1 IN THE HIGH COURT OF JUDICATURE OF BOMBAY BENCH AT AURANGABAD FIRST APPEAL NO.253 OF 1996 Ashapuri Oil Industries through Proprietor Gajanan Pralhad Lohar, age: 41 years, Occ: Business, R/o Sindhkheda, Tq.Sindhkheda, District Dhule Appellant Versus 1 Central Bank of India, a body Corporate established under the Banking Companies Acquisition and Transfer of Undertaking Act No.V of 1970, and having its Head Office at “Chandramukhi”, Nariman Point, Bombay 400 021, and having its Branch at Sindkheda, Tq.Sindkheda, District Dhule. 2 Pandurang Ganpat Pardeshi, age: 35 years, Occ: Agriculturist; 3 Laxman Lotan Kasar, age: 61 years, Occ: Agriculturist; 4 Pralhad Kashiram Lohar, age: 39 years, Occ: Agri. & service; Respondents No.2 to 4 are resident of Sindkheda, Tq. Sindkheda, District Dhule. Respondents 2 Mr.P.P.Dhorde, advocate holding for Mr.N.B.Suryawanshi, advocate for the appellant. Mr.V.G.Gangapurwala, advocate for Respondent No.1. Respondents No. 2 to 4 served. CORAM : R.M.BORDE, J. Reserved on : 02 nd February, 2010 Pronounced on: 03 rd February, 2010. JUDGMENT: 1 This is an appeal by original defendant no.1/principal borrower raising exception to the decree passed by Civil Judge, Senior Division, Dhule on 14.02.1996 in Special Civil Suit No.22/1993. 2 Respondent No.1 – original plaintiff instituted Special Civil Suit claiming recovery of sum of Rs.3,45,619/- against defendants. Plaintiff-Bank contends that considering the application tendered by defendant no.1, he was advanced loan amount and same was disbursed at different stages. Defendant no.1 borrowed total amount of Rs.99,401.10 and at the time of securing loan, defendant has signed necessary documents thereby agreeing to repay the amount together with agreed interest. As the defendant has failed to pay the amount, plaintiff was required to approach the Court seeking decree in respect of recovery of principal amount together with interest accrued thereon from defendants. 3 Defendants resisted suit by filing written statement. According to defendant no.1, total amount sanctioned by the Bank was to the tune of Rs.1,40,000/-, however, bank did not disburse the whole amount and 3 advanced only sum of Rs.99,401.10. Because of partial advance made by plaintiff-bank, defendants sustained losses. It is also contended that suit is premature as entire advance is not provided by the Bank to them and as such prayed for dismissal of the suit. 4 After considering rival contentions and going through evidence led by the parties, trial Court was pleased to grant decree in favour of plaintiff thereby directing defendants no.1 to 4 to jointly and severally pay sum of Rs.3,45,619./-. Defendants were also directed to pay interest at the rate of 13.5% p.a. on the principal sum of Rs.99,401.10 from the date of filing of suit till payment of entire amount. The judgment and decree passed by the trial Court, thereby directing defendants to pay the amount is subject matter of challenge in the instant appeal. 5 The principal ground of challenge raised by defendant no.1- appellant is that plaintiff-bank has failed to maintain a separate account in respect of principal and interest. It is the contention of appellant that unpaid amount towards interest cannot be amalgamated with principal so as to compute interest on such sum. It is contended by Counsel for appellant that Section 34 of the Code of Civil Procedure, if read in its proper perspective, does not permit clubbing of principal and interest so as to charge further interest on such sum arrived at. According to him, principal and interest have to be ascertained separately and declared to be due as such. The merger of interest in principal and determination of aggregate amount due on account of both is impermissible. The appellant, in order to advance this proposition, places reliance on the Full Bench decision of this Court in the matter of Union Bank of India Vs. Dalpat Gaurishankar Upadyay, reported in AIR 1992 Bombay 482. 4 6 The argument advanced by appellant is misconceived for the reason that Section 34 of the Act provides for charging of interest during pendency of suit and after passing of the decree by the Court. In the instant matter, the trial Court has directed payment of interest during pendency of suit and after passing of the decree only on principal amount of Rs.99,401.10. Appellant, therefore, cannot have any grievance in respect of part of the decree prescribing charging of interest only on principal sum by the trial Court. The argument advanced on the basis of Section 34 of Code of Civil Procedure cannot be made applicable in respect of computation of interest for the period prior to presentation of the suit. 7 Even the argument based on reported judgment of Full Bench cited supra is also not acceptable for the reason that decision of Full Bench of this Court has been overruled by the Apex Court in the matter of Central Bank of India Vs. Ravindra and others, reported in AIR 2001 SC 3095. The Apex Court, while answering reference, has laid down thus: “The principal sum so adjudged is “such principal sum” within the meaning of Section 34 of Code of Civil Procedure, 1908 on which interest pendente lite and future interest i.e. post-decree