JUDGMENT
D.V. Shylendra Kumar, J.
Page 1296
1. This appeal by the 1st defendant in OS No. 4307/1987 is directed against the Judgment & Decree dated 7-7-2000 where under the court below has partly decreed the suit of the plaintiff-Bank of Baroda and while so decreeing the suit for principal amount of Rs. 73.200/-, has allowed interest at the rate of 15% per annum on this amount from 1-12-1985 onwards till the satisfaction of the decree and further directed that the plaintiff-Bank should first proceed against the 1st defendant for realisation of the decreetal amount.
2. It is aggrieved by this Judgment and Decree, the appeal by the 1st defendant on several grounds, inter alia, that the 1st defendant, in fact, was not liable for payment of any money to the Bank; that having regard to the subsequent developments and particularly the conduct of the parties including the Bank, the 1st defendant had been absolved of his liability if any; that the Judgment & Decree if at all should have been only as against the 2nd defendant etc.,.
3. The plaintiff – Bank also has filed cross objections, inter alia, contending that the trial court should not have issued any direction to the plaintiff about the manner of execution of the decree and also on the disallowed part of the interest on the principal amount.
Page 1297
4. The brief facts leading to the Judgment & Decree by the trial court under the above appeal are as under:
The case of the plaintiff-bank in terms of the plaint averments is that the defendants had constituted a partnership firm; that they had borrowed certain amounts from the bank for the purpose of the business of the firm under the name and style of Sterling Varnishes; that they had a running account with the bank; that when the said loan account was examined for recovery in the light of repeated defaults on the part of the firm and its partners, the parties arrived at an amicable understanding that the outstanding amount was to be reduced to a sum of Rs. 2,75,000/- and in respect of this outstanding, a down payment of Rs. 1,50,000/- was to be made and the balance amount of Rs. 1,25,000/- was to be paid thereafter in 12 monthly installments by the defendants; that the plaintiff-bank had the right to recall the entire balance outstanding if there should be default in payment of two installments consecutively; that such terms and conditions had been reflected in the communication dated 6-8-1984 – Exhibit-P7, a communication having signature of the defendants in response to the letter of the bank dated 13-2-1984 -Exhibit-P1 and such understanding was followed up by execution of a promissory note dated 30-9-1984 by both the defendants marked as Exhibit-P2 and notwithstanding such understanding, the defendants had not made prompt payment of the installment amount; that after about 4 or 5 installments, there were defaults and as a consequence, the Bank was constrained to file the suit after having issued notice dated 15-5-1987 – Exhibit-P3; that the bank claimed that the amount outstanding from out of Rs. 1,25,000/- which had been agreed to be repaid by way of installments by the defendants to be at Rs. 73,200/-after giving credit to the sum of Rs. 51,800/- which had been received by the bank in lieu of Rs. 1,25,000/- and also claimed notice charges of Rs. 100/- with interest on the outstanding amount at 16.5% purporting to be the interest by way of damages as the bank was a commercial organisation, the lending rate was still higher and minimum 16.5% interest should be awarded and as such had claimed such interest with effect from 1-6-1985, the date on which the defendants had committed default in payment of the installments and such interest was claimed not only for the past period but also pendente lite and also for future also.
5. The defendants on issue of notices entered appearance and contested the suit. The defendants filed separate written statement.
6. The 1st defendant pleaded that the suit was bad for misjoinder of parties, particularly, as the 1st defendant was no doubt a partner earlier, had retired from the firm with effect from 30-9-1984, but nevertheless, the firm had been continued; that the son of the 2nd defendant and another person were added as partners with effect from 1-10-1984; that they had continued the firm with the very name and style of Sterling Varnishes’; Page 1298 that the understanding amongst the parties was that the liability of the firm was to be taken over by the remaining partners; that on the retirement of the 1st defendant, the existing liability was to be taken over by the firm and its continuing partners and as it was only the liability of the firm and it is for the subsequent partners to satisfy the claim of the bank; that the suit against the answering defendant was barred by limitation and without prejudice pleaded further that the firm had not been dissolved, it had been continued and the 2nd defendant having continued as a partner, he alone was liable even as between the two defendants; that balance amount of Rs. 2,75,000/- which was due to bank was required to be paid only by the firm and continuing partner i.e., the 2nd defendant; that the plaintiff was not entitled for the claim towards interest; that the claim of interest by way of damages was not legal and therefore prayed for dismissal of the suit as against the 1st defendant.
