Supreme Court of India
C.K. SASANKANversusTHE DHANALAKSHMI BANK LTD.
- Citation
- 2009 INSC 273
- Decided
- 27 February 2009
- Disposal
- Case Partly allowed
- Bench
- S B SINHA
Holding
Interest under Section 34 CPC must be at a reasonable rate on the principal, and a 9% rate is appropriate, rendering the higher rates awarded excessive.
Summary
The appellant, C.K. Sasankan, sought recovery of a loan taken by his father from Dhanalakshmi Bank and challenged the interest awarded by the Debt Recovery Tribunal, which was 25% from filing to judgment and 19.4% thereafter. He argued that such rates were excessive and violated Section 34 of the Code of Civil Procedure, 1908, which mandates a reasonable rate of interest on the principal. The Supreme Court examined the scope of Section 34, noting that while the court has discretion to fix interest, it must be exercised reasonably and not arbitrarily. Relying on precedents that interest should be at a market or reasonable rate, the Court held that the rates awarded were exorbitant. It directed that pendente lite and future interest be fixed at 9%, deeming this rate just and proper. Consequently, the appeal was partly allowed, reducing the interest payable.
Issues considered
- Whether the interest rates of 25% and 19.4% awarded by the Debt Recovery Tribunal are excessive and contrary to Section 34 of the Code of Civil Procedure, 1908.
- What rate of interest is reasonable and permissible under Section 34 CPC for pendente lite and future interest.
Legislation cited
Subjects
Section 34 CPCinterest ratereasonable interestpendente lite interestdebt recoveryoverdraft facilitybank loanSupreme Courtappeal
Judgment
[2009) 3 S.C.R. 494
,~
A C.K. SASANKAN
v.
THE DHANALAKSHMI BANK LTD.
(Civil Appeal No. 1317 of 2009)
FEBRUARY 27, 2009
B
[S.B. SINHA AND DR. MUKUNDAKAM SHARMA, JJ.]
Code of Civil Procedure, 1908: s.34 - Scope and ambit
of - Discussed - Interest - Grant of - Held: Has to be at a
c reasonable rate and on the principal amount - On facts, grant
of pendente lite and future interest @ 9% is just, proper and
reasonable.
The question which arose for consideration in the
D present appeal is whether grant of interest @ 25% from
the date of filing of suit till the date of judgment and @
19.4% thereafter till its realization was exorbitant and
contrary to provisions of Section 34 CPC.
Partly allowing the appeal, the court
E
HELD: 1.1. The appellant is entitled to quantum and
rate of interest in accordance with the provisions of
Section 34 CPC. According to the provisions of Section
34 CPC, interest is to be awarded at a reasonable rate and
•
~
F on the principal amount. Although the amount of interest
from the date of filing of the suit till the date of the decree
and thereafter till realisation is in the discretion of the
court as is confirmed by the use of the word 'may' but
such discretion has to be exercised by the court properly,
G reasonably and on sound legal principles and not
arbitrarily and while doing so the court is also to consider
the parameter, scope and ambit of Section 34 CPC. [Para
8) (498-E, F]
Clariant International Ltd. v. Securities & Exchange
H 494
C.K. SASANKAN v. DHANALAKSHMI BANK LTD. 495
•
- I
Board of lnd[a, (2004) 8 SCC 524, Kaushnuma Begum v. New A
India Assurance Co. Ltd. (2001) 2 SCC 9, H.S. Ahammed
Hussain v. lrfan Ahammed (2002) 6 SCC 52 and United India
='
Insurance Co. Ltd. v. Patricia Jean Mahajan (2002) 6 SCC
281, relied on.
B
1.2. Considering the facts and circumstances of the
case, the rate of interest as awarded for pendente lite and
-"' future interest is exorbitant and thus pendente lite and
future interest@ 9% is directed to be paid which is just,
proper and reasonable. [Para 10) [499-F]
c
Case Law References:
(2004) 8 sec 524 relied on Para 9
" . 'I (2001) 2 sec s relied on Para 9
D
(2002) s sec 52 relied on Para 9
(2002) s sec 281 relied on Para 9
' CIVIL APPELLATE JURISDICTION : Civil Appeal No.
