Reference to Board, BIFR, SICA

The Sick Industrial Companies (Special Provisions) Act, 1985

Section 15 – Reference to Board: (1) when an industrial company
has become a sick industrial company, the Board of Directors of
the company, shall within sixty days from the date of finalisation
 of the duly audited accounts of the company for the financial year
 as at the end of which the company has become sick industrial
company, make a reference to the Board for determination of the
measures which shall be adopted with respect to the company:

Provided that if the Board of Directors had sufficient reasons
 even before such finalisation to form the opinion that the
company had become a sick industrial company, theBoard of
 Directors shall, within sixty days after it has formed such
 opinion, make a reference to the board for the determination
of the measures which shall be adopted with respect to the company:

*[Provide further that no reference shall be made to the Board
 for Industrial and Financial Reconstruction after the commencement
 of the Securitisation and Reconstruction of Financial Assets and
Enforcement of Security Interest Act, 2002, where financial assets
 have been acquired by any Securitisation company or reconstruction
company under sub-section (1) of section 5 of that Act:

Provided also that on or after the commencement of the Securitisation
 and Reconstruction of Financial Assets and Enforcement of Security
Interest Act, 2002, where a reference is pending before the Board for
 Industrial and Financial Reconstruction, such reference shall abate
if the secured creditors, representing not less than three-fourth
in value of the amount outstanding against financial assistance
disbursed to the borrower of such secured creditors, have taken
any measures to recover their secured debt under sub-section (4)
                                     of section 13 of that Act.]

*Inserted by Act 54 of 2002, Section 41 and Sch. (w.e.f. 21/o6/2002)

Debt Recovery Tribunal Banks – An Explanation

Debt Recovery Tribunal Banks is method, 

which has been used for collecting the debt from individuals 

who have failed to pay it. This kind of recovery deals with 

global debts being recovered by third parties. 

 

The debt recovery tribunal banks will be useful to collect 

the bad debts from different institutions or individuals. 

A system in place is India is a best example for this kind. 

In India, government has created twenty-nine debt recovery 

tribunals banks to recover such debts. But in the United States,

this system isn’t used in similar way.

Debt Recovery Tribunal Banks are set up in most of the states. 

There are crucial area of the bank and financial structure of the 

rganization too. Good to see, the work that done to collect the 

unpaid debts is very useful for keeping the countries economy in 

right way. Depending on the need, most of the area will have lot 

of these systems that already set up. For instance, in India, few 

of the big area like New Delhi and Mumbai have 3 or more of these

services working.

As soon as these debt recovery tribunal banks are established in 

any area, the government will provide a specific amount of jurisdiction 

to them. Very few areas, like those situated in remote places, the 

jurisdiction of the banks is pretty large. In some cases, one-debt recovery 

tribunal banks will have jurisdiction over other states because of the needs 

of that area. The larger the number of cases in particular area is, the more 

preference it is to have the correct amount of debt recovery tribunal banks 

to assist in such places.

The establishment and management of debt recovery tribunal banks have 

been regulated by the laws of the country. 

 

In India, A Presiding Officer who will generally head the institutions.

One or two Recovery Officers may work within the organization. 

In India, the Recovery of Debts Due to Banks and Financial Institutions 

Act, from 1993 is the law, which has been used to control this kind of situations.

Debt Recovery Tribunal Banks are not generally used in United States. 

Instead, collection agencies entrusted that work and they’re very frequently 

a third party provider rather than a government institutions. 

 

You need work with these organizations if you are dealing 

with international debts. It will assist you to stay out of any problems.

RBI Move To Allow Restructing of bad loans Helped Bank, industry & Economy

Feb 9, 2010

Did the restructuring of bad loans done by the Reserve Bank of India a year ago help small and medium enterprises recover and also curtail the build-up of bank’s bad loans, or did it just delay the recognition of bad loans?

According to CARE Rating Agency data, top 12 banks had restructured assets worth Rs 32,530 crore in the first quarter ended June 2009 taking their total restructured assets to nearly Rs 73,000 crore.

In December 2008, the RBI granted permission to restructure accounts that are likely to turn bad. The objective was to give a temporary relief to the industry which was in distress as a result of the liquidity squeeze.

