IN THE HIGH COURT OF JUDICATURE, ANDHRA PRADESH AT HYDERABAD TUESDAY THE NINETEENTH DAY OF APRIL TWO THOUSAND AND ELEVEN HON’BLE SRI JUSTICE B. PRAKASH RAO AND HON’BLE SRI JUSTICE G. BHAVANI PRASAD C.C.C.A.No.182 of 2000 & Cross Objections C.C.C.A.No.182 of 2000 Between: M/s. N.R.B. Bearings Limited (NRB), represented by its Director .. Appellant AND The Firm Tirupati Steel Traders and another .. Respondents Cross Objections Between: The Firm Tirupathi Steel Traders, a partnership firm, Represented by its Partner Murarilal Gukpta .. Cross objector AND M/s. N.R. Bearings Ltd, (NRB), Mumbai, represented by its Director and another .. Respondents COMMON JUDGMENT: (per G. Bhavani Prasad, J) The Appeal and the cross objections are directed against the judgment and decree in O.S.No.780 of 1989, dated 16-06-2000 on the file of the Court of IV Senior Civil Judge, City Civil Court, Hyderabad. The plaintiff claimed that the 1st defendant purchased B.P. sheets from the plaintiff on seven occasions for a value of Rs.5,69,761/-, while there was an old balance of Rs.489.50ps. The hundies issued by the 1st defendant were dishonoured and the amount was unpaid in spite of demands. Hence, the suit for recovery of Rs.9,44,880/- with interest at 18% per annum from the date of suit till the date of realization and costs. The 2nd defendant, who took over 1st defendant company, was later impleaded. The 1st defendant resisted the suit claiming that it is a sick industry from which the plaintiff cannot recover any interest. The 2nd defendant claimed that the plaintiff, who did not approach BIFR during the pendency of amalgamation proceedings, is not entitled to interest in the absence of privity of contract between the 2nd defendant and the plaintiff and the suit be dismissed. On such pleadings, the trial Court framed the following issues for trial. 1) Whether the (1st) defendant company is declared as sick unit and the suit is liable to be stayed under the Sick Industrial Companies (Special Provisions) Act as alleged? 2) Whether the plaintiff is entitled to recover the suit amount as claimed? 3) To what relief? Additional issue framed on 17-1-2000. Whether D2 is not liable for the suit claim in absence of written order under SICA Act in respect of the claim of the plaintiff against D1? During trial, PW.1 and DW.1 were examined and Exs.A.1 to A.15 and B.1 to B.17 were marked. The trial Court rendered the impugned judgment noting that the cross-examination of PW.1 by the 1st defendant showed that the 1st defendant was not denying the seven transactions of purchase of B.P. sheets on credit. The Trial Court also noted that the Hundies issued by the 1st defendant were dishonoured. Ex.A.14-letter written by the 1st defendant to the plaintiff was noted to be admitting the liability to an extent of Rs.5,69,761/- and the suit claim was noted to be including old balance, bank commission charges, interest on returned Hundies, interest on pending bills etc., which were stated in Ex.A.14 to be verifiable by the 1st defendant. Ex.A.15 was the decision of BIFR on 20-09-1991 by which time the suit was pending and though the plaintiff did not approach the BIFR, the trial Court felt that it is not mandatory for the creditors to approach for any such settlement. As there is no proof of any information to the plaintiff about those proceedings, the trial Court felt that both the defendants are liable under the Sick Industrial Companies (Special Provisions) Act, 1985 (for short “the Act”). The Trial Court also felt that interest at 18% per annum till the date of suit and at 6% per annum after the suit also have to be paid. Section 22 of the Act was held to be not a bar to the suit and hence, the suit was decreed for Rs.9,44,880/- with interest at 6% per annum from the date of suit till realization with costs. The 2nd defendant filed the appeal contending that in view of the admission of PW.1 about the 1st defendant being closed as a sick industry and the 2nd defendant taking over the 1st defendant under a scheme of BIFR and further in view of the evidence of DW.1 about BIFR earmarking Rs.25,00,000/- for settlement with the creditors, the interest before and after the suit at 18% p.a. should have been disallowed. The scheme of BIFR and the purpose and object of the Sick Industrial Companies (Special Provisions) Act, 1985 bar the claim for interest. Publication of notice of proceedings before BIFR was in a newspaper as per the statute and the plaintiff ought