IN THE HIGH COURT OF HIMACHAL PRADESH, SHIMLA. RFA No.383/1992 and Cross-objection No.389/1992 Decided on.13.5.2008 RFA No. 383/1992: Punjab National Bank. …Appellant. Versus M/s Bansal Floor Furnishing Industries and others. …Respondents Cross-Objection No.389/1992: Om Parkash Soni ...Objector. Versus Punjab National Bank and others. …Respondents. Coram The Hon’ble Mr. Justice Jagdish Bhalla, C.J. The Hon’ble Mr. Justice Rajiv Sharma, J. Whether approved for reporting ?1. yes. (RFA No. 383/1992) For the appellant : Mr. Ajay Kumar, Advocate. For the respondent Mr. K.D. Sood, Advocate for respondent No.6. (Cross-objection No. 389/1992) For the Objector : Mr. K.D. Sood, Advocate For the respondent: : Mr. Ajay Kumar, for respondent No.1 1 Whether the reporters of Local Papers may be allowed to see the judgment? yes. 2 Rajiv Sharma, J. By way of this common judgment, RFA No. 383 of 1992 and Cross-Objection No. 389/1992 are being disposed of to avoid repetition of discussion of evidence. The brief facts necessary for the adjudication of the Regular First Appeal and the Cross-Objection are that the appellant-plaintiff Bank (hereinafter referred to as the plaintiff for convenience sake) had filed a suit for recovery of Rs. 3,67,290/- plus future interest with effect from 1.9.1986 with interests. The suit was permitted to be amended by this Court. M/s. Bansal Floor Furnishing Industries, a partnership firm of respondents/defendants No.2 and 3 (hereinafter referred to as the defendants for convenience sake) had approached the plaintiff for making available to it the following loan facilities: a) Cash Credit Hypothecation loan of Rs. 60,000/- for purchase of raw material. b) Cash Credit Pledge loan of Rs. 40,000/-. c) Term loan of Rs. 60,000/- for construction of factory building and installation of machinery. The defendants No.1 to 3 provided the predecessor-in-interest of defendant No.4 as their guarantor for repayment of loan and they executed the requisite loan documents in that behalf on 7.11.1979, 14.2.1980 and 3.7.1980 in favour of the plaintiff-bank. The defendants No.1 to 3 again approached the plaintiff-bank in August, 1980 for extending to them the facility of term loan to the tune of Rs. 4,800/- for purchase of some machinery items which facility was also made available to them. The predecessor-interest of defendant No.5 stood guarantee for repayment of this loan facility. The 3 necessary documents were also executed between the defendants No.1 to 3 and 5 and the plaintiff-bank. The defendants No. 1 to 3 were proceeded exparte by this Court on 21.7.1987. Defendant No.4 had filed the written statement to the amended plaint. Defendant No.6 had also filed the written statement to the plaint. The plaintiff had filed replication to the written statement filed by defendant No.4 as well as defendant No.6. Defendant No.5 was also proceeded exparte on 10.11.1987. The learned Single Judge had framed the following issues: 1. Whether the suit has been instituted by a person competent to do so? OPP. 2. Whether the suit is within limitation? OPP. 3. Whether defendant No.4 stands absolved of his liability, if any, on the basis of preliminary objection No.2 and the contents of para 8-B of his written statement? OPD 4. Whether an equitable mortgage was created by defendant No.2 in favour of the plaintiff-Bank as per particulars given in para 8-A of the plaint? OPP 5. Whether defendant No.6 is a bonafide purchaser for consideration? If so, its effect? OPP 6. Whether the plaintiff is estopped from filing the suit against defendant No.6 on account of its act, deed and conduct? OPD-6 7. Whether defendant No.6 has made extensive repairs, renovation and reconstruction in the mortgaged property at the cost of nearly Rs. 30,000/-? If so, its effect? OPD-6 8. To what rate and amount of interest is the plaintiff- bank entitled to recover? OPP 9. Whether the plaintiff-bank is entitled to a joint and several decree against defendants Nos.1 to 4 in the 4 sum of Rs. 3,56,149/- and another joint and several decree against defendants Nos. 1 to 3 and 5 for a sum of Rs. 11,141/-? OPP. 10. Whether the plaintiff is entitled to a preliminary decree for the sale of the aforesaid mortgaged property for realization of secured debt of Rs. 1,17,655-77 paise and interest? OPP 11. Relief. The learned Single Judge decreed the suit on 18.8.1992. The operative portion of the judgment dated 18.8.1992 reads thus: “Accordingly, a decree for Rs. 2,27,681-63 is passed jointly and severally against defendants Nos. 1 to 4 and a decree for Rs. 9080-40 is passed jointly and severally against defendants Nos. 1 to 3 and 5 with rates of interest mentioned hereinabove