JUDGMENT
Ashok Bhan, J.
1. Judgment-debtor-petitioner (hereinafter referred to as ‘the judgment-debtor’) along with four other judgment-debtors took a loan of Rs. 64,000/- from the respondent-Punjab National Bank, Sunam, decree holder (hereinafter referred to as ‘the decree-holder’) on 13.4.1981 for the purchase of a tractor. The loan was to be repaid in seven years in 14 half yearly instalments starting from December, 1981. Judgment-debtor paid certain amount by way of instalments but thereafter defaulted in the payment of the instalments.
2. Decree-holder-Bank filed a suit on 17.7.1986 for the recovery of Rs. 98,107.00, which was decreed by the Sub Judge, 1st Class, Sunam on 8.8.1988. Judgment-debtor was directed to make the payment of the amount due along with future interest at the rate of 14 1/2% per annum as had been agreed between the parties.
3. Decree holder-Bank filed an execution application in which objections were filed by the judgment-debtor. One of the objections taken was that the decree holder-Bank has been granted future interest at the rate of 14 1/2% per annum till realisation which was excessive and should not have been more than 6%. This objection was rejected by the executing Court by the impugned order on the ground that the decree had been passed in a mortgage suit and, therefore, the provisions of Section 34, Code of Civil Procedure regarding future interest would not be applicable.
4. I have heard the counsel for the parties.
5. This Court in Chanan Singh v. Punjab National Bank, Ghanaur and Anr., (1992-1) 101 PLR 647, has held that where a suit has been filed for the recovery of amount due on the basis of a mortgage deed then the provisions of Order 34 Rule 11, Code of Civil Procedure would be applicable and the judgment-debtor would be liable to pay interest to the mortgagee as provided therein.
6. Admittedly, in this case, the loan was taken by the judgment-debtor on the basis of a mortgage deed. In Chanan Singh’s case (supra), it was held as under: –
“Admittedly, the present suit was filed for the recovery of the amount due on the basis of the mortgage deed under Order 34 Rules 4 and 11 of the Code of Civil Procedure. Rules 4 and 11 of Order 34 provide that in any decree passed in a suit for foreclosure sale or redemption, where interest is legally recoverable, the Court may order payment of interest to the mortgagee as provided therein. Thus, the provisions of Section 34 of the Code of Civil Procedure are not attracted to such a suit and Court had rightly determined the principal amount and the amount of interest payable thereupon as agreed to between the parties.”
7. This view was taken relying upon as earlier judgment of this Court in Makhan Singh v. Union of India and Ors., (1989-1) 95 PLR 703.
8. Another point taken by the judgment-debtor is that interest could only be charged on the principal amount and the same could not be compounded. Subsequent to the judgments referred to above, Supreme Court of India has comprehensively laid down law regarding recovery of loan and the interest to be paid thereon. In Corporation Bank v. D.S. Gowda and Bank of India v. Karnam Ranga Rao, 1994 ISJ (Banking) 594, it was held by their Lordships of the Supreme Court that from the agriculturists, the loan can be recovered with yearly rests and that compound interest could also be charged, in paras 12 and 22, it was held as under:-
“PARA-12: From the above circulars issued by the Reserve Bank from time to time it is evident that the procedure for charging interest on loans advanced to agriculturists, be they short term or middle term loans, was different from loans advanced to other borrowers. The first and the second circulars in terms refers to changing of interest on agricultural advances. There is nothing equivocal or ambiguous about it. The third circular is general in nature and prescribes the ceiling for the recovery of interest with the qualification that if there is an agreement permitting charging of penal interest it will be permissible to charge the same for the default period in addition to the interest rate regardless of the fact that normal interest and penal interest may cross the ceiling. As the third circular was likely to raise doubts in regard to the applicability of the first and second circulars, it was clarified by the fourth circular that it (third circular) shall have no application to agricultural advances. The fifth circular superseded the third circular thereby revising the prescribed ceiling to 15% with effect from 1st March, 1978 with quarterly or longer rests. The proviso further reduces the ceiling in case of term loans with a maturity of not less than three years. This circular is once again a general circular. The sixth circular while providing that Banks can charge interest on loan accounts at quarterly or longer rests stipulates that in respect of agricultural advances Banks should not compound