UCO Bank, Bazaar Branch, Pondicherry v. M/s.Lucky and Company, a Partnership firm having its place of business at G.F.23, Nehru street, Pondicherry

2. Brief facts which led to the filing of suit is as follows:-Defendants 2 and 3 [Perumal @ Kaliaperumal and Shanmugam] arethe partners of 1st Respondent-M/s.Lucky and Company. On 31.05.1972,Defendants 2 and 3 approached the Plaintiff Bank and availed loan ofRs.5000/- by hypothecating the 'A' schedule properties. Defendants2 and 3 have also agreed to repay the same with interest at the rateof 6% p.a. over the RBI rate subject to a minimum of 15% p.a. On19.3.1973 at the request of Defendants 2 and 3, the said limit wasenhanced to Rs.20,000/- and to that effect Defendants 2 and 3 haveexecuted documents by way of securities. Subsequently, Defendants 2and 3 have requested for further increase in the limit. OneSundarambal executed guarantee deed infavour of Plaintiff Bank on16.5.1973 and also deposited her title deeds in respect of 'B'schedule property belonging to her with an intention to create anequitable mortgage over the same for the liability of 1st Defendantnot only for the existing limits, but also for the future increasein limits.3. Case of Plaintiff is that at the request of Defendants 1 to3, Plaintiff Bank sanctioned limit of Rs.40,000/- on 06.11.1973;Rs.50,000/- on 26.11.1975; Rs.2,00,000/- on 07.06.1978 andRs.5,50,000/- on 01.03.1980 besides an adhoc limit of Rs.1,00,000/-on 13.1.1981 for which Defendants 1 to 3 have executed thedocuments. Plaintiff Bank issued lawyer's notice on 15.11.1984 forwhich Defendants have sent reply on 11.12.1984 disputing thecorrectness of outstanding balance. Guarantor Sundarambal died inJuly, 1987 intestate leaving Defendants 2 and 3 to inherit herproperties. Since, Defendants 2 and 3 are legal heirs of deceasedSundarambal, they are liable to pay the suit claim. It is averredthat there are other suits in O.S.No.512/1984, 349/85, 484/84 and348/84 filed before the Sub-Court, Pondicherry in which 'C' scheduletheatre has been subjected to a charge. Since, 5th Defendant-CentralBank of India is a puisne mortgagee, 5th Defendant is impleaded asDefendant in the suit. Hence, Plaintiff Bank filed the suit forrecovery of Rs.22,94,072.29 together with future interest at 17.5%p.a.4. Denying the correctness of description of 'B' and 'C'schedule properties, 3rd Defendant filed written statement contendingthat he never mortgaged the 'C' schedule property in favour ofPlaintiff and moreover 4th Defendant does not own the 'C' scheduleproperty, so as to mortgage the same. It is averred that, Plaintiffhas not disclosed in their plaint as to what is the principal amountand what is the interest due. According to 3rd Defendant, he neveracknowledged any sum of Rs.16,00,000/- under acknowledgement ofdebt. Contending that there is no indication of rate of interest inthe documents, 3rd Defendant averred that Plaintiff Bank claimedinterest of Rs.10,00,000/- for the principal amount of Rs.5,50,000/- https://hcservices.ecourts.gov.in/hcservices/ and interest claimed is more than the principal amount and prayedfor dismissal of the suit.5. Contending that 5th Defendant-Central Bank of India isunnecessary party to the suit, 4th Defendant filed written statementwhich was adopted by 1st Defendant contending that and the suit ishit by mis-joinder of parties. Case of 4th Defendant is that thereis no cause for the suit, since he had not extended the allegedmortgage of 'C' schedule property infavour of Plaintiff Bank andextension of any mortgage is one unknown to law. According to 4thDefendant, there was no enhancement of claim to the tune of Rs.5.50lakhs as alleged, besides the adhoc limit of Rs.1 lakh, because, atevery stage, the outstanding balance would be adjusted towards thepart of the quantum payable and the actual amount of advance availedwould only be less than Rs.4 lakhs. Further case of 4th Defendantis that Sundarambal was only a guarantor and she never offered her'B' schedule property as mortgage. Likewise, 4th Defendant has alsonever extended any mortgage in respect of 'C' schedule property andhe does not own the same. Since, Pondicherry Municipalitydemolished the business place of 1st Defendant, 1st Defendant Firmsuffered heavy loss and prayed for dismissal of the suit.6. On the above pleadings, trial Court framed seven Issues andfour additional Issues. Before the trial Court, one S.K.Natesan,who was then working as Manager of Plaintiff Bank was examined asPW1. Exs.A1 to A32 were marked. 4th Defendant-Apparsamy wasexamined as DW1 and 3rd Defendant-Shanmugam was examined as DW2. Nodocuments were marked on the side of Defendants.7. Upon consideration of oral and documentary evidence, trialCourt held that 5th Defendant-Central Bank of India is unnecessaryparty to the suit and accordingly answered Issue No.2. Holding thatPlaintiff bank has not produced any document to prove that ad hoclimit of Rs.1,00,000/- was sanctioned, trial Court held thatPlaintiff would be entitled to Rs.14,97,833.14 [Rs.15,97,833.14 lessRs.1,00,000/-] and not Rs.22,94,072.29 While holding so, trialCourt reduced the 'pre-suit interest' to 12% p.a. In so far as'principal sum adjudged', placing reliance upon AIR 1992 Bombay 482(FB) [Central Bank of India v. Ravindra], trial Court held thatPlaintiff bank would be entitled to claim interest only on theamount i.e. Rs.5,50,000/- advanced as loan to Defendants 1 and 2 andnot the entire amount. Pointing out that Sundarambal died in July1987 and plaint was filed in April. 