In a recent interview to the media, Mr Subir Gokarn, a Deputy Governor of the RBI, said that while the concept of restructuring cannot be blamed there was a risk that assets that were not fundamentally sound also got the option of being restructured. The threat of large bad debts on the restructured portfolio is clearly something that needs to be watched as there may be stress on some banks, he said.

Move Hailed

The Indian Banks’ Association Chairman, Mr M. V. Nair, who is also Chairman and Managing Director of Union Bank of India, said the restructuring move by the RBI must be appreciated. Industries were reeling under non-payments of dues which was beyond their control and the restructuring helped during the liquidity crunch. This saved not just jobs but also industries, he said.

“If the restructuring had not been done the entire system would have collapsed pushing the economy further into a slowdown,” said Mr R. S. Reddy, Chairman andManaging Director, Andhra Bank. If some banks are showing a build-up of bad loans it is non-payment of the interest installments due from September to December 2009 which were restructured for the previous year; it is not that these accounts have become doubtful but eventually pay when cash flow is better, he said.

Lucky Few

Some industries like auto components have been able to overcome the situation and pay up their dues but some have not. Mr Nair said that, therefore, the possibility of default was lower due to therestructuring.

State Bank of India had restructured standard assets of Rs 16,796 crore, of which Rs 996 crore had slipped into the bad loans category, taking the slippage ratio for these to 5.9 per cent.

Mr S. A. Bhat, Chairman and Managing Director, Indian Overseas Bank, said that the restructuring had little impact on a build-up of bad loans of about Rs 3,000 crore as on December 31, 2009. Of the total restructured loans amounting to Rs 8,200 crore, only Rs 745 crore werebad loans. Of this Rs 600 crore worth of assets would be upgraded to standard assets, he said.

Varying Impact

Mr Milind Gadkari, General Manager, Care Rating Agency, said that the restructuring done by public sector banks exceeded that by their private peers. The restructuring of bad loans as percentage of non-performing assets may vary from one per cent to five per cent depending upon the exposure of the banks, he said.

The RBI’s motive in allowing restructuring of doubtful assets was the right move done at the right time. If the regulator had not intervened and done this, it would have created a crises situation not only for banks but the economy as whole, he said.

RBI ready to free all lending rates

RBI ready to free all lending rates:

Wants to deregulate rates on loans to small industries,
agriculture and exporters, may also abolish BPLR concept

Feb. 8--In a game-changing move for the Indian financial sector,
the Reserve Bank of India (RBI) is set to deregulate all lending
rates in the next fiscal year, starting in April.

The Indian central bank has in principle agreed to free the
administered rates on loans to exporters, agriculture and small industries.
A draft circular on the proposal will be posted on its website in the next
few days, inviting comments from the public.

At the next stage, it may even deregulate savings deposit rates,
the last bastion of administered rates for liabilities,
a person familiar with the development said.

Currently, both export loans and loans to small farmers
and small-scale industries are mandated by the banking regulator.


In a parallel move, RBI will also abolish the concept of benchmark
prime lending rate (BPLR), or the rate at which banks are expected
to lend money to their top-rated borrowers. The BPLR, introduced in
November 2003, will be replaced by a base rate and no bank will be
allowed to offer any loan at below the base rate.

RBI's decision to deregulate loan rates follows the recommendations
of an internal panel headed by executive director Deepak Mohanty.
The panel was formed in June to review the BPLR system and suggest
an appropriate loan pricing system. The Mohanty panel report was put
up on RBI website in October, inviting comments from public, until 17 November.

"The central bank has by and large accepted the recommendations
of the panel with minor changes," said the person familiar with the
development who didn't want to be named.
For instance, the panel recommended the one-year deposit rate
as a benchmark for the base rate, but RBI is not in favour of any
benchmark for arriving at the base rate.

All it wants is a transparent process to form the base rate that's non-discretionary.
In other words, no loan can be given at below the base rate.

Currently, around 70% of bank loans are given below BPLR, making
a mockery of the concept. Banks keep their BPLR at an artificially high
rate to protect their interest income. This is because both small loans to
farmers and small industries as well as export loans are linked to BPLR
and when the prime rate goes down, the rates on these loans automatically
decline, depressing their earnings.

Loans to exporters are given at 2.5% below a bank's BPLR while
small loans of up to Rs2 lakh given to agriculture, small-scale industries
and the so-called weaker sections of society are capped at BPLR.

