IN THE HIGH COURT OF JUDICATURE OF ANDHRA PRADESH AT HYDERABAD (SPECIAL ORIGINAL JURISDICTION) FRIDAY, THE TWENTY FIRST DAY OF JANUARY TWO THOUSAND AND ELEVEN HON’BLE SRI JUSTICE N. RAVI SHANKAR C.C.C.A.No.107 of 1998 BETWEEN: State Bank of India … APPELLANT (S) And Video Waves, rep. by its proprietor Sri B.R.Koteswara Rao and another … RESPONDENT(S) THE HON’BLE SRI JUSTICE N. RAVI SHANKAR C.C.C.A.No.107 of 1998 JUDGMENT: Appellant is Padmarao Nagar Branch of State Bank of India, Secunderabad, which is the plaintiff in O.S.No.1927 of 1989 on the file of the Court of III Additional Judge, City Civil Court, Secunderabad (trial Court). 2. The appellant (hereafterwards referred to as ‘plaintiff-Bank’) brought the suit O.S.No.1927 of 1989 on the foot of a mortgage against respondents herein i.e. defendants in the suit for recovery of a sum of Rs.79,500/- advanced to them as a medium term loan on 16.06.1981 on the mortgage of plaint schedule property belonging to the defendants. The first defendant is a proprietary concern in the business of video films and the second defendant is its proprietor. According to the loan agreement i.e. Ex.A.1 the agreed rate of interest is 4.65 per cent above the SBI advance rate with a minimum of 11.85 per cent. Thus, the agreed rate of interest works out to 16.50 per cent per annum. Defendants contested the suit. 3. The plaintiff-Bank claimed an amount of Rs.1,71,415.95 ps towards principal and interest calculating the interest at the above agreed rate upto the date of the suit as there was a default in payment of the instalments by the defendants. The plaintiff-Bank charged compound interest also as defendants were liable for the same in view of the default committed by them. The above suit claim includes this compound interest also. 4. The trial Court after a contest granted a preliminary decree for the amount of Rs.1,71,415-95 ps upholding the agreed rate of interest and compound interest claimed by the plaintiff-Bank upto the date of the suit. It is seen that the loan was advanced on 16.06.1981 and the suit was filed in 1989. However, with regard to future interest from the date of the suit to the date of realization the trial Court in para-14 of its judgment without giving reasons awarded only 12% simple interest from the date of the suit to the date of realization on the principal amount of Rs.79,500/-. It further granted six months time for redemption. The trial Court then proceeded to give a direction in its judgment that the plaintiff- Bank should first sell the hypothecated machinery with due intimation to the defendants and adjust twice the amount of sale proceeds of the said machinery towards the suit claim before proceeding to execute the decree granted against the person and property of the defendants. 5. The plaintiff-Bank’s first grievance is that as the loan was advanced for a commercial purpose or business purpose it is entitled to contractual or agreed rate of interest even from the date of the suit to the date of the decree and thereafter till realization also and the trial Court erroneously granted 12% interest per annum for that period. Its other grievance is that the trial Court has no power to direct the plaintiff-Bank to first sell the hypothecated machinery with a further direction to adjust double the amount of the sale proceeds of that machinery towards the suit claim and then proceed to execute the decree against the person and property of the defendants. Thus the plaintiff-Bank brought this appeal questioning the trial Court’s judgment insofar as it relates to above aspects on the ground that it has no power to reduce the rate of interest from the date of suit and also grant the above direction. 6. The learned counsel for the plaintiff-Bank argued the matter on 20.01.2011 i.e. yesterday but there was no representation for the defendants counsel. It is seen that in the cause list the name of one Sri Ravi Shankar Jandhyala is printed as appearing for defendants (respondents). A representation was made on his behalf that his name has been wrongly printed in the cause list. A perusal of the record however shows that one Sri K.S.Raju, Advocate, filed vakalath for defendants in this appeal and this vakalath is found in record and the name of this Sri K.S.Raju is also printed in the cause list as appearing for the defendants. He was however absent on the date of hearing. As the matter is of 1998 after hearing the appellants counsel it was taken up for disposal on merits. 