THE HON’BLE SRI JUSTICE M.S. RAMACHANDRA RAO APPEAL SUIT No.3667 of 2003 JUDGMENT: This appeal is filed challenging the judgment and decree dt.22-10-1998 in O.S.No.389 of 1997 on the file of the II Addl. Senior Civil Judge, Kakinada. 2. The defendants are appellants in the suit. 3. The suit was filed by respondent on the basis of a mortgage executed by appellants in favour of respondent on 20-01-1992 pursuant to which the appellants had borrowed a sum of Rs.30,000/- from the respondent for the purposes of their businesses and construction of their house. The said amount was to be paid with interest @ 2.50% per mensum yearly compound. With an intention to create a security on the said debt, the appellants had deposited the documents of title of the plaint schedule property with the respondent at his residence at the time of borrowing the amount. Contending that the amount borrowed on 20-01-1992 on the above terms was not paid, the respondent had issued registered notice dt.20-07-1997 to the appellants asking them to pay the money, and though the appellants received the said notice they did not pay the amount or replied to the legal notice. Therefore the suit was filed on 22-10-1997. 4. Defendant Nos.1 and 2 filed a confessional memo admitting the suit claim and requesting 2 months time to pay the suit amount. 5. By judgment and decree dt.22-10-1998, the Court below decreed the suit basing on the confessional memo. It declared that the amount due to the plaintiff on the mortgage mentioned in the plaint is a principal sum of Rs.30,000/-, Rs.92,655/- is payable towards interest and costs of Rs.5,843/- i.e in all Rs.1,28,498/-. It granted 2 months time i.e till 22 .12.1998 for redemption of this amount of Rs.1,28,498/- apart from granting a subsequent interest @ 12% p.a. on suit amount of Rs.1,09,515/- from the date of suit till realization against the appellants. 6. Challenging the same, this appeal is filed. 7. The counsel for the appellant contended: (a) that under Order XXXIV Rule 11 of CPC, the Court has got discretion to reduce the rate of interest notwithstanding the provisions of Section 34 CPC; therefore awarding of subsequent interest @ 12% p.a. is excessive and the Court below should have granted a lesser rate of interest; (b) the said interest was awarded not on the principal amount of Rs.30,000/- borrowed by the appellants but on the suit claim of Rs.1,09,515/-; that the Court below should have granted interest only on the principal sum of Rs.30,000/- and not on the suit claim of Rs.1,09,515/- ; that the appellants had admitted the respondent’s claim in the suit; that the respondent’s claim for interest @ 30% p.a. had been accepted by the appellants although the interest claimed was excessive; on that basis the trial Court had awarded interest on Rs.1,09,515/- even though the principal amount borrowed was only Rs.30,000/- and that if the appellants are made to pay interest on this amount of Rs.1,09,515/-, it would amount to permitting the respondent to collect interest on interest. 8. The learned counsel for respondent, on the other hand, contended that the appellants having admitted the claim in the suit, had prolonged the matter in this Court; that they initially filed appeal in the year 1999 but filed a stay application C.M.P.No.26831 of 2003 seeking stay of judgment of the trial Court, which was dismissed on 19-11-2003; that they had also filed C.M.P.No.27897 of 2003 to stay further proceedings in E.P.No.37 of 2001 filed by respondent, which was also dismissed on 12-12-2003; that they had again filed C.M.P.No.9855 of 2004 to stay the withdrawal of the difference amount of interest portion i.e. difference amount representing interest @ 12% p.a. on suit amount of Rs.1,09,515/- and the principal amount of Rs.30,000/- lying in deposit to the credit of E.P.No.37 of 2001 and obtained stay; that under the terms of mortgage, compound interest was payable. Therefore, there is nothing wrong in the trial Court granting interest @ 12% p.a. (which is much less lesser than 30% p.a. contracted rate of interest) on the suit claim and not on the principal sum borrowed by the appellants. 9. Therefore, the points for consideration are: (a) Whether the interest @ 12% p.a. could have been awarded by the Court below in favour of respondent and whether this Court, in exercise of its discretion under Order XXXIV Rule 11 CPC, in the facts and circumstances of the case, could reduce the rate of interest below 12% p.a? (b) Whether the interest could have been awarded on the suit amount of Rs.1,09,515/- by the trial Court instead of on the principal sum of Rs.30,000/-? POINT (a): 10. The Supreme Court of India in N.M. Veerappa Vs. Canara Bank[1] has held that in a mortgage suit, Civil Court has got the power to reduce the rate of interest for the period subsequent to the suit notwithstanding the contract providing for a higher rate of interest. Therefore, the existence of the discretion in the Court to grant interest at lesser rate cannot be disputed. 