2010 (10) TMI 78 - SC - Companies Law

Whether the High Court is justified in reducing the interest at the rate of 18 per cent p.a. with monthly rests to 14 per cent p.a. with 12 monthly rests without appreciating the contractual rate of interest? Whether the High Court has power and jurisdiction under section 34 of the Code of Civil Procedure, 1908 (hereinafter referred to as CPC ) to change the periodicity of the payment of interest as has been done in the present case, wherein as per the original judgment and decree dated 9-6-2005 passed by the DRT, the interest was payable at 18 per cent p.a. with monthly rests, whereas the Division Bench of the High Court has reduced the rate of interest from 18 per cent p.a. to 14 per cent p.a. with 12 monthly rests? Whether the claim of the Company for further reduction of the rate of interest to the extent of 12 per cent p.a. is feasible and acceptable?

Issues Involved:
1. Reduction of interest rate by the High Court from 18% p.a. with monthly rests to 14% p.a. with annual rests.
2. Jurisdiction of the High Court under Section 34 of the Code of Civil Procedure, 1908 (CPC) to alter the periodicity of interest payment.
3. Feasibility of further reduction of the interest rate to 12% p.a. as claimed by the Company.

Detailed Analysis:

Issue 1: Reduction of Interest Rate
The primary issue was whether the High Court was justified in reducing the interest rate from 18% p.a. with monthly rests to 14% p.a. with annual rests. The Company had initially approached the Bank for financial facilities, which were granted and secured by hypothecation and an equitable mortgage. Due to business setbacks, the Company's account was declared as Non-performing Assets (NPA). The Bank filed an application before the Debts Recovery Tribunal (DRT) for recovery of dues, which was allowed with an interest rate of 18% p.a. with monthly rests. The Company challenged this, and the High Court modified the interest rate to 14% p.a. with annual rests. The Supreme Court upheld the High Court's decision, noting that the High Court had fairly balanced the interests of both parties.

Issue 2: Jurisdiction Under Section 34 CPC
The second issue was whether the High Court had the power and jurisdiction under Section 34 CPC to change the periodicity of interest payment. Section 34 CPC allows the court to order interest at a reasonable rate on the principal sum adjudged from the date of the suit to the date of payment. The Supreme Court referred to the Constitution Bench decision in Central Bank of India v. Ravindra, which clarified that the court has discretion in awarding interest pendente lite and post-decree and can adjust the rate and periodicity to meet the ends of justice. The Court found that the High Court acted within its jurisdiction in modifying the interest rate and periodicity.

Issue 3: Further Reduction of Interest Rate
The third issue was whether the Company's claim for further reduction of the interest rate to 12% p.a. was feasible and acceptable. The Supreme Court noted that the High Court had already reduced the interest rate to 14% p.a., which was reasonable given the commercial nature of the transaction and the Bank's status as a nationalized bank. The Court did not find any compelling reason to further reduce the interest rate to 12% p.a., as requested by the Company.

Conclusion:
The Supreme Court dismissed both appeals, affirming the High Court's decision to reduce the interest rate to 14% p.a. with annual rests. The Court held that the High Court had acted within its jurisdiction under Section 34 CPC and had fairly balanced the interests of both the Bank and the Company. The request for further reduction of the interest rate to 12% p.a. was not accepted, considering the commercial nature of the transaction and the Bank's nationalized status. The judgment emphasized the discretionary power of the courts in awarding interest and the importance of balancing the interests of both parties in financial disputes.

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