Posted On by &filed under Calcutta High Court, High Court.

Calcutta High Court
Indian Bank vs Manisha Shikha Tani Welfare Trust … on 4 August, 2000
Equivalent citations: (2001) 1 CALLT 358 HC
Author: S Sinha
Bench: S Sinha, H Banerji


S.B. Sinha, J.

1. The only question which arises for consideration is as to whether the learned trial Judge was correct in granting a pendente lite and future Interest (c) 12% per annum.

2. The appellant filed the aforementioned suit claiming inter alia, the following reliefs :-

“(a) Decree for Rs. 1,28,620.57p. against the defendant jointly and severally;

(b) Interest from March 1. 1988 till filing of the suit interim interest and interest on Judgment at 18 percent per annum;

(c) Declaration that the suit properties mentioned in annexure ‘K’ hereof remain mortgaged with the plaintiff as security for payment of the plaintiffs claims herein:

(d) Decree under Order 34 Rule 4 of the Code of Civil Procedure 1908 in from 5A of appendix ‘D’ to the first schedule thereof or in any other form or provisions of law as to this Hon’ble Court may seem fit and proper in respect of the mortgaged properties mentioned in annexure ‘K’ hereof;”

3. The Defendant Trust was owner of a Land. The Defendant Trust wanted some advances for construction of building so that the same be given in tenancy to the appellant. A term agreement of loan was entered into by the parties.

4. Two suits were filed, one by the Bank and another by the Respondents. Both the suits were taken up by the learned trial Judge for hearing. One of the contentions which was raised was whether the interest charged by the bank was in terms of the circular letters issued by the Reserve Bank of India. The learned trial Judge noticed that the promises for loan of Rs. 13 Lakhs 2 Thousand had been given which was to be shared equally by Kiran Construction & Development Corporation and the Respondent Trust.

The rate of interest was fixed @ 18% p.a. A suit was instituted by the appellant against the aforementioned Kiran Construction & Development Corporation. The said suit was marked as Suit No. 154/88 whereas the suit by the Bank against the Respondent was marked as Suit No. 155/88. The aforementioned Suit No. 154/88 was taken up for hearing by R. Pal. J. wherein it was held :–

“On the question of adjustment of payment during the pendency of the suit no authority has been cited to support the proposition that the Court cannot give such, a direction while passing the decree. Apart from the absence of authority the fact that the bank itself had made adjustment of all payments against the principal amount claimed is relevant. It is also possible to construe Clause 9 of the agreement in the manner contended by the defendant No. 1. None of the decisions cited by the plaintiff bank hold that a decree cannot be passed recording the satisfaction by adjustment of all monies realised by the plaintiff from the defendant after the filing of the suit matter. The defendant No. 1 has also given up its argument that simple interest in respect of housing loan has been fixed by the Reserve Bank of India at the rate of 15% thus reducing the principal claim against the defendant No. 1 sizeably. I am, therefore, of the view that despite the agreed rate of interest, simple interest at the rate of 12% per annum should be granted from the dated of filing the suit as well as upon Judgment.”

5. The learned counsel ippearing on behalf of the Appellant submitted that the transaction in question being a commercial one, the learned trial Judge committed an error in granting interest @ 12% p.a. According to the learned counsel the provision of sections 21 & 21A of the Banking (Regulation) Act, 1949 are attracted the sections in the instant case which read thus :

“Section 21 : Power of Reserve Bank to control advances by banking companies–(1) Where the Reserve Bank is satisfied that it is necessary or expedient in the public interest (or in the interests of depositors) (or banking policy) so to do, it may determine the policy in relation to advances to be followed by Banking Companies generally or by any Banking Company in particular, and when the policy has been so determined, all Banking Companies or the Banking Company concerned, as the case may be, shall be bound to follow the policy as so determined.

(2) Without prejudice to the generality of the power vested in the Reserve Bank under sub-section (1) the Reserve Bank may Banking Company or group of Banking Companies in particular, as to,-

(a) the purposes for which advances may or may not be made;

(b) the margins to be maintained in respect of secured advances;

(c) the maximum amount of advances or other financial accommodation which, having regard to the paid-up capital, reserves and deposits of a Banking Company and other relevant considerations may be made by that Banking Company to any one Company, firm, association of persons or individual;

(d) the maximum amount upto which, having regard to the considerations referred to in clause [c), guarantees may be given by a Banking Company on behalf of any one company, firm, association of persons or individual; and

(e) the rate of interest and other terms and conditions on which “advances or other financial accommodation may be made or guarantees may be given.

(3) Every Banking Company shall be bound to comply with any directions given to it under this section.

Section 21A :Rates of interest charged by Banking Companies not to be subject to scrutiny by Courts.-

Notwithstanding anything contained in the Usurious Loans Act, 1918 (10 of 1918), or any other law relating to indebtedness in force in any State, a transaction between a Banking Company and its debtor shall be reopened by any Court on the ground that the rate of interest charged by the banking company in respect of such transaction is excessive.”

6. In support of the said contentions strong reliance has been placed on Vijaya Bank & etc v. Art Trend Exports & etc., ; Corporation Bank v. D.S. Gowda & Anr. & Vijaya Bank v. S. Bhathija & Anr., .

7. It is true that in this case the learned trial Judge has not assigned any reason in support of the findings but such reason is available in record. The aforementioned Kiran Construction & Development Corporation is a Commertial Organisation whereas the respondent is a Charitable Trust.

8. The learned trial Judge, infer alia, directed the appellant/Bank to pay the entire Municipal Charges and further as noticed hereinbefore, directed payment of interest (c) 12% p.a. as simple Interest instead and place of @ 18% p.a. with six monthly rest.

