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IN THE HIGH COURT OF JUDICATURE AT BOMBAY
CIVIL APPELLATE JURISDICTION
FIRST APPEAL NO.961 OF 2003
Shri Badrinarayan Bansilal Somani,
Adult, Occ. Business,
residing at :156, 1/B Mangalwar Peth,
Pune-411 001. .. Appellant.
Vs
Shri Vinodkumar K. Shah,
Adult, Occ.Business,
Residing at :157, Camp,
Pune-411 001. .. Respondent.
Mr A.V.Anturkar, for the appellant.
Mr Anil Dhavale, for the respondent.
CORAM : B.H.MARLAPALLE & D.B.BHOSALE,JJ.
DATE : 19/09/2008
JUDGMENT: (Per D.B.Bhosale,J.)
1. This appeal is directed against the judgment and
order dated 15.5.2003 rendered by the learned Joint civil
Judge, Senior Division, Pune, in Special Civil Suit No.347
of 1988 instituted by the respondent-plaintiff. The suit
was for recovery of an amount of Rs.12,64,000/- against
the appellant-defendant along with interest at the rate of
24 per cent per annum. By the impugned judgment, the
defendant is directed to pay to the plaintiff Rs.12 lacs
together with interest at the rate of 15 per cent per
annum from the date of the suit till realization of the
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entire amount and also directed to pay Rs.20,931.50
towards interest for the period from 3.12.1997 to
23.8.1998, that is, the period prior to institution of the
suit.
2. Basic facts of the suit are not in dispute. As a
matter of fact, Mr Anturkar, learned counsel for the
appellant-defendant, submitted that he has instructions to
confine challenge in the appeal only to the rate of
interest, awarded by the trial Court and seek 9 per cent
per annum interest on the amount of Rs.12 lacs only from
the date of the
ig suit till realization of the entire
amount. In view thereof, we do not propose to make a
detailed reference to the facts.
3. Briefly stated, the plaintiff is a trader and
businessman. He knew the defendant and he claims that he
had extended financial aid to him from time to time. On
30.11.1997, the defendant once again had approached the
plaintiff with a request to give a loan of Rs. 12 lacs.
The plaintiff did pay this amount to the defendant on
30.11.1997 in cash. The defendant had promised to return
the said amount on 3.12.1997. The defendant had
accordingly issued a cheque bearing No.050646 dated
3.12.1997 of Rs.12 lacs drawn on Mahesh Sahakari Bank
Ltd.. The amount was not paid as promised, the plaintiff,
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thereafter, had presented the said cheque for encashment
and since it was bounced he has filed a complaint under
section 138 of the Negotiable Instruments Act. Since the
defendant did not make payment of the aforesaid amount the
plaintiff instituted the instant suit for recovery of the
amount with interest at the rate of 24% per annum.
4. The trial Court has decreed the suit holding that
the plaintiff has brought sufficient evidence on record to
prove that he had paid Rs 12 lacs to the defendant by way
of loan on 30.11.1997 and that the defendant had promised
to
pay the said amount on or before 3.12.1997 by issuing
post-dated cheque. The defence propounded by the
defendant that the aforesaid amount was paid by the
plaintiff for the purchase of shares has not been accepted
by the trial Court. Insofar as the claim towards interest
on the amount of Rs.12 lacs for the period before and
after the suit, the trial Court has granted it at the rate
of 15 per cent per annum. The trial Court has further
held that the plaintiff is entitled to get interest of
Rs.40,931.50 for the period from 3.12.1997 to 23.2.1998,
that is, for the period prior to the suit. Admittedly,
the defendant had paid Rs.20,000/- to the plaintiff and
hence the Court has directed the defendant to pay the
balance of Rs.20,931.50 only.
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5. We have heard the learned counsel for the appellant
only on the rate of interest awarded by the trial court
which, according to Mr Anturkar, was much higher than what
the plaintiff is entitled in law. He invited our
attention to Section 34 of the Code of Civil Procedure
(for short, “CPC”) and submitted that since there was no
agreement for the payment of interest between the parties
and that the amount was not received for commercial
purpose, the Court below was wrong in awarding interest at
the rate of 15 per cent per annum. He submitted that the
facts of the case clearly show that the plaintiff was not
entitled for
any interest and he was supposed to return
only Rs.12 lacs and, therefore, the cheque of that amount
only was issued. He submitted that the trial Court has
committed an error of law in awarding interest at the rate
of 15% per annum from the date the amount was paid till
the date of the suit. He submitted, in the absence of an
agreement for payment of interest the defendant was not
liable to pay the interest for the period prior to the
suit. He then submitted that even awarding interest at
the rate more than 6 per cent from the date of decree till
the payment thereof was also wrong and illegal. He
submitted that insofar as the rate of interest for the
period from the date of the suit till the date of decree
at the rate of 15% cannot be sustained in law since the
plaintiff has miserably failed to prove that the loan was
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obtained for commercial purpose. He submitted that it was
a simple transaction of personal loan and it did not have
a colour of commercial transaction.
