TaxTMI 
TaxTMI 
2010 (10) TMI 78
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.... 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 Cash Credit (CC) (Hypothecation) limit to the tune of Rs. 60,00,000, Term Loan of Rs. 20,00,000, FOBLC/FOBP facility to the tune of Rs. 10,00,000 and Import/Inland Letter of Credit facility to the tune of Rs. 25,00,000. However, the Cash Credit and the Import/Inland Letter of Credit limit was not to exceed Rs. 60,00,000. The aforesaid credit facilities given by the Bank were duly secured by way of hypothecation over stock of raw materials, finished products, goods in transit and in process, finished goods, generator sets and tanks on which the first charge has been created by the Haryana Financial Corporation (hereinafter referred to as "the Corporation") and the Bank had the second charge over all the above materials. Additionally, the said credit facilities were also secured by way of equitable mortgage by deposit of original Title Deeds in respect of im....
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....he 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 24-8-2007, the High Court disposed of the writ petition modifying the order in respect of interest to the extent mentioned therein. Dissatisfied with the order passed by the High Court, the Bank filed appeal arising out of S.L.P.(C) No. 24745 of 2007 and the Company preferred appeal arising out of S.L.P.(C) No. 3373 of 2008 before this Court. 4. Heard learned senior counsel for the Bank as well as learned senior counsel for the Company. 5. The following questions arise for consideration: (i)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. (ii)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 paym....
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.... 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 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, "nat....
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....d 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 banking institutions as well as all others dealing with money transactions with them : "37. Interest and its classes - Black's Law Dictionary (7th Edn.) defines "interest" inter alia as the compensation fixed by agreement or allowed by law for the use or detention of money, or for the loss of money by one who is entitled to its use; especially, the amount owed to a lender in return for the use of the borrowed money. According to Stroud's Judicial Dictionary of Words And Phrases (5th Edn.) interest means, inter alia, compensation paid by the borrower to the lender for deprivation of the use of his money. In Secy., Irrigation Deptt., Govt. of Orissa v. G.C. Roy the Constitution Bench opined that a person deprived of the use of money to which he is legitimately entitled has a right to be compensated for the deprivation, call it by any name. It may be called interest, compensation or damages ... this is ....
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....th 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 default and therefore cannot be permitted to be capitalised. 39. Mulla on the Code of Civil Procedure (1995 Edn.) sets out three divisions of interest as dealt in section 34 CPC. The division is according to the period for which interest is allowed by the court, namely,-(1) interest accrued due prior to the institution of the suit on the principal sum adjudged; (2) additional interest on the principal sum adjudged, from the date of the suit to the date of the decree, at such rate as the court deems reasonable (3) further interest on the principal sum adjudged, from the date of the decree to the date of the payment or to such earlier date as the court thinks fit, at a rate not exceeding 6 per cent per annum. Popularly the three interests are called pre-suit interest, interest pendente lite and interest post-decree or future interest. Interest for the period anterior to institution of suit is not a matter of procedure; interest pendente l....
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....uding 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 with a supervisory role over banking and conferred with the authority of issuing binding directions, having statutory force, in the interest of the public in general and preventing banking affairs from deterioration and prejudice as also to secure the proper management of any banking company generally. The Reserve Bank of India is one of the watchdogs of finance and economy of the nation. It is, and it ought to be, aware of all relevant factors, including credit conditions as prevailing, which would invite its policy decisions. RBI has been issuing directions/circulars from time to time which, inter alia, deal with the rate of interest which can be charged and the periods at the end of which rests can be struck down, interest calculated thereon and charged and capitalised. It should continue to issue such directives. Its circulars shall bind those who fall within the net of such directives. For such transaction which are not squarely governed by such circulars, t....