*THE HON’BLE SRI JUSTICE B.SESHASAYANA REDDY AND THE HON’BLE SRI JUSTICE P.DURGA PRASAD + C.C.C.A.No.131 of 2001 AND CROSS OBJECTION (SR) 53515 OF 2001 % 29-01-2011 # Laxmichand & Balchand, a partnership firm carrying business at 6- 3-1089/A-3-1, Gulmohar Avenue, Rajbhavan Road, Somajiguda, Hyderabad and others … Appellants Vs. $ M/s.Ashok Leyland Ltd., a public limited company having its Registered office at No.9, Rajaji Salai, Chennai and another … Respondents ! Counsel for the Appellants: Sri K.Mohan Counsel for the Respondent: Sri M.Papa Reddy < Gist: > Head Note: ? Cases referred: AIR 1997 SUPREME COURT 3 AIR 1986 GUJARAT 113 AIR 1992 CALCUTTA 296 AIR 1994 KARNATAKA 123 AIR 2000 ANDHRA PRADESH 280 AIR 2005 JHARKHAND 69 (2002) 1 Supreme Court Cases 367 (2010) 10 Supreme Court Cases 640 THE HON’BLE SRI JUSTICE B.SESHASAYANA REDDY AND THE HON’BLE SRI JUSTICE P.DURGA PRASAD C.C.C.A.No.131 of 2001 AND CROSS OBJECTION (SR) 53515 OF 2001 (Dated: 29-01-2011) Between: Laxmichand & Balchand, a partnership firm carrying business at 6-3-1089/A-3-1, Gulmohar Avenue, Rajbhavan Road, Somajiguda, Hyderabad and others …Appellants A n d M/s.Ashok Leyland Ltd., a public limited company having its Registered office at No.9, Rajaji Salai, Chennai and another …Respondents THE HON’BLE SRI JUSTICE B.SESHASAYANA REDDY AND THE HON’BLE SRI JUSTICE P.DURGA PRASAD C.C.C.A.No.131 of 2001 AND CROSS OBJECTION (SR) 53515 OF 2001 COMMON JUDGMENT: ( Per Hon’ble Sri Justice B.Seshasayana Reddy) This appeal suit and the cross objection are directed against the judgment and decree dated 20.3.2001 on the file of the III Senior Civil Judge, City Civil Court, Secunderabad, whereby and whereunder, the learned Senior Civil Judge decreed the suit of the plaintiffs for Rs.6,48,610.93 ps. with interest on principal sum of Rs.3,76,365/- at 12% per annum from the date of the suit till the date of decree and thereafter at 6% per annum till the date of realization. 2. The appellants in C.C.C.A.No.131 of 2001 are the defendants in O.S.No.256 of 1991. The respondents are the plaintiffs in the said suit. They filed the suit for recovery of Rs.6,48,610.93 ps. with interest thereon at 18.5% from the date of the suit till the date of realization. The 1st defendant is a partnership firm and defendants 2 to 4 are partners of 1st defendant firm. Plaintiff No.1 is the manufacturer of tippers and whereas the 2nd plaintiff is the dealer of the 1st plaintiff. The 1st defendant firm purchased two tippers manufactured by the 1st plaintiff through the 2nd plaintiff under IDBI scheme. The defendants agreed to pay the value of the tippers in six equal instalments. The 1st instalment is to be paid on 17.10.1985. The defendants paid the 1st instalment on 17.3.1988. The 2nd instalment was to be paid on 17.01.1987, but a part of the 2nd instalment, i.e., Rs.28,735/- was paid on 17.3.1988. The defendants failed to pay the subsequent instalments on the respective due dates. The 2nd defendant had signed the hundis as partner and the third defendant signed the cheque dated 17.5.1988 as partner. The defendants failed to pay the instalments by due dates and thereby, they became liable to pay an amount of Rs.5,77,234.69 ps. as on 16th June 1990. A notice was caused to the defendants to liquidate the liability. Ultimately, a legal notice dated 12.7.1991 was caused to the 1st defendant company demanding the payment of Rs.6,48,610.93 ps. Ex.A-7 is the copy of the registered notice and Ex.A-8 is the postal acknowledgment. The defendants failed to liquidate the liability despite the demand through registered notice. Hence, the plaintiffs filed the suit for recovery of Rs.6,48,610.93 ps. The suit amount includes the instalment amount, overdue interest and penal interest. The break-up of the suit amount is as follows:- Total instalments due [17.1.1987 to 17.10.1989] : Rs.3,76,365-00 Overdue interest on the above amount as on that : Rs.1,65,069-22 Date [ 17.1.1987 to 15.6.1990] Interest on the delay payments : Rs. 35,800-47 [17.1.1987 to 15.6.1990] Total : Rs.5,77,234-69 Interest from 16.6.1990 to 12.7.1991 : Rs. 71,376-24 [1,11,376.24 less 40,000] ------------------- Rs.6,48,610.93 ------------------- 3(a) Defendant No.4 filed written statement and whereas the defendants 1, 2 and 3 filed memo adopting the written statement of defendant No.4. The written statement of defendant No.4, in brief, is:- 3(b) The signatories to the plaint are not legally competent to file the suit. The defendant No.1 firm is a partnership firm engaged in the business of undertaking civil contracts and other works. The 1st defendant firm had purchased two tippers from the plaintiffs under the IDBI Re-discounting scheme. The 1st defendant could not settle the account with the plaintiffs because of the indifferent attitude of the plaintiffs. The usage bills executed by the defendants for various accounts have not been presented within the stipulated period and thereby, substantial loss has been caused to the defendants. The interest claimed on the over due amount is illegal and unenforceable. A payment of Rs.40,000/- paid on 10.10.1990 by way of cheque has not been taken into account by the plaintiffs. The particulars of the amounts furnished in the plaint are vague. At no point of time, the defendants agreed to pay the interest on the overdue amounts. 