For the past few years, banks have been giving small agriculture loans
at 7% with the government offering a 3% subsidy on such loans
through a budgetary provision.

"While the new base rate concept will be more meaningful than BPLR,
the most significant news for the financial sector is complete deregulation
of lending rates. This will change the way banking is done in India.

It will be interesting to see how banks and consumers respond to this,"
said the banking analyst at a foreign brokerage who declined to be
named because the regulator has not yet made the decision public.

According to him, the base rate will be significantly lower than the BPLR.
"It will be in single digit," he said.

BPLRs of public sector banks vary between 11% and 13% and most
private banks charge even more.

Despite this, banks' net interest margin (NIM), or the difference
between cost of funds and earnings on deployment of funds, will
not be hugely affected as their earnings on those loans which have
so far been administered will go up.
The panel had recommended that once the base rate is introduced,
"there will not be any need to extend any concessional export credit",
and if "any special dispensation is considered necessary,
it should come explicitly from the government in the form of interest rate subvention".

However, banks' NIM will be hit once they are forced to offer interest
rates on a daily average basis for savings accounts.

Although the savings account rate is currently pegged at 3.5%, the
average cost of banks is much lower--at around 2.8%--since they
pay interest only on the minimum balance kept between the
10th and the end of a month. But things will change from April.

A savings account is the most common operating account for
individuals and others for non-commercial transactions.
Banks generally put a ceiling on the total number of withdrawals
permitted and stipulate a certain minimum balance to be
maintained in such accounts.

With the rise in cost of savings accounts from April, banks
want RBI to bring down the interest rate from 3.5%.
The central bank is not willing to do so and instead it may
free this rate. It has asked the Indian Banks' Association,
the national bankers' body, to prepare a report on this.

The option of capping the savings bank rate at the existing 3.5% and
allowing banks to fix the rate within the cap is ruled out because that
will benefit only banks and consumers will not gain.

"We need to study this and see how banks and the consumers
get affected if the savings account rate is freed.

It cannot be done in a hurry," said a senior RBI official
who did not want to be named.

Auction sale- DRT-2-Chennai-on 15th March 2010

Debt recovery tribunal cannot accept equity shares

BS Reporter / New Delhi January 4, 2010, 0:26 IST





The Delhi high court last week ruled that equity shares cannot be considered as liabilities under the Recovery of Debts Due to Banks and Financial Institutions Act. Therefore, a claim to issuance of shares or delivery of shares in place of debt repayment cannot be regarded as an action seeking the recovery of a debt as defined in Section 2(g) of the said Act. This ruling against the order of the debt recovery tribunal in Delhi came in the case, Cochin International Airport Ltd vs Hudco.





The private airport took loans from Hudco with Kerala government’s guarantee, but it could not repay the instalments at one time. It offered equity shares instead. Hudco accepted it. The airport company claimed that it had repaid the amount. There was a dispute over the payment and Hudco demanded 52,000,000 equity shares. When it was denied, Hudco moved the tribunal, which decided in its favour. The airport company moved the high court. It allowed the petition and ruled that the definition of debt did not include equity share.



Companies have no right to automatic renewal of contract



The Delhi high court last week dismissed the petition of MMS Steel & Power Ltd against Oil & Natural Gas Commission and imposed cost of Rs 1 lakh for abuse of process of law. MMS sought an extension of the contract for supply of natural gas for five years more from the expiry of its earlier five-year period. Both parties disputed the date of expiry of the earlier contract. ONGC also contended that none has an automatic right to get extension of contract.



Moreover, gas supply and prices are fixed according to government policy. The judgement stated that the petition was filed in June this year and “it is clearly an abuse of the process of law whereby the fresh tendering process has been stalled for approximately six months causing huge losses to ONGC and that too for a valuable national asset.”



Delhi HC allows banks’ appeals on NRE accounts



The Delhi high court has allowed the writ petitions of Bank of America and Standard & Chartered Bank against the show cause notices issued to them by the Enforcement Directorate in regard to deposits in foreign currency made by power of attorney holders of Non-Resident Indians in whose names the Non-Resident External (NRE) Accounts stood.


The question that arose was whether, even for the period prior to 31.07.1995, such deposits in foreign currency needed to be made, necessarily, by the Non-Resident Indian account holder, in person? The high court said no in answer to this problem. It explained that prior to 31.07.1995 there was no requirement that the deposits in NRE accounts could not be made by persons other than the NRE accounts holders themselves. For the subsequent period, it is not in dispute that such deposits could be made only by the account holder himself, in person.


