Allowed

Thummala Sudhakar Rao, v. Chevuru Padmaja

Telangana HC2 Jan 2014SA/605/2013

Case brief

AI extract

What is this about?

In this second appeal, the High Court reduced the rate of interest awarded by lower courts. The bench modified the decree to award 18% interest from the date of the promissory note till the suit, 12% pendente-lite, and 6% from the date of decree.

What did the court decide?

Second appeal allowed; action on decree modified with interest rates reduced to 18% (pret-suit), 12% (pendente-lite), and 6% (post-decree).

Thummala Sudhakar Rao, Vs Chevuru Padmaja — Specific Performance | Telangana HC (2014)

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HON’BLE SRI JUSTICE B.CHANDRA KUMAR

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S.A.No.605 of 2013

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JUDGMENT:

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Heard the learned counsel for the appellant. Even after service of notice, none appeared for the respondent. No representation on respondent.

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The brief facts of the case are as follows:

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The respondent herein filed O.S.No.231 of 2000 against the appellant for recovery of an amount of Rs.1,62,570/- basing on the promissory note said to have been executed by the appellant dated 01.12.1997. Though the suit was contested on several grounds, the Principal Senior Civil Judge’s Court, Nellore decreed the suit with interest @ 24% per annum from the date of suit till the date of decree. Then the appellant herein preferred A.S.No.29 of 2005 on the file of V Additional District Judge, Nellore. However, the appeal was dismissed by judgment and decree dated 05.02.2010. Questioning the said orders, the appellant preferred this second appeal.

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At the time of admitting the second appeal, the following substantial questions of law have been framed by this Court:

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“ b) Whether the Courts below were acted legally in granting interest at 24% per annum on the principal amount pendente-lite and future interest which is not permissible as it was exceeded beyond the contractual rate of interest ignoring the proviso to Section 34 of CPC which clearly contemplates that the rate of interest from the date of decree to the date of payment is in the discretion of the Court.

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c) Whether the Courts below were justified in decreeing the suit by granting interest @ 24% per annum towards future interest ignoring the well established principles of law that in a suit for recovery of money based upon a Negotiable Instrument allowing agreed rate of interest even after the institution of the

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suit would be against public policy and amount to depriving the court of its right to ascertain as to whether the rate of interest was excessive and exorbitant.”

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Learned counsel for the appellant has relied on the judgments of the Division Bench of this Court in “Block Development Officer, Panchayat Samithi, Prathipadu, Guntur District v M.Sambaiah^[1] and the judgment of the Apex Court in Central Bank of India v Ravindra^[2] and also unreported judgment of this Court in T.Sudhakar Rao v A.Venkatessarlu in Appeal Suit No.1408 of 2004 dated 16.03.2011.

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The only point that arises for consideration is whether the rate of interest granted is just and reasonable?

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The lower Court granted interest at 24% per annum on Rs.1,00,000/- from the date of suit till the date of decree and thereafter at 6% per annum till realization. It is not in dispute that the agreed interest is 21% per annum. The plaintiff calculated the interest @ 21% per annum till the date of filing of the suit.

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The only point to be considered is whether imposing of 24% per annum on Rs.1,00,000/- is justified on the principal amount during the pendency of the suit.

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Section 34 CPC is as follows:

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“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.”

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It is settled law that interest pendenti lite should be awarded at

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reasonable rate. It is the discretion of the Court, the Apex Court in Central Bank of India (2 supra) observed as follows:

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“The English decisions and the decisions of this Court and almost all the High Courts of the country have noticed and approved long-established banking practice of charging interest at reasonable rates on periodical rests and capitalizing the same on remaining unpaid. Such a practice is prevalent and also recognized in nonbanking moneylending transactions. The legislature has stepped in from time to time to relieve the debtors from hardship whenever it has found the practice of charging compound interest and its capitalization to be oppressive and hence needing to be curbed. The practice is permissible, legal and judicially upheld excepting when superseded by legislation. There is nothing wrong in the parties voluntarily entering into transactions, evidenced by deeds incorporating covenant or stipulation for payment of compound interest at reasonable rates, and authorizing the creditor to capitalize the interest on remaining unpaid so as to enable interest being charged at the agreed rate on the interest component of the capitalized sum for the succeeding period. Interest once capitalized, sheds its colour of being interest and becomes a part of principal so as to bind the debtor/borrower.

