2017 (11) TMI 1526 - HC - Companies Law

Entitlement to interest as compounded under of the clause as in the 1990 Mortgage Deed - Held that - In so far as the payment of additional interest on account of default is concerned, it is stipulated that the parties agreed to payment of additional interest @ 2.5% p.a. on the total amount in default during the period of such default. Hence there is no mention of any interest which is compounded, to be paid on the defaulted amount. We therefore find merit in the submission of Mr. Kamat that when the parties had agreed to the payment of compound interest, it was specifically provided for, as in the 1987 Mortgage Deed and when they did not do so, it was conspicuously absent as in the 1990 Mortgage Deed. Hence the parties by contract having not provided for payment of compound interest the claim of the Appellant for computation of the amount on the basis of the usual banking practice of capitalisation of interest cannot be entertained. Appellant is not entitled to compound interest in terms of the clause as appearing in the 1990 Mortgage Deed, when the parties by contract have not provided for the same. We therefore do not find any fault with the order passed by the Learned Single Judge allowing the Official Liquidator s report in terms of prayer clauses (a), (b) and (d), resultantly rejecting the Company Application filed by the Appellant. There is therefore no merit in the above Appeal which is accordingly dismissed. However, time to deposit the amount as directed by the Learned Single Judge is extended by a period of 4 weeks from date.

Summary

Issues Involved:
1. Reassessment of claims by the Official Liquidator.
2. Entitlement to compound interest under the Mortgage Deeds of 1987 and 1990.
3. Novation of contract terms between the 1987 and 1990 Mortgage Deeds.
4. Interpretation of banking practices and legal precedents regarding compound interest.

Detailed Analysis:

1. Reassessment of Claims by the Official Liquidator:
The appeal arises from an order allowing the Official Liquidator's report, which reassessed the claims of secured creditors, including the appellant, SICOM. The Official Liquidator sought condonation of a 39-day delay in reassessing the claims. The appellant filed an application to set aside this reassessment and sought adjudication of its entire claim based on its affidavit of debt dated 8-9-2016, amounting to ?5,73,35,714 as secured creditors. The reassessment was carried out with the assistance of a Chartered Accountant and was accepted by the Learned Single Judge.

2. Entitlement to Compound Interest Under the Mortgage Deeds of 1987 and 1990:
The appellant contended that despite the execution of a subsequent Mortgage Deed on 5-12-1990, the terms regarding the payment of interest remained unchanged, implying entitlement to compound interest. The clause in the 1987 Mortgage Deed specified interest at 15.5% payable by half-yearly rests with additional compound interest at 2.5% p.a. in case of default. The 1990 Mortgage Deed, however, stipulated interest at 16.5% payable quarterly without the terms "rests" or "compound," which the appellant argued should still imply compound interest based on banking practices and legal precedents.

3. Novation of Contract Terms Between the 1987 and 1990 Mortgage Deeds:
The Official Liquidator and the Learned Single Judge concluded that the 1990 Mortgage Deed represented a novation of the contract, altering the terms from the 1987 Mortgage Deed. The absence of the terms "rests" and "compound" in the 1990 Deed indicated a change in the agreement, thus not supporting the appellant's claim for compound interest. The Learned Single Judge emphasized that the parties did not contract for compound interest in the 1990 Mortgage Deed, and the reassessment was conducted accordingly.

4. Interpretation of Banking Practices and Legal Precedents Regarding Compound Interest:
The appellant referenced several judgments, including Central Bank of India Vs. Ravindra & Ors., which discussed the capitalisation of interest and banking practices. However, the court distinguished these cases, noting that the specific terms of the contract between the parties did not provide for compound interest in the 1990 Mortgage Deed. The court held that the claim for compound interest based on usual banking practices could not be entertained when the contract explicitly did not include such terms.

Conclusion:
The court dismissed the appeal, upholding the reassessment carried out by the Official Liquidator and the order of the Learned Single Judge. The court found no merit in the appellant's claim for compound interest under the 1990 Mortgage Deed and extended the time for depositing the amount directed by the Learned Single Judge by four weeks. The Notice of Motion (L) No.1699 of 2017 was also disposed of as a result of the dismissal of the appeal.