7. Thus the following two points arise for determination in this appeal. (i) Whether the plaintiff-Bank is entitled to the agreed rate of interest even from the date of the suit to the date of realization? (ii) Whether the direction given by the trial Court to the plaintiff- Bank to first sell the hypothecated machinery and then adjust double the amount of sale proceeds realized from it towards the suit claim and then proceed to execute the decree granted by it. Point No.1: 8. Under this point is may be noted that as the suit is admittedly brought on the foot of a mortgage payment of interest can be granted keeping in view Rule 11 of Order 34 C.P.C. This Rule says that in any decree passed in a suit for foreclosure and where interest is legally recoverable the Court may order payment of interest to the mortgagee upto the date of the preliminary decree at the agreed rate or if there is no such rate fixed at the rate deemed reasonable by the Court. Here it should be noted that the loan was advanced for the business of the defendants and thus it was for a commercial purpose even though it was advanced on the security of a mortgage. The compound interest is also chargeable as per the loan agreement in the event of default in payment of instalments. A perusal of Section 34 of C.P.C. also shows that the Court has got always the discretion to grant interest at the agreed rate where the transaction is a commercial transaction even from the date of the suit to the date of realization. 9. In State Bank of India vs. Yasangi Venkateswara Rao[1] it was held by our Hon’ble Supreme Court that in view of Section 21- A of the Banking Regulation Act, 1949, it is permissible for the Bank to charge compound interest also under the loan agreement and such an agreement cannot be reopened on the ground that it is usurious or exorbitant irrespective of the fact that whether the loan is an agricultural loan or a non-agricultural loan. In view of this decision which is relied upon by the learned counsel for the plaintiff-Bank and also the above provisions, it follows that the Bank can claim the agreed rate of interest even from the date of the suit to the date of preliminary decree. 10. It may however be noted that in the circumstances of this case having regard to the insolvent circumstances of the defendants pleaded by them and also the fact that the Court is given a discretion with regard to grant of interest from the date of the suit, I am of the opinion that the plaintiff-Bank can be held entitled only to 16.50% simple interest on the principal amount of Rs.79,500/- from the date of the suit to the date of preliminary decree and also for the period of six months granted by the trial Court for redemption. It may then be noted that thereafter the Plaintiff-Bank has to take steps for the sale of the property mortgaged to realize the amount in case the defendants fail to redeem the property and consequently it depends upon the Bank as to how fast it can act. At the same time, it should be noted that the trial Court granted 12% interest per annum throughout on the principal amount from the date of the suit to the date of realization and this interest covers the period even from the date on which the six months period for redemption granted by the trial Court expires to the date of realization. Defendants did not file any appeal questioning the rate of interest granted by the trial Court. The plaintiff-Bank is however claiming the agreed rate of interest even for this period. The Court is however given discretion under Rule 11(b) of Order 34 C.P.C. to reduce the interest for the above period. As the defendants did not file any appeal questioning the 12% simple interest per annum granted by the trial Court on the principal sum the same is confirmed. This point is accordingly decided in favour of the plaintiff-Bank. Point No.2: 11. Then coming to this point it should be noted that the terms of Ex.A.1 loan agreement do not show that the plaintiff-Bank is under an obligation to first sell the hypothecated machinery and then adjust twice the amount of those sale proceeds towards the suit claim or loan amount due and then proceed to execute the decree for the balance. The trial Court did not record any reasons for giving such direction which it gave and which is assailed under this point by the plaintiff-Bank. Thus in view of the terms of the loan agreement and even otherwise as a mortgagee has got the right to proceed against the property and person of the judgment debtors to recover the amount due to it without any restrictions, it follows that the direction given by the trial Court which is the subject matter of this point should be set aside. It shall be open for the plaintiff-Bank to proceed against the property and person of defendants pursuant to the preliminary decree granted by the trial Court in accordance with law without the restrictions imposed by the trial Court. This point is also accordingly decided in favour of the plaintiff-Bank. 12. In the result, this appeal is partly allowed with proportionate costs as indicated above. ______________________ N. RAVI SHANKAR, J 21st January, 2011. CVRK [1] (1999) 2 SCC 375