Consumer commission raps insurance company


The National Consumer Commission has directed United India Assurance Co Ltd to pay compensation to Hadimba International Ltd, manufacturer and exporter of leather goods. A large stock of imported leather kept in Chennai was damaged in rain and floods. When the company demanded the amount insured, the insurance company was slow to reply. The surveyor kept on asking irrelevant information and data already in his possession.


When the claim was rejected, the company moved the national consumer commission. The commission observed that apart from the conduct of the surveyor, “the policy itself was vague”. For example, the schedule did not clearly state the break-up of the insured sum in respect of each of the items. “How the sum assured or the premium to be paid was arrived at is thus a mystery,” the judgment while allowing the claim.



Bank of India guilty of ‘deficiency in service’


The National Consumer Commission has held Bank of India guilty of deficiency in service in issuing ‘stockinvests’ to applicants in a public issue beyond the limit prescribed by the Reserve Bank of India. In a batch of appeals against the order of the Maharashtra state consumer commission, K R Srinivasan vs Bank of India, the national commission partly allowed the pleas of the share applicants. According to the complaint, a Mumbai branch of Bank of India issued stockinvests to them exceeding Rs 50,000 in disregard of the RBI instructions.


Therefore their share applications were rejected by the company. So they moved the state commission alleging heavy loss of capital gains due to the rejection caused by the negligence of the bank. They argued that firstly, the bank failed to inform them of the RBI rules, and secondly, it even issued the documents against the rules. The state commission dismissed their complaints. However, the national commission accepted their contention and held the bank accountable on both counts for the loss due to ‘deficiency in service’ according to the Consumer Protection Act.

C.K. Sasankan vs The Dhanalakshmi Bank Ltd
n 27 February, 2009

Cites 7 docs -
Section 34 in The Indian Penal Code, 1860

H.S.Ahammed Hussain & Anr vs Irfan Ahammed & Anr
 on 9 July, 2002

The Indian Penal Code, 1860

Citedby 2 docs

Corporation Bank vs D.S. Godwa
on 20 June, 1994

Corporation Bank vs D.S. Gowda And Anr
on 20 June, 1994



Supreme Court of India


Bench: M Sharma], Sinha]

IN THE SUPREME COURT OF INDIA


CIVIL APPELLATE JURISDICTION

CIVIL APPEAL No. 1317 OF 2009


(Arising out of SLP (C) No. 30832 of 2008)

C.K. Sasankan ...Appellant Versus


The Dhanalakshmi Bank Ltd. ...Respondent JUDGMENT
Mukundakam Sharma, J.




1. Leave granted.


2. This appeal arises out of the judgment and order dated 17.07.2008 passed by

the Division Bench of the High Court of Judicature at Madras in Writ Petition

(civil) No. 28664 of 2003 dismissing the writ petitions filed by the appellant

and confirming the judgment passed by the Debt Recovery Appellate Tribunal,

Chennai (hereinafter referred to as the `Appellate Tribunal').


3. The appellant is the son of late C.V. Kunjikuttan, who was carrying on

business as a civil contractor. Said C.V. Kunjikuttan carried on business of

contracts in his individual capacity. He died on 8th September, 1989 and on his

demise, the business was taken over by his legal heirs. While C.V. Kunjikuttan

was alive he had availed of certain facilities from Dhanalakshmi Bank Ltd.,

Cherthala Branch, Alappuzha District - Respondent herein (for short the

`Bank'). The respondent is a scheduled bank and has its principal place of

business at Thrissur in Kerala and Branches in various other places. C.V.

Kunjikuttan approached the respondent - bank in 1973 for sanction of an over

draft financial facility. The Bank sanctioned him an overdraft facility of Rs.

3 lakh. The overdraft facility allowed to C.V. Kunjikuttan was secured by

security of immovable property, which was collateral security. On 30.10.1980,

the Bank granted an enhanced overdraft facility of Rs. 9 lakh which was secured

by late C.V. Kunjikuttan and his children including the appellant herein.

