Karnataka State Co-Operative Vs Sri.N.R.Murugesh — Writ and Judicial Review | Karnataka HC (2025)

Karnataka State Co-Operative Vs Sri.N.R.Murugesh — Writ and Judicial Review | Karnataka HC (2025)

What the court decided

AI extract

Outcome

The award passed by the Assistant Registrar of Co-operative Societies, Mandya Sub-division, Mandya is modified by directing the respondents to make payment of interest at the agreed rate, i.e., 15.5% per annum on the loan account of Rs.4,70,000/- and 16.5% on the loan account of Rs.2,00,000/-; the order passed by the Appellate Tribunal stands modified; and the petitioner is permitted to execute the modified award.

Issue for consideration

Whether the Assistant Registrar of Co-operative Societies (Arbitrator) and the Karnataka Appellate Tribunal could pass/confirm the recovery award without considering the contractually agreed rate of interest, i.e., by reducing the agreed interest. +1 more

Court's answer

The loan agreement produced on record indicates and establishes the agreed rate of interest contended for by the petitioner's counsel.

Ratio / Principle

Once the rate of interest is agreed between the parties, the arbitrator, who is a creation of the statute, cannot reduce the interest rate or make any changes in it; the Arbitrator does not exercise a jurisdiction of equity but is required to decide as per the contract agreed upon between the parties.

Key takeaways

The Arbitrator cannot substitute the contract entered into between the parties merely because he considers such substitution equitable; in a dispute filed under Section 70 KCS Act, 1959, the Arbitrator is required to act strictly in terms of the agreement arrived at between the parties.ratio¶10
Granting time to pay by instalments is at the discretion of the Arbitrator; however, while granting such indulgence, the interest agreed till the last payment was also required to be taken into account, which was not done — instead, the interest was reduced.ratio¶11

Detailed headnote1 paragraphs

Karnataka High Court (Suraj Govindaraj J., single Bench) allows W.P. No. 56257/2017 (CS-RES) filed by the Karnataka State Co-operative Housing Federation Ltd. against its borrower (since dead, represented by LRs 1(a-d)) and the Assistant Registrar of Co-operative Societies, Mandya. Held: an Arbitrator acting under S.17/S.70 of the Karnataka Co-operative Societies Act, 1959 is bound by the contractually agreed rate of interest; being a creature of statute and not exercising equitable jurisdiction, he cannot reduce or alter the agreed interest or substitute the parties' contract on equitable considerations. Instalments are discretionary, but while granting them the agreed interest till the last payment must be reckoned — the award reduced interest to 10%, granted instalments without calculating interest, and the Karnataka Appellate Tribunal (23.08.2017, Appeal No.172/2014) confirmed it without adverting to these aspects. The award is modified: respondents to pay interest at the agreed rates — 15.5% per annum on the Rs.4,70,000/- loan account and 16.5% per annum on the Rs.2,00,000/- loan account — and the petitioner is permitted to execute the modified award.

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IN THE HIGH COURT OF KARNATAKA AT BENGALURU

DATED THIS THE 17^TH DAY OF JULY, 2025

BEFORE

THE HON'BLE MR. JUSTICE SURAJ GOVINDARAJ

WRIT PETITION NO. 56257 OF 2017 (CS-RES)

BETWEEN

KARNATAKA STATE CO-OPERATIVE HOUSING FEDERATION LIMITED., NO.3, S.KARIYAPPA ROAD, BASAVANAGUDI, BENGALURU-560 004 REP BY ITS MANAGING DIRECTOR

...PETITIONER

(BY SRI. M.K. BHASKARAIAH., ADVOCATE)

AND

SRI.N.R.MURUGESH S/O RAMAIAH, MAJOR,

Digitally signed by SHWETHA RAGHAVENDRA Location: HIGH COURT OF KARNATAKA

RESIDING AT NO.4995 ASSESSMENT NO.6265 SY.NO.67/P, S.I.S. EXTENSION, BHOVI COLONY, MALAVALLI TOWN MANDYA DISTRICT

SINCE DEAD BY LR’s

1(a) SMT. ANANDA LAKSHMI W/O N.R. MURUGESH AGED ABOUT 55 YEARS

1(b) SRI. RAJASHEKAR S/O N.R. MURUGESH AGED ABOUT 35 YEARS

1(c) SRI. SRINIVAS S/O N.R. MURUGESH AGED ABOUT 33 YEARS

1(d) KUM. PUSHPALATHA

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D/O N.R. MURUGESH AGED ABOUT 36 YEARS

ALL ARE R/AT BHOVI COLONY, SIS EXTENSION MALAVALLI TOWN, MANDYA DISTRICT.