1987, Sundarambal was notimpleaded in the suit, trial Court held that Plaintiff bank hadmanaged to obtain the signatures of Sundarambal and the intention ofSundarambal to create equitable mortgage has not been established.Likewise, in respect of the mortgage claim against the 4th Defendant,trial Court held that intention to create mortgage on 'C' scheduleproperty was not established by the Plaintiff bank. On the above https://hcservices.ecourts.gov.in/hcservices/ findings, trial Court passed personal decree only for recovery ofsum of Rs.14,97,833.14. Trial Court ordered payment of interest atthe rate of 12% per annum from 12.6.1985 till the date of filing ofthe suit and thereafter at 6% p.a. on the principal sum ofRs.5,50,000/- till the date of realisation.8. Mr.Srinath Sridevan, learned counsel for Plaintiff bankcontended that under contract, Plaintiff bank is entitled to computeinterest with quarterly rests and that the amount ought to have beentreated as "principal sum" and deduction of Rs.1,00,000/- isperverse. Learned counsel would further contend that whenDefendants 1 and 2 have executed promissory notes agreeing to repaythe amount with interest at the rate of 7.5% over and above the RBIrate of interest subject to a minimum of 17.5% payable withquarterly rests, trial Court was not justified in decreeing the suitonly for Rs.14,97,833.14. Pointing out that suit transaction was acommercial transaction, learned counsel for Appellant would furthercontend that even though the interest pendente lite and subsequentinterest are within the discretion of the Court that discretion hasnot been properly exercised and the trial Court erred in awardingpendente lite interest at the rate of 12% p.a. and future interestat the nominal rate of 6% p.a. In so far as negativing themortgage decree, learned counsel would contend that merely becauseSundarambal was not impleaded as party at the time when suit waspresented that cannot be the ground for disallowing the mortgagerelief.9. Mr.T.R.Rajagopalan, learned Senior Counsel for Respondentscontended that intention to create mortgage has not been establishedand mere deposit of title deeds is not sufficient. Learned SeniorCounsel mainly contended that Sundarambal should have been impleadedas party and merely saying that she was a guarantor was notsufficient. It was further contended that in the absence ofdocumentary evidence, trial Court rightly granted personal decreeand the same cannot be faulted. Supporting the decree forRs.14,97,833.14, learned Senior Counsel would further contend thatthe rate of interest claimed by the Plaintiff being usurious, trialCourt rightly interfered with the pre-suit interest at 12% p.a. andin exercise of discretion under Sec.34 of CPC reduced the futureinterest to 6% p.a.10. The following points arise for consideration in thisAppeal:-1.Whether the trial Court was right in holding thatDefendants 1 to 3 are liable to pay only Rs.14,97,833.14with subsequent interest at 12% p.a?2.Whether the trial Court was right in interfering with https://hcservices.ecourts.gov.in/hcservices/ pre-suit interest to 12% per annum and reducing the suitclaim from Rs.22,94,072.29 to Rs.14,97,833.14?3.Whether the trial Court was right in taking the"principal sum adjudged as Rs.5,50,000/- which was the"principal sum advanced"?4.Whether the discretion of the trial Court in awardingpendente lite interest at 12% p.a. and subsequentinterest at 6% p.a. warrants interference?5.Whether the trial Court was right in decreeing the suitonly for personal decree against Defendants 1 to 3?6.To what relief, the Plaintiff bank is entitled to?11. Point Nos. 1 to 3:- Defendants 1 to 3 have initially availeda loan to the limit of Rs.5000/- on 31.5.1972. Subsequently, at therequest of Defendants 1 to 3, the limit was enhanced toRs.5,50,000/- as on 01.3.1980 and besides, an ad hoc limit ofRs.1,00,000/- was also availed by Defendants 1 to 3 on 13.01.1981.By way of securing the said limit, Defendants 1 to 3 have executedEx.A1 to A21 documents. Plaintiff bank opened cash credit facilityto the limit of Rs.5,50,000/- which is not in dispute. Onbehalf of1st Defendant, Defendants 2 and 3 have secured the borrowal limit atRs.5,50,000/- by executing Ex.A6-promissory note [06.03.1980]infavour of Plaintiff bank and Ex.A10 [06.03.1980] is the deed ofhypothecation executed by the 1st Defendant. Sundarambal offered 'B'schedule property and 4th Defendant offered 'C' schedule property assecurity and deposited their title deeds [letter of confirmation –Exs.A26 & A22 respectively] with an intention to create equitablemortgage. Defendants 1 to 3 have acknowledged their liability asper Ex.A9-letter [12.06.1985] and they have also executed Ex.A16-promissory note [12.06.1985] for Rs.15,97,833.14. Since, Defendantsfailed to repay the loan availed by them, the interest accrued andDefendants are liable to pay the suit claim of Rs.22,94,072.29.According to Plaintiff bank, as per the documents executed by theDefendants, they are liable to pay the contractual rate of interestwith quarterly rests.12. On 26.02.1983, Defendants 1 to 3 have acknowledged a sum ofRs.5,50,000/- by execution of revival letter Ex.A14. Defendants 