1317 of 2009.
From the Judgment and Order dated 17.7.2008 of the High
E
..
~
Court of Judicature at Madras in W.P. No. 28664 of 2003 .
T.L.V. Iyer and Ramesh Babu M.R. for the Petitioner.
F
A.N. Tiwari and Balraj Dawan for the Respondents.
The Judgment of the Court was delivered by
DR. MUKUNDAKAM SHARMA, J. 1. Leave granted.
G
-t 2. This appeal arises out of the judgment and order dated
17.07.2008 passed by the Division Bench of the High Court of
Judicature at Madras in Writ Petition (civil) No. 28664 of 2003
dismissing the writ petitions filed by the appellant and
confirming the judgment passed by the Debt Recovery
H
..
496 SUPREME COURT REPORTS [2009] 3 S.C.R.
I -
A Appellate Tribunal, Chennai (hereinafter referred to as the
'Appellate Tribunal').
3. The appellant is the son of late C.V. Kunjikuttan, who
was carrying on business as a civil contractor. Said C.V.
Kunjikuttan carried on business of contracts in his individual
B capacity. He died on 8th September, 1989 and on his demise,
the business was taken over by his legal heirs. While C.V.
Kunjikuttan was alive he had availed of certain facilities from
Dhanalakshmi Bank Ltd., Cherthala Branch, Alappuzha District
- Respondent herein (for short the 'Bank'). The respondent is
C a scheduled bank and has its principal place of business at
Thrissur in Kerala and Branches in various other places. C.V.
Kunjikuttan approached the respondent - bank in 1973 for
sanction of an over draft financial facility. The Bank sanctioned
him an overdraft facility of Rs. 3 lakh. The overdraft facility
D allowed to C.V. Kunjikuttan was secured by security of
..
immovable property, which was collateral security. On
30.10.1980, the Bank granted an enhanced overdraft facility of
Rs. 9 lakh which was secured by late C.V. Kunjikuttan and his
children including the appellant herein.
E
4. As the said amount was not repaid the bank filed a suit
being O.S. No. 176 of 1991 on the file of sub-court, Cherthala.
Subsequently the proceedings were transferred to Debts
Recovery Tribunal (for short "ORT") on its formation under the
•
Recovery of Debts Due to Banks and Financial Institutions Act,
F 1993. The relief prayed by the Bank was to realize a sum of
Rs. 28,50,707.03 from the appellants, if necessary, by sale of
the suit I scheduled properties. The ORT vide Judgment dated
10.08.2001 allowed the proceedings initiated by the Bank and
accordingly declared that the debts due to the bank is Rs.
G 28,50, 707.03 together with interest @ 25% per annum
compounding with quarterly rests from 17.7.1991 i.e. from the
date of filing of the suit till the date of the Judgment with a
simple interest at the rate of 19.4% per annum from 11.08.2001
till realisation. The appeal from the said order was dismissed
H by the Appellate Tribunal as also by the Division Bench of the
-
--\
C.K. SASANKAN v. DHANALAKSHMI BANK LTD.
[DR. MUKUNDAKAM SHARMA, J.]
High Court of Madras.
497
A
5. The learned counsel appearing for the appellant
contended before us that the grant of inte.rest @ 25% from the
date of filing of the suit till the date of judgment and at 19.4%,
thereafter till its realisation is exorbitant and contrary to the
8
provisions of Section 34 of the Code of Civil Procedure (for
short the 'Code'). It was further submitted that as per the said
section the interest has to be reasonable and at prevalent bank
rate of interest.
6. The learned counsel appearing for the respondent on c
the other hand supported the judgments of the courts below and
submitted that the courts below were justified in granting the
said rate of interest as the appellants have failed to re-pay the
amount which was obtained by them under the overdraft facility .
..,
.
'!