THE ASSISTANT REGISTRAR OF CO-OPERATIVE SOCIETIES/ARBITRATOR, MANDYA SUB DIVISION, MANDYA TOWN AND DISTRICT

…. RESPONDENTS

(BY SRI. HARISH A.S., AGA FOR R2, SMT. M. INDIRA PRIYADHARSHINI., ADVOCATE FOR R1 (a-d)

THIS WRIT PETITION IS FILED UNDER ARTICLES 226 & 227 OF THE CONSTITUTION OF INDIA PRAYING TO CALL FOR THE RECORDS FROM THE COURTS BELOW AND QUASH THE AWARD AS PER ANXN-J PASSED BY THE LEARNED ASSISTANT REGISTRAR OF CO-OPERATIVE SOCIETIES, MANDYA SUB-DIVISION, MANDYA TO THE EXTENT OF REDUCING THE RATE OF INTEREST AND PERMITTING THE R-1 TO PAY THE AWARD AMOUNT ON INSTALLMENTS TO THE PETITINERS AND THE ORDER PASSED BY THE LEARNED MEMBERS OF THE KARNATAKA APPELLATE TRIBUNAL, BENGALURU DTD 23.8.2017 PASSED IN APPEAL NO.172/2014 AS PER ANNX-K BY CONFIRMING THE ORDER OF THE R-1 AND DIRECT THE R-1 TO PAY THE AWARD AMOUNT ON THE CONSTRACTUAL RATE OF INTEREST AT 16.5% PER ANNUM AT ONCE ON THE AWARD AMOUNT PASSED BY THE R-2 LEARNED ASSISTANT REGISTRAR OF CO-OPERATIVE SOCIETIES, MANDYA SUB-DIVISION, MANDYA WHO REDUCED THE CONTRACTUAL RATE OF INTEREST ON THE AWARD AMOUNT AT 16.5% PER ANNUM AND DIRECT THE R-1 TO PAY THE AWARD AMOUNT AT ONCE BY GRANTING AN ORDER OF WRIT OF CERTIORARI AND ETC.

THIS WRIT PETITION COMING ON FOR ORDERS AND HAVING BEEN RESERVED FOR ORDERS ON 04.07.2025, THIS DAY, THE COURT PRONOUNCED THE FOLLOWING:

CORAM: HON'BLE MR. JUSTICE SURAJ GOVINDARAJ

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CAV ORDER

The Petitioner is before this Court seeking for the

following reliefs:

Call for the records from the courts below and quash the award as per Annexure-J passed by learned Assistant Registrar of Co-operative Societies, Mandya Sub-Division, Mandya to the extent of reducing the rate of interest and permitting the R1 to pay the award amount on instalments to the petitioner and the order passed by the learned members of the Karnataka Appellate Tribunal, Bengaluru dated 23.8.2017 passed in Appeal No.172/2014 as pr Annexure-K by confirming the order of the 1^st Respondent and direct the R1 to pay the award amount on the contractual rate of interest at 16.5% per annum at once on the award amount passed by the 2nd Respondent, learned Assistant Registrar of Co-operative Societies, Mandya SubDivision, Mandya who reduced the contractual rate of interest on the award amount at 16.5% per annum and direct the R1 to pay the award amount at once by granting an order of Writ of Certiorari or other writ/s orders as deems fit to grant under the circumstances of the above case with costs in the interest of justice.

The petitioner is a Co-operative Federation registered under the Karnataka Co-operative Societies Act, 1959 (hereinafter referred to as “ KCS Act, 1959” ), with the object of lending loan to member societies and its members for the purchase of sites, buildings

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and construction of buildings, etc. Respondent No.1Sri.N.R.Murgesh, he is a member of the petitionerFederation who had availed a loan of Rs.4,70,000/on 01.07.2006 for construction of house on his property by agreeing to pay interest of 11.5% per annum and the penal interest in all amounting to 15.5% per annum by executing a loan agreement and mortgaged deed as security the property purchased was mortgaged by way of deposit of deeds.

Meanwhile, Respondent No.1 had taken another loan for a sum of Rs. 2,00,000/- on 15.04.2009 at an interest of 13% per annum and overdue interest at 16.5% per annum. The respondent No.1 failed to repay the above amounts; hence, the demand was issued on 14.12.2010, 6.8.2011 and 8.8.2011. In that background, the petitioner preferred a dispute under Section 17 of the KCS Act of 1959 before respondent No.2 in dispute No.I & M D2/251/2011-

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12 for recovery of the loan amount. The respondent No.2 allowed the dispute on 30.03.2013, reducing the rate of interest and granting time to pay the award amount in instalments, which is contrary to the contractual rate of interest.