2and 3 have also acknowledged their liability towards Plaintiff bankto the tune of Rs.15,97,833.14 and they have secured the said sum byexecuting Ex.A16-promissory note and Ex.A20-hypothecation deed.Besides, Exs.A16 and A20, Defendants have also executed otherletters Exs.A17 and A19 viz., letter of waive presentment andundertaking by Defendants 2 and 3; covering letter for Ex.A16-promissory note; and letter of confirmation of balance by Defendants2 and 3.13. Defendants 2 and 3 have clearly acknowledged their liabilitytowards Plaintiff bank to the tune of Rs.15,97,833.14 by executing https://hcservices.ecourts.gov.in/hcservices/ Exs.A16 to A21 [12.06.1985] documents. Even though, Defendants 2and 3 have acknowledged their liability to the tune ofRs.15,97,833.14, trial Court held that Plaintiff bank has failed toprove the ad hoc limit of Rs.1,00,000/- sanctioned to the Defendantson 13.03.1981. Even though, Defendants 1 to 3 have acknowledgedtheir liability to the tune of Rs.15,97,833.14 finding thatPlaintiff bank has not produced any documents to show sanction of adhoc limit of Rs.1,00,000/-, trial Court deducted Rs.1,00,000/- andheld that Defendants 1 to 3 are liable to pay Rs.14,97,833.14.14. Approach of the trial Court deducting Rs.1,00,000/- towardssanction of ad hoc limit is perverse. As pointed out earlier,Defendants 2 and 3 have executed Ex.A16-promissory note for a sumof Rs.15,97,833.14. Ex.A17 [12.06.1985] is the waive presentment ofdemand promissory note executed by the Defendants 2 and 3undertaking to pay the due on the said promissory note. Ex.A18 isthe letter of confirmation by Defendants 2 and 3 for the executionof Ex.A16-promissory note for a sum of Rs.15,97,833.14. Exs.A19 isthe hypothecation deed executed by Defendants 2 and 3 hypothecatingtheir stock in trade at No.15-17, Paikadai Lane, No.GF23, MunicipalShopping Complex, J.N. street, Pondicherry. Ex.A20 is the deed ofhypothecation executed by 1st Defendant Firm hypothecating thepremises as well as stock in trade in No.15-17, Paikadai Lane,No.GF23, Municipal Shopping Complex, J.N. street, Pondicherry.15. Under Exs.A16 to A20, the Defendants 1 to 3 have clearlyacknowledged their liability for a sum of Rs.15,97,833.14 and havealso executed deed of hypothecation, trial Court was not justifiedin deducting Rs.1,00,000/- sanctioned as ad hoc limit. Observationof the trial Court that Plaintiff bank has not produced any documentshowing sanction of ad hoc limited of Rs.1,00,000/- is untenable.In fact, in his evidence, 3rd Defendant-Perumal [DW2] has notspecifically denied about the sanction of Rs.1,00,000/- nor hedenied execution of Exs.A16 to A20 documents. In his evidence, PW1has clearly stated about the execution of Exs.A16 to A20 documents.While so, trial Court was not justified in deducting Rs.1,00,000/-and ordering payment of Rs.14,97,833.14 and the said finding of thetrial Court is liable to be set aside. 16. While initially availing the loan for Rs.2,00,000/-, inEx.A1-promissory note [14.06.1978], Defendants 1 to 3 have agreed topay interest at 6% per annum above the RBI rate subject to minimumrate of interest of 15% per annum with quarterly rests for valuereceived. As pointed out earlier, Defendants 2 and 3 have executedfresh promissory note under Ex.A16[12.06.1985] agreeing to payRs.15,97,833.14 with interest at the rate of 7.5% per annum abovethe RBI rate, subject to minimum rate of interest of 17.5% per annum https://hcservices.ecourts.gov.in/hcservices/ with quarterly rests for value received. Likewise, in Exs.A19 andA20-deed of hypothecation, Defendants 1 to 3 have confirmedexecution of promissory note and thereby confirming their payment ofinterest at 7.5% per annum above the RBI rate, subject to minimumrate of interest of 17.5% per annum with quarterly rests. As perthe terms of the contract, bank computed interest with quarterlyrests and after the quarter the interest was added to the lastbalance and that amount was treated as "principal sum" for computingthe interest for the next quarter and so on and so forth. Theamount arrived at the said method till the date of filing of thesuit will be the "principal sum". The suit was filed on 30.04.1987.From 12.06.1985, Plaintiff bank calculated compound interest at therate of 17.5% p.a. with quarterly rests on the amount ofRs.15,97,833.14 and claimed Rs.22,94,072.29. The suit claim ofRs.22,94,072.29 is well in accordance with the terms of the contractand Exs.A16 and A20 and other loan documents. Therefore, the trialCourt was not right in saying that interest has to be paid at thesimple rate at 12% p.a. By ordering simple interest at the rate of12% p.a. from 12.06.1985 [i.e. pre-suit interest], trial Courtbrushed aside Exs.A16 and A20 documents. The approach of the trialCourt is perverse and cannot be countenanced. Therefore, it is heldthat Plaintiff bank is entitled to the suit claim of Rs.22,94,072.29and Point Nos.1 to 3 are answered accordingly.17. Point Nos. 4 to 6:- Interest for the period prior to theinstitution of the suit is not governed by the provision of Section34, but the award of interest from the date of the suit to the dateof the decree and from the date of decree from the date of paymentcan only be on the "principal sum adjudged". Therefore, the Courtwhile passing a decree in the suit has to adjudge, firstly, theprincipal sum and any interest