IN THE HIGH COURT OF JUDICATURE AT MADRAS
DATED: 03/01/2003
CORAM
THE HONOURABLE MR.JUSTICE M.KARPAGAVINAYAGAM
S.A. NO.711 OF 1992
Ravi Fabrics .. Appellant
-Vs-
1. Shaherbon Traders
2. O.N.A. Mahboob Subhani
3. M. Ayishakani .. Respondents
Second Appeal against the judgment and decree dated 18-4-1990 in A.S.
No.421 of 1989 on the file of the Principal City Civil Court, Madras against
the judgment and decree dated 28-4-1989 in O.S. No.9176 of 1985 on the file
of the I Assistant City C Court, Madras.
!For appellant : Mr. R.Parthasarathy for
Mr. S.Raghavan
^For respondents: Mr. M.Muniruddin Sheriff
:JUDGMENT
“What is the rate of interest from the date of notice demanding
payment of interest till the date of institution of suit?” is the issue
involved in this case.
2. The plaintiff in the suit is the appellant.
3. The plaintiff/company filed the suit for recovery of a sum of
Rs.7,510.65 with interest at the rate of 21% per annum from the date of plaint
till the date of payment.
4. According to the plaintiff, the plaintiff sold and delivered to
the first defendant, the textile goods and after giving credit to the payment
made by the first defendant, there was a due owing to the plaintiff
Rs.7,510.65 towards the balance for e of the goods and is liable to pay
interest on the unpaid value of the goods at the rate of 21% per annum. The
demand notice was sent on 11-7-1984. The first defendant sent a reply,
accepting his liability to pay the principal amount, but denied the l iability
to pay any amount towards interest. Hence, the plaintiff filed the suit for
recovery of Rs.7,510.65 with interest at the rate of 21% per annum from the
date of plaint till the date of payment and for costs.
5. According to the defendants, the goods supplied by the plaintiff
were all of sub-standard quality, and this was informed to the plaintiff, and
thereupon, the plaintiff asked the defendants to sell the goods and agreed not
to charge any interest ny delay in selling the goods and that it is the custom
of the trade not to charge interest in case the goods supplied do not conform
the sample shown. The defendants agreed to pay the admitted amount of
Rs.7,510.65 in instalments and requested the Cour t to dismiss the rest of the
claim.
6. On the basis of the above pleadings, relevant issues were framed
by the trial Court. No witness was examined on either side and only notices
exchanged between the parties were marked as Exs.A-1 to A-3.
7. The trial Court, after considering the plaint, written statement
and other documents, concluded that the claim by the plaintiff to pay interest
at the rate of 21% per annum has not been substantiated and as per the custom
prevailing in the trade, plaintiff is entitled to interest only at the rate of
6% per annum and therefore, the defendants are liable to pay the balance
amount along with interest at the rate of 6% per annum from the date of due
till the date of realisation of the amount.
8. Having not satisfied with the judgment and decree of the trial
Court, the plaintiff filed appeal before the lower appellate Court, contending
that the plaintiff would be entitled to interest at the rate of 21% per annum.
The lower appellate Cou on considering the submissions made by learned counsel
for parties, would hold that there is no agreement with reference to the rate
of interest between parties and as such, the plaintiff would be entitled to 6%
interest per annum. Accordingly, the appe al was dismissed. Challenging the
same, the plaintiff has approached this Court by filing this second appeal.
9. While admitting the second appeal on 2-7-1992, this Court framed
the following substantial question of law:
“Whether the lower appellate Court was right in declining to award interest to
the appellant at the rate claimed by it in view of the provisions of the Sale
of Goods Act and Section 34, C.P.C.?”
10. Elaborating the above substantial question of law on the strength
of the decision reported in 1988 (1) L.W. 461 (RASHI LEATHERS (P) LTD.
MESSRS. VS. M/S.SUPER FINE SKIN TRADERS), learned counsel for the appellant
would contend that though there iscretion for the Court to fix the rate of
interest from the date of plaint till the date of realisation of the amount,
the Court has no discretion with reference to the rate of interest from the
date of demand to the date of plaint and as such, the plai ntiff would be
entitled for 21% interest per annum at least for the said period.
11. In reply, by citing 2002 (3) C.T.C. 385 (THE A.P.S.R.T.C. VS.
B.VIJAYA), a Full Bench judgment of the Andhra Pradesh High Court and a
decision of the Supreme Court reported in 2002 (2) C.T.C. 354 = 2002 (1)
S.C.C. 367 (CENTRAL BANK OF INDIA VS. INDRA), learned counsel for the
respondents would contend that the rate of interest as pleaded by the
plaintiff, has not been proved and as such, this Court has got discretion on
equity to fix the rate of interest as 6% per annum and therefore, the judgm
ent of both the Courts below on the said point is perfectly justified.