Aggrieved by the same, the petitioner had filed an appeal before the Karnataka Appellate Tribunal (hereinafter referred to as “KAT” ) in Appeal No.172 of 2014. The KAT dismissed the said appeal by confirming the award passed by respondent No.2. It is in that background that the petitioner is before this Court seeking the aforesaid reliefs.

Respondent No.1 was served, and it was subsequently informed that Respondent No.1 had expired. Hence, his legal heirs were brought on record as respondents No.1 (a to d). Though an advocate has entered appearance on their behalf, none has been appearing for them. As such, on 05.06.2025, this Court observed that if none were to

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appear for respondent No.1 (a to d), the matter would be taken up for consideration, and the matter was adjourned.

When the matter was taken up for consideration on 04.07.2025, again there was no appearance on the part of respondent No.1 (a to d), and as such, it was taken up for consideration on the basis of the submission of the counsel for the petitioner.

Sri.M.K.Bhaskaraiah, learned counsel for the petitioner, would submits that;

7.1. Neither the award nor the order of the Appellate Tribunal is a speaking order. Neither the Arbitrator nor the Appellate Tribunal could have passed orders without considering the contractual rate of interest. A loan agreement executed between the parties binds the parties by the contractual rate of interest. The payment being required to be made as per a decree, the question of the Appellate Tribunal

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granting any instalments for payment would not arise.

7.2. His submission is that the instalments have taken to account only the principal amount has awarded the further interest has not been taken into account. Thus, the Bank is deprived of interest on the determined amount even as regards the indulgence extended in the award as also by the Appellate Tribunal, the respondents have not made use of the same and no payments have been made till date.

7.3. As such, he submits that the award and the order of the Appellate Tribunal be modified by including the interest as agreed and permitting the petitioner to execute the entire award as a whole.

Heard M.K.Bhaskaraiah., learned counsel for the petitioner and perused Papers.

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A perusal of the loan agreement, which has been produced, indicates and establishes the contentions of M.K.Bhaskaraiah, learned counsel for the petitioner, as regards the agreed rate of interest. Once the rate of interest is agreed, the arbitrator, who is a creation of the statute, cannot reduce the interest rate or make any changes in the interest rate since the Arbitrator is not exercising a jurisdiction of equity but is required to decide as per the contract agreed upon between the parties.

The Arbitrator cannot substitute the contract entered into between the parties just because the Arbitrator is of the opinion that the same would be equitable to the parties in a dispute filed under Section 70 KCS Act, 1959, the Arbitrator is required to act strictly in terms of the agreement arrived at between the parties.

Insofar as the instalments are concerned, that in my considered opinion would be at the discretion of the

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Arbitrator; however, while granting such indulgence to make payment by way of instalments, the interest agreed till the last payment was also required to be taken into account, which has not been taken into account, instead the interest has been reduced.

The Arbitrator has passed the following order;

ಆ�ೇಶ ಅ��ಾರರು ಕ�ಾ�ಟಕ ಸಹ�ಾರ ಸಂಘಗಳ �ಾ�� 1959ರ ಕಲಂ 70ರ�ಯ�� ಸ� � ದ �ಾ�ೆಯ ಮನ ಯನು! �ೆಳಕಂಡಂ#ೆ $ಾ%ಾ�ಡು&ೊ(ಸ)ಾ*�ೆ.