on such principal sum prior to thedate of the institution of the suit. The "principal sum adjudged",therefore, can only mean the amount which the Court determines afteradjudicating upon the rights of the parties. In a money suit, Courtwould adjudge the 'principal sum' on the date of the suit. Courtmay also be called upon to adjudge interest due and payable by theDefendant to the Plaintiff for the pre-suit period which interestwould obviously be other than such interest as has already stoodcapitalised and treated as "principal sum". As pointed out earlier,under contract, Bank compute interest with quarterly rests and afterthe quarter, the interest was added to the last balance and that theamount was treated as "principal sum" for computing the interest forthe next quarter and so on. The amount finally arrived till thedate of filing of the suit is the "principal sum".18. Holding that "principal sum adjudged" would be the sumactually loaned plus the amount of interest on periodical restswhich according to the contract between the parties are establishedin banking practice has stood capitalised, in AIR 2001 SC 3095 https://hcservices.ecourts.gov.in/hcservices/ [Central Bank of India v. Ravindra and others], a Five JudgeConstitution Bench of Supreme Court has laid down the followingguidelines:-"(1) Though interest can be capitalised on the analogythat the interest falling due on the accrued date andremaining unpaid, partakes the character of amountadvanced on that date, yet penal interest, which ischarged by way of penalty for non-payment, cannot becapitalised. Further interest, i.e. interest on interest,whether simple, compound or penal, cannot be claimed onthe amount of penal interest. Penal interest cannot becapitalised. It will be opposed to public policy.(2) Novation, that is, debtor entering into a freshagreement with creditor undertaking payment of previouslyborrowed principal amount coupled with interest bytreating the sum total as principal, any contract expressor implied and an express acknowledgement of accounts,are best evidence of capitalisation. Acquiescence in themethod of accounting adopted by the creditor and broughtto the knowledge of the debtor may also enable interestbeing converted into principal. A mere failure to protestis not acquiescence.(3) The prevalence of banking practice legitimatisesstipulations as to interest on periodical rests and theircapitalisation being incorporated in contracts. Suchstipulations incorporated in contracts voluntarilyentered into and binding on the parties shall govern thesubstantive rights and obligations of the parties as torecovery and payment of interest.(4) Capitalisation method is founded on the principlethat the borrower failed to make payment though he couldhave made and thereby rendered himself a defaulter. Tohold an amount debited to the account of the borrowercapitalised it should appear that the borrower had anopportunity of making the payment on the date of entry orwithin a reasonable time or period of grace from the dateof debit entry or the amount falling due and therebyavoiding capitalisa-tion. Any debit entry in the accountof the borrower and claimed to have been capitalised soas to form an amalgam of the principal sum may beexcluded on being shown to the satisfaction of the Courtthat such debit entry was not brought to the notice ofthe borrower and/or he did not have the opportunity ofmaking payment before capitalisation and therebyexcluding its capitalisation.(5) The power conferred by Sections 21 and 35A of theBanking Regulations Act, 1935 is coupled with duty toAct. Reserve Bank of India is prime banking institution https://hcservices.ecourts.gov.in/hcservices/ of the country entrusted with a supervisory role overbanking and conferred with the authority of issuingbinding directions, having statutory force, in theinterest of public in general and preventing bankingaffairs from deterioration and prejudice as also tosecure the proper management of any banking companygenerally. Reserve Bank of India is one of the watchdogsof finance and economy of the nation. It is, and it oughtto be, aware of all relevant factors, including creditconditions as prevailing, which would invite its policydecisions. RBI has been issuing directions/circulars fromtime to time which, inter alia, deal with rate ofinterest which can be charged and the periods at the endof which rests can be struck down, interest calculatedthereon and charged and capitalised. It should continueto issue such directives. Its circulars shall bind thosewho fall within the net of such directives. For suchtransaction which are not squarely governed by suchcirculars, the RBI directives may be treated as standardsfor the purpose of deciding whether the interest chargedis excessive, usurious or opposed to public policy. (6) Agricultural borrowings are to be treated on apedestal different from others. Charging andcapitalisation of interest on agricultural loans cannotbe permitted in India except on annual or six monthlyrests depending on the rotation of crops in the area towhich the agriculturist borrowers belong.(7) Any interest charged and/or capitalised in violationof RBI directives, as to rate of interest, or as toperiods at which rests can be arrived at, shall bedisallowed and/or excluded from capital sum and betreated only as interest and dealt with accordingly.