Case: N M Veerappa Vs. Canara Bank

2. The appellant (Managing Partner) is the 2nd defendant in the suit. The first respondent-Bank filed a suit O.S. 101/1980 based on mortgage for recovery of Rs. 7,82,881.78 against M/s. Shiva Rice Industries (a partnership firm) (1st defendant), the appellant (defendant 2) and defendants 3 to 10 (Partners) on the file of the Principal Civil Judge , Shimoga. These defendants had taken a loan of Rs. 5 lakhs on 7.4.1976 agreeing to repay in 52 monthly instalments each of Rs. 8000/- from 7.4.1977 with interest at the end of each quarter. The plaint schedule properties were offered as security and an equitable mortgage was created as per Ex.P.4. by deposit of title deeds. The defendants paid Rs. 75,000/- on 6.11.1984, Rs. 40,000/- on 21.12.1984, Rs. 15,000/- on 22.1.1985, Rs. 20,000/- on 8.7.1985 and Rs. 10,000/- on 14.11.1985, in all Rs. 1,60,000/-. The trial Court passed a preliminary mortgage decree on 4.7.1982 with proportionate costs but the decree-holder Bank was directed to file a fresh memo of calculation calculating the interest on the balance of principal amount due at 16.5% per annum from the date of the equitable mortgage at yearly rests till date of suit. The amounts paid after suit by the defendants were to be deducted as on the respective dates of payment and interest was to be paid as per judgment and these figures were directed to be computed. It was further directed, so far as future interest from date of suit was concerned, as followsplaintiff is entitled to future interest from the date of the suit at 6% per annum on the principal amount due from the defendants till date of recovery of fullother words, future interest from the date of the suit was to be only 6% per annum and not at the contractual rate of 16.5%.3. The plaintiff Bank filed an appeal in the High Court as Regular First Appeal No. 1 of 1998 and a learned Single Judge of the High Court allowed the appeal and held that the plaintiff was entitled to future interest also at the contractual rate of interest of 16.5% from the date of suit till date of realisation with costs because of Section 34 CPC. However, the defendants could, if they so desired, move the Circle Office of the Bank for reduction of this rate of interest and it would then be for the Bank to consider it favourably but in accordance with law.

Court's reasoning:
19. In the present case before us, the trial Court has gone into the facts and stated that the contract rate was not to be granted and that as the Court had discretion to grant interest, it was granting interest only at 6% simple from date of suit. The Court followed State Bank of Mysore v. G.P.Thulasi Bai ILR 1985 Karn. 2976. In that case, Jagannatha Shetty, J. (as he then was), speaking for the Bench, observed, referring to S.P. Majoo v. Gangadhar, 1969 (3) SCR 33  in which this Court referred to the Privy Council decision of 1927 and the Federal Courts decision of 1940, that it was no longer obligatory on the part of the Court to award the contractual rate, even if the rate was not penal, excessive or substantially unfair. In that Karnataka case too, the trial Judges award at 6% per annum simple from date of suit till date of realisation was affirmed. Unfortunately, the learned Single Judge of the High Court, in the present case before us, though he referred to the above Division Bench Judgment, still said that section 34 CPC was applicable. This was obviously wrong and contrary to the decisions of this Court and of the Karnataka High Court.20. We may here point out that so far interest prior to suit is concerned , the trial Judge in para 9 of his judgment reduced that rate also following D.S. Gowda v. Corporation Bank, AIR 1983 Karnataka 143. (This aspect we shall refer again when we come to Section 21-A of the Banking Regulation Act, 1949). That part of the judgment has become final. The judgement in the said case has no doubt been since reversed by this Court in Corporation Bank v. D.S. Gowda 1994(5) SCC 213 but the trial Court in para 11 of its Judgment in the present case did not rely on D.S. Gowdas case so far as future interest was concerned. Hence reversal of D.S.Gowda case has no bearing on this case so far as future interest from the date of suit is concerned.The Banking Regulation Act, 1949: Sections 21, 35 and Section 21-A- do not affect Order 34 Rule 11 CPC.We do notice the contention that if the Court has discretion to reduce the interest from date of suit and direct payment at a rate below the contractual rate, there could be considerable financial loss to the Banks. But initially we have to deal with the question as one of law and see if Section 21-A of the Banking Regulation Act, 1949, as it now stands, would or would not help the Bank as against Order 34 Rule 11 CPC.23. We shall refer to the provision in Section 21-A of the Banking Regulation Act, 1949 as introduced by Act I/1984, w.e.f. 15.2.84. It21A: Rates of interest charged by banking companies not to be subjected to scrutiny by Courts: - Notwithstanding anything contained in the Usurious Loans Act, 1918 or any other law relating to indebtedness in force in any State, a