ಎದುರು�ಾರರು ಇ��ಯವ/ೆ&ೆ ಮಂಡಳ�ೆ0 %ಾವ1�ರುವ ಹಣವನು! ಅ��ಾರರ ಅಸಲು ಹಣ�ೆ0 3ೇಕ5ಾ 10ರ ಬ�7 8ೇ9��ೊಂಡು :ಾ; 8ಾಲದ ಹಣವನು!, ಇನು! ಎರಡು 1ಂಗಳ ಅವ<ಯ�� ಎದುರು�ಾರರು ರೂ.50000/ಹಣವನು! %ಾವ1ಸುವ=�ಾ* ಒ?@�ೊಂ�ರು#ಾA/ೆ. ಸದ9 ಹಣವನು! ಸBಾ ಎದುರು�ಾರರು %ಾವ1ಸ:ೇ�ಾದ :ಾ; ಅಸಲು ಹಣ�ೆ0 8ೇ9� :ಾ; ಉ(ದ ಅಸಲು ರೂ.3,20,000/-(Dೇರು ಹಣ 35 8ಾ ರ ಕEೆದು) ಹಣವನು! ಎದುರು�ಾರರು %ಾವ1��ೊಂಡು ಬರುವ=ದು. ಅ��ಾರರು $ಾ��ೊಂ�ರುವ ಒಪ@ಂದದಂ#ೆ ಎದುರು�ಾರ9&ೆ ಇನು! ಎಂಟು ವಷ� 8ಾಲದ ಹಣ 1ೕ9ಸಲು �ಾ)ಾವ�ಾಶ ರುತA�ೆ. ಅ��ಯವ/ೆ&ೆ :ಾ; ಇರುವ ಅಸಲು ಹಣ�ೆ0 8ಾ�Kಾನ 3ೇಕ5ಾ 10ರಂ#ೆ ಬ�7 8ೇ9� ಸಮಕಂ1ನ�� ಎದುರು�ಾರರು ಅ��ಾರರ ಸಂಘ�ೆ0 ಹಣ %ಾವ1ಸು#ಾA ಬರುವ=ದು. ಬ�7 ಹಣವನು! ಇತ/ೆ ಗೃಹ 8ಾಲದ :ಾMಂಕುಗಳN #ೆ&ೆದು�ೊಳNOವಂ#ೆ )ೆ�ಾ0Pಾರ $ಾ� ಉ(ದ ಕಂತುಗ(&ೆ ಬ�7 ಪ5ೆಯತಕ0ದು�. ಒಂದು �ೇEೆ ಎದುರು�ಾರರು BೆಚುR ಹಣವನು! :ೇಗ %ಾವ1�ದ�� ಅದ�ೆ0 ಬ�7 ಮ�ಾ! $ಾಡುವ=ದು. ಎದುರು�ಾರರ ಕಂ1ನ ಹಣದ�� ಅ��ಾರ9&ೆ 35 8ಾ ರ ರೂ%ಾS :ಾ; ಇ�ಾ�ಗ)ೇ ಎದುರು�ಾರರು %ಾವ1�ರುವ Dೇರು ಹಣವನು! ಸದ9 :ಾ; ಹಣ�ೆ0 ಉ#ಾAರು Bಾ;�ೊಂಡು 8ಾಲದ ಹಣವನು! ಪT#ಾ� ವUಾ $ಾ��ೊಳOತಕ0ದು�. ಈ ಆ�ೇಶ�ಾದ

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ಎರಡು 1ಂಗಳ�� ಎದುರು�ಾರರು ಐವತುA 8ಾ ರ ರೂ%ಾSಗಳನು! ಅ��ಾರರ ಮಂಡಳ�ೆ0 8ಾಲದ :ಾತುA %ಾವ1ಸತಕ0�ೆ�ಂದು ಆ�ೇYಸ)ಾ*�ೆ.

ಷಯ Z�ಾ�ಹಕರು (�ಾMಜM) ಇವ9&ೆ ಖುದು� ಉಕA)ೇ^� ಬ/ೆS�ದ ಗಣಕಯಂತ_ಂದ �ದaಪ��ದ ಈ ಅ�ೇಶವನು! ಪ9Yೕ�� �ಾಂಕ:30-032013 ರಂದು ಬcರಂಗ�ಾ* #ೆ/ೆದ �ಾMKಾಲಯದ�� dೂೕe� ನನ! ಸfಸc Bಾಗೂ �ಾMKಾಲಯದ gಹ9#ೆhಂ`&ೆ Bೊರ��ೆ�ೕ�ೆ.

A perusal of the above would indicate that, firstly the interest has been reduced to 10% and has permitted the Respondents to make payment of the amount awarded in instalments. As regards this, interest has not been calculated. This order has been confirmed by the KAT in the impugned order without adverting to these aspects.

In that view of the matter, I pass the following;

ORDER

i. The writ petition is allowed .

ii. The award passed by the Assistant Registrar of Co-operative Societies, Mandya Sub-division, Mandya is modified, by directing the Respondents to make payment of interest at the agreed rate i.e., 15.5% per annum on the

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loan account of Rs.4,70,000/- and 16.5% on the loan account of Rs.2,00,000/- accordingly the order passed by the Appellate Tribunal stands modified. iii. The petitioner is permitted to execute this modified award.

SD/(SURAJ GOVINDARAJ) JUDGE

SR List No.: 1 Sl No.: 78