(8) Award of interest pendente lite and post-decree isdiscretionary with the Court as it is essentiallygoverned by Section 34 of the CPC de hors the contractbetween the parties. In a given case if the Court findsthat in the principal sum adjudged on the date of thesuit the component of interest is disproportionate withthe component of the principal sum actually advanced theCourt may exercise its discretion in awarding interestpendente lite and post-decree interest at a lower rate ormay even decline awarding such interest. The discretionshall be exercised fairly, judiciously and for reasonsand not in an arbitrary or fanciful manner."19. To hold that Defendants 1 to 3 are liable to pay simpleinterest at the rate of 12% p.a. from 12.06.1985 on Rs.14,97,833.14,trial Court placed reliance upon AIR 1992 Bombay 482 (FB) [Central https://hcservices.ecourts.gov.in/hcservices/ Bank of India v. Ravindra]. It is pertinent to note that the saiddecision in AIR 1992 Bombay 482 (FB) was overruled by the Judgmentin AIR 2001 SC 3095 [Central Bank of India v. Ravindra and others].Under Exs.A1, A16 and A19 and other loan documents when Defendants 1to 3 have agreed to repay the loan with interest at the rate of 7.5%p.a. over and above the RBI rate of interest subject to a minimum of17.5% p.a., Plaintiff bank is entitled to make the claim ofcalculating the compound interest and capitalising the same to the"principal sum".20. In so far as, Plaintiff bank's claim for compound interestwith quarterly rests, trial Court strangely invoked the 'doctrine ofdamdupat' and held that the claim of interest has exceeded the"principal amount" and therefore, as per the "doctrine of damdupat"[A rule of the Hindu Law of debts by which the interest recoverableat any one time cannot exceed the principal – (Advanced Law Lexicon– Page 1190 – P.Ramanatha Aiyar - 3rd Edition, 2005)], claim ofinterest is liable to be restricted to the extent of "principalamount" only. Referring to AIR 1988 SC 1200 [Mhadagonda RamgondaPatil and others v. Shripal Balwant Rainade and others], trial Courtheld that rule of "damdupat" is an equitable rule debarring thecreditor to recover the amount of interest which is in excess of the'principal amount' and the same is applicable in the transaction ofthe mortgage also. Invoking the said "doctrine of damdupat", trialCourt observed as under:-" .... The plaintiff has not given any opportunity tothe defendants to know about the balance outstandingafter 12.06.1985. The plaintiffs have not filed asingle scrap of paper before this court to show thatthey have appraised the defendants about the hugearrears and calling upon them to pay the same. Undersuch circumstances, though this court finds that thedefendants are liable to pay Rs.14,97,833.14 ...... Iam of the opinion that the defendants are liable topay future interest only on the principal sum ofRs.5,50,000/-."21. As held by the Supreme Court in AIR 2001 SC 3095 [CentralBank of India v. Ravindra and others], the "principal sum adjudged"would be the sum actually loaned plus the amount of interest onperiodical rests which according to the contract between the partiesor the established banking practice has stood capitalised. Theprevalence of banking practice stipulates the interest on periodicalrests and their capitalisation being incorporated in contractsbetween the parties in Exs.A1, A16, A19 and A20 and while so, trialCourt was not right in invoking the "doctrine of damdupat" andsaying that Defendants 1 to 3 are liable to pay simple interest at https://hcservices.ecourts.gov.in/hcservices/ the rate of 12% p.a. on Rs.14,97,833.14 from 12.06.1985.22. In so far as "principal sum adjudged", placing reliance uponAIR 1992 Bombay 482 (FB), trial Court adopted erroneous approach.Trial Court ordered future interest at 6% p.a. on Rs.5,50,000/-which was the original amount advanced. Trial Court was totallyunder the misconception between the "principal sum adjudged" and the"original amount advanced".23. As per the contract between the parties, interest is also tobe treated as "principal" and the amount so adjudged is to be takenas "principal" for granting future interest. The expression"principal sum adjudged" is to be distinguished from the "principalsum advanced". The "principal sum adjudged" means the amount whichthe court determines after adjudicating upon the rights of theparties. The interest accrues on this amount and not on theoriginal amount advanced. Where interest was payable at monthlyrests, when default was once made by the defendant on the occasionof the first rest, the interest will sunk into principal and theaggregate amount (principal and interest) was to be treated as aprincipal for the next month and so on and so forth.24. In our considered view, trial Court erred in taking theamount of Rs.5,50,000/- which was the amount advanced as 'principalamount adjudged". As pointed out earlier, as per the contract bankcompute interest with quarterly rests. After the quarter thatinterest was added to the last balance and that amount was treatedas "principal sum" for computing the interest for the next quarterand so on. While so, computing interest with quarterly restinterest pendente lite and the subsequent interest ought to havebeen awarded on the amount of Rs.22,94,072.29 and not on the amountadvanced i.e. Rs.5,50,000/-.25. Trial Court awarded interest pendente lite at the rate of12% p.a. and subsequent interest at the rate of 6% p.a. Award ofinterest pendente lite as well as future interest is perverse andunsustainable. Trial Court was not at all justified in awardingfuture interest at 6% p.a. on Rs.5,50,000/-. 