transaction between a banking company and its debtor shall not be re-opened by any Court on the ground that the rate of interest charged by the banking company in respect of such transaction isit will be noticed that the effect of the "non-obstante clause" in Section 21-A is to override the Central Act, namely, the Usurious Loans Act, 1918 and any other "law relating to indebtedness in force in any State". Obviously it does not expressly intend to override the Code of Civil Procedure among the Central statutes. It is now well settled that the scope and width of the non-obstante clause is to be decided on basis of what is contained in the enacting part of the provision. (Ashwini Kumar Ghosh v. Arabinde Bose 1953 SCR 1). Further, by no stretch of imagination can the Code of Civil Procedure, 1908 be described as a `law relating to indebtedness in force in any State. As stated above, the provision in Section 21-A refers, so far as Central legislation is concerned, only to the Usurious Loans Act, 1918 and not to the Code of Civil Procedure, 1908 and it then refers to other laws relating to indebtedness in force in any State. Therefore, the provision of section 21-A of the Banking Regulation Act, 1984 cannot be held to have intended to override a Central legislation like the CPC or Order 34 Rule 11 CPC.24. Secondly, as stated by the Federal Court in Jaigobinds case, AIR 1940 FC 20 and by this Court in Soli Pestonji Majoos case, 1969(3) SCR 33, the discretionary power conferred on the Civil Court under Order 34 Rule 11 to cut down the contract rate of interest for the period from date of the suit and even upto the date fixed for redemption by the Court is very much there, even if there was no question of the rate being penal, excessive or substantially unfair within the meaning of the Usurious Loans Act, 1918. This Court observed in Soli Pestonji Majoos case (supra) asIt is apparent that the new rule as inserted by the Amending Act 21 of 1929 provides that the Court `may order payment of interest to the mortgagee upto the date fixed for payment as the rate payable on the principal. It was held by the Federal Court in Jaigobind Singh v. Lachmi Narain in AIR 1940 FC 20 that the language of the rule gives a certain amount of discretion to the Court so far as interest pendente lite and subsequent interest is and it was no longer absolutely obligatory on the Courts to decree interest at the contractual rates upto the date of redemption in all the circumstances even if there is no question of the rate being penal, excessive or susbtantially unfair within the meaning of the Usurious Loans Act,other words, the discretionary power given to the Court under Order 34 Rule 11 is an independent power and the power is neither traceable to Section 74 of the Contract Act nor to any State statutes permitting a Court to scale down contractual rates of interest.25. Coming to the decision of this Court in D.S. Gowdas case, it turned upon the power of the Court to re-open transactions of loan between Banks and its debtors and it was held that the directives/circulars issued by the Reserve Bank to Banks in respect of the rates of interest under Section 21 of the Banking Regulation Act, 1949 could not be declared by the Court as unfair or excessive and those directives/circulars were not violative of the Mysore Usurious Loans Act, 1923. This Court referred to section 21-A of the Banking Regulation Act, 1949 also but said that even if section 21-A was not applicable, there was no evidence adduced by the debtor that interest fixed in the directives/circulars of Reserve Bank of India were not fair. It was held that Courts could not question Reserve Bank directives as being irrational. At the same time it was also held that the Banks could not also ignore Reserve Bank directives/circulars and in given case, a Bank ignored the Reserve Bank circular/directives, the Court could reopen the transaction as to rate of interest, notwithstanding Section 21-A. We may also state that in an earlier case in Bank of Baroda v. Rednam Nagachaya Devi, 1989(4) SCC 470 where Section 21-A fell for consideration, the question which has now arisen before us did not arise. The above two rulings are therefore not helpful to the respondent-Bank.26. For the aforesaid reasons, we therefore do not think that the above decision in Corporation Bank v. D.S. Gowda, 1994(5) SCC 213 can help the respondent-Bank to contend that Section 21-A overrides the provision contained in Order 34 Rule 11 CPC.27. If, therefore, Section 21-A of the Banking Regulation Act, 1949 does not come to the aid of Banks vis-a-vis Order 34 Rule 11 CPC, the question whether for the period during the pendency of mortgage suits in Courts, the Courts discretion should continue or whether it should be fettered and if so to what extent and as to what rate of interest and whether there should be any distinction between different kinds of debtors - these are are all matters of policy for the legislature and it will be for Parliament to lay down its policies and bring forward such legislation as it may deem fit in accordance with the provisions of the Constitution of India.