It cannot be gainsaid that when a person engages himself in agricultural pursuits he docs so to earn an income by application of his labour and skill and when he seeks loan to gainfully employ the same in his such pursuit he enters into a commercial transaction unlike a person who obtains loan for purchasing a car for his own use or building a house for his own accommodation. It must therefore be held that in respect of the transactions in question the Proviso to Section 34(1) of the Code is squarely attracted.
It is of course true that the above conclusion of ours does not necessarily mean that in all cases of commercial transaction the Court is bound to allow interest at the contractual rate, as the section itself confers wide judicial discretion in the matter and that necessarily means that it would depend upon the facts and circumstances of each case.
Bombay High Court
Canara Bank vs Mahadeo Appa Phadatare And Others on 1 October, 1993
Equivalent citations: AIR 1994 Bom 291,1994(1) MHLJ 87
Bench: M Mukherjee, A Shah
1. The appellant-Bank filed the suit, out of which the instant appeal arises, in the Court of the Civil Judge (Senior Division), Pune, for recovery of a sum of Rs. 54,679/- from the three respondent's as balance due (including interest) on account of various agricultural loans given to respondents Nos. 1 and 2. The suit was ultimately decreed against respondents Nos. 1 and 2 and they were directed to pay the above amount with further interest at the rate of 5% per annum on the principal amount of Rupees 28,000/- from the date of the suit till the date of payment. The suit, however, was dismissed as against respondent No. 3. Aggrieved by the rate of interest allowed by the learned trial Judge the Bank has filed the instant appeal. Since no cross-objection or cross-appeal has been filed by the respondents Nos. 1 and 2 against the decree, the only question that falls for our decision in this appeal is whether the decree so far as it relates to the rate of interest is liable to be varied or not.
2. It was contended on behalf of the appellant that having regard to the admitted fact that while taking the loans the respondents Nos. I and 2 undertook to pay interest at the rates referred to in the pro-notes executed by them, which varied from 11% to 13%, the learned trial Judge should have allowed interest at these rates from the date of the suit till the date of the decree in accordance with Section 34(1) of the Code of Civil Procedure ('Code' for short). Besides, the appellant contended that as the loans were 'agricultural loans' and thus related to 'commercial transaction' within the meaning of the proviso to the above section, the learned trial Judge should have also allowed contractual rate of interest from the date of the decree to the date of payment.
3. To appreciate the contention of the appellant it will be appropriate at this stage to extract Section 34 of the Code so far as it is relevant for our purposes:-- "34. (1) Where and in so far 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 decree..... 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.....
Provided that where the liability in relation to the sum 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...
Explanation I : ...
Explanation II : For the purpose of this section, a transaction is a commercial transaction, if it is connected with the industry, trade or business of the party incurring the liability."
4. From the plain reading of the above section it is abundantly clear that in respect of the period from the date of the suit to the date of the decree, the Court may order interest at such rate as the Court deems reasonable and the Court can order further interest for the period from the date of the decree to the date of payment at a rate which shall not exceed six per cent per annum. If, however, the liability arises out of a 'commercial transaction' the rate may exceed six per cent but shall not exceed the contractual rate of interest.
5. In elaborating their contention regarding the liability of the respondents to pay further interest at the contractual rate, the appellant contended that as the loans given to the respondents were for agricultural purposes it must be said that they were connected with their 'business' within the meaning of Explanation II to Section 34(1) of the Code to make them liable to pay the contractual rate of interest. In that view of the matter, the appellant urged that the learned trial Judge was not justified in holding that under Section 34 the Bank had no right to claim further interest at contractual rate.
6. In controverting the above contentions it was submitted on behalf of the respondents, relying upon a Division Bench judgment of the Karnataka High Court in the case of Canara Bank v. K. S. Kushalappa, , that agricultural or horticultural operations did not amount to commercial transactions so as to attract the proviso to Sec. 34(1) of the Code.
7. Undoubtedly the above judgment supports the contention of the respondent but we regret our inability to agree with the same having regard to the fact that no reason has been ascribed for such conclusion and in view of the wide meaning of the word 'business' given in the case of Barendra Prasad Ray v. I.T.O., where the question of interpreting the word 'business' in its generic term came up for consideration. The Supreme Court observed that the word 'business' was one of wide import and it meant an activity carried on continuously and systematically by a person by the application of his labour or skill with a view to earning an income. According to the Supreme Court, it did not necessarily mean trade or manufacture only and included within its scope professions, vocations and callings.
8. It cannot be gainsaid that when a person engages himself in agricultural pursuits he docs so to earn an income by application of his labour and skill and when he seeks loan to gainfully employ the same in his such pursuit he enters into a commercial transaction unlike a person who obtains loan for purchasing a car for his own use or building a house for his own accommodation. It must therefore be held that in respect of the transactions in question the Proviso to Section 34(1) of the Code is squarely attracted.
9. It is of course true that the above conclusion of ours does not necessarily mean that in all cases of commercial transaction the Court is bound to allow interest at the contractual rate, as the section itself confers wide judicial discretion in the matter and that necessarily means that it would depend upon the facts and circumstances of each case. Viewed in that context we feel that considering the recalcitrant conduct of the respondents Nos. 1 and 2 to repay the loans, in spite of latitude given by the Bank relating to such repayment, they should be asked to pay interest at the contractual rate from the date of the suit till the date of the decree and
further interest also at the contractual rate from the date of decree till the date of payment. As the above rate varied from 11% to 13%, the respondents Nos. 1 and 2 should be directed to pay the same at the rate of 11%.
10. On the conclusions as above, we allow this appeal and modify the impugned decree so far as it relates to payment of interest by directing the respondents Nos. 1 and 2 to pay interest from the date of the suit till the date of payment at 11% per annum on the principal sum of Rs. 28,000/-.
11. There will be no order as to costs.
12. Appeal allowed.
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