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.
Tuesday, January 5, 2010
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
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
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