4. As the said amount was not repaid the bank filed a suit being O.S. No. 176

of 1991 on the file of sub-court, Cherthala. Subsequently the proceedings were

transferred to Debts Recovery Tribunal (for short "DRT") on its

formation under the Recovery of Debts Due to Banks and Financial Institutions

Act, 1993. The relief prayed by the Bank was to Page 2 of 7


realize a sum of Rs. 28,50,707.03 from the appellants, if necessary, by sale

of the suit / scheduled properties. The DRT vide Judgment dated 10.08.2001

allowed the proceedings initiated by the Bank and accordingly declared that the

debts due to the bank is Rs. 28,50,707.03 together with interest @ 25% per

annum compounding with quarterly rests from 17.7.1991 i.e. from the date of

filing of the suit till the date of the Judgment with a simple interest at the

rate of 19.4% per annum from 11.08.2001 till realisation. The appeal from the

said order was dismissed by the Appellate Tribunal as also by the Division

Bench of the High Court of Madras.


5. The learned counsel appearing for the appellant contended before us that the

grant of interest @ 25% from the date of filing of the suit till the date of

judgment and at 19.4%, thereafter till its realisation is exorbitant and

contrary to the provisions of Section 34 of the Code of Civil Procedure (for

short the `Code'). It was further submitted that as per the said section the

interest has to be reasonable and at prevalent bank rate of interest.


6. The learned counsel appearing for the respondent on the other hand supported

the judgments of the courts below and submitted that the courts Main Search Forums Advanced Search Disclaimer


C.K. Sasankan vs The Dhanalakshmi Bank Ltd on 27 February, 2009

Cites 7 docs - [View All]

Section 34 in The Indian Penal Code, 1860

H.S.Ahammed Hussain & Anr vs Irfan Ahammed & Anr on 9 July, 2002

The Indian Penal Code, 1860

Citedby 2 docs

Corporation Bank vs D.S. Godwa on 20 June, 1994

Corporation Bank vs D.S. Gowda And Anr on 20 June, 1994




Bench: M Sharma], Sinha]

IN THE SUPREME COURT OF INDIA



CIVIL APPELLATE JURISDICTION



CIVIL APPEAL No. 1317 OF 2009



(Arising out of SLP (C) No. 30832 of 2008)



C.K. Sasankan ...Appellant Versus



The Dhanalakshmi Bank Ltd. ...Respondent JUDGMENT



Dr. Mukundakam Sharma, J.







1. Leave granted.



2. This appeal arises out of the judgment and order dated 17.07.2008 passed by

the Division Bench of the High Court of Judicature at Madras in Writ Petition

(civil) No. 28664 of 2003 dismissing the writ petitions filed by the appellant

and confirming the judgment passed by the Debt Recovery Appellate Tribunal,

Chennai (hereinafter referred to as the `Appellate Tribunal').


3. The appellant is the son of late C.V. Kunjikuttan, who was carrying on

business as a civil contractor. Said C.V. Kunjikuttan carried on business of

contracts in his individual capacity. He died on 8th September, 1989 and on his

demise, the business was taken over by his legal heirs. While C.V. Kunjikuttan

was alive he had availed of certain facilities from Dhanalakshmi Bank Ltd.,

Cherthala Branch, Alappuzha District - Respondent herein (for short the

`Bank'). The respondent is a scheduled bank and has its principal place of

business at Thrissur in Kerala and Branches in various other places. C.V.

Kunjikuttan approached the respondent - bank in 1973 for sanction of an over

draft financial facility. The Bank sanctioned him an overdraft facility of Rs.

3 lakh. The overdraft facility allowed to C.V. Kunjikuttan was secured by

security of immovable property, which was collateral security. On 30.10.1980,

the Bank granted an enhanced overdraft facility of Rs. 9 lakh which was secured

by late C.V. Kunjikuttan and his children including the appellant herein.



4. As the said amount was not repaid the bank filed a suit being O.S. No. 176

of 1991 on the file of sub-court, Cherthala. Subsequently the proceedings were

transferred to Debts Recovery Tribunal (for short "DRT") on its

formation under the Recovery of Debts Due to Banks and Financial Institutions

Act, 1993. The relief prayed by the Bank was to

realize a sum of Rs. 28,50,707.03 from the appellants, if necessary, by sale

of the suit / scheduled properties. The DRT vide Judgment dated 10.08.2001

allowed the proceedings initiated by the Bank and accordingly declared that the

debts due to the bank is Rs. 28,50,707.03 together with interest @ 25% per

annum compounding with quarterly rests from 17.7.1991 i.e. from the date of

filing of the suit till the date of the Judgment with a simple interest at the

rate of 19.4% per annum from 11.08.2001 till realisation. The appeal from the

said order was dismissed by the Appellate Tribunal as also by the Division

Bench of the High Court of Madras.