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Mulla on the Code of Civil Procedure (1995 Edn.) sets out three divisions of interest as dealt in Section 34 IPC. The division is according to the period for which interest is allowed by the court, namely, -- 1) interest accrued due prior to the institution of the suit on the principal sum adjudged; 2) additional interest on the principal sum adjudged, from the date of the suit to the date of the decree, at such rate as the court deems reasonable; 3) further interest on the principal sum adjudged, from the date of the decree to the date of the payment or to such earlier date as the court thinks fit, at a rate not exceeding 6 per cent per annum. Popularly the three interests are called pre-suit interest, interest pendente lite and interest post-decree or future interest. Interest for the period anterior to institution of suit is not a matter of procedure; interest pendente lite is not a matter of substantive law. Pre-suit interest is referable to substantive law and can be subdivided into two subheads: I) where there is a

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stipulation for the payment of interest at a fixed rate; and ii) where there is no such stipulation. If there is a stipulation for the rate of interest, the court must allow that rate upto the date of the suit subject to three exceptions: I) any provision of law applicable to moneylending transactions, or usury laws or any other debt law governing the parties and having an overriding effect on any stipulation for payment of interest voluntarily entered into between the parties; ii) if the rate is penal, the court must award at such rate as it deems reasonable; iii) even if the rate is not penal the court may reduce it if the interest is excessive and the transaction was substantially unfair. If there is no express stipulation for payment of interest the plaintiff is not entitled to interest except on proof of mercantile usage, statutory right to interest, or an implied agreement. Interest from the date of the decree to the date of payment or any other earlier date appointed by the court is again in the discretion of the court – to award or not to award as also the rate at which to award. These principles are well established and are not disputed by learned counsel for the parties. We have stated the same only by way of introduction to the main controversy before us which has a colour little different and somewhat complex. The learned counsel appearing before us are agreed that pre-suit interest is a matter of substantive law and a voluntary stipulation entered into between the parties for payment of interest would bind the parties as also the court excepting in any case out of the three exceptions set out hereinbefore.”

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The Division Bench of this Court in Block Development Officer, Panchayat Samithi, Prathipadu, Guntur District (1 supra) observed as follows:

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“The rate of interest from the date of suit is in the discretionary of the court. Though the rate of interest for the aforesaid period is discretionary, the court should in the exercise of the discretion award interest at the contractual rate, unless it would be inequitable to do so. The rate of interest from the date of decree to

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the date of payment is also in the discretion of the court. Under the proviso to Section 34 CPC, the rate of interest may exceed six per cent where the liability in relation to the sum so had arisen out of the commercial transaction, but shall not exceed the contractual rate of interest or where there is no contractual rate of interest, or the rate at which the monies are lent or advanced by nationalized banks in relation to commercial banking. Admittedly the liability of the appellant/defendant arises out of a commercial transaction. We feel that the interest at 12 per cent per annum on Rs.67,834/- is just and reasonable from the date of decree to the date of payment”.

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In the similar circumstances, this Court awarded 12% per annum from the date of suit till the date of decree in the unreported judgment cited above. In the circumstances, the decree passed by the lower Court is modified as follows:

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It is further submitted that in the unreported judgment, this Court awarded only 18% per annum from the date of the promissory note till the date of suit. As seen from the record, the promissory note was executed on 01.12.1997 suit was filed in the year 2000 appeal was filed in the year 2005 and the same was disposed of in the year 2010.

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Having regard to the facts and circumstances of the case, the rate of interest is reduced to 18% per annum from the date of promissory note till the date of filing of the suit. The petitioner shall be entitled to interest at 12% per annum from the date of suit till the date of decree and thereafter at 6% per annum as per the decision of the trial Court.

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With the above modification, the second appeal is disposed of. No order as to costs.

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B.CHANDRA KUMAR,J

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Dt.2^nd January, 2014

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PNV

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[1] 2003(5) ALT 260 (D.B.)

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[2] (2002) 1 Supreme Court Cases 367

Thummala Sudhakar Rao, v. Chevuru Padmaja

Case brief

What is this about?

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Thummala Sudhakar Rao, v. Chevuru Padmaja

Case brief

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