JUDGMENT
Desai J.
1. This is an appeal by the judgment-debtors from the decree passed by the Civil Judge, Senior Division, Thane, decreeing the suit of the bank in the amount of Rs. 1,66,759.29 with proportionate costs. In clause 2 of the operative order, interest has been awarded at the rate of 13 1/2 per cent. per annum on the very amount from the date of the suit till payment to, or realisation by, the plaintiff.
2. The appellants have, in the first place, impugned the award of interest at 13 1/2 per cent. placing reliance on the observation of a Divisions Bench of the Karnataka High Court in D. S. Gowda v. Corporation Bank [1985] 57 Comp 49 (Kar). We are not in total agreement will either the approach or the conclusion of the said Division Bench. On the other hand, we have decision of a Division Bench of the Gujarat High Court in Central Bank of INdia v. P. R. Garments Industrial P. Ltd. [1987] 62 Comp Cas 669, where it has been observed that in respect of commenced loans, the decree should award interest at the contractual rate or the bank rate.
3. Under the amended section 34 of the Code of Civil Procedure, a proviso has been added permitting the court to grant interest form the date of the suit to the decree-holder at the contractual rate in respect of commercial transactions. We do not see why in this matter the rate of interest should not be the agreed rate of 13 1/2 per cent. though we make clear that from and after the date of the suit, interest will be calculated on simple interest basis and not on the basis of rests, annual, six-monthly or quarterly.
4. This brings us to the second question, viz., whether the decree-holder is entitled to interest on the full amount decreed. Section 34 the permit interest to be paid to the decree-holder at a higher rate in respect of commercial transactions, but nevertheless, the interest is to be calculed on the principal sum adjudged. This brings us to consideration of the question, viz., what is the principal sum adjudged. For calculating interest under the agreement between the parties, the bank has provided for calculation of interest with quarterly rests. The agreement may also provide, in appropriate cases, for capitalisation of the interest. But the question is, does such an agreement which may be in accord with banking practice both the United Kingdom and in India still merge this interest into the principal sum ?
5. In the instant case, the advocate for the bank has very candidly stated that, calculated on the limited footing but not as per banking practice, the principal amount lent on both accounts came to Rs. 1,20,675.59 as against the amount on which interest has been awarded by the Civil Judge, Senior Division, viz., Rs. 1,66,759.29. Mr. Tendulkar, however, relied on certain observations in Paget’s Law of Banking, Ninth Edition, Halsbury’s Laws of England, Fourth Edition, Volume 3 and on Inland Revenue Commissioners v. Holder [1931] 2 KB 81, which is the authority relied on both in Paget’s Law of Banking and in Halsbury’s Laws of England. In our opinion, these observations are of no real assistance as they pertain to the liability of the bank to pay income-tax on the amount of interest and can afford no assistance to the court whilst considering the principal amount on which interest could be awarded albeit at a rate higher than 6 per cent. under section 34. To that extent, the appeal will have to be allowed. The decree, accordingly, will stand modified as under :
The appellants (judgment-debtors) will pay to the respondents (plaintiffs and decree-holdrs) the sum of Rs. 1,66,759.29 with proportionate costs of the suit. The appellants will also pay to the decree-holders further interest from the date of the suit till payment at 13 1/2 per cent. per annum on the amount of Rs. 1,20,675.59 only. It is made clear that further interest will be calculated only on simple interest basis. Parties bear their respective costs of the appeal.
6. We do not interfere with the rest of the decree. We may add here further that there is a direction for payment by instalments in paragraph 13 of the judgment, but that is curiously not found in the operation order. This is a serious lapse. The instalment is also on the low rule. Curiously, the bank has preferred no appeal from the grant of instalments. This order has been passed in 1985. We are told that an amount of Rs. 71,000 has so far been paid in instalments as awarded. We only clarify that as far as the payment of the balance amount by instalments is concerned, the amount of instalments paid will have to be first adjusted against the costs awarded, thereafter towards the interest and lastly towards the principal amount.