7. In order to appreciate the aforesaid contention, we are D
required to consider the scope and ambit of Section 34 of the
Code which gets attracted in the instant case. The provisions
of Section 34 of the Code are reproduced hereinbelow :
"34. Interest- (1) Where and in so far as a decree is for E
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
4 suit to the date of the decree, in addition to any interest
adjudged on such principal sum for any period prior to the F
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:
G
-.,- 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 six percent,
per annum, but shall not exceed the contractual rate of
interest or where there is no contractual rate, the rate at H
A
498 SUPREME COURT REPORTS [2009] 3 S.C.R.
which moneys are lent or advanced by nationalised banks
-
in relation to commercial transactions.
Explanation 1.-ln this sub-section, "nationalised bank"
means a corresponding new bank as defined in the
Banking Companies (Acquisition and Transfer of
B
Undertakings) Act 1970 (5 of 1970).
Explanation 11.-For the purposes of this section, a
transaction is a commercial transaction, if it is connected
with the industry, trade or business of the party incurring
c the liability.
(2) Where such a decree is silent with respect to the
payment of further interest on such principal sum from the
date of the decree to the date of payment or other earlier
date, the Court shall be deemed to have refused such
D interest, and a separate suit therefore shall not lie."
8. The quantum and rate of interest which the appellant in
the present case is entitled to would be in accordance with the
provisions of Section 34 of the Code. According to the
E provisions of Section 34 of the Code interest is to be awarded
at a reasonable rate and on the principal amount. It is needless
to point out that although the amount of interest from the date
of filing of the suit till the date of the decree and thereafter till
realisation is in the discretion of the court as is confirmed by ,
F the use of the word 'may' but such discretion has to be
exercised by the court properly, reasonably and on sound legal
principles and not arbitrarily and while doing so the court is also
to consider the parameter, scope and ambit of Section 34 of
Code.
G 9. The aforesaid scope and ambit of Section 34 of the
Code has been the subject of discussion in many cases of this
Court. We are inclined to refer to the decision in Clariant
International Ltd. v. Securities & Exchange Board of India,
(2004) 8 SCC 524, where it was held by this Court that the
H interest can be awarded in terms of an agreement or statutory
) C.K. SASANKAN v. DHANALAKSHMI BANK LTD. 499
[DR. MUKUNDAKAM SHARMA, J.]
--~
provisions and it can also be awarded by reason of usage or A
trade having the force of law or on equitable considerations but
the same cannot be awarded by way of damages except in
cases where money due is wrongfully withheld and there are
equitable grounds therefor, for which a written demand is
mandatory. It was further held that in absence of any agreement B
or statutory provision or a mercantile usage, interest payable
- .., can be only at the market rate and such interest is payable upon
establishment of totality of circumstances justifying exercise of
such equitable jurisdiction. It was also held that in ascertaining
-
the rate of interest the courts of law can take judicial notice of c
both inflation as also fall in bank rate of interest. The bank rate
of interest both for commercial purposes and other purposes
has been the subject-matter of statutory provisions as also the
judge-made laws. In the said case reference was made to the
-. decisions in Kaushnuma Begum v. New India Assurance Co.
D
Ltd. (2001) 2 SCC 9, H.S. Ahammed Hussain v. lrfan
Ahammed (2002) 6 SCC 52 and United India Insurance Co.
Ltd. v. Patricia Jean Mahajan (2002) 6 sec 281 and it was
observed that even in cases of victims of motor vehicle
accidents, the courts have upon taking note of the fall in the rate
of interest held 9% interest to be reasonable. Direction to pay E
such rate of interest is also found to be reasonable and fair as
the plaintiff was deprived to utilize and roll its money in
-I commercial transaction and kept out of it due to wrongful
withholding of the same by the defendant.
F
10. Considering the facts and circumstances of the present
case, we find that the rate of interest as awarded for pendente
lite and future interest is exorbitant and thus we direct that
pendente lite and future interest at the rate of 9% shall be paid
which is found to be just, proper and reasonable. G
11. The appeal stands allowed to the aforesaid extent.
D.G. Appeal partly allowed.
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