for each item of the loan and in future as well till the realization of the decretal amounts with quarterly rests. The loan secured by equitable mortgage would also be realizable by sale of the property described in documents Ex.P-34 and Ex.P-35 read with para 8 (a) of the plaint and in case the total amount is not realized by the sale of this property, the same could be realized from other properties of the defendants like the realization of other decretal amounts. The plaintiff will also be entitled to cots of this suit.” Mr. Ajay Kumar, Advocate had strenuously argued that the learned Single Judge has only awarded interest on the principal amount, however, he has not allowed any interest by way of penalty. Mr. K.D. Sood, Advocate appearing on behalf of the Objector had strenuously argued that the mortgage was only for Rs. 60,000/- and no charge more than that could be made on the property in dispute. He has strongly relied upon Ex.D-7 and Ex.D-8 to 5 substantiate his plea. He also contended that the liability of the Objector was only to the extent of 60,000/- and the finding recorded by the learned Single Judge to the contrary are liable to be quashed and set aside. We have heard the learned counsel for the parties and perused the record carefully. At the first instance we have to consider the submission of Mr. Ajay Kumar, Advocate whether the plaintiff-bank was entitled to interest @ 2% by way of penalty or not. The learned Single Judge while hearing the civil suit on 25.10.1991 had passed the following order to work out the exact amount due and payable to the plaintiff in the absence of proper calculation of interest. “The plaintiffs have prayed for interest on the suit amount at the rate of 14% per annum with quarterly rests. The suit amount cumulatively relates to four different transactions as follows: 1. Cash Credit Hypothecation loan of Rs. 60,000/- evidenced by documents Exs.P-3 and P-4. 2. Credit Pledge loan of Rs. 40,000/- evidenced by document Ex.P-17. 3. Term loan of Rs. 60,000/- evidenced by documents Exs.P-10 and P-12. 4. Term loan of Rs. 4,800/- evidenced by documents Exs.P-P-21 and p-22. The rate of interest is not the same for all the above mentioned four transactions. For the first the rate of interest as agreed is stated at 11% in document Ex.P-3, whereas in document Ex.P-4 it is 10 ½ % per annum. For the second transaction the rate of interest is 12% per annum and for the third and fourth loan transaction as 6 shown in documents Ex.P-10, Ex.P-12, Ex.P-21 and Ex.P- 22 the rate of interest is shown as 10 ½ % per annum. From the statement of account Ex.P-27 to Ex.P-30 it will be seen that plaintiff had also charged penal interest. Except the balance confirmation for four loan transactions Ex.P-18, P-14, P-16, P-20 and P-26, there is no document on record suggesting increase in the rate of interest. These balance confirmations, however, show higher rate of interest. It will not be possible for the Court to work out the exact amount due and payable to the plaintiff in the absence of proper calculation of interest. Accordingly, it is directed that plaintiff will file fresh statement of account for each loan transaction separately working out the interest as shown in original loan documents Ex.P-3, P-4, P-10, P-12, P-17, P-21 and P-22 without including therein the penal interest. This be done within a period of four weeks from today.” Thereafter the learned Single Judge has passed the order on 11.12.1991, which reads thus: “The following four loan facilities were made available by plaintiff to defendants No.1 to 3:- a) Cash Credit Hypothecation loan of Rs. 60,000/- for raw material; b) Cash Credit Pledge loan of Rs. 40,000/- for purchase of raw material and finished goods; c) Term loan of Rs. 60,000/- for construction of building and installation of machinery; and d) Term loan of Rs. 4,800/- for purchase of machinery items. There are four different pronotes for the aforesaid loan transactions. Ex.P-3 pertains to item (a) which stipulates payment of interest at the rate of 2% per annum 7 over and above the Reverse Bank of India rate with minimum of 11% per annum with quarterly rests. Pronote Ex.P-10 pertains to loan transaction (b) above which stipulates payment of interest at the rate of 1 ½% per annum over and above the Reserve Bank of India rate with minimum rate of 10 ½% per annum with quarterly rests. Pronote Ex.P-17 pertains to loan transaction (c), wherein the rate of interest stipulated is shown 3% per annum over and above the Reserve Bank of India rate with minimum of 12% per annum with quarterly rests. For the fourth loan transaction, pronote Ex.P-21 provides for charging interest at the