- The Hon’ble Andhra Pradesh HC has held, in A. Satyanarayana vs M. Panduranga Rao that where the rate of interest is fixed in a contract, it will be open to the Court to vary the rate of interest from the date of the suit till the date of recovery of the amount, on the grounds of equity.
- In the instant case, the first defendant and his wife had borrowed a sum of Rs.90,000 from the plaintiff in the year 1992. This principal sum had to be repaid with an yearly interest of 30% p.a. As a security, the defendants had created a mortgage in favour of the plaintiff on the plaint property. It was alleged that after a part payment, the defendants had defaulted in the repayment of the debt.
- The first defendant then sold the mortgaged property to the second defendant. However, the second defendant did not make any payment despite the plaintiff having approached him for receiving the said payment. Since the defendant paid the amount due to him, the plaintiff filed a suit for the recovery of Rs.2,63,832/- with a subsequent interest of 30%.
- The defendants had alleged before the Court that since the plaintiff had insisted for the payment of interest at the rate of 30% from the date of the mortgage, the debt could not be cleared. It was also alleged that interest at the rate of 30% cannot be claimed as the suit property is agricultural land, thus, the plaintiff could not claim more than 18% interest.
- The trial Court had passed a preliminary decree in favour of the plaintiff, and thus, the defendants had preferred an appeal.
- The HC observed that in the case of Jagannath Prasad Singh vs Surajmal Jalal AIR 1927 PC, the Privy Council had held that the rate of interest fixed in a contract cannot be altered as long as it remains within the domain of the contract law. However, once a decree is passed, the matter moves out of the domain of the contract law to that of the judgement. The Court also observed that the rights of the mortgagee will then depend, not on the contents of the bond, but on the directions in the decree. Thus, it was noted that the Court can alter the rate of interest from the date of redemption onwards.
- The HC also observed that after the aforesaid judgement was delivered, a new Rule 11 was added in Order 34 of CPC. Citing this addition, the Federal Court had observed in Jaigobind Singh and ors. vs Lakshmi Narain Ram and ors. AIR 1940 FC that a bare reading of Order 34 Rule 11 would show that it provides that the Court may order payment of interest to the mortgagee upto the date fixed for the payment at the rate payable on the principal. It was also observed that this rule gave a certain amount of discretion to the Court as regards the payment of subsequent interest. It was no longer obligatory on the Courts to decree the interest at the contractual rate upto the date of redemption.
- This judgement was affirmed by the Apex Court in the case of Soli Pestonji Majoo and ors. vs. Gangadhar Khomka AIR 1969 SC . The High Court also observed that in the case of Sri Panduranga Traders vs State Bank of India (2003) ALD the Andhra Pradesh HC had held that the Court had held that the Court has discretion to modulate the interest pendente lite and post decree.
- Thus, the HC held that in light of the above decisions, it becomes clear that even in cases in which the rate of interest had been fixed via a contract, it would be open to the Court to vary the rate of contractual interest from the date of the suit till the date of recovery of the amount.
- Thus, the Court modified the order of the lower Court and awarded interest calculable at the rate of 14%pa, from the date of filing of the suit till the payment.
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