11. In the present case, the contracted rate of interest is compound interest @ 2.50% p.m. i.e. 30% p.a compounded. Since the suit claim was not disputed on the basis of the above rate of interest, the trial Court had granted a preliminary decree for Rs.1,09,515/- including interest upto the date of filing of suit. For the period subsequent to the filing of suit, although the transaction was a commercial transaction, the Court below did not grant interest at the contracted rate of 30% p.a. but has granted interest at a vastly reduced rate of interest @ 12% p.a. Therefore in my opinion, the trial Court has rightly exercised its direction under Order XXXIV Rule 11 CPC in awarding interest @ 12% p.a. and that the award of interest such a rate, in the facts and circumstances of the case, cannot be held to be erroneous. Therefore, point (a) is answered against the appellants and in favour of respondent. Point (b): 12. It is true that the suit claim was that the appellants had accepted to pay compound interest @ 30% p.a. on the principal sum of Rs.30,000/-. The trial Court had decreed the suit on the said basis only for a sum of Rs.1,09,515/- upto the date of filing of suit. In fact, a comparison of the judgment and decree of the trial Court indicates that while in its judgment it had awarded subsequent interest @ 12% p.a. on Rs.1,09,515/- from the date of suit i.e. 22-10-1997 till realization, in the decree, the interest is granted not from the date of suit but from the date of decree till realization. 13. The plaintiff has not questioned this act of trial court in not granting interest after filing of suit till date of decree in it’s decree. 14. However, the question still remains whether interest after decree till realization should have awarded on the principal sum of Rs.30,000/- only and not on the suit amount of Rs.1,09,515/-. 15. This is no longer res integra. 16. Order XXXIV Rule 11 CPC as amended in 1956 by Amendment Act 66 of 1956 states: “Order XXXIV Rule 11: 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 follows, namely:- (a) interest up to the date on or before which payment of the amount found or declared due is under the preliminary decree to be made by the mortgagor or other person redeeming the mortgage- (i) On the principal amount found or declared due on the mortgage, at the rate payable on the principal, or, where no such rate is fixed, at such rate as the Court deems reasonable; and (ii)………………. (iii) on the amount adjudged due to the mortgagee for costs, charges and expenses properly incurred by the mortgagee in respect of the mortgage-security up to the date of the preliminary decree and added to the mortgage- money, at the rate agreed between the parties, or, failing such rate, at such rate not exceeding six percent, per annum as the Court deems reasonable; and (b) Subsequent interest up to the date of realisation or actual payment on the aggregate of the principal slums specified in clause (a) as calculated in accordance with that clause at such rate as the Court deems reasonable”. 17. A similar question was considered by this Court in Canara Bank Vs. Venkateswara Rice Mills[2]. It held that the words “principal sums” mentioned in clause (b) of Order XXXIV Rule 11 are referable only to the principal amount found or declared due and not the interest, and that the intention of the legislature is not to permit award of interest on interest. It rejected the contention of the appellant therein that subsequent interest up to the date of realization or actual payment should be awarded on the aggregate of the principal sum and the interest thereon as decreed and also on the costs as awarded under clause (a) (iii). It pointed out that prior to 1956 interest was awarded on the aggregate of all the sums since the language of the pre-amended provision permitted it to be awarded, but the legislature had brought about a change in law in 1956 permitting award of interest only on the principal sums specified in clause (a) and as calculated in accordance with that clause, and such principal sum can only be the principal amount found or declared due on the mortgage. It relied on the Division Bench judgment of the Punjab High Court in Sohan Singh Vs. State Bank of India[3]. 18. In view of the above legal position, I am of the opinion that the trial Court could not have awarded subsequent interest on the suit amount of Rs.1,09,515/- @ 12% per annum; that it should have awarded it only on the principal sum of Rs.30,000/-; and not on the interest accrued up to the date of suit or on the suit amount of Rs.1,09,515/- which included the interest accrued up to the date of the suit. 19. Therefore, the appeal is allowed in part modifying clause (2) (i) of the decree passed by the trial Court holding that in addition to the amount of Rs.1,28,498/- payable by the appellants to the respondent, they shall also be liable to pay subsequent interest on the principal sum of Rs.30,000/- @ 12% per annum from 22-10-1998 i.e. the date of decree till realization. The appellants are granted two months’ time from today i.e. till 08-09-2014 for redemption. The decree of the trial Court is only modified to this extent. 20. The appeal is thus partly allowed. No costs. 21. As a sequel, miscellaneous applications, if any, pending in this appeal shall stand closed. JUSTICE M.S. RAMACHANDRA RAO Date : 08-07-2014 Vsv [1] AIR 1998 SC 1101 [2] 1985 (2) ALT 307 [3] AIR 1964 Punjab 123 (D.B.)