5. The learned counsel appearing for the appellant contended before us that the

grant of interest @ 25% from the date of filing of the suit till the date of

judgment and at 19.4%, thereafter till its realisation is exorbitant and

contrary to the provisions of Section 34 of the Code of Civil Procedure (for

short the `Code'). It was further submitted that as per the said section the

interest has to be reasonable and at prevalent bank rate of interest.



6. The learned counsel appearing for the respondent on the other hand supported

the judgments of the courts below and submitted that the courts


below were justified in granting the said rate of interest as the appellants

have failed to re-pay the amount which was obtained by them under the overdraft

facility.

7. In order to appreciate the aforesaid contention, we are required to consider

the scope and ambit of Section 34 of the Code which gets attracted in the

instant case. The provisions of Section 34 of the Code are reproduced

hereinbelow :



"34. Interest - (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: Provided that where

the liability in relation to the sum so adjudged had arisen out of a commercial

transaction, the rate of such further interest may exceed six per cent, per

annum, but shall not exceed the contractual rate of interest or where there is

no contractual rate, the rate at which moneys are lent or advanced by

nationalised banks in relation to commercial transactions.



Explanation I.-In this sub-section, "nationalised bank"

means a corresponding new bank as defined in the Banking Companies (Acquisition

and Transfer of Undertakings) Act 1970 (5 of 1970)



Explanation II.-For the purposes of this section, a transaction is

a commercial transaction, if it is connected with the industry, trade or

business of the party incurring the liability. (2) Where such a decree is

silent with respect to the payment of further interest on such principal sum

from the date of the decree to the date of payment or other earlier date, the

Court shall be deemed to have refused such interest, and a separate suit

therefore shall not lie."







8. The quantum and rate of interest which the appellant in the present case is

entitled to would be in accordance with the provisions of Section 34 of the

Code. According to the provisions of Section 34 of the Code interest is to be

awarded at a reasonable rate and on the principal amount. It is needless to

point out that although the amount of interest from the date of filing of the

suit till the date of the decree and thereafter till realisation is in the

discretion of the court as is confirmed by the use of the word `may' but such

discretion has to be exercised by the court properly, reasonably and on sound

legal principles and not arbitrarily and while doing so the court is also to

consider the parameter, scope and ambit of Section 34 of Code.




9. The aforesaid scope and ambit of Section 34 of the Code has been the subject

of discussion in many cases of this Court. We are inclined to refer to the

decision in Clariant International Ltd. v. Securities &


Exchange Board of India, (2004) 8 SCC 524, where it was held by this Court

that the interest can be awarded in terms of an agreement or statutory

provisions and it can also be awarded by reason of usage or trade having the

force of law or on equitable considerations but the same cannot be awarded by

way of damages except in cases where money due is wrongfully withheld and there

are equitable grounds therefor, for which a written demand is mandatory. It was

further held that in absence of any agreement or statutory provision or a

mercantile usage, interest payable can be only at the market rate and such

interest is payable upon establishment of totality of circumstances justifying

exercise of such equitable jurisdiction. It was also held that in ascertaining

the rate of interest the courts of law can take judicial notice of both

inflation as also fall in bank rate of interest. The bank rate of interest both

for commercial purposes and other purposes has been the subject-matter of

statutory provisions as also the judge-made laws. In the said case reference

was made to the decisions in Kaushnuma Begum v. New India Assurance Co. Ltd.

(2001) 2 SCC 9, H.S. Ahammed Hussain v. Irfan Ahammed (2002) 6 SCC 52 and

United India Insurance Co. Ltd. v. Patricia Jean Mahajan (2002) 6 SCC 281 and

it was observed that even in cases of victims of motor vehicle accidents, the

courts have upon taking note of the fall in the


rate of interest held 9% interest to be reasonable. Direction to pay such rate

of interest is also found to be reasonable and fair as the plaintiff was

deprived to utilize and roll its money in commercial transaction and kept out

of it due to wrongful withholding of the same by the defendant.


