* THE HON’BLE MR. JUSTICE R. KANTHA RAO + C.C.C.A.No.53 of 1995 % Dated 12.11.2010 Between: # State Bank of India, Bazarghat Br.Hyderabad …Appellant And $ M/s S.H. Associates and two others ….Respondents ! Counsel for the petitioner: Mr.B.Anjaneyulu ^ Counsel for the Respondents : Mr.A.Ravishanker <GIST: > HEAD NOTE: ? Cases referred [1] (2009) 2 SCC 294 THE HON’BLE MR JUSTICE R. KANTHA RAO C.C.C.A.No.53 of 1995 Date:12.11.2010 Between: State Bank of India, Bazarghat Br.Hyderabad …Appellant And M/s S.H. Associates and two others ….Respondents THE HON’BLE MR JUSTICE R. KANTHA RAO C.C.C.A.No.53 of 1995 JUDGMENT: This appeal is directed against the judgment and decree dated 30.09.1994 passed by the IV Additional Judge, City Civil Court, Hyderabad in O.S.No.292 of 1990. The State Bank of India, Bazarghat Branch, Hyderabad is the appellant. The bank instituted the suit for recovery of an amount of Rs.3,03,098.76 ps. together with interest @ 14% per annum with quarterly rests and for a preliminary decree against the 3rd defendant for plaint mortgaged property and costs. While the suit was pending trial, the respondents/defendants paid major portion of the loan amount of Rs.2,70,000/- out of the suit amount leaving balance of Rs.33,098.76 ps. The learned trial Court considering the fact that major part of the loan amount had been paid by the respondents during the pendency of the suit, passed a preliminary decree for an amount of Rs.33,098.76 ps. with proportionate costs granting interest @ 6% per annum simple on Rs.33,098.76 ps. from the date of the suit till the date of realization. Aggrieved by the same, the appellant-bank filed the instant appeal questioning only granting of interest @ 6% per annum. According to the appellant, the trial Court ought to have granted subsequent interest @ 14% per annum which is the contractual rate. I have heard Sri B.Anjaneyulu, the learned counsel appearing for the appellant and Sri A.Ravi Shanker, the learned counsel appearing for the respondents. The short question involving adjudication in this appeal is whether it is mandatory on the part of the trial Court to grant further interest at contractual rate if the loan borrowed is for commercial purpose. Learned counsel appearing for the appellant-bank invited my attention to the proviso to Section 34 of C.P.C. which is as follows: “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 on such principal sum), from the date of the decree to the date of payment, or to such earlier date as the Court thinks fit.” Provided that where the liability in relation to the sum so adjudged had arisen out of a commercial transaction, the rate of such further interest may exceed 6 per cent, per annum, but shall not exceed the contradual rate of interest or where there is no contractual rate, the rate at which moneys are lent or advanced by, nationalized banks in relation to commercial transactions. He contends that it is not permissible for the trial Court to grant interest at the rate which is lesser than the contractual rate and therefore, the decree be modified by awarding subsequent interest @ 14% per annum with quarterly rests. On the other hand, the learned counsel appearing for the respondents would submit that the defendants were doing a petty business, sustained losses and despite their financial constraints, they paid the substantial amounts due to the bank while the suit was pending, considering the said fact the trial Court granted subsequent interest @ 6% per annum which being reasonable, and granted having regard to the facts and circumstances of the case requires no enhancement. Learned counsel appearing for the appellant placed reliance on the decision in DEEPA BHARGAVA AND ANOTHER v. MAHESH BHARGAVA AND OTHERS[1] and brought to my notice about the observations of the Supreme Court that there are large number of decisions where interest is directed to be paid even at 18 or 21% per annum. But the said decision was rendered in relation to the powers of the executing Court to alter the terms of the decree put to execution. In the said case, after passing of the decree, the execution Court reduced the interest and the High Court further reduced the interest which was held unsustainable by the Supreme Court. The decision does not lay down any ratio relating to the question as to whether it is mandatory on the part of the Court of first instance to grant contract rate of interest in matters concerning commercial transactions. The decision therefore, is of no help to the appellant. The proviso lays down plainly and clearly, that if the liability in relation to the sum so adjudged had arisen out of commercial transaction, the rate of further interest may exceed 6% per annum but shall not exceed the contractual rate of interest. A bare reading of the proviso, therefore, does not indicate that it is mandatory for the Court to award interest at the contract rate in each and every liability arising out of commercial transaction. The proviso only says that the further interest in cases of commercial transactions may exceed 6% per annum. Therefore, the grant of further interest even in relation to commercial transactions is left to the discretion of the Court but the discretion has to be properly exercised. The Apex Court and various High Courts have laid down consistently that normally in commercial transactions granting contract rate of interest is the rule and departure is a rare exception. In the strict sense therefore even in commercial transactions, the Court is empowered to grant the interest lesser than the contract rate or even can disallow the interest in toto, but the circumstances should be exceptional for taking such a course. In the instant case, the respondents are petty businessmen and it is submitted on their behalf that they sustained loss in the business and in spite of the same, they repaid the major part of the loan amount during the pendency of the suit and subsequently they paid the remaining amount also as per the preliminary decree passed by the trial Court. The said fact has not been denied by the learned counsel appearing for the appellant-bank. The loan amount was borrowed on 27.02.1987. No doubt in the strict sense the loan was obtained for commercial purpose. If the respondents are directed to pay interest @ 14% per annum on the amount of Rs.33,098.76 ps., it works out to a very huge amount and it causes undue hardship to the defendants. The learned trial Court considering the circumstances referred hereinabove rightly exercised its discretion to award further interest @ 6% per annum. The circumstances in which the interest lesser than the contractual rate was awarded by the trial Court, in my view, are very exceptional and granting further interest on the balance amount @ 6% per annum by the trial Court is perfectly justified in the instant case. It is not possible to accept the contention of the learned counsel appearing for the appellant-bank that the decree passed by the trial Court in so far as the interest is concerned, is contrary to law. For the foregoing reasons, absolutely I see no valid grounds to interfere with the decree and judgment passed by the learned trial Court and the contention that it is mandatory for the trial Court to grant interest at contractual rate is without any merit. The decree and judgment passed by the trial Court are confirmed and the appeal is dismissed. There shall be no order as to costs. _______________ R. KANTHA RAO, J Date:12.11.2010 Note: L.R. copy to be marked. B/O ccm THE HON’BLE MR JUSTICE R. KANTHA RAO C.C.C.A.No.53 of 1995 Date:12.11.2010 [1] (2009) 2 SCC 294