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TMI Blog2010 (10) TMI 78X X X X Extracts X X X X X X X X Extracts X X X X ..... AM AND DR. B.S. CHAUHAN, JJ. JUDGMENT P. Sathasivam, J. - Leave granted. 2. These appeals are directed against the judgment and order dated 24-8-2007 passed by the High Court of Delhi at New Delhi in Writ Petition (C) No. 6069 of 2007 wherein the Division Bench of the High Court disposed of the writ petition filed by M/s. Allied Beverage Company (P.) Ltd. (hereinafter referred to as the Company ) modifying the order dated 9-6-2005 passed by the Debts Recovery Tribunal-III, Delhi (hereinafter referred to as the DRT ) in Original Application No. 47 of 2003 preferred by the Punjab Sind Bank (hereinafter referred to as the Bank ) to the extent by reducing the pendente lite and future interest with effect from 4-7-2003 to 14 per cent p.a. with annual rests, which would be the simple interest, against the rate of interest at the rate of 18 per cent p.a. with monthly rests, awarded by the DRT, Delhi. 3. Brief facts ( a ) Vide application dated 28-4-1997, the Company approached the Bank and requested for grant of financial facilities in its name. After verifying the documents submitted by the Company, the Bank acceded to the request and granted the C ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and as such the amount of token money was credited to the Company s account. ( c )On 4-7-2003, the Bank filed an application before the DRT being O.A. No. 47 of 2003 for recovery of Rs. 1,47,42,616.77 along with pendente lite and future interest. During the pendency of the application, the Company further gave a proposal for settlement but the same could not be materialized. However, on 9-6-2005, the Presiding Officer allowed the application and directed the Company to pay the outstanding amount with pendente lite and future interest. The Presiding Officer further directed that a Recovery Certificate be prepared and the parties therein should appear before the Recovery Officer-I, DRT-III Delhi on 9-8-2005 for execution of the same. Being aggrieved by the order passed by the Presiding Officer, the Company preferred an appeal being Appeal No. 70 of 2006 before the Debts Recovery Appellate Tribunal (hereinafter referred to as the DRAT ), Delhi and the same was dismissed vide order dated 29-3-2007. ( d )Challenging the order dated 29-3-2007 passed by the DRAT, the Company preferred Writ Petition (C) No. 6069 of 2007 before the High Court on 10-7-2007. Vide order dated 24 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e date of realization or actual payment, on the application as it thinks fit to meet the ends of justice. 8. In order to regulate the banking companies, the Government of India brought legislation, namely, the Banking Regulation Act, 1949. Here again, we are concerned about the provision relating to rate of interest which is provided in section 21A which reads thus: 21A. Rates of interest charged by banking companies not to be subject to scrutiny by courts. Notwithstanding anything contained in the Usurious Loans Act, 1918 (10 of 1918), or any other law relating to indebtedness in force in any State, a transaction between a banking company and its debtor shall not be re-opened by any court on the ground that the rate of interest charged by the banking company in respect of such transaction is excessive. 9. In addition to the above statutory provisions, section 34 CPC is also relevant while considering the rate or quantum of interest payable pendente lite and after passing of the decree. It reads thus: 34. Interest. (1) Where and insofar as a decree is for the payment of money, the Court may, in the decree, order interest at such rate as the Court deems rea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... debtedness in force in any State . As stated above, the provision in section 21A refers, so far as Central legislation is concerned, only to the Usurious Loans Act, 1918 and not to the Code of Civil Procedure, 1908 and it then refers to other laws relating to indebtedness in force in any State. Therefore, the provision of section 21A of the Banking Regulation Act, 1984 cannot be held to have intended to override a Central legislation like the CPC or Order 34 Rule 11 CPC. [Emphasis supplied] 11. Learned senior counsel appearing for the Bank as well as the Company and even the High Court heavily relied on the ratio laid down in the Constitution Bench decision in Central Bank of India v. Ravindra [2002] 1 SCC 367 1 . The question before the Constitution Bench was as to the meaning to the phrases the principal sum adjudged and such principal sum as occurring in section 34 CPC as amended by the Code of Civil Procedure (Amendment) Act (66 of 1956) with effect from 1-1-1957. 12. While considering the above issue, the Constitution Bench has also considered interest , penal interest , several usury laws and finally made certain observations which are binding on the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to pay for use of borrowed money. ... In whatever category interest in a particular case may be put, it is a consideration paid either for the use of money or for forbearance in demanding it, after it has fallen due, and thus, it is a charge for the use or forbearance of money. In this sense, it is a compensation allowed by law or fixed by parties, or permitted by custom or usage, for use of money, belonging to another, or for the delay in paying money after it has become payable. It is the appeal against this decision of the Punjab High Court which was dismissed by the Supreme Court in Dr. Sham Lal Narula case. 38. However penal interest has to be distinguished from interest Penal interest is an extraordinary liability incurred by a debtor on account of his being a wrongdoer by having committed the wrong of not making the payment when it should have been made, in favour of the person wronged and it is neither related with nor limited to the damages suffered. Thus, while liability to pay interest is founded on the doctrine of compensation, penal interest is a penalty founded on the doctrine of penal action. Penal interest can be charged only once for one period of d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ntered into and binding on the parties shall govern the substantive rights and obligations of the parties as to recovery and payment of interest. (4) Capitalisation method is founded on the principle that the borrower failed to make payment though he could have made and thereby rendered himself a defaulter. To hold an amount debited to the account of the borrower capitalised it should appear that the borrower had an opportunity of making the payment on the date of entry or within a reasonable time or period of grace from the date of debit entry or the amount falling due and thereby avoiding capitalisation. Any debit entry in the account of the borrower and claimed to have been capitalised so as to form an amalgam of the principal sum may be excluded on being shown to the satisfaction of the court that such debit entry was not brought to the notice of the borrower and/or he did not have the opportunity of making payment before capitalisation and thereby excluding its capitalisation. (5) The power conferred by sections 21 and 35A of the Banking Regulation Act, 1949 is coupled with duty to act. The Reserve Bank of India is the prime banking institution of the country entrusted w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e decision of this Court in Syndicate Bank, Chennai v. Mohan Bros. [2004] 10 SCC 549, it is contended that in view of proviso to section 34(1) CPC, if the liability in relation to the sum adjudged had arisen out of commercial transaction, the rate of such further interest may exceed 6 per cent p.a. but shall not exceed the contractual rate of interest and the bank is entitled to claim interest as per the contract. It is true that in this decision, a three-Judge Bench, after finding that the decision in Central Bank of India s case ( supra ) shows that no reference has been made to the proviso which specifically deals with the awarding of interest arising out of commercial transaction, referred the issue to a larger bench. We were not informed about any decision by a larger Bench contrary to the decision in Central Bank of India ( supra ). Even otherwise, considering factual aspects, even the Company agreed for settlement but it was not successful due to financial difficulties and all other circumstances, we feel that the High Court has fairly neutralized the claim of the Bank as well as the sufferings of the Company and passed a workable order by reducing the rate of intere ..... X X X X Extracts X X X X X X X X Extracts X X X X
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