the interest in case of current dues unless term loans have become overdue. Thus this circular draws a distinction between loanees other than agriculturists and advances made to agriculturists is the matter of charging interest. It is, therefore, quite clear that agricultural loans stand on a different footing from other loans including a loan or advance secured for construction of flats, as in the case of D.S. Gowda. So far as agricultural loans are concerned, having regard to its special characteristics and the time factor relating to the farmer’s capacity to meet his financial obligations, it was realised that farmer would not be in a position to pay interest at short periodical rests and if their inability to do so is visited with compounding of interest it would be too harsh and unjust on the farmers. The Reserve Bank, conscious of this difficulty of the farmers, directed the Banks that their repayment period should be so fixed as to coincide with the period when the farmer is fluid and payment of interest should also be insisted upon only at the time of repayment of the loan or instalment. Further it directed that interest on current dues should not be compounded but if and when the crop loans or medium-term loans become overdue, interest outstanding to the principal amount may be added and compounded. The procedure in regard to charging of interest on short-term and medium-term agricultural loans is, therefore, clearly spelt out in the first circular of March 14, 1972. There is no ambiguity about it. In regard to loans belonging to the non-agricultural category, the circulars dated March 13, 1976, February 28, 1978 and September 15, 1984, clearly state that the Banks may charge interest with quarterly on longer rests. Therefore, loans advanced for construction of flats would fall in the latter category against which interest can be charged with periodical rests. The case of respondent Karnam Ranga Rao falls in the former category since it was a loan taken for raising sugarcane crops whereas the case of the respondent D.S. Gowda falls in the latter category of non-agricultural loan as it was secured for construction of flats. This position emerges on a plain reading of the relevant Reserve Bank Circulars.”
“PARA 22
Insofar as Civil Appeal No. 544 of 1986 is concerned it relates to the bank’s right to charge compound interest i.e. interest with periodical rests on agricultural advances. We have already referred to the various circulars issued by the Reserve Bank from time to time in exercise of power conferred by Section 21/35A of the Banking Regulation Act. We have pointed out that the said circulars/directives provide that agricultural advances should not be treated on par with commercial loans insofar as the rate of interest thereon is concerned because the farmers do not have any regular source of income except sale proceeds of their crops which income they get once a year. The question of a recovery of interest with quarterly or six monthly rests from farmers is, therefore, not feasible. The fact that the farmers are fluid at a given point of time every year has to be kept in mind in determining the point of time when they should be expected to repay the loan or pay the instalment/interest on advances. Therefore, to allow the banks to charge interest on quarterly or half yearly rests from farmers would tantamount to virtually compelling them to pay compound interest, since they would not be able to pay the interest except once in a year i.e. when they receive the income from sale proceeds of their crops. The Reserve Bank has shown concern for the farmers by directing all banking institutions to so regulate the recovery of interest as to coincide with the point of time when the farmers are fluid. It has, therefore, been emphasised by the Reserve Bank that interest should be charged once a year to coincide with the point of time when the farmer is fluid and interest on current dues should not be compounded although it may be done, when the advance/instalment becomes overdue. In the present case, since interest was charged with six monthly rests that was clearly in contravention of the Reserve Bank circulars/directives. Compounding of interest on current dues on agricultural advances having been discouraged, the Bank was not entitled to charge interest with shorter periodical rests and compound the same. The bank could add interest outstanding to the principal and compound the interest when the crop loan or term loan becomes overdue having regard to the tenor of the circular dated March 14, 1972. The High Court was, therefore, fully justified in coming to the conclusion that the Bank was not entitled to charge interest with half yearly rest.”
9. In view of the law laid down by their Lordship of the Supreme Court in the Corporation Bank’s case (supra), I find no merit in this revision petition and dismiss the same with no order as to costs.