26. Under Section 34 of C.P.C., award of interest from the dateof suit to the date of decree is entirely discretionary. So far asinterest pendente lite, it should be at the rate agreed unless thereare compelling and inescapable reasons to the contrary. Sec.34C.P.C. reads as under:-"S.34. Interest – (1) Where and in so far as a decree isfor the payment of money, the Court may, in the decree, https://hcservices.ecourts.gov.in/hcservices/ order interest at such rate as the court deems reasonableto be paid on the principal sum adjudged, from the date ofthe suit to the date of the decree, in addition to anyinterest adjudged on such principal sum for any periodprior to the institution of the suit, (with furtherinterest at such rate not exceeding six per cent per annumas the Court deems reasonable on such principal sum) fromthe date of the decree to the date of payment, or to suchearlier date as the court thinks fit:Provided that where the liability in relation to thesum so adjudged had arisen out of a commercialtransaction, the rate of such further interest mayexceed six per cent per annum, but shall not exceed thecontractual rate of interest or where there is nocontractual rate, the rate at which moneys are lent oradvanced by nationalised banks in relation tocommercial transactions.Explanation I – In this sub-section "nationalised bank"means a corresponding new bank as defined in the BankingCompanies (Acquisition and Transfer of Undertakings) Act,1970Explanation II – For the purposes of this section, atransaction is a commercial transaction, if it is connectedwith the industry, trade or business of the party incurringthe liability.(2) Where such a decree is silent with respect to thepayment of further interest (on such principal sum) fromthe date of the decree to the date of payment or otherearlier date, the Court shall be deemed to have refusedsuch interest, and a separate suit therefor shall not lie."Section 34 of CPC leaves it to the discretion of the Court as towhat interest is to be decreed by way of pendente lite interest. Sofar as future interest or further interest is concerned, that too isalso left entirely to the discretion of the Court, but subject to alimit of 6%. However, the added proviso would remove the limit tothe future interest arising out of a commercial transaction. But,the proviso does not take away the discretion left to the Court, nordoes it limit the scope of exercise of such discretion. Grant ofinterest upto the limit of contractual rate is in discretion of theCourt. Court cannot grant higher rate of interest than what wascontracted between the parties even pendente lite. Even thoughinterest pendente lite is a discretion of the Court, discretion hasto be judiciously exercised. Exercise of discretion depends on manyfacts including the fact that the amount decreed was in respect ofthe liability arising out of the commercial transaction. Incommercial transactions by public financial institutions, thecontractual rate of interest should be the rule and departure arare exception. In a suit for recovery of money from industry or https://hcservices.ecourts.gov.in/hcservices/ commercial concern, it will not to be inequitable to award interestat the agreed rate. In respect of commercial transaction, Plaintiffbank is entitled to pendente lite interest at the agreed rate.27. Trial Court reduced the interest both pendente lite andfuture. In our considered view, there is no proper exercise ofdiscretion by the trial Court under Section 34 of CPC. Loan wasobtained by the Defendants 1 to 3 for their commercial transaction.Trial Court ignored the fact that it was commercial transaction. Inour considered view, the exercise of discretion in awarding futureinterest at the rate of 6% p.a. on Rs.5,50,000/- is perverse andcannot be sustained. Where the relationship between the parties wasnot merely that of lender and borrower but there was an agreementsimilar to the cash credit arrangement with the Bank, the claim forinterest was reduced from 18% to 12% p.a. which was the Bank rate ofinterest at that time [See AIR 1997 SC 1219 (Mahendra Singh Jaggi v.Dataram Jagannath)]. 28. The present suit has been pending for quite some time.Applying the ratio of the above decision, interest pendente lite isreduced from 17.5% p.a. to 12% p.a. simple interest from the date ofplaint [30.04.1987] till this date. The simple interest at 12% ispayable on Rs.22,94,072.29 from the date of the suit [30.04.1987]till the disposal of the Appeal by the High Court and the futureinterest is payable on Rs.22,94,072.29 at the rate of 7.5% p.a. fromthis date till the date of realisation.29. Case of Plaintiff is that as security for the loan,Sundarambal has created equitable mortgage of 'B' schedule propertyand 4th Defendant-Apparsamy created equitable mortgage over 'C'schedule property. For creating equitable mortgage, Sundarambalhad executed Ex.A26-letter confirming deposit of title deedsinfavour of Plaintiff bank. 4th Defendant executed Ex.A22-letterextending equitable mortgage created over 'C' schedule property[Balaji theatre, Pondicherry] infavour of Plaintiff bank. TrialCourt dismissed the claim of preliminary decree of mortgage inrespect of 'B' schedule property. 