7. The 2nd defendant in his separate written statement, while admitted the understanding for payment of Rs. 1,25,000/- and the execution of the Exhibit-P2 promissory note pleaded that the defendants had constituted the firm as partners with a profit sharing ratio of 75:25; that their liability was on the same proportion; that if that were to be taken note of, the 2nd defendant having discharged i.e., having paid much more than 25% liability in respect of the outstanding amount of Rs. 1,25,000/-, there was no further liability on the 2nd defendant and if at all it was only the 1st defendant who was liable for making good the balance payment of Rs. 73,200/- claimed by the plaintiff-bank; that the plaintiff cannot sue the 2nd defendant for any amount; that in this regard the answering defendant was not liable to pay any interest on the outstanding amount; that the understanding of the bank with the firm being for payment of Rs. 1,25,000/- without any interest even as indicated in the promissory note, the bank was not entitled for claiming any interest and prayed for dismissal of the suit as against him.
8. The trial court in the light of such rival pleadings, had framed the following issues:
1. Whether the plaintiff proves that the defendants agreed to repay Rs. 2.75,000/- as per settlement towards the firm ‘Sterling Varnishes’ as per para-4 of the plaint?
2. Whether the plaintiff proves that the defendants executed a D.P. Note for Rs. 1,25,000/- on 30-9-1984 as per Para-5 of the plaint?
3. Whether the plaintiff proves that the defendants did not made payments from June 1985 and plaintiff issued legal notice dtd. 15-5-1987 as per para-6 of the plaint?
4. Whether the plaintiff proves that he is entitled to claim interest on the due amount at 16.5% per annum by way of damages as per para 7 of the plaint?
5. Whether the plaintiff is entitled for a sum of Rs. 98,376/- with 16.5% interest per annum?
6. Whether the first defendant proves that the suit is barred by time as per para 7 of the written statement?
Page 1299
7. Whether defendant No. 1 proves that the due amount is only to be paid by defendant No. 2 and the firm and as per para 10 and 15 of the written statement?
8. Whether the plaintiff is entitled for the suit reliefs as prayed?
9. If so, under what order or decree?
9. The parties went to trial on such issues. On behalf of the plaintiff-bank one Umesh Gopalakrishnarao, Senior Manager of the Bank at the relevant time was examined as PW-1 and Exhibits-P1 to P7 were got marked, Exhibit-P6 being the account extract with the bank for having debited the interest to the account of the defendants indicating the details of debiting interest to their account for the period from 1-6-1985 to 28-9-1987.
10. On behalf of the defendants, one T. Subbaramaiah who was the Accountant of the firm was examined as power of attorney holder of the 1st defendant and the power of attorney was marked as Exhibit-D1 and certified copy of the extract of the Registrar of firms indicating the constitution of the firm as on 30-9-1984 and on 1-10-1984 was marked as Exhibit-D2.
11. Learned trial Judge, on an examination of oral and documentary evidence proceeded to answer issues 1 to 3 in the affirmative, issues 4 and 5 partly in favour of the plaintiff, in the sense that, the rate of interest was allowed at 15% on the principal amount of Rs. 73,200/- with effect from 1-12-1985 onwards and issues 6 and 7 in the negative and against the defendants and decreed the suit as indicated in the beginning of the Judgment.
12. It is aggrieved by this Judgment & Decree, the present appeal by the 1st defendant alone.
13. On issue of notice, the 1st respondent-plaintiff Bank in the suit has entered appearance through counsel Sri. A.V. Gangadharappa. The 2nd respondent though served has remained unrepresented.
14. I have heard Sri. Yaduraya Gowda, learned Counsel for the appellant and Sri. A.V. Gangadharappa, learned Counsel for 1st respondent – bank.
15. Sri. Yaduraya Gowda, learned Counsel for the appellant has vehemently urged that the plaintiff-bank is estopped from putting forth any claim as against the 1st defendant; that the plaintiff-bank was privy to line understanding of the defendants that the 1st defendant was to go out of the firm with effect from 30-9-1984; that thereafter the firm which was to be continued with co-option of the two other persons i.e., the son of the 2nd defendant and one another partner was to take over the liability on that day; that the bank had continued its transaction with the reconstituted firm even after retirement of the 1st defendant from the firm; that the bank had also accepted part payment from the firm in respect of the outstanding liability of Rs. 1,25,000/-; that in this view of the matter, having regard to the provisions of Section 32 read with Section 44 of the Indian Partnership Act, 1932, the trial court should have held that the 1st defendant was absolved of any liability; that the liability having been Page 1300 incurred by the firm at a time when the 1st defendant was a partner and that such liability having been taken over by the continuing partners of the firm the Bank should have looked up to the continuing partners of the firm alone for recovery of the amount of Rs. 73,200/- with interest etc.,; that the trial court has erred in law in decreeing the suit even as against the 1st defendant.
16. In support of such submission, learned Counsel for the appellant has placed reliance on the following decisions:
[a] B.M. Devaiah v. Canara Bank, Yelwel Branch and Ors. reported in AIR 2003 KAR 143.