4. The trial Court settled the following issues:- (1) Whether the plaintiffs are entitled to recover the suit claim and interest prayed for ? (2) Whether the person who signed the plaint is not competent to sign the plaint? (3) Whether the suit claim is barred by limitation ? (4) To what relief ? 5. On behalf of the plaintiffs, one witness, namely, Sk. Radheshyam was examined as Pw.1 and 11 documents were marked as Exs.A.1 to A.11. On behalf of the defendants, one witness, namely, Abdul Muzeed, General Manager of the Defendant No.1 firm, was examined as Dw.1 and two documents were marked as Exs.B-1 and B-2. 6. The trial Court, on considering the evidence brought on record and on hearing the counsel appearing for the parties, came to the conclusion that the plaintiffs are entitled to recover the suit amount from the defendants. Accordingly, the suit of the plaintiffs came to be decreed for Rs.6,48,610.93 ps. with interest at 12% per annum from the date of the suit till the date of decree and at the rate of 6% per annum from the date of decree to the date of payment on Rs.3,76,365/-being the principal sum adjudged, by judgment dated 20.3.2001. Assailing the judgment and decree, the defendants filed C.C.C.A.No.131 of 2001 and whereas the plaintiffs filed Cross Objection (SR) No. 53515 of 2001 dissatisfied with the interest granted on Rs.3,76,365/-. 7. Since the appeal and the cross objection arise out of the same judgment and decree, they are heard together and are being disposed of by this common judgment. 8. The parties hereinafter are referred to as they are arrayed in C.C.C.A.No.131 of 2001. 9. Heard learned counsel appearing for the appellants-defendants and learned counsel appearing for the respondents-plaintiffs. 10. Learned counsel appearing for the appellants-defendants submits that the signatories to the plaint have no authorization and therefore, the suit cannot be said to be validly instituted, in which case, the judgment and decree dated 20.3.2001 passed in O.S.No.256 of 1991 is liable to be set aside and consequently, the suit is liable to be dismissed. He would also submit that the trial Court has not considered the evidence brought on record in a right perspective and thereby erred in decreeing the suit of the plaintiffs and therefore, the judgment and decree granted in O.S.No.256 of 1991 is liable to be set aside. 11. Learned counsel appearing for the respondents-plaintiffs submits that the signatories to the plaint are the authorized representatives of the plaintiffs and therefore, the suit is properly instituted. Learned counsel would further submit that the trial Court has committed serious error in not granting interest on the suit amount at the rate of 18.5%. In a way, the contention of the learned counsel is that the appeal suit is to be dismissed and whereas the cross objection is liable to be allowed granting interest on the suit amount of Rs.6,48,610.93 ps. at 18.5% p.a from the date of the suit to the date of realization. In support of her submissions, reliance has been placed on the following decisions:- 1) United Bank of India v. Naresh Kumar[1] 2) Central Bank of India, Kutch v. M/s. P.R.G. Industries Pvt. Ltd.[2] 3) Indian Bank v. Textile Inland Agencies[3] 4) Vijaya Bank v. S.Bhathija[4] 5) Indian Bank v. N.Munisankar[5] 6) Bishwanath Agarwala v. State Bank of India[6] 7) Central Bank of India v. Ravindra [7] 8) Punjab and Sind Bank v. Allied Beverage Company Private Limited[8] 12. The issues that calls for adjudication in this appeal and the cross appeal are:- 1) Whether the plaint is validly instituted ? 