'C' schedule property isdescribed in the plaint as Vacant site situate in Ozhugaria communesaram village R.S.No.97/14, Cadastre No.1552 Paimash No.1394, 1397extent 1 Kany 40 Ku 8/16 with boundaries thereon. Case of 4thDefendant is that he never mortgaged 'C' schedule property infavourof Plaintiff bank in any other transaction or the suit transaction.According to 4th Defendant, Plaintiff bank has not produced anymaterial to show that 4th Defendant has created mortgage over 'C'schedule property for the suit transaction. Further case of 4thDefendant is that the mortgage created in respect of one transactioncannot be extended in respect of another transaction. https://hcservices.ecourts.gov.in/hcservices/

30. 4th Defendant had already deposited his title deeds inrespect of 'C' schedule property for another loan transaction.Under Exs.A22-letter [27.02.1984], 4th Defendant had extended thesaid equitable mortgage for the loan transaction of Defendants 1 to3. Ex.A22 reads as under:-"I have deposited with you on 6.12.78 the titledeeds relating to my landed property and the buildingthere upon, now known as Balaji Theatre, situated atKamaraj Salai, Sithangudisai, Pondicherry with an intentto create equitable mortgage to secure theoverdraft/cash credit/loan/co.acceptance ofbills/guarantee facilities extended by you to M/s.BalajiTheatre to the extent of Rs.28.82 lacs.I am aware that M/s.Lucky and Co., 17, PaikadaiLane, Pondicherry are enjoying a Cash Credit facility ofRs.5.50 lacs with you, for their retail trade inEversilver goods. I hereby undertake to stand as aguarantor for the said Cash Credit facilityextended byyou to M/s.Lucky and Co., for which purpose I haveexecuted the necessary document. I am also aware thatthe debits payable by M/s.Lucky and Co., to you isRs.1258272.50 (Exclusive of interest from 26.12.83).As already agreed with you, I confirm that thetitle deeds so deposited by me shall continue to be heldby you also as security for the advance made by you toM/s.Lucky and Co., until the dues payable by them areliquidated in full." [Underlining added]The contents in Ex.A22-letter clearly manifests the intention of 4thDefendant to create mortgage over 'C' schedule property for the loantransaction of Defendants 1 to 3. Trial Court totally ignoredEx.A22-letter. Ex.A22-letter of confirmation creating equitablemortgage over 'C' schedule is a banker's evidence which the trialCourt was not justified in ignoring the same. Trial Court was notright in negativing the Plaintiff bank's claim to pass preliminarymortgage decree on 'C' schedule property. Since, 4th Defendantextended the mortgage over 'C' schedule property by executingEx.A22-letter, preliminary decree for mortgage is passed in respectof 'C' schedule property.31. Coming to 'B' schedule property, case of Plaintiff bank isthat Sundarambal stood as a guarantor for the loan advanced toDefendants 1 to 3 and with an intention to create equitable mortgageover 'B' schedule property, Sundarambal had deposited her titledeeds and also executed letter of confirmation [Ex.A26]. TrialCourt negatived Plaintiff bank's claim for passing the mortgagedecree on 'B' schedule property on puerile grounds – (i) Plaintiffbank has not adduced cogent evidence and that there was no intention https://hcservices.ecourts.gov.in/hcservices/ on the part of Sundarambal to create any equitable mortgage inrespect of 'B' schedule property; (ii) Sundarambal died in July 1987and even though plaint was filed in April 1987, she was notimpleaded as party.32. Sundarambal is related to Defendants 2 and 3 as under:- SundarambalW/o.Manjini Mudaliar | ----------------------------------------------- | | | Rathinasabapathi Ramasamy Manjini Mudaliar | = Sundarambal | [died issueless] ---------------------- | | Perumal Shanmugam [D2] [D3]Exs.A23 to A25 are the original documents of title deposited bySundarambal with an intention to create equitable mortgage over 'B'schedule property. Confirming the deposit of title deeds andmanifesting her intention to create equitable mortgage, the saidSundarambal had also executed Ex.A26-letter of confirmation. By areading of Ex.A26-letter of confirmation coupled with deposit oftitle deeds Exs.A23 to A25 [Ex.A23 is the Partition deed [06.1.1940]among Rathnasabapathy, Ramasamy and Manjini. Ex.A24 is the saledeed [22.11.1958] executed by Nadesa Mudaliar and others infavour ofSundarambal. Ex.A25 is the mortgage deed [05.04.1971] executed bySundarambal infavour of Sulochana ammal], leads to inescapableconclusion that Sundarambal had deposited the title deeds with anintention to create mortgage over 'B schedule property. Thereasoning of the trial Court that there was no cogent evidence toshow that Sundarambal had intention to create equitable mortgageignores the cogent documentary evidence produced by the Plaintiffbank. Sundarambal died in July 1987. Plaint was filed on30.04.1987 and the same was returned for rectification of certaindefects on 23.6.1987. When the plaint was represented, the gap inthe plaint averment was filled up stating that Sundarambal died inJuly 1987. Trial Court faulted the Plaintiff bank for filling upthe plaint with a date later to April, 1987. Saying that Plaintiffbank has