to have approached the BIFR. The suit ought to have been stayed under Section 22 (1) of the Act and the 2nd defendant cannot be made liable in the absence of any privity of contract. Hence, the appeal for reversal of the impugned judgment and decree. The plaintiff in its cross-objections complained against denial of pendente lite interest at 18% p.a., which is unjustified under Section 34 of the Code of Civil Procedure, 1908 and the Interest Act in respect of a commercial transaction. During the pendency of the appeal, an interim order was passed by this Court on 7-7-2008 noting that most of the creditors agreed to receive the principal amount with relief concerning the balance and interest as per the scheme of BIFR. It was also noted that the principal amount due herein was only Rs.5,69,761/- and the Court felt that it is desirable that the matter be settled between the parties in view of the 2nd defendant discharging several liabilities. The attempts for reconciliation failed before the Lok Adalat and the appeal reverted back to the Court for hearing. Thereafter, the appellant filed a memo on 21-07-2010 stating that Rs.5,00,000/- and entire costs of Rs.32,998/- were deposited by the 2nd defendant to the credit of the appeal as per the interim order of stay and the plaintiff withdrew the said amount. The 2nd defendant claimed to have settled all the claims of the creditors of the 1st defendant in order to revive the 1st defendant as per the sanctioned scheme of BIFR and stated that the plaintiff being an unsecured creditor will not receive anything in the event of liquidation of 1st defendant on failure to rehabilitate it. Hence, the 2nd defendant offered to pay the balance of principal amount of Rs.69,761/- and interest at 6% per annum on the entire principal sum from 20-09-1991 to 15-11-2000 and on Rs.69,761/-from 16- 11-2000 up to date since the date of deposit of Rs.5,00,000/- was 16-11-2000. The appellant filed a further memo on 26-07-2010 stating that after the memo was filed on 21-07-2010, the court suggested that if the appellant agreed to pay interest at 6% p.a. on the principal amount of Rs.5,69,761/- from 19-07-1986 and file a revised memo to that effect, it will be considered and the appeal will be disposed of on such basis. The 2nd defendant-appellant accordingly agreed to pay interest on the principal amount of Rs.5,69,761/- from 19-07-1986 to 15-11-2000 and interest on the balance principal amount of Rs.69,761/- from 16-11-2000 making the total liability Rs.6,00,320/-. The payment of Rs.6,00,320/- made vide D.D.No.002180, dated 24-07-2010 towards full and final settlement of the judgment and decree under appeal and the cross objections was requested to be recorded. Heard the learned counsel for both parties. The only contentious issue between the parties in the appeal and the cross-objections is about the interest payable on the principal sum of Rs.5,69,761/- and though a feeble attempt was made to question proceeding with the suit, which was already pending before the proceedings before BIFR commenced, with reference to Section 22 (1) of the Act or on the ground of absence of privity of contract between the plaintiff and the 2nd defendant, the same were not pursued for obvious reasons. Insofar as the plaintiff questioning the refusal to grant interest at 18% per annum pendente lite is concerned, grant of such interest is within the judicial discretion of the trial Court under Section 34 of the Code of Civil Procedure, 1908 and there could not have been a better reason than the sickness of the 1st defendant and the liability of the 2nd defendant to satisfy as many creditors of the 1st defendant as possible under the BIFR scheme to accept to reduce such pendente lite interest to 6% per annum. Merely because the transactions are commercial transactions between the parties, grant of contractual rate of interest is not mandatory, but is only discretionary after filing of the suit and therefore, the cross-objections in any view are untenable on merits. Section 22 (1) of the Sick Industrial Companies (Special Provisions) Act, 1985 directs that no suit shall be proceeded with further, except with the consent of BIFR in case of Section 16 inquiry or Section 17 proceedings or Section 25 appeal. The present suit instituted even prior to the institution of the proceedings before the BIFR does not appear to have been proceeded with during the pendency of such proceedings, which ended in a scheme by the proceedings