[b] Syndicate Bank v. R.S.R. Engineering Works .
[c] Vinaitheethal ACHI v. Chidambaram Chettiar and Ors. .
17. Submission of learned Counsel for the appellants placing reliance on these decisions is that the outgoing partner is absolved of his liability once the firm is continued and the continuing partners have agreed and acknowledged the liability of the firm in respect of any existing creditor on the day as was the understanding on the date of reconstitution and thereafter the creditor if has taken cognisance or recognised this arrangement can only look up to the continuing partners and cannot proceed against a partner who had retired and gone out of the firm.
18. It is also the submission of Sri. Yaduraya Gowda, learned Counsel for the appellant that the claim towards interest by way of damages is not tenable and in support of such submission, has placed reliance on the following two decisions:
[a] Bengal Nagpur Railway Co., Ltd. v. Ruttanji Ranaji and Ors. reported in AIR 1938 PC 67
[b] Union of India v. The West Punjab Factories Limited .
19. Submission is that there cannot be interest by way of damages; that it can be either by way of interest or by way of damages; that the agreement between the parties being not for payment of interest even in terms of the letter and promissory note Exhibit-P2 as also legal notice Exhibit-P3, the bank was not entitled for claiming any interest much less by way of damages and therefore the suit claim is not sustainable.
20. One another submission by learned Counsel for the appellant is that if at all the suit should have been decreed, it should have been a joint decree; that the learned trial Judge has gravely erred in directing the plaintiff-bank to proceed against the 1st defendant alone in the first instance and then to look up to the 2nd defendant etc. that this is a clear case of the Page 1301 learned trial Judge having misdirected himself in law; that in fact, if the trial court should have looked into the understanding between the parties, there could not have been any Judgment & Decree against the 1st defendant at all and accordingly prays for allowing the appeal and for dismissal of the suit in so far as 1st defendant is concerned.
21. Per contra, Sri. Gangadharappa, learned Counsel for the respondent-bank, plaintiff in the suit, submits that the bank has also come up with cross objections; that Ms client does agree that there was no justification nor was it permitted in law for the learned Judge of the trial court to direct the decree holder to proceed against any one of the Judgment Debtors in the first instance or to indicate any priority for securing satisfaction of the decree; that to this extent the Judgment and Decree is not sustainable and further submits that the trial court should not have disallowed interest for the period prior to 1-12-1985 and that interest should have been allowed at the rate as claimed i.e., 16.5% instead of 15%.
22. Learned Counsel further submits that the Judgment and decree is sustainable, particularly in the light of the admitted liability on behalf of the defendants in terms of Exhibit-P2 promissory note which was not disputed and that though the promissory note by itself did not stipulate any rate of interest; the transaction and the event leading to the execution of the promissory note being one of a commercial transaction, the borrowings by the defendants from the Bank being for their commercial activity the interest claimed at 16.5% which was much lower than the actual lending rate at the relevant time as had been stipulated by the Reserve Bank of India, the rate as claimed was a very reasonable rate of interest, particularly when the bank which carries on its business on commercial lines has not only to pay interest on its own depositors but has to maintain the staff and has to incur other establishment expenditure and therefore the learned Judge of the trial court should not have reduced the rate of interest to 15%.
23. In so far as disallowing interest for the earlier period prior to 1-12-1985, learned Counsel would submit that the understanding was if there should be any default in payment of two consecutive installments, the bank had the liberty to recall the entire outstanding amount and the bank having exercised that option and default having occurred even prior to 1-6-1985, the bank was justified in claiming interest from the day as claimed.
24. Though the trial court has framed as many as 8 issues and has proceeded to answer such issues substantially in a correct manner, I find that after perusing the pleadings of the parties, evidence and the Judgment and after considering the submissions of learned Counsel for the appellant and learned Counsel for the respondent No. 1 at the Bar, the area of controversy was very limited, in the sense that, the defendants having not disputed the joint execution of the promissory note – Exhibit-P2 and the execution of such promissory note having been admitted to be in the context of the earlier transaction with the bank etc., in so far as any amount Page 1302 outstanding in respect of the sum mentioned in the promissory note is concerned, the defendants were bound to satisfy that amount under the suit claim and the liability was joint and several as promissory note had been executed undisputedly by both defendants. If that is the admitted position, I cannot find any fault with the Judgment & Decree in favour of the plaintiff on the principal sum of Rs. 73,200/-. While the decree should have been joint and several and while rightly done so by the trial court, directing the plaintiff-bank to proceed against the 1st defendant in the first instance was not warranted nor is justified in law. It is the option of the decree holder to execute a joint decree in the order of his choice and there is no question of curtailing such freedom of the decree holder irrespective of the inter se understanding between the defendants.