6. The question that falls for our consideration
centers around section 34 of CPC, and hence it would be
advantageous to re-produce the said section for better
appreciation of the contentions urged on behalf of the
defendant. Section 34 reads thus:
“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” mean 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,
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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 therefor shall not lie.”
7. A mere perusal of Section 34 shows that it deals
with the question of interest in three stages. First is,
interest for the period prior to the institution of the
suit, the second stage is, interest on the principal sum
adjudged
date of
from
decree,
the date of institution of suit
at such rate as the Court
till the
deems
reasonable, and the third stage is, further interest on
the principal sum adjudged from the date of the decree
till realization of the decretal amount or to such earlier
date as the Court thinks fit at a rate not exceeding 6 per
cent per annum. The section does not refer to payment of
interest for the period prior to the institution of the
suit on the “principal sum adjudged”. It applies only to
additional interest on the principal sum adjudged from the
date of suit to the date of the decree and further
interest from the date of the decree to the date of
payment. A plain reading of this section show that an
interest on the principal amount adjudged from the date of
decree to the date of payment in any case cannot be
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allowed at a rate higher than six per cent per annum
unless the liability in relation to the sum adjudged had
arisen out of commercial transaction as provided for under
the first proviso to section 34. In short, about the
first stage, section 34 does not say anything while about
the second stage it says that the interest to be awarded
shall be as considered reasonable by the Court. About the
third stage, that is, from the date of decree till
realization, the power of the Court to award interest is
circumscribed, that is, it cannot be more than 6% per
annum. This is settled by the Supreme Court in Ramnik
Vallabhdas Madhvani Vs.
ig Taraben Pravinlal Madhvani (2004)
1 SCC 497.
8. The Supreme Court had an occasion to consider the
meaning of phrases "the principal sum adjudged" and "such
principal sum" occurring in section 34 of CPC in Central
Bank of India Vs. Ravindra and ors, (2002) 1 Supreme
Court Cases 367.
367 In this case, the Supreme Court has
observed that "if the amount of interest is paid, there
will be no occasion for capitalising the amount of
interest and converting it into principal. If the
interest is not paid on the date due, from that date the
creditor is deprived of such use of the money which it
would have made if the debtor had paid the amount of
interest on the date due. The creditor needs to be
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compensated for such deprivation". The Supreme Court
further held that the expression "the principal sum
adjudged" may include the amount of interest charged on
periodical rests, and capitalised with the principal sum
actually advanced, so as to become an amalgam of principal
in such cases where it is permissible or obligatory for
the court to hold so. Where the principal sum (on the
date of suit) has been so adjudged, the same shall be
treated as “principal sum”.
9. In the present case, perusal of the pleadings and
the oral evidence show that there was no agreement between
the parties for the payment of interest at fixed rate on
the principal sum actually advanced. The plaintiff,
therefore, is not entitled to claim interest on the amount
of Rs.12,64,000/- since Rs.64000/- were added to the
actual sum advanced by way of interest at the rate of 24 %
per annum from the date of payment to the date of the
suit. Section 34 does not refer to payment of interest
for the period prior to the institution of suit on the
principal sum adjudged. The principal sum, according to
the plaintiff, of Rs.12,64,000/- cannot be treated as the
“principal sum adjudged” on the date of the suit.
Therefore, the plaintiff would be entitled for interest
only on the principal amount actually advanced, i.e. Rs.
12,00000/-. We find support for the view in the decision
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of the Supreme Court in Union of India Vs The West Punjab
Factories Ltd, AIR 1966 SC 395, wherein, while dealing
with the contention that no interest could be awarded
for the period before the suit on the amount of damages
decreed, it was observed that in the absence of any usage
or contract, express or implied, or of any provision of
law to justify the award of interest, it is not possible
to award interest by way of damages. In the
circumstances, the Supreme Court held that no interest
could be awarded for the period upto the date of the suit
and the decretal amount in the two suits will have to be
reduced by the
amount of such interest awarded. For
taking such view the Supreme Court also placed reliance
upon its Judgment in Union of India Vs. Watkins and Mayor
Co, AIR 1966 SC 275. The Supreme Court in that case,
while dealing with a case under the Interest Act, 1939,
had observed that interest may be awarded for the period
prior to the date of the institution of the suit if there
is an agreement for the payment of interest at fixed rate
or if interest is payable by the usage of trade having the
force of law, or under the provisions of any substantive
law.
