The provisions of Section 34, Code of Civil Procedure regarding future interest would not be applicable to a suit filed for the recovery of amount due on the basis of a mortgage deed. The mortgagee is entitled to charge compound interest on the loan amount.

Ashok Bhan, J.

1. Judgment-debtor-petitioner (hereinafter referred to as the judgment-debtor) along with four other judgment-debtors took a loan of Rs. 64,000/- from the respondent-Punjab National Bank, Sunam, decree holder (hereinafter referred to as the decree-holder) on 13.4.1981 for the purchase of a tractor. The loan was to be repaid in seven years in 14 half yearly instalments starting from December, 1981. Judgment-debtor paid certain amount by way of instalments but thereafter defaulted in the payment of the instalments.

2. Decree-holder-Bank filed a suit on 17.7.1986 for the recovery of Rs. 98,107.00, which was decreed by the Sub Judge, 1st Class, Sunam on 8.8.1988. Judgment-debtor was directed to make the payment of the amount due along with future interest at the rate of 14 1/2% per annum as had been agreed between the parties.

3. Decree holder-Bank filed an execution application in which objections were filed by the judgment-debtor. One of the objections taken was that the decree holder-Bank has been granted future interest at the rate of 14 1/2% per annum till realisation which was excessive and should not have been more than 6%. This objection was rejected by the executing Court by the impugned order on the ground that the decree had been passed in a mortgage suit and, therefore, the provisions of Section 34, Code of Civil Procedure regarding future interest would not be applicable.

4. I have heard the counsel for the parties.

5. This Court in Chanan Singh v. Punjab National Bank, Ghanaur and Anr., (1992-1) 101 PLR 647, has held that where a suit has been filed for the recovery of amount due on the basis of a mortgage deed then the provisions of Order 34 Rule 11, Code of Civil Procedure would be applicable and the judgment-debtor would be liable to pay interest to the mortgagee as provided therein.

6. Admittedly, in this case, the loan was taken by the judgment-debtor on the basis of a mortgage deed. In Chanan Singhs case (supra), it was held as under:-

"Admittedly, the present suit was filed for the recovery of the amount due on the basis of the mortgage deed under Order 34 Rules 4 and 11 of the Code of Civil Procedure. Rules 4 and 11 of Order 34 provide that in any decree passed in a suit for foreclosure sale or redemption, where interest is legally recoverable, the Court may order payment of interest to the mortgagee as provided therein. Thus, the provisions of Section 34 of the Code of Civil Procedure are not attracted to such a suit and Court had rightly determined the principal amount and the amount of interest payable thereupon as agreed to between the parties."

7. This view was taken relying upon as earlier judgment of this Court in Makhan Singh v. Union of India and Ors., (1989-1) 95 PLR 703.

8. Another point taken by the judgment-debtor is that interest could only be charged on the principal amount and the same could not be compounded. Subsequent to the judgments referred to above, Supreme Court of India has comprehensively laid down law regarding recovery of loan and the interest to be paid thereon. In Corporation Bank v. D.S. Gowda and Bank of India v. Karnam Ranga Rao, 1994 ISJ (Banking) 594, it was held by their Lordships of the Supreme Court that from the agriculturists, the loan can be recovered with yearly rests and that compound interest could also be charged, in paras 12 and 22, it was held as under:-

"PARA-12: From the above circulars issued by the Reserve Bank from time to time it is evident that the procedure for charging interest on loans advanced to agriculturists, be they short term or middle term loans, was different from loans advanced to other borrowers. The first and the second circulars in terms refers to changing of interest on agricultural advances. There is nothing equivocal or ambiguous about it. The third circular is general in nature and prescribes the ceiling for the recovery of interest with the qualification that if there is an agreement permitting charging of penal i