rate of 1 ½% per annum over the Reserve Bank of India rate with minimum of 10 ½% per annum with quarterly rests. From the statements of accounts Exs. P-27 to P-30, it is not possible to ascertain as to at what rate the interest has been charged. Although there is a mention at various places including an item of penal interest. Whether the plaintiff is entitled to any penal interest over and above the agreed rate of interest is a matter of consideration before the Court. In the balance confirmations, namely, Exs. P-5 to P-8, P-14 to P-16, P-19, P-20 and P-24 to P-26 rate of interest mentioned therein is not in consonance with the rate of interest mentioned in promotes Exs. P-3, P-10, P-17 and P-21. In order to pas an effective decree in favour of the plaintiff, it would be necessary for the plaintiff to place on record true statement of account showing therein the items of interest as per agreement of the parties, excluding therefrom the item of penal interest upto the date of institution of suit, namely, September 9, 1986. Penal interest be shown in separate statement of account. Accordingly let statement of accounts be filed within a period of four weeks from today with respect to the four different loan transactions mentioning therein the 8 amount of interest as per the rate agreed to between the parties and a separate statement showing the amount of penal interest.” It is evident from the order dated 11.12.1991 that the rate of interest mentioned in pronotes and the balance confirmation letters are not in consonance with each other. It appears from the record that the bank had produced on record two statements of accounts showing therein the items of interest. The learned Single Judge has taken the same into consideration and has rightly come to a conclusion that the bank was not entitled to any penal interest and was entitled only to the interest @ 10.5%, 7%, 10.5% and 12%, respectively. We have also gone through the pronotes placed on record and the document i.e. balance confirmation letters. We are of the firm opinion that the penal interest was not mentioned @ 2% in the balance confirmation letters. The total penal interest according to the plaintiff works out to Rs. 27,255/-. This is a meager amount and it was expected from the bank not to file an appeal for the recovery of Rs. 27,255/-, more particularly, when the learned Single Judge has given correct findings with regard to the rate of interest to which the plaintiff-bank was entitled as per the documents placed on record. Now, the Court has to consider the plea of Mr. K.D. Sood, Advocate that his client’s liability is only to the extent of Rs. 60,000/-. Since the mortgage was only for a sum of Rs. 60,000/-, no charge could be made more than that in the property in dispute. Mr. K.D. Sood has taken us to documents Ex.D-7 and Ex.D-8, respectively. It 9 is evident from these documents that there is no revenue entry to the effect that the bank had a prior charge on this property. Mr. Sood submitted that his client had checked up the revenue record to see whether any charge has been made on the property in question or not. Mr. Ajay Kumar, Advocate to the contrary has submitted that it was incumbent on the objector to see the clear title from the revenue record. It is not in dispute that the property in question was already mortgaged with the plaintiff –bank and the defendant could not dispose of the same the manner in which it has been done. The learned Single Judge has over looked this vital aspect in his judgment. We accordingly while upholding the judgment of the learned Single Judge set aside the finding where the objector has been made jointly and severally liable to pay the entire decretal amount. It is clarified that the liability of the objector will only be to the extent of 60,000/- only. Mr. Ajay Kumar, Advocate had argued that the objector will be liable to pay interest as per the judgment of the learned Single Judge. However, Mr. K.D. Sood has referred to N.M. Veerappa versus Canara Bank, AIR 1998 SC 1101 to substantiate his plea that as far as the interest in mortgage suits for recovery of bank loan is concerned, the interest @ 6% is proper. We are also of the considered opinion that in view of the law laid down in N.M. Veerappa versus Canara Bank, the objector is only liable to pay 6% interest on a sum of Rs. 60,000/-. 10 In view of the observations made hereinabove, the Regular First Appeal is dismissed and the objections are allowed to the extent as mentioned above. The judgment and decree will stand modified to the extent indicated above. There shall be no order as to costs. (Jagdish Bhalla), C.J. ( Rajiv Sharma), J. May 13, 2008 *Awasthi*