff's suit contending that they are not, in particular, liable to pay the borrowed sum with interest at 16% per annum as put forth in the plaint and also disputed the entitlement of the plaintiff to claim penal interest at 2% and the defendants had admitted the availment of the loan of Rs.1,00,250/- from the plaintiff towards the business venture and according to them, the above said sum was disbursed to them by the plaintiff's bank in three installments, namely, a sum of Rs.50,000/- was disbursed on 22.03.1984, a sum of Rs.25,000/- was disbursed on 25.06.1984 and a sum of Rs.25,250/- was disbursed on 18.01.1985 and according to the defendants, inasmuch as the plaintiff's bank had failed to extend the loan facilities as promised and also not extended the loan in time, according to the defendants they had been put to irreparable loss and hardship in commencing the business venture and after experiencing great difficulties, they were able to commence the work only from 13.04.1991 and accordingly, due to the above said unforeseen circumstances and the non cooperation of the allied departments as well as the plaintiff's bank, they were unable to repay the borrowed sum in time and accordingly, challenged the case of the plaintiff that it is entitled to claim interest at 16% per annum and as well as its claim for penal interest and accordingly contended that the plaintiff is entitled only to get back the principal amount with proportionate costs and accordingly, prayed the Court to dismiss the suit laid by the plaintiff.

6. Based on the above said pleas put forth by the respective parties, the