9. The learned counsel appearing on behalf of the respondent submitted that having regard to the principles contained in section 34 vis-a-vis Order 34 Rule 11 of the Code of Civil Procedure the power of the Court to exercise its discretion is not taken away despite the provisions contained in the Banking Regulation Act and such discretion having been exercised, this Court should not interfere therewith.

10. Reliance in this connection has been placed on N. M. Veerappa v. Canara Bank & Ors, wherein it was observed:

“Section 34 of the Code of Civil Procedure applies to simple money decrees and payment of interest pending such units. Order 34 Rule 11 .CPC deals with mortgage suits and payment of interest. It is obvious that so far as mortgage suits are concerned, the special provision in Order 34 Rule 11 alone is applicable and not section 34. This has been laid down in several decisions of this Court and also by the Karnataka High Court in Thulasi Bai, reported in ILR 1985 Karnataka 2976.”

11. In Canara Bank v. P.R.N. Upadhyaya & Ors., , the Apex Court held :–

“The expression “term loan” is well understood in banking parlance. The experssion implies the grant of loan for a fixed term. It has no relevance
with the purpose for which loan is granted. Where the term for repayment is long, the loan is called “long term loan” and where the term exceeds one year but not five to seven years, it is commonly known as “medium term loan.” According to Tannan’s Banking Law and Practice in India, 18th Edition the expression loan is defined as follows :–

“Loans.–When a banker makes an advance in a lump sum the whole of which is withdrawn and is supposed to be repaid generally wholly at one time is called a loan, if the customer repayed the same either wholly or partially and wishes to have accommodation subsequently, the latter will be treated as a separate transaction to be entered into if the bank agrees to do so and subject to such terms as the Bank may like to impose. Thus the Bank does not suffer any loss of interest as a result of carrying excessive cash which is necessary in the case of cash credits and overdrafts. Loan accounts are said to have a lower operating cost than cash credits and overdrafts because of the larger number of operations in the case of the latter as compared to the former and consequently a lower rate of interest on loans appears to be justifiable than in the case of overdrafts and cash credits.

12. The expression term loan has been defined in the same book as follows :

“Term loan–Where a loan is granted for a fixed period exceeding one year and is repayable according to a schedule of repayment, as against on demand and at a time, it is known as a ‘term loan’, where the period exceeds one year but not say 5 to 7 years, it is commonly known as a medium-term loan; a loan with longer repay ment schedule is known as long term loan. A term loan is generally granted for fixed capital requirements, although such loans for working capital are not unknown, and are supposed to be repaid out of future earnings of the fixed assests in particular and of the borrower in general. It, therefore, requires a proper and more sustained appraisal of various factors connected with the proposition than an ordinary commercial demand loan.”

13. The ratio deduciable from the aforementioned decision thus appears to be that despite the provision of section 21 and 21A, the Court is not bound to grant interest at the agreed contractual rate although the same is not unconscionable. For the purpose of exercise of its discretion the Court may consider various aspects of the matter including the question as to whether similar rate of interest had been granted to a co-loanee, Grant of interest which has been awarded in a connected case should normally be adhered to.

14. Thus, although the learned trial Judge has not assigned any reason in support of his direction as regard grant of interest, we are of the opinion that having regard to the fact that another learned trial Judge of this Court, in a connected matter granted simple interest @ 12% p.a., there is absolutely no reason as to why the defendant/respondent should be discreminated against.

15. We, therefore do not find any reason to interfere with the impugned Judgment and Decree.

16. However, we may observe that the appellant/Bank is only a tenant in respect of the part of the premises, and this it is not bound to pay the
Municipal consolidated rates & taxes to the Calcutta Municipal Corporation in respect of the entire building. Such a direction has to be kept confined only in respect of the premises occupied by it.

17. In an order dated 10th April, 2000 in which one of us (S.B. Sinha, J.) was a member directed :–

“There shall be an order in terms of prayer (a) of the application.

Learned Advocate for the petitioner is directed to make necessary correction in prayer (c) of the application.

Having heard the learned Counsel for the appearing parties, we direct that the appellant shall be liable to pay the proportionate Municipal taxes and surcharge only in respect of the premises which is in its occupation and not in respect of the entire building. Save as otherwise, the Judgment and decree passed by the learned trial Judge may be given effect to. But it is made clear that while computing the arrears of Municipal Tax, the amount of tax deposited by the appellant shall be taken into consideration.

Hearing of the appeal is, however, expedited. Notice of appeal is waived by the appearing respondents Notice of appeal on non-appearing respondents may be served within 3 weeks from date. Department is directed to expeditiously draw up the Decree and grant a Certified Copy of the same and also issue notice of appeal. Requisite number of informal paper book is to be filed within 8(eight) weeks from the date hereof. All formalities including filing of formal paper book and settlement of index are dispensed with.”

The said interim order is hereby made absolute.

18. So far as the appeal preferred by the respondent is concerned, that only because the loan had been granted for the purpose of construction of the building in which the appellant would be inducted as a tenant, the nature and character of the loan is not changed, and thus, such loan would be a commercial loan. It was for the defendant to show that grant of such loan was contrary to the Circular Letters issued by the Reserve Bank of India.

19. In any event the loan had been granted for construction of the building in which the Indian Bank would be a tenant in respect of only a portion of the premises and not in respect of the entire premises, the nature of loan must be held to be a Commercial Loan. Thus, the submission of the learned Counsel appearing on behalf of the Respondent cannot be accepted.

For the foregoing reasons both the appeals are dismissed only with the modification as regard payment of municipal rates and taxes but in the facts and circumstances of this case, the parties shall pay and bear their own costs.

H. Banerji, J.

20. I agree.

Appeals dismissed

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