25. That only leaves the question of justification of awarding interest on the principal sum of Rs. 73,200/-with effect from 1-11-1985 as has been done by the trial court.
26. The suit claim itself was that the plaintiff-bank was entitled for this interest by way of damages, it is clear in terms of the pleadings in para-7 of the plaint The suit itself is based on Exhibit-P2 promissory note if at all the earlier transaction if is referred to as part of the pleadings is only to lend support for the averment to the effect that the past transactions and the understanding amongst the bank and the partners provided consideration for execution of this promissory note. But, when once Exhibit-P2 promissory note was executed which is in the nature of a negotiable instrument and the execution of the promissory note is not disputed by either of the defendants, there is no further occasion to go back into the past conduct of the parties, past transaction, manner in which outstanding amount was agreed to be settled or the manner in which further payments have been made. If at all, any payments have been made, it will be only towards the discharge of the liability under Exhibit-P2 and so long as the bank has given credit to all payments received by it on and after 1-10-1984 to the credit of the defendants, there cannot be any reference to the earlier transactions, developments etc.,. When once the consideration is not disputed, in the sense that, the execution of promissory note is admitted, the subsequent developments, namely, the payments having been made from the account of the reconstituted firm or by the firm comprising of partners such as Defendant No. 2, his son and the third person is also of no significance and of any legal effect on the promissory note. Any amount outstanding on the promissory note has to be repaid by the promisors. If that is the legal position, the suit being based on the Exhibit-P2 – Promissory note, the submission made by learned Counsel for the appellant to the effect that the 1st defendant had been absolved of his liability as an outgoing partner and the reliance placed on the provisions of Section 32 read with Section 44 of the Indian Partnership Act, 1932 and the authorities in support of such submission, are all of no relevance to the facts of the present case. The suit is not on the premise of a liability that had been incurred by a firm and one against the partners who were the partners of the firm at Page 1303 the time when the liability was incurred. The suit was laid based only on the promissory note and not on the premise that the transaction was one in favour of a partnership firm and the plaintiff was suing the partners who were the partners of the firm at the time of incurring of the liability by the firm. It is for this reason, I hold the authorities relied upon by learned Counsel for the appellant are of no application to the facts of the case and therefore such submission is rejected.
27. In so far as submission with regard to the liability towards interest is concerned, it is no doubt true that when once the suit claim is based on the promissory note, one has to go by the terms of the promissory note itself and no outside evidence can be permitted to supplement the contents or the terms of the promissory note, particularly, when the claim is based on the promissory note and the defendants have not disputed the execution of the promissory note. The promissory note did not stipulate any rate of interest. The claim of the bank for interest by way of damages is clearly not sustainable and at any rate, one amounting to supplementing the terms of the promissory note. The trial court could not have awarded any interest based on the promissory note itself and on the premise that the bank as a commercial organisation is entitled to claim interest even by way of damages etc.,.
28. But, so far as awarding of interest under Section 34 of the Code of Civil Procedure is concerned, it is always in the discretion of the court and both learned Counsel for the appellant and respondents do not dispute this position in law.
29. While I find that the trial court was not justified in awarding interest in favour of the plaintiff by way of damages, the position then remains is as to whether the court is required to exercise its jurisdiction for awarding interest at any rate in terms of Section 34 of the Code of Civil Procedure.
30. While it is submitted by Sri. Yaduraya Gowda, learned Counsel for the appellant that having regard to the terms of the promissory note, no interest should be awarded at all, Sri. Gangadharappa, learned Counsel for the respondent-bank on the other hand submits that the interest awarded by the trial court at 15% is a reasonable rate of interest even in terms of Section 34 of the Code of Civil Procedure and therefore it need not be disturbed.
31. In my view, as the trial court proceeded to award interest at the rate of 15% mainly on the premise that it is by way of damages, while that is set aside, interest at the rate of 6% pendente lite and future interest on the principal sum of Rs. 73,200/- will be reasonable on the facts and circumstances of the case.
32. The Judgment and Decree of the trial court is hereby modified accordingly. The suit is decreed jointly and severally as against both defendants for payment of interest on the principal amount of Rs. 73,200/- with interest at 6% p.a. from the date of the suit till satisfaction of the decree.
Page 1304
33. Submission of Sri. Yaduraya Gowda, learned Counsel for the appellant, for reserving liberty to proceed against the 2nd defendant who was a partner earlier with the 1st defendant when the firm was in existence for contribution of the amount as an inter se claim between the partners, in my opinion is a merited submission.
34. The appellant in this appeal and the 1st defendant in the suit is reserved liberty to seek contribution from the 2nd defendant as permitted in law.
35. The appeal and cross objections are disposed of accordingly. Parties to bear their own costs.