of the BIFR dated 20-09- 1991. While there appeared no violation of Section 22 (1) of the Act, M/s. Asian Bearings & Tools Corporation v. M/s. Coastal Chemicals Ltd., Visakhapatnam[1] and M/s. Patheja Bros. Forgings and Stamping and another v. ICICI Ltd., and others[2] relied on by the appellant appeared inapplicable on facts. On the quantum of interest, the decision of the Apex Court in Central Bank of India v. Ravindra and others[3] was relied on wherein it was held that award of interest pendente lite and also post decree is discretionary with the Court as it is essentially governed by Section 34 of the Code of Civil Procedure de hors the contract between the parties. The only caution is that the discretion shall be exercised fairly, judiciously and for reasons and not in an arbitrary or fanciful manner. Any need to replicate the principles on the aspect referred to in the other decisions relied on by the learned counsel for the appellant does not arise in view of the principle laid down by the Five Judge Bench of the Apex Court, the only question left being the manner of the judicious exercise of the judicial discretion in the present case. It is seen from the proceedings of the BIFR dated 20-09- 1991 that the 1st defendant became sick and approached the BIFR in 1991 itself leading to the sanctioned rehabilitation-cum- amalgamation scheme with the 2nd defendant. The 2nd defendant being the successor to all the liabilities of the 1st defendant had, at the time of obtaining interim stay of the execution of the decree under appeal been forced to deposit Rs.5,00,000/- plus entire costs of the suit awarded by the decree at Rs.32,998/-, which the plaintiff had withdrawn as per the orders of this Court. While it had offered earlier to pay interest at 6% p.a. only from 20-09-1991, the date of the sanctioned scheme by BIFR, on the suggestion of the Court, it revised its offer to pay such interest on the principal sum from 19-07-1986 to 15-11-2000, the date of deposit of Rs.5,00,000/- and then on the balance of principal amount of Rs.69,761/- from 16-11-2000 till 26-07-2010. The cause of action for the suit was stated to have arisen on 19-07-1986 and the offer to pay such interest since then is but reasonable. It should be noted that there was no contract or agreement between the parties concerning payment of any interest nor had any business usage or custom to pay such interest been alleged or proved. The trial Court granted interest at 18% p.a. till the suit only on the ground that the plaintiff might have earned more money if the amount was paid in 1989 itself at the time of suit and as the transaction is a business transaction. Under the circumstances, restricting the interest on the principal sum to 6% per annum from the date of cause of action for the suit will not be inappropriate or illegal. As there was no contractual rate of interest or any rate of interest proved to be governed by any custom or usage and as the demand for payment under Ex.A.13 was on 19-07-1986, awarding interest at 6% per annum on the principal sum from that date till realization will be reasonable, just and lawful. The judgment and decree have to be modified accordingly and the memo filed on behalf of the appellant on 26-07-2010 to treat the payment of Rs.6,00,320/- made through Demand Draft No.002180, dated 24-07-2010 as full and final settlement of the judgment and decree has to be allowed. Accordingly, the judgment and decree in O.S.No.780 of 1989 on the file of the Court of IV Senior Civil Judge, City Civil Court, Hyderabad, dated 16-06-2000 are modified by granting a decree in the said O.S.No.780 of 1989 against both the defendants jointly and severally for a sum of Rs.5,69,761/- with interest thereon from 19-07-1986 to 15-11-2000 and with future interest on Rs.69,761/- from 16-11-2000 till 26-07-2010 at 6% per annum with costs of Rs.32,998/-. The deposit of the entire costs of Rs.32,998/- and Rs.5,00,000/- as per the interim directions of this Court in this appeal by the 2nd defendant and the further payment of Rs.6,00,320/- made vide Demand Draft No.002180, dated 24- 07-2010 by the 2nd defendant are recorded towards full satisfaction of such modified judgment and decree. The Cross objections are dismissed and the appeal is ordered accordingly without costs. _________________ B. PRAKASHRAO, J ____________________ G. BHAVANI PRASAD, J Date: 19-04-2011 Ksn [1] AIR 1996 AP 269 [2] AIR 2000 Supreme Court 2553 [3] 2002 (2) ALD 97 (SC)