12. I have carefully considered the rival contentions urged by
learned counsel on either side.
13. As conceded by learned counsel for the appellant, there is no
difficulty in confirming the finding with regard to the rate of interest
between the date of plaint till the date of realisation of the decree amount,
fixing the rate of interest at er annum. The only question to be considered
as requested by learned counsel for the appellant is as to whether the Court
has got discretionary powers to fix the interest at the rate of 6% per annum
from the date of due to the date of plaint.
14. At the outset, it shall be stated that the decision of a Division
Bench of this Court in 1988 (1) L.W. 461 (supra) cited by learned counsel for
the appellant does not lay down any principle with reference to the point in
issue. The said decisi as given while the company petition for winding up
under Section 433 of the Companies Act, was disposed of and the said decision
would not be of any use to the appellant.
15. On a perusal of the judgment of the Supreme Court in 2002 (2)
C.T.C. 354 (supra) and the Full Bench decision of the Andhra Pradesh High
Court in 2002 (3) C.T.C. 385 (supra), cited by learned counsel for the
respondents, it is clear that in the a ce of any agreement between parties
with reference to the rate of interest, the Court has got powers to fix the
rate of interest on equity.
16. The term “interest” is neither defined in the Civil Procedure
Code nor in the Interest Act, 1978. According to the West’s Legal Thesaurus,
“interest” is a charge that is paid to borrow for use of money. The terms
“interest” has been defined i e Concise Oxford Dictionary as the money paid
for the use of money lent. The word “interest” as per the Chamber’s Twentieth
Century Dictionary, literally means the premium paid for the use of money. As
per the Black’s Law dictionary, the “interest” is the compensation allowed by
law or fixed by the parties for the use of forbearance or detention of money.
17. The interest is a charge made for the use of money given by one
person and taken by another. When a person claims a certain amount to be due
from another and he is found entitled to it, he may be awarded a further sum
called “interest” dependi n the circumstances of each case. The rate of
interest may either be by agreement or by operation of statutory provisions
where it specifically provides for such payment.
18. The natural conception of the word “interest” is the ordinary or
normal profit which the person entitled to the principal money, might have
made, had he used the said money or his expected loss under casual or ordinary
circumstances due to the payment of the same at the proper time.
19. It is noticed that the interest prior to the date of filing of
the suit is a matter of substantive law and is outside the scope of Section 34
C.P.C. This Section applies to the award of interest from the date of suit
till the date of decree, i “interest pendente lite” and also from the date of
decree till the date of payment. Interim interest as well as future interest
on judgment rests entirely in the discretion of the Court. Such discretion is
not limited to the rate of interest only. It applies to the award of interest
as well.
20. It is well established that the Court will award interest for the
period prior to the date of the suit, if there is an agreement to pay such
interest. Likewise, where there is a stipulation to pay interest at a
particular rate, the Court must a that rate, however high it may be. The
question of exercise of discretion by the Court does not arise in such cases.
The Court has no power to deviate from the agreement by disallowing the
interest or by allowing interest at a rate other than agreed b y the parties.
Such agreement may be express or implied.
21. Section 80 of the Negotiable Instruments Act, 1881 enacts that
where no rate of interest is specified in a negotiable instrument, the Court
shall award interest at the rate of 6% per annum irrespective of the agreement
between the parties. Sim ly, under Section 61 of the Sale of Goods Act, even
in the absence of a stipulation in the contract to pay interest, the vendor
will be entitled to interest at a reasonable rate. Likewise, the Interest
Act, 1978 makes provision for payment of interest p rior to the institution of
the suit. In so far as mercantile usage is concerned, in the absence of an
agreement to pay interest prior to the institution of the suit, the Court may
grant interest if it is payable by usage or trade having the force of law .
22. It is settled law as per the pronouncement of the Courts that the
interest can also be awarded by the Court on equity. In order to invoke the
doctrine of equity, it is necessary in the first instance to establish the
existence of circumstance ich attract equitable jurisdiction, such as
non-performance of a contract of which equity requires specific performance,
or where the owner is deprived of his property without paying price thereof,
or where money has been improperly detained and not paid to the person who is
entitled to it.
23. Section 34 C.P.C. reads as follows:-
“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, i n 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 t he 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 ther no contractual rate, the rate at which moneys are
lent or advanced by nationalised banks in relation to commercial transactions.
(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 s uit therefor shall not lie.”
