V.K. Agarwal, J.
1. This appeal is directed against the judgment and decree dt. 13-8-1998 in Civil Suit No. 2-B/86 by Third Additional District Judge, Chhatarpur, decreeing a sum of Rs.27,401.60 P. with interest thereon, from the date of suit, till payment thereof @ 6% per annum.
2. The plaintiff /appellant filed a suit for recovery of Rs.27,401.60 p. According to the plaintiff/appellant a loan of Rs. 20,000/-was obtained by defendants/respondents Nos. 1 and2on 19-12-1981 from plaintiff/ Bank. Respondents Nos. 3 and 4 were their guarantors. The parties had agreed that rate of interest payable on the above loan would be 3.5% above the rate fixed by Reserve Bank of India and minimum 13.5% per annum with quarterly rests. Since the defendants / respondents Nos. 1 and 2 failed to repay the loan amount as per terms agreed to between the parties, hence the suit for recovery of Rs. 27,401.60p., including interest till the date of suit. The suit was resisted by defendants /respondents.
3. The trial court decreed the suit for Rs. 27,401.60P., as claimed by the appellant. It also granted interest on the said amount @ 6% p.a. from the date of suit, till repayment of the said amount.
4. The only submission of the learned counsel for the plaintiff /appellant is that as the agreement between the parties was that the interest payable would be 3.5% above the rate fixed by the Reserve Bank of India, subject to minimum of 13.5% per annum, the trial Court erred- in awarding interest at the rate of 6% per annum from the date of suit till realisation of the amount. It was submitted that, since the liability has arisen out of a commercial transaction, interest on the decretal amount from the date of suit should have been awarded at the agreed rate as mentioned above.
5. A cross-objection under Order 41, Rule 22 of C.P.C. registered as M. (C). P. No. 4040/ 2001 has been filed on behalf of respondents Nos. 1 and 2 for modification in the decree. It has been stated in the said cross-objection that the loan amount was Rs. 20,000/- only and that as per statement of accounts of plaintiff/appellant itself, the total amount outstanding as on 16-9-1982 was Rs. 16,164.85 P. Therefore the principal amount due on the date of suit i.e. 25-6-1986 could not exceed the aforesaid amount of Rs. 16,164.85p. It was therefore prayed that future interest would be payable on the said amount of Rs. 16,164.85p. only, and not on Rs. 27,401,60p. as has been ordered by the trial Court.
6. Learned counsel for respondents Nos. 1 and 2 in the above context submitted that the loan amount was admittedly Rs.20,000/-and was thus lower than decretal amount of Rs. 27,401.60p. which was claimed by the plaintiff /appellant in the suit. It was submitted that as the loan amount stood reduced to Rs. 16,164.85p., on 16-9-1982 the interest pendente lite and future interest should have been granted on the said amount and not on the decretal amount of Rs.27,401.60 P. It was further submitted that the trial Court in exercise of its discretion granted interest at the rate lower than agreed rate of interest from the date of suit, the discretion as above does not call for any interference in appeal.
7. The first submission as above of the learned counsel for respondents Nos. 1 and 2 in substance is that under Section 34 of the C.P.C. interest pendente lite i.e. interest from the date of suit till decree as also future interest i.e. interest from the date of decree till realisation could only be awarded on the ‘Principal sum adjudged’. Therefore interest pendente lite and future interest could not have been awarded on the whole of the decretal amount, which fell due in the respondents loan account on the date of suit, because the said sum included component of interest also. In other words the objection regarding the direction for payment of interest being paid on the whole of decretal amount of Rs. 27,401.60p., which fell due on the date of suit, rests on the ground that interest upon interest could not be directed to be paid.
8. It is therefore to be considered as to whether the contention as above deserves to be accepted?
9. It may be noticed that Section 34(1) of C.P.C., provides that :
“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 6n such principal sum, from the date of the decree to the date of payment, or to such earlier date as the Court thinks fit.”
10. Thus, Section 34 of the C.P.C. sets out three divisions for grant of interest, as below :
(1) interest accruing due prior to the institution of the suit on the principal sum adjudged ; (2) interest pendente lite i.e., interest payable on the principal sum adjudged, from the date of suit to the date of the decree, at such rate as the Court deems reasonable; (3) future interest on the principal sum adjudged, 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 cent per annum.
11. The constitution Bench of Supreme Court in Central Bank of India v. Ravindra, 2001 AIR SCW 4468 (AIR 2001 SC 3095) referring to its earlier decision of Secretary, irrigation department, Government of Orissa v. G.C. Roy (1992) 1 SCC 508 (AIR 1992 SC 732), observed that interest for the period anterior to the institution of suit is not a matter of procedure and that pre-suit interest is referable to substantive law. It was further observed that pre-suit interest can be sub-divided into two sub-heads :– (1) where there is a stipulation for the payment of interest at a fixed rate; (2) where there is no such stipulation. If there is a stipulation
for the rate of interest, the Court must al
low that rate up to 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 over
riding effect on any stipulation for payment
of interest voluntarily entered into between
the parties; (ii) if the rate is penal, the Court
must award at such rate as it deems reasonable; (iii) even if the rate is not penal the
court may reduce if the interest is excessive
and the transaction was substantially un
fair. 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. It was further observed in
the said case that, interest from the date of
suit to date of decree is in the discretion of
the Court. interest from the date of the decree to the date of payment or any other
earlier date appointed by the Court is again
in the discretion of the court and the discretion can be exercised either to award the
sum or not to award as also the rate at which
to award.