2) Whether the plaintiffs are entitled to interest on suit amount of Rs.6,48,610.93 ps. at 18.5% p.a? 13. ISSUE No.1: Plaintiffs 1 and 2 are the companies registered under the Companies Act, 1956. Under Order 6 Rule 14 of the Code of Civil Procedure, a pleading is required to be signed by the party and its pleader, if any. As a company is a juristic entity, it is obvious that some person has to sign the pleadings on behalf of the company. Order 29 Rule 1 of the Code of Civil Procedure, therefore, provides that in a suit by or against a corporation, the Secretary or any Director or other Principal Officer of the corporation who is able to depose to the facts of the case might sign and verify on behalf of the company. Reading Order 6, Rule 14 together with Order 29, Rule 1 of the Code of Civil Procedure, it would appear that even in the absence of any formal letter of authority or power of attorney having been executed, a person referred to in Rule 1 of Order 29 can, by virtue of the office which he holds, sign and verify the pleadings on behalf of the corporation. In addition thereto and de hors Order 29, Rule 1 of the Code of Civil Procedure, as a company is a juristic entity, it can duly authorise any person to sign the plaint or the written statement on its behalf and this would be regarded as sufficient compliance with the provisions of Order 6, Rule 14 of the Code of Civil Procedure, vide decision of the Supreme Court in Union Bank of India v. Naresh Kumar (1 supra). 14. The plaint is signed by the Regional Manager of the 1st plaintiff and General Manager of the 2nd plaintiff. The position of the signatories of the plaint has been stated in paras 1 and 2 of the plaint. Nothing is suggested to Pw.1 that the persons who signed the plaint are not holding the office as claimed by them in paras 1 and 2 of the plaint. The Regional Manager and General Manager of the plaintiffs 1 and 2 companies respectively, by virtue of their office, are competent to sign and verify the pleadings on behalf of their respective companies. Ex.A-1 is the Board Resolution of the 2nd plaintiff authorising Pw.1- Sk.Radheyshyam to depose, sign and verify plaints, complaints, certify, appoint advocates etc. When Ex.A-1 is marked through Pw.1, nothing was suggested to him disputing the correctness of Ex.A-1. Therefore, we hold that the signatories to the plaint are proper persons to represent plaintiffs 1 and 2 companies by virtue of their office. Accordingly, this issue is answered in favour of the plaintiffs and against the defendants. 15. ISSUE No.2:- Learned counsel appearing for the plaintiffs submits that under Section 34 CPC, interest is to be awarded on the “principal sum adjudged” and the suit amount being the principal sum adjudged, the plaintiffs are entitled to claim interest at the rate of 18.5% on Rs. 6,48,610.93 ps. 16. A Constitution Bench of the Supreme Court in Central Bank of India v. Ravindra ( 7th supra) has considered the meaning of “ the principal sum adjudged” and “such principal sum” as occurring in Section 34 of the Code of Civil Procedure, 1908 as amended by the Code of Civil Procedure (Amendment) Act (66 of 1956) w.e.f 1-1-1957] and formulated the following principles. They are:- “(1) Though interest can be capitalised on the analogy that the interest falling due on the accrued date and remaining unpaid, partakes the character of amount advanced on that date, yet penal interest, which is charged by way of penalty for non-payment, cannot be capitalised. Further interest, i. e. interest on interest, whether simple, compound or penal, cannot be claimed on the amount of penal interest. Penal interest cannot be capitalised. It will be opposed to public policy. (2) Novation, that is, a debtor entering into a fresh agreement with creditor undertaking payment of previously borrowed principal amount coupled with interest by treating the sum total as principal, any contract express or implied and an express acknowledgment of accounts are best evidence of capitalisation. Acquiescence in the method of accounting adopted by the creditor and brought to the knowledge of the debtor may also enable interest being converted into principal. A mere failure to protest is not acquiescence. (3) The prevalence of banking practice legitimatises stipulations as to interest on periodical rests and their capitalisation being incorporated in contracts. Such stipulations incorporated in contracts voluntarily entered into and binding on the parties shall govern the substantive rights and obligations of the parties as to recovery and payment of interest. (4) Capitalisation method is founded on the principle that the borrower failed to make payment though he could have made and thereby rendered himself a defaulter. To hold an amount debited to the account of the borrower capitalised it should appear that the borrower had an opportunity of making the payment on the date of entry or within a reasonable time or period of grace from the date of debit entry or the amount falling due and thereby avoiding capitalisation. Any debit