10. Considering the facts and circumstances of the present case, we find that

the rate of interest as awarded for pendente lite and future interest is

exorbitant and thus we direct that pendente lite and future interest at the

rate of 9% shall be paid which is found to be just, proper and reasonable.



11. The appeal stands allowed to the aforesaid extent.

..............................J.



[S.B. Sinha]



................................J.



[Dr. Mukundakam Sharma]



New Delhi,



February 27, 2009



have failed to re-pay the amount which was obtained by them under the overdraft

facility.







7. In order to appreciate the aforesaid contention, we are required to consider

the scope and ambit of Section 34 of the Code which gets attracted in the

instant case. The provisions of Section 34 of the Code are reproduced

hereinbelow :



"34. Interest - (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: Provided that where

the liability in relation to the sum so adjudged had arisen out of a commercial

transaction, the rate of such further interest may exceed six per cent, per

annum, but shall not exceed the contractual rate of interest or where there is

no contractual rate, the rate at which moneys are lent or advanced by

nationalised banks in relation to commercial transactions.



Explanation I.-In this sub-section, "nationalised bank"

means a corresponding new bank as defined in the Banking Companies (Acquisition

and Transfer of Undertakings) Act 1970 (5 of 1970).



Page 4 of 7



Explanation II.-For the purposes of this section, a transaction is

a commercial transaction, if it is connected with the industry, trade or

business of the party incurring the liability. (2) Where such a decree is

silent with respect to the payment of further interest on such principal sum

from the date of the decree to the date of payment or other earlier date, the

Court shall be deemed to have refused such interest, and a separate suit

therefore shall not lie."







8. The quantum and rate of interest which the appellant in the present case is

entitled to would be in accordance with the provisions of Section 34 of the

Code. According to the provisions of Section 34 of the Code interest is to be

awarded at a reasonable rate and on the principal amount. It is needless to

point out that although the amount of interest from the date of filing of the

suit till the date of the decree and thereafter till realisation is in the

discretion of the court as is confirmed by the use of the word `may' but such

discretion has to be exercised by the court properly, reasonably and on sound

legal principles and not arbitrarily and while doing so the court is also to

consider the parameter, scope and ambit of Section 34 of Code.







9. The aforesaid scope and ambit of Section 34 of the Code has been the subject

of discussion in many cases of this Court. We are inclined to refer to the

decision in Clariant International Ltd. v. Securities & Page 5 of 7



Exchange Board of India, (2004) 8 SCC 524, where it was held by this Court

that the interest can be awarded in terms of an agreement or statutory

provisions and it can also be awarded by reason of usage or trade having the

force of law or on equitable considerations but the same cannot be awarded by

way of damages except in cases where money due is wrongfully withheld and there

are equitable grounds therefor, for which a written demand is mandatory. It was

further held that in absence of any agreement or statutory provision or a

mercantile usage, interest payable can be only at the market rate and such

interest is payable upon establishment of totality of circumstances justifying

exercise of such equitable jurisdiction. It was also held that in ascertaining

the rate of interest the courts of law can take judicial notice of both

inflation as also fall in bank rate of interest. The bank rate of interest both

for commercial purposes and other purposes has been the subject-matter of

statutory provisions as also the judge-made laws. In the said case reference

was made to the decisions in Kaushnuma Begum v. New India Assurance Co. Ltd.

(2001) 2 SCC 9, H.S. Ahammed Hussain v. Irfan Ahammed (2002) 6 SCC 52 and

United India Insurance Co. Ltd. v. Patricia Jean Mahajan (2002) 6 SCC 281 and

it was observed that even in cases of victims of motor vehicle accidents, the

courts have upon taking note of the fall in the Page 6 of 7



rate of interest held 9% interest to be reasonable. Direction to pay such rate

of interest is also found to be reasonable and fair as the plaintiff was

deprived to utilize and roll its money in commercial transaction and kept out

of it due to wrongful withholding of the same by the defendant.



10. Considering the facts and circumstances of the present case, we find that

the rate of interest as awarded for pendente lite and future interest is

exorbitant and thus we direct that pendente lite and future interest at the

rate of 9% shall be paid which is found to be just, proper and reasonable.



11. The appeal stands allowed to the aforesaid extent.

..............................J.



[S.B. Sinha]



................................J.



[Dr. Mukundakam Sharma]



New Delhi,



February 27, 2009