2000 (8) TMI 1057 - HC - Companies Law

Summary

Issues:
1. Validity of reducing contractual rate of interest by Prescribed Authority-cum-Sub-Divisional Officer.
2. Interpretation of section 21A of the Banking Regulation Act.
3. Applicability of Code of Civil Procedure provisions in mortgage suits involving bank loans.

Issue 1: Validity of reducing contractual rate of interest
The petitioner argued that the Prescribed Authority-cum-Sub-Divisional Officer had no authority to reduce the contractual rate of interest on a loan advanced by a bank. Citing State Bank of India v. Yasangi Venkateswara Rao, it was contended that the court cannot interfere with the agreed interest rate on a bank loan. The Supreme Court's decision in State Bank of India's case highlighted that the rate of interest charged by a banking company cannot be reopened by any court, as per section 21A of the Banking Regulation Act. The High Court's observation on the legislative jurisdiction of Parliament in enacting section 21A was discussed, emphasizing that the enactment was valid and within the domain of Parliament.

Issue 2: Interpretation of section 21A of the Banking Regulation Act
The respondent's counsel argued that section 21A does not protect banks from the provisions of Order 34 rule 11 of the Code of Civil Procedure. Referring to N.M. Veerappa v. Canara Bank, it was asserted that section 21A does not override central legislation like the Code of Civil Procedure. The petitioner, however, contended that the later decision in State Bank of India's case should prevail over N.M. Veerappa's case due to the direct involvement of section 21A's constitutionality.

Issue 3: Applicability of Code of Civil Procedure provisions in mortgage suits
The discussion also touched upon the applicability of Code of Civil Procedure provisions in mortgage suits involving bank loans. References were made to Everest Industrial Corpn. v. Gujarat State Financial Corpn. and B. Shivananda v. Andhra Bank Ltd. to highlight the importance of contractual rates of interest and the discretion of the court in awarding interest. The Supreme Court's stance on awarding interest based on the contracted rate and the relevance of section 34 of the Civil Procedure Code were emphasized. The judgment concluded that in line with State Bank of India's case, the bank should be awarded interest at the agreed rate from the date of suit till realization, rejecting the reduction to 6.5 per cent by the Prescribed Authority-cum-Sub-Divisional Officer.