entry in the account of the borrower and claimed to have been capitalised so as to form an amalgam of the principal sum may be excluded on being shown to the satisfaction of the Court that such debit entry was not brought to the notice of the borrower and/or he did not have the opportunity of making payment before capitalisation and thereby excluding its capitalisation. (5) The power conferred by Sections 21 and 35-A of the Banking Regulation Act, 1935 is coupled with duty to act. Reserve Bank of India is prime banking institution of the country entrusted with a supervisory role over banking and conferred with the authority of issuing binding directions, having statutory force, in the interest of public in general and preventing banking affairs from deterioration and prejudice as also to secure the proper management of any banking company generally. Reserve Bank of India is one of the watchdogs of finance and economy of the nation. It is, and it ought to be, aware of all relevant factors, including credit conditions as prevailing, which would invite its policy decisions. RBI has been issuing directions/circulars from time to time which, inter alia, deal with rate of interest which can be charged and the periods at the end of which rests can be struck down, interest calculated thereon and charged and capitalised. It should continue to issue such directives. Its circulars shall bind those who fall within the net of such directives. For such transaction which are not squarely governed by such circulars, the RBI directives may be treated as standards for the purpose of deciding whether the interest charged is excessive, usurious or opposed to public policy. (6) Agricultural borrowing are to be treated on a pedestal different from others. Charging and capitalisation of interest on agricultural loans cannot be permitted in India except on annual or six monthly rests depending on the rotation of crops in the area to which the agriculturist borrowers belong. (7) Any interest charged and/or capitalised in violation of RBI directives, as to rate of interest, or as to periods at which rests can be arrived at, shall be disallowed and/or excluded from capital sum and be treated only as interest and dealt with accordingly. (8) Award of interest pendente lite and post-decree is discretionary with the Court as it is essentially governed by Section 34 of the CPC 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.” The principles laid down in the aforesaid decision has been referred with approval in subsequent decision of the Supreme Court i n Punjab and Sind Bank v. Allied Beverage Company Private Limited( 8 supra). 17. Coming to the facts of the case on hand, no agreement has been placed on record by the plaintiffs to show that the over due interest stands capitalised. Unless there is a term in the covenant, interest accumulated cannot be treated as “principal sum adjudged” as mentioned in Section 34 of CPC. The amount borrowed by the defendants is required to be repaid in six instalments. The instalment amount includes interest. The plaintiffs have not placed any material on record to infer that the defendants agreed for capitalisation of the over due interest. As seen from Ex.A-11 notice, the amount due under the instalments is Rs.3,76,365/- and whereas the over due interest is Rs.1,65,069.22 ps and penal interest is Rs.35,800.47 ps. In the absence of any agreement, interest cannot become a part of the principal amount and therefore, the plaintiffs are entitled to claim pendente lite interest and future interest on the principal loan amount. Indisputably, the principal loan amount as reflected in the plaint as well as Ex.A-11 notice is Rs.3,76,365/-. The trial Court is justified in granting interest on the principal loan amount of Rs.3,76,365/-. Accordingly, this issue is answered against the plaintiffs and in favour of the defendants. 17. In the result, both the appeal and the cross objection are devoid of merits and they are accordingly dismissed. Each party do bear their own costs. _____________________ B.SESHASAYANA REDDY, J ________________ P.DURGA PRASAD, J Dt.29-01-2011 Note:- L.R. Copy to be marked (B/o) RAR THE HON’BLE SRI JUSTICE B.SESHASAYANA REDDY AND THE HON’BLE SRI JUSTICE P.DURGA PRASAD C.C.C.A.No.131 of 2001 AND CROSS OBJECTIONS (SR) 53515 OF 2001 (Judgment of the Division Bench delivered by Hon’ble Sri Justice B.Seshasayana Reddy) (Dated:29-01-2011) [1] AIR 1997 SUPREME COURT 3 [2] AIR 1986 GUJARAT 113 [3] AIR 1992 CALCUTTA 296 [4] AIR 1994 KARNATAKA 123 [5] AIR 2000 ANDHRA PRADESH 280 [6] AIR 2005 JHARKHAND 69 [7] (2002) 1 Supreme Court Cases 367 [8] (2010) 10 Supreme Court Cases 640