not come to the Court with clean hands and its claim over'B' schedule property is misleading, trial Court observed as under:-" ... When the plaintiff has filed the suit before thiscourt as early as 30.4.1987 how could the plaintiff aver inthe plaint that Sundarambal died in July 1987 subsequentlyafter the return, it would be acceptable if the plaintiff https://hcservices.ecourts.gov.in/hcservices/ had filled up with a date prior to April 1987 or else, heshould have mentioned Sundarambal as a defendant in thesuit. Having omitted to implead Sundarambal as a defendantin the suit and having filed the suit before this Court asearly as 30.4.1987 averring that Sundarambal died in July1987, it only goes to conclude that the plaintiff has notcome before this court with clean hands and the plaintiff'sclaim over the 'B' schedule property is onlymisleading. ..."33. Admittedly, there is no dispute that plaint was presented on30.04.1987 and returned on 23.6.1987 and Sundarambal died in July1987. Ofcourse, Plaintiff had filled up the plaint averring in theplaint presented on 30.4.1987 that Sundarambal died in July 1987.Any such lapse is only a procedural and cannot be the reason forbrushing aside Ex.A26 confirmation letter. In 1992-2-LW 110[M.Ranka v. Hon'ble Mr.Justice P.S.Mishra, High Court and another],the Full Bench of this Court has observed that there are fourstages: (1) Presentation, (2) Filing, (3) Admission, and (4) Finalhearing. Whenever any proceeding is presented, the Registry/Officeenters the same in the Stamp Register or General Diary. The serialnumber of the proceeding represents the number of the proceedingpresented in the year. The plaint returned on 23.6.1987 andrepresented by filling up the gap was in the initial stage ofpresentation. It cannot be said that it was a serious lapse on thepart of Plaintiff bank so as to criticise the Plaintiff bank that ithas not come to the Court with clean hands. More so, to negativethe Plaintiff's claim for mortgage decree in respect of 'B' scheduleproperty.34. As pointed out earlier, plaint was returned and represented.In other words, it was in the first stage of presentation when thesame was returned for rectification of certain defects, certainly,the corrections could be made. Ofcourse, in the plaint averments itought to have been made explicit that plaint was presented as earlyas 30.04.1987 and before representation in the interregnum period,Sundarambal died in July 1987. But the omission to make suchaverment cannot be the reason for disallowing the mortgage decree.35. In (1997) 9 SCC 688 [Hanamanthappa and another v.Chandrashekharappa and others], plaint was presented and returnedfor presentation to proper Court having territorial jurisdiction.After making certain amendments in the plaint, it was represented itin proper Court. In the facts and circumstances of the case, theSupreme Court held that it is not always necessary for the plaintiffto seek amendment of the plaint under Order VI, Rule 17 CPC. Atbest it can be treated to be a fresh plaint and the matter can beproceeded with according to law. Applying the ratio of the above https://hcservices.ecourts.gov.in/hcservices/ decision, we are of the view that trial Court was not justified innegativing the Plaintiff's mortgage decree in respect of 'B'schedule property. 36. Sundarambal died issueless. Defendants 2 and 3 are thebrother's sons who are the Clause-II legal heirs. Exs.A24 and A25are the documents of title deposited by Sundarambal and Ex.A26 isthe letter of confirmation for creating equitable mortgage over 'B'schedule property. Since, Sundarambal had deposited the title deedswith clear intention to create equitable mortgage over 'B' scheduleproperty, preliminary decree for mortgage is passed in respect of'B' schedule property also.37. Upon analysis of materials on record, we are of the viewthat trial Court adopted erroneous approach in reducing the suitclaim to Rs.14,97,833.14. Trial Court was also not right inawarding interest on the "principal sum adjudged". Trial Court fellin error in awarding future interest on the "principal sumadvanced". Trial Court ignored the evidence and conduct of partiesand erred in negativing the decree for mortgage. Conclusion of thetrial Court are to be modified and preliminary decree for mortgageis to be passed on 'B' and 'C' schedule properties and Point Nos.4to 6 answered accordingly.38. In the result, the decree and judgment of the trial Court ismodified and the Appeal is allowed. Defendants 1 to 4 are heldliable to pay Rs.22,94,072.29 together with interest at the rate of12% p.a. on Rs.22,94,072.29 from the date of plaint [30.04.1987]till this date and thereafter at 7.5% p.a. on Rs.22,94,072.29 tillthe date of realisation. Defendants 1 to 4 are also held liable topay suit costs as well as costs in the Appeal. Preliminary decreefor mortgage is passed in respect of 'B' and 'C' scheduleproperties. Personal decree against Defendants 1 to 4 is alsopassed in the event of the proceeds of the suit 'B' and 'C' scheduleproperties not being sufficient to satisfy the decree fully. Timefor payment three months.Sd/Asst.Registrar/true copy/Sub Asst.Registrarbbr https://hcservices.ecourts.gov.in/hcservices/ ToThe Principal Subordinate Judge,Pondicherry.+1cc to M/s. Srinath Sridevan, Sr 56245+1cc to Mr.T.R.Rajaraman, Sr 55840MBS(CO)km/27.9.A.S.No.544/1997