REPORTABLE

IN THE SUPREME COURT OF INDIA CIVIL APPELLATE JURISDICTION

CIVIL APPEAL No.  1317    OF 2009 (Arising out of SLP (C) No. 30832 of 2008)  

C.K. Sasankan            …Appellant

Versus

The Dhanalakshmi Bank Ltd.                                              ...Respondent

JUDGMENT

Dr. Mukundakam Sharma, J.  

1. Leave granted.

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

Appellate  Tribunal,  Chennai  (hereinafter  referred  to  as  the  ‘Appellate

Tribunal’).

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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 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 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 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.   

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

“DRT”) on its formation under the Recovery of Debts Due to Banks and

Financial Institutions Act, 1993.   The relief  prayed by the Bank was to

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realize a sum of Rs. 28,50,707.03 from the appellants, if necessary, by sale

of  the  suit  /  scheduled  properties.   The  DRT  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. 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

by the Appellate Tribunal as also by the Division Bench of the High Court

of Madras.   

5. The learned counsel appearing for the appellant contended before us

that the grant of interest @ 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 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 the other hand

supported the judgments of the courts below and submitted that the courts

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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 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 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 suit to the date  of  the  decree,  in  addition  to  any interest  adjudged  on such principal sum for any period prior to the 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:   

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  per  cent,  per annum, but shall not exceed the contractual rate of interest or where there is no contractual rate, the rate at which moneys are  lent  or  advanced  by  nationalised  banks  in  relation  to commercial transactions.

Explanation I.-In this sub-section, "nationalised bank" means a  corresponding  new  bank  as  defined  in  the  Banking Companies  (Acquisition  and  Transfer  of  Undertakings)  Act 1970 (5 of 1970).

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Explanation II.-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 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 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 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 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.   

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  &

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Exchange Board of India,  (2004) 8 SCC 524, where it was held by this

Court  that  the interest  can  be  awarded  in  terms  of  an  agreement  or

statutory provisions and it can also be awarded by reason of usage or 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 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 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.

Ltd. (2001) 2 SCC 9, H.S. Ahammed Hussain v. Irfan Ahammed (2002) 6

SCC 52 and  United India Insurance Co. Ltd. v.  Patricia Jean Mahajan

(2002) 6 SCC 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

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rate of interest held 9% interest to be reasonable.  Direction to pay such

rate of interest is also found to be reasonable and fair as the plaintiff was

deprived to utilize and roll its money in commercial transaction and kept

out of it due to wrongful withholding of the same by the defendant.

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.   

11. The appeal stands allowed to the aforesaid extent.

                                       ….……………………..J.                            [S.B. Sinha]

    .....………………………J.            [Dr. Mukundakam Sharma]

New Delhi, February 27, 2009

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