12. The contention and objection of learned counsel for respondents Nos. 1 and 2 regarding the award of interest on the decretal amount of Rs. 27,401.60p. appears to be mainly founded on the ground that the said sum also includes interest payable on the loan amount, which fell due till the date of filing the suit, the contention appears to be that interest pendente lite could not be granted on the component of interest forming the above amount of Rs. 27,401.60 P., but it should have been awarded only on such portion thereof as would constitute principal sum of loan obtained by respondents Nos. 1 and 2. However, the contention as above cannot be accepted.
13. In Central Bank of India v. Ravindra. (supra) the supreme Court has considered the question of capitalisation of interest till date of suit and its conversion into principal sum. After consideration and survey of Judicial opinion, it has been laid down therein that ‘the principal sum adjudged’ in Section 34(1) of C.P.C., would 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. It was thus laid down that “the principal sum adjudged” would be a sum actually loaned plus the amount of interest with periodical rests, which according to the contract between the parties or the established banking practice has stood capitalised and that interest pendente lite and future interest shall be awarded on such ‘principal sum’.
14. In view of above, it is clear that the principal sum would mean and constitute outstanding loan as capitalised on the date of suit including the balance of loan amount remaining unpaid as well as the interest accrued thereon at the contractual rate, till date of suit. Interest pendente lite from the date of suit as also future interest shall therefore be payable on such capitalised sum which would constitute ‘principal sum adjudged’ within the meaning of the said term under Section 34(1) of C.P.C., and not only on the balance amount outstanding towards the principal sum loaned. Therefore the contention of the learned counsel for the respondents Nos. 1 and 2 in support of his cross-objection cannot be accepted. In view of above, the cross objection M. (C) P. No. 4040/2001 deserves to be dismissed.
15. Now the contention of learned counsel for the appellant that contractual rate of interest ought to have been awarded on the decretal amount, from the date of suit till realisation, is to be considered. It may be noted in the above connection that, payment of interest pendente lite i.e., from the date of suit till the date of decree and future interest from the date of decree till payment of the decretal amount, is discretionary as provided under Section 34(1) of C.P.C.
16. It is clear from plain reading of Section 34(1) of the C.P.C. that the interest on the ‘principal sum adjudged’ can be granted from the date of suit to the date of the decree at such rate as the Court deems reasonable and that further interest from the date of decree till payment at such rate not exceeding 6% per annum as the Court deems reasonable on the principal sum. Proviso to Section 34(1) of C.P.C. lays down that, in, case liability in relation to the sum adjudged had arisen out of commercial transaction, the rate of such interest may exceed 6% per annum, but shall not exceed the contractual rate of interest or in the absence of contractual rate, the rate at which moneys are lent or advanced by the nationalised bank in relation to commercial transaction.
17. It is therefore clear that interest pendente lite would be awarded at the rate which the Court considers reasonable. Future interest from the date of suit till payment would ordinarily not exceed the rate of 6% per annum, but in case of commercial transaction, rate of such interest could exceed the rate of 6% per annum, but shall not exceed the contractual rate or where there is no contractual rate of interest then the rates at which money is lent or advanced by nationalised Banks in relation to commercial transaction. However, the provision as above does not mean and imply that the Court is obliged and should mandatorily grant interest at the contractual rate, either from the date of suit till the date of decree or from the date of decree till payment thereof, as has been contended on behalf of the appellant/Bank.
18. In the case of Central Bank of India v. Ravindra (supra), it has been observed by the Supreme Court in Clause (8) of para 55, that : at page 3119; of AIR.
“Award of interest pendente lite and post-decree is discretionary with the Court as it is essentially governed by Section 34 of the C.P.C. dehors the contract between the parties. In a given case if the Court finds that in the principal sum adjudged on the date of the suit the component of interest is disproportionate with the component of the principal sum actually advanced the Court may exercise its discretion in awarding interest pendente lite and post-decree interest at a lower rate or may even decline awarding such interest. The discretion shall be exercised fairly, judiciously and for reasons and not in an arbitrary or fanciful manner.”
19. Therefore, the contention of learned counsel for appellant that it was obligatory for the trial Court to have granted contractual rate of interest from the date of suit to the date of the decree as well as from date of decree to the date of payment, cannot be accepted.
20. It has been submitted by the learned counsel for respondents Nos. 1 and 2 that a sum of Rs. 20,000/- only Was borrowed by respondents Nos. 1 and 2 and that the balance of principal loan without addition of interest was only Rs. 16,164.85p. The learned counsel for respondents Nos. 1 and 2 submitted that direction to pay interest pendente lite and future interest at the con-tactual rate would cause, serious prejudice to their interest, in view of their poor financial condition. It has further been stated that respondent Nos. 1 and 2 have also paid an additional sum of Rs. 39,703.50p. during the pendency of suit and the trial Court directed the same to be adjusted from the decretal amount. It has been stated that some more amount also has been paid by the respondents Nos. 1 and 2 towards satisfaction of the impugned judgment and decree. Learned counsel for respondents Nos. 1 and 2 therefore submitted that, even if interest @ 6% per annum as awarded by the trial Court is directed to be increased; yet interest at the contractual rate may not be awarded, as it would result in great hardship to the borrowers /respondents Nos. 1 and 2.
21. Considering the facts and circumstances of the case and the contentions as above, it appears just and proper to direct that the respondents shall pay interest @ 10% per annum from the date of suit till payment of decretal amount, they will be liable to pay amount of interest only on the outstanding amount, after giving them due credit for the amount paid by them from time to time, during the pendency of the suit and also after the decree.
22. Thus, the cross-objection is rejected and this appeal is allowed to the above extent and instead of interest granted by the trial Court @ 6% per annum from the date of suit till payment, it is enhanced to 10% per annum. Remaining terms of impugned judgment and decree shall remain unaltered.