Charanjit Singh v. V.K. Chabra

15. The bank statements for the following accounts of the plaintiff have been exhibited: i. Account No. 02921930021695 maintained with HDFC Bank, Rajouri Garden, New Delhi, for the period between 1st October 2015 to 31st January 2020- Ex. PW-1/A ii. Account No. 20378090406 maintained with Allahabad Bank (now Indian Bank), East Patel Nagar,New Delhi, for the CS(OS) 69/2023 6 of 22 period between 28th June 2017 to 10th August 2017- Ex. PW- 1/B.

16. A perusal of the aforesaid statements bears out the following transactions having taken place: MONIES TRANSFERRED BY PLAINTIFF TO THE DEFENDANT Date Account No./ Bank Chq./ Ref. No. Transaction Amount 5th January 02921930021695/ HDFC Bank 000000000172 Rs. 25,00,000/- 000000000173 Rs. 25,00,000/- 000000000174 Rs. 25,00,000/- 000000000175 Rs. 25,00,000/- 4th July 2017 20378090406/ Allahabad Bank (now Indian Bank) - Rs. 1,50,00,060/- MONIES RECEIVED BY PLAINTIFF FROM THE DEFENDANT Date Account No./ Bank Chq./ Ref. No. Transaction Amount 12th October 02921930021695/ HDFC Bank CBINR52015101210008174 Rs. 03,86,301/- 8th January CBINR52016010810003651 Rs. 07,25,410/- 19th April CBINH16109297663 Rs. 07,47,945/- CS(OS) 69/2023 7 of 22 18th July 2016 CBINR52016071810004860 Rs. 07,56,164/- 31st March CBINR52017033110001903 Rs. 07,39,726/- 4th July 2017 CBINH17185140677 Rs. 5,98,356/- 12th July 2017 CBINR52017071210000208 Rs. 10,43,836/- 16th November CBINR52017111610006393 Rs. 10,58,631/- 5th May 2018 CBINR52018050510008822 Rs, 10,35,617/- 1st June 2018 CBINR52018060110015309 Rs. 10,47.123/- 10th July 2018 CBINR52018071010007334 Rs. 10,58,630/- 15th January CBINR52019011510009083 Rs. 10,58,630/- 11th April CBINR52019041110001690 Rs. 10,35,616/- 18th April CBINR520190418100D6131 Rs. 3,45,205/- 17th June CBINR52019061710001546 Rs. 3,56,712/- 7th August CBINR52019080710000232 Rs. 14,03,835/- 24th January CBINR20024335878 Rs. 10,58,630/-

17. The ledger account shared by Mr. Gulshan Kumar (agent/ employee of the defendant no. 1) in e-mail dated 6th September 2022, alleged to have been CS(OS) 69/2023 8 of 22 maintained and issued by the defendant and exhibited asPW-1/E, shows the following transactions to have taken place: CS(OS) 69/2023 9 of 22

18. A letter dated 1st July 2022, issued by the plