SYNDICATE BANKversusR. VEERANNA AND ORS.

A                              SYNDICATE BANK
                                      v.
                            R. VEERANNA AND ORS.

                               DECEMBER 19, 2002

B            [SHIVARAJ V. PATIL AND ARIJIT PASA VAT, JJ.]


           Bank/Banking-Suit by bank for recovery of loans granted to
    defendants- Defendants disputing higher rate of interest charged by the Bank-
C   Earlier defwdants had acknowledged their liability-Trial court accepting
    defendants's contention and decreeing the suit accordingly-Decree affirmed
    by High Court-Held, it is not a case ofautomatically charging the increased
    rate of interest-Charge of higher rate is based on agreement between the
    parties-High Court erred in holding that principles of natural justice were
    violated as the defendants were not put to notice before enhancing the rate of
D   interest-Application of principles of natural justice cannot be read into the
    express terms of contract-Instructions gil'en by head office cannot vary the
    terms ofcontract between the parties-Besides, in view ofthe acknowledgment
    of liability by the defendants on the basis of enhanced rate of interest, it is not
    open to them to deny the payment on the ground that higher rate of interest
E   could not be charged-Trial court and High Court erred in refusing interest
    as claimed by the Bank-Decree passed by trial court and affirmed by High
    Court modified accordingly-Interest-Bank claiming higher rate of interest.

          Hirata/ and Ors. v. Badkulal and Ors., 119531 4 SCR 758, relied on.

          CIVIL APPELLATE JURISDICTION : Civil Appeal No. 972 of
F 1995.

         From the Judgment and Order dated 18.2.94 of the Kamataka High
    Court in R.P.A. No. 459 of 1987.

          Adarsh B. Dial, Ms. Sumati Anand and S. Ravindra Bhat, for. the
G Appellant.

          R.S. Hegde and P.P. Singh, for the Respondents.

          The following Order of the Court was delivered :

H
                                           600
                   SYNDICATE BANK v. R. VEERANNA                            601
      Heard learned counsel for the parties.                                        A
      This appeal is by the plaintiff-Bank aggrieved by the impugned judgment
and decree of the High Court dismissing their first appeal and affirming the
judgment of the trial court. The appellant-Bank filed suit for recovery of total
amount of Rs. 16,15,091.05 against the defendants. The appellant advanced
loan of three kinds to the defendant No. I and defendant Nos. 2 and 3 were          B
the guarantors. When the defendants failed to make payment of the amount
borrowed, the plaintiff was constrained to file the suit. The defendants resisted
the claim of the plaintiff on varicius grounds. In view of the pleadings of the
parties, the trial court framed the following issues: -

       "I. Whether defendants have agreed to pay interest at 5% per annum           C
           above the Reserve Bank of India rate subject to minimum of
           11% per annum, to be compounded quarterly?
        2.   Whether the interest claimed is highly excessive and exorbitant
             under the Usurious Loans Act?
                                                                                    D
        3.   Whether plaintiff is not entitled to more than Rs. 21,500/- as .
             service charges?
       4.    Whether defendants have acknowledged the debts and if not,
             whether the suit is barred by limitation?
        5.   Whether suit is bad for misjoinder of cause of action?                 E
       6.    Whether defendants are entitled to instalments claimed?
        7.   To what reliefs are parties entitled?
        Additional issues:-

        I.   Whether the plaintiff Bank is justified in unilaterally raising the
                                                                                    F
             rate of interest?
        2.   Whether the interest charges is correct?"
      The plaintiff-Bank examined its officers as PWs-1 and 2 and got marked
documents as P-1 to P-40. The defendant No. I entered the witness box and G
examined himself as DW-2 and one Krishnamurthy, a Chartered Accountant
was examined on behalf of the defendants as DW-1. The defendants got
marked documents as D-1 to D-40. The trial court, having considered and
appreciated the evidence placed before it both documentary as we II as oral,
recorded findings on issue Nos. I to 3 in the affirmative and on issue Nos. H
    602                      SUPREME COURT REPORTS (2002] SUPP. 5 S.C.R.

A S and 6 and additional issue Nos. I and 2 in the negative. As far as issue
    No.4 is concerned the trial court recorded a finding that the defendants have
    acknowledged all the debts and the suit claim of the plaintiff under three
    loans was within time. However, during the course of the argument before
    the trial court, learned counsel for the defendants disputed only about the
B   higher rate of interest charged by the plaintiff-Bank. The learned counsel for
    the defendants also made a specific statement that defendants give up all
    other contentions. It was further submitted that the defendants were ready to
    pay the loan amount due from them with agreed rate of interest compounded
    with quarterly rate but they were not ready to pay the higher rate of interest
    as claimed by the plaintiff under the pretext that the RBI has enhanced the
C   rate of interest. The learned trial Judge in view of the submissions, as can be
    seen from the judgment, has recorded that the only point that came up for
    decision was as regards the charging of higher rate of interest by the plaintiff.
    The trial court decreed the suit of the plaintiff for recovery of Rs. 9,82,963.47
    against the defendants with current rate of interest at the rate of 11 % per
    annum from the date of the suit on the balance amount' due from the
D   defendants. The trial court refused to grant interest at the enhanced. rate
    claimed by the plaintiff in terms of the agreement keeping in view the Reserve
    Bank circulars. The plaintiff-Bank to the extent of refusal of interest at the
    rate claimed.filed regular first appeal before the High Court. The High Court
    did not find any good ground to differ with the finding recorded by the "trial
E   court as regards rate of interest. In that view, the first appeal was also dismissed
    by the High Court. Hence, the plaintiff-Bank has brought this appeal to this
    Court.

        The learned counsel for the appellant contended that having regard to
  the agreement entered into between the plaintiff and the defendants as regards
F the rate of interest, the trial court as well as the High Court committed an
  error in not accepting the claim of the appellant to award the interest; the
  High Court was also not justified in holding that the appellant was not entitled
  to charge higher rate of interest without giving notice and charging such
  interest was in violation of principles of natural justice inasmuch as rate of
G interest was enhanced without giving an opportunity to the defendants.
  According to the learned counsel, the High Court committed an error in
  refusing the claim of the plaintiff on the ground that it failed to follow the
  circulars issued by the head office; the circulars issued were only for the
  guidance of the officers of the Bank, which could not vary terms of the
  contract. Learned counsel added that the claim of the Bank was substantiated
H by the accounts maintained by the Bank and the extracts were produced
                            .   ·~,




                     SYNDICATE BANK v. R. VEERANNA                              603

before the trial court. Further in 1978, the defendants acknowledged their              A.
liability of the amount and the amount calculated was on the basis of the
enh.anced rate of interest on the basis of the agreed terms between the parties.
According to him, it was not open to the defendants, having acknowledged
the liability, to contend that the rate of interest charged was on higher side.
It was also the submission of the learned counsel for the appellant that once           B
the plaintiff placed the evidence before the Court to establish that it was
entitled to charge higher rate of interest it was for the defendants to rebut the
same. The defendants in this regard failed to do so. The courts were not
justified in refusing to award the interest as claimed by the appellant.

      Learned counsel for defendant No. I submitted that in the plaint itself           C
the plaintiff has claimed the contract rate of interest at 11%; hence it was not
open to the plaintiff to claim higher rate of interest; in the plaint averments
were not made as to what was the rate of interest charged from time to time.
The learned counsel submitted that the trial court on appreciation of evidence
recorded finding~ as to the appropriate rate of interest and High Court has
confirmed the same. Hence, this Court may not interfere with the findings.              D
       We have carefully considered the submissions made by the learned
counsel for the parties. The trial court rejected the claim of the plaintiff as
re~ards the interest on the ground that.there was absolutely no record to show
that at any time the defendants agreed to pay any higher rate of interest than
the agreed rate on the said three loans taken by them. We must point out at             E
once that this observation of the trial court runs contrary to the very agreements
Ex. P-1, P-5 and P-11. Further, the acknowledgements made by the defendants
in 1978 also indicate that the defendants acknowledged their liability of the
amount due and the amount had been calculated on the basis of the enhanced
rate of interest. Observations of the trial court that the Bank arbitrarily increased   F
the rate of interest and charged the higher rate also do not stand to the reason
in the light of the evidence placed on record including ·the afore-mentioned
documents. In our view, the trial court was wrong in saying that the interest
could not be enhanced without the consent of the defendants on the face of
the agreements to Ex. P-1, P-5 and P-11. The rate of interest was enhanced
as per the agreement between the parties and there was no question of taking            G
separate consent from the defendants again.

       The High Court while holding that the party is bound to pay the _interest
at the agreed rate took the view that the Bank could not automatically charge
the increased rate of interest merely on the basis of rise of interest on account       H
    604                    SUPREME COURT REPORTS [2002) SUPP. 5 S.C.R.

A of RBI· circulars. It is not a case of automatically charging the iru:reased rate
  of interest; charge of higher rate is based on agreement between the parties.
  The High Court was cl.early in error in holding that the principles of natural
  justice were violated on the ground that the defendants were not put on notice
  before enhancing the rate of interest when the parties are bound by the terms ·
B of the contract. The application of principle of natural justice cannot be read
   into the express terms of contract. The other reason given by the High Court
  to affirm the decree of the trial court was that the plaintiff Bank violated the
   circulars/instructions given by the head bftice and as such the plaintiff could
   not claim higher rate of interest. We are not in a position to approve this view
   of the High Court. The instructions given by the head office to the branches
C were only for their guidance and to safeguard the interest of the Bank in case
   of dispute. At any rate, these instructions cannot vary the terms of agreement
   between the parties. In other words, they could not alter the terms of Ex. P-
    l, P-5 and P-11.

            We may add that in the light of the acknowledgement of their liability
D by the defendants in 1978, it is not open to them now to deny to make
     payment of the amount due to the Bank on the ground that higher rate of
     interest could not be charged. It is clear from the judgment of this Court in
     Hirata/ and Ors. v. Badkulal and Ors., [ 1953] 4 SCR 758 that an unqualified
     acknowledgement ofliability as in the present case by a party not only saves
E    the period oflimitation.but also gives a cause of action to the plaintiff to base
     its claim.

         In the circumstances, in our view, the trial court as well as the High
  Court were clearly in error in refusing interest as claimed by the plaintiff
  Bank. Hence, this appeal is entitled to succeed. The impugned judgment and
F decree confirming the judgment and decree of trial court so far they relate to
  refusal of interest at the rate claimed by Bank is set aside and the decree of
  the trial court as affirmed by the High Court stand modified to that extent.
  In other words, the plaintiffs suit is decreed for Rs. 16,15,091.05 instead of
  only for Rs. 9,82,263.47 and the decree of the trial court is modified on this
G basis while maintaining the current and future rates of interests as ordered by
  the trial court. The appeals are disposed of accordingly. No costs.

     R.P.                                                      Appeals disposed of.