24. There are three divisions of interest as dealt with in Section 34
C.P.C. The division is according to the period for which interest is allowed
by the Court, namely, (i) interest accrued due prior to the institution of the
suit, (ii) additional rest from the date of the suit to the date of the decree
and (iii) further interest from the date of the decree to the date of the
payment or to such earlier date as the Court thinks fit, at a rate not
exceeding 6% per annum. These three sets of interes t are called as pre-suit
interest, “interest pendente lite” and interest post decree or future
interest.
25. Pre-suit interest is referable to substantive law and can be
sub-divided into two sub-heads: (i) where there is a stipulation for the
payment of interest at a fixed rate and (ii) where there is no such
stipulation. If there is a stipulation for rate of interest, the Court must
allow the rate upto the date of the suit, subject to three exceptions:- (i)any
provision of law applicable to money lending transactions, or usury laws or
any other debt law governing the parties and having an overriding effect on
any stipulation for payment of interest voluntarily entered nto between the
parties; (ii) if the rate if penal, the Court must award at such rate as it
deems reasonable and (iii) even if the rate is not penal, the Court may reduce
it if the in terest is excessive and the transaction was substantially unfair.
26. If there is no express stipulation for payment of interest, the
plaintiff is not entitled to interest except on proof of mercantile usage,
statutory right to interest or an implied agreement. Interest from the date
of suit to date of decree is he discretion of the Court. Interest from the
date of the decree to the date of payment, is again in the discretion of the
Court – to award or not to award as also the rate at which to award.
27. As a matter of fact, when a notice has been issued by the
plaintiff, there is specific denial through reply by the defendants that they
are not liable to pay any interest on the balance payment. Despite this, the
plaintiff has not chosen to pro hat there is implied agreement between parties
with reference to the stipulation for payment of interest.
28. There is no dispute in the principle that pre-suit interest is a
matter of substantive law and a voluntary stipulation entered into between the
parties for payment of interest, would bind the parties, as also the Court,
excepting in any case of the three exceptions set out earlier.
29. In this case, there is no proof to show that there was any
contract between parties to pay interest at a particular rate. The claim of
the plaintiff is that even assuming that there was no stipulation with regard
to rate of interest, by virtue rovision under Section 34 C.P.C., the plaintiff
would be entitled to the rate of interest at which the moneys are advanced by
the nationalised Banks in relation to the commercial transactions which is
connected with the trade, custom and usage, and as such, the plaintiff would
be entitled to the rate of interest at 21% per annum for the period upto the
date of suit.
30. But, it is to be stated that mere claim would not suffice to hold
in favour of the plaintiff. In order to make avail of trade, custom or usage,
it is incumbent on the plaintiff to adduce evidence as to what is the rate of
interest prevalent a r the trade, custom or usage. Admittedly, in this case,
no attempt has been made by the plaintiff by adducing evidence to prove the
same. It would not be left to a speculation as to what is the prevailing rate
of interest as per the existing trade, cus tom or usage.
31. The claimant cannot be relieved of his duty to adduce acceptable
evidence on current rate of interest on deposits in nationalised Banks or rate
of interest charged on moneys lent or advanced on commercial transactions by
the nationalised Banks. course, the Court may take judicial notice of the
rates prescribed by the Reserve Bank. But, it is neither uniform nor fixed
for all times to come. It is fluctuating and variable. In such a situation,
it is not desirable for the Court to take judicial notice and order interest
on the basis thereof.
32. Where there is a source of definite evidence to prove the current
rate of interest, when the party did not adduce evidence in that regard, it
may not be proper for the Court to speculate as to the said rate of interest.
Therefore, it would be tary to pin the parties down to adduce relevant
evidence to show that particular rate of interest was the current rate of
interest at the relevant time being charged by the nationalised Banks on the
moneys lent or advanced on commercial transactions.
33. The abovesaid view of mine is fortified by the judgment of the
Andhra Pradesh High Court in AIR 1985 A.P. 21 (SRI SRINVASA CO. VS. FIRM,
V.D.H.A. SETTI).
34. Under those circumstances, the rate of interest fixed by the
trial Court as well as the lower appellate Court at 6% per annum in regard to
the period between the date of demand and the date of presentation of the
suit, is quite correct and does warrant any interference. Consequently, it
has to be held that no substantial question of law would arise for
consideration in the second appeal. The second appeal is dismissed. No
costs.
Index: Yes
Internet: Yes
cs
To
1.Principal Judge, City Civil Court, Madras.
2.I Asst. Judge, City Civil Court, Madras.
3.Record Keeper, V.R. Section, High Court, Madras.