interest, at such rate and for such period, which the Court may deem fit, may be awarded by Court. While dealing with the issue, the Apex Court, in paragraphs no. 41 and 44 of the judgment, has laid down thus: “41 A few points are clear from a bare reading of the provision. While decreeing a suit if the decree be for payment of money, the Court would adjudge the 5 principal sum on the date of the suit. The Court may also be called upon to adjudge interest due and payable by the defendant to the plaintiff for the pre-suit period which interest would, on the findings arrived at and noted by us hereinabove, obviously be other than such interest as has already stood capitalised and having shed its character as interest, has acquired the colour of the principal and having stood amalgamated in the principal sum would be adjudged so. The principal sum adjudged would be the sum actually loaned plus the amount of interest on periodical rests which according to the contract between the parties or the established banking practice has stood capitalised. Interest pendente lite and future interest (i.e. Interest post-decree not exceeding 6 percent per annum) shall be awarded on such principal sum i.e. The principal sum adjudged on the date of the suit. It is well settled that the use of the word `may’ in Section 34 confers a discretion on the Court to award or not to award interest or to award interest at such rate as it deems fit. Such interest, so far as future interest is concerned may commence from the date of the decree and may be made to stop running either with payment or with such earlier date as the Court thinks fit. Shortly hereinafter we propose to give an indication of the circumstances in which the Court may decline award of interest or may award interest at a rate lesser than the permissible rate. 44 We are of the opinion that the meaning assigned to the expression `the principal sum adjudged’ should continue to be assigned to “principal sum” at such other places in Section 34(1) where the expression has been used qualified by the adjective “such”, that is to say, as “such principal sum”. Recognition of the method of capitalisation of interest so as to make it a part of the principal consistently with the contract between the parties or established banking practice does not offend the sense of reason, justice and equity. As we have noticed such a system has a long established practice and a series of judicial proceedings upholding the same. Secondly, the underlying principle as noticed in several decided cases is that when interest is debited to the 6 account of the borrower on periodical rests, it is debited because of its having fallen due on that day. Nothing prevents the borrower from paying the amount of interest on the date it falls due. If the amount of interest is paid there will be no occasion for capitalising the amount of interest and converting it into principal. If the interest is not paid on the date due, from that date the creditor is deprived of such use of the money which it would have made if the debtor had paid the amount of interest on the date due. The creditor needs to be compensated for deprivation. As held in Pazhaniappa Mudaliar v. Narayana Ayyar (supra), the fact situation is analogous to one as if the creditor has advanced money to the borrower equivalent to the amount of interest debited. We are, therefore, of the opinion that the expression “the principal sum adjudged” may include the amount of interest, charged on periodical rests, and capitalised with the principal sum actually advanced, so as to become an amalgam of principal in such cases where it is permissible or obligatory for the Court to hold so. Where the principal sum (on the date of suit) has been so adjudged, the same shall be treated as “principal sum” for the purpose of “such principal sum” - the expression employed later in Section 34 of C.P.C. The expression “principal sum” cannot be given different meanings at different places in the language of same section, i.e. Section 34 of C.P.C.” 8 Considering the view expressed by the Apex Court, principal sum adjudged would be the sum actually loaned plus amount of interest on periodical rests in accordance with contract between the parties or established banking practice as stood capitalized. Interest pendente lite and future interest shall be awarded on such principal sum i.e. principal sum adjudged on the date of suit. In fact, direction issued by the trial Court in respect of charging of interest is not in consonance with the decision of the Apex Court and the Bank is entitled to claim recovery of interest on the principal sum so adjudged i.e. on amount of Rs.3,45,619/- during pendency of 7 proceedings before the trial Court as well as after passing of the decree till realisation of the amount. However, as there is no cross-appeal or cross- objection preferred by the bank, I do not deem it necessary to go into legality of part of the direction contained in the decree. In the absence of there being any challenge by the bank to the decree, same is required to be confirmed. 9 In the result, there is no force in the appeal and same stands dismissed with costs. (R.M.BORDE) JUDGE ******* adb/fa25396