10. It is now well settled that in matter of grant of
interest under this section, the Court has discretion,
even not to grant the interest and it is not limited to
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the rate of interest. In other words, the grant of
interest under section 34 is a matter of discretion and is
to be exercised on the facts and circumstances of each
case more particularly where there is no agreement for the
payment of interest. Scrutiny of Section 34 of CPC
indicates guidelines for exercise of such discretion. It
shows that grant of interest at contract rate should be
the normal rule, the use of discretion to refuse interest
or reduce the agreed rate being the exception. To reduce
or deny interest would amount to penalising the creditor
for approaching the Court and encouraging the debtor to
deliberately
prolong the litigation. In short, where
there is no agreement for the payment of interest between
the parties, the Court is expected to use the discretion
and in such cases Courts are guided by the provisions
contained in section 34 of CPC. Undoubtedly, the courts
are expected to bear in mind that the discretion is
required to be exercised on sound judicial principals.
11. Thus, it is clear that in the absence of any agreed
rate of interest, the Court will have to use its
discretion keeping in view the provisions contained in
Section 34 of CPC so also the facts and circumstances of
each case and the nature of transaction. If prima facie
the nature of transaction does not disclose it to be a
commercial transaction, it would not be proper for Court
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to award any interest paid by nationalised Banks in
relation to commercial transaction for the period from the
date of suit to the date of decree. In the present case,
the trial Court has observed that the monies were paid for
the purpose of business and awarded 15% interest right
from the date of payment till the date of realization. We
do not find the material either in the form of document or
oral evidence in support thereof. In other words, there
is nothing on record to suggest that the payment of loan
was given for industry, trade or business of the
defendant. In fact, issuance of the cheque of the exact
amount which
was borrowed by the defendant itself is an
indicator that the transaction was not commercial. There
was nothing in writing between the two. In defence
defendant has set out a case that the amount was paid to
him for purchase of shares.
12. On perusal of the pleadings and the evidence of the
plaintiff we have no hesitation to hold that the plaintiff
has failed to prove that payment of the monies was for
business, trade or industry. Explanation-II makes it very
clear that a transaction is “commercial transaction” only
if it is connected with the industry, trade and business
of the party incurring liability. The plaintiff neither
in his plaint nor in his evidence has stated for what
purpose the amount was advanced. He has simply stated
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that the amount of Rs.12 lacs was paid to the defendant on
his request to give a loan and since he was knowing the
defendant he had paid that amount to him. The plaintiff
has further stated that the defendant had received the
said amount and had promised to return on or before
3.12.1997. The defendant had also issued a cheque of the
said sum and no interest was added to while issuing the
cheque. He has not stated either in the pleadings or in
his evidence the purpose of seeking loan from him. Thus
the evidence and the pleadings of the plaintiff are silent
as to the nature of transaction. The plaintiff is not a
money lender or
ig a financial institution. He is an
individual who claims that even on earlier occasions he
had paid loan to the defendant. In the circumstances it
would not be possible for us to hold that the transaction
was commercial transaction. In our opinion, it was a
simple personal loan paid by the plaintiff to the
defendant.
13. The trial Court was wrong in awarding interest at
the rate of 15 per cent per annum from the date
(30.11.1997) of payment till the realisation of the entire
amount. In the absence of an agreement for the payment of
interest and material to show that the transaction was
commercial transaction, the Court ought not to have
granted commercial rate of interest which was being
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charged by nationalised Banks at the relevant time.
Moreover, there was no material on record to show that the
rate of interest prevailing at the relevant time was 15%.
Similarly, awarding 15 per cent rate of interest from the
date of decree to the date of realization cannot be
sustained in law. In the facts of the present case, under
Section 34 of CPC, for the period from the date of payment
till the institution of the suit the plaintiff is not
entitled for any interest and from the date of the decree
till realization of the entire amount, the plaintiff is
entitled for the interest at the rate of 6% per annum.
14. In the circumstances, this appeal is partly
allowed. The defendant is not liable to pay interest for
the period from the date of borrowing the monies till the
date of institution of the suit. The defendant shall pay
the interest at the rate of 6 per cent per annum from the
date of the decree till realization of the entire amount,
and insofar as the period from the date of institution of
the suit till the date of decree the defendant shall pay
the interest at the rate of 9 percent per annum. Decree
be drawn up accordingly. No costs.
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(D.B.BHOSALE, J.) (B.H.MARLAPALLE,J.)
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HIGH COURT
APPELLATE SIDE
FIRST APPEAL NO.961 OF 2003
Date of Judgment:
19TH SEPTEMBER,2008.
For approval and signature
THE HON’BLE MR.JUSTICE B.H.MARLAPALLE.
THE HON’BLE MR.JUSTICE D.B.BHOSALE.
1. Whether Reporters of Local Papers may be
allowed to see the judgment?
2. To be referred to the Reporter or not?
3. Whether Their Lordships wish to see the
fair copy of the Judgment?
4. Whether this case involves a substantial
question of law as to the interpretation
of the Constitution of India, 1950 or
any Order made thereunder?
5. Whether it is to be circulated
to the Civil Judges?
6. Whether the case involves an important
question of law and whether a copy of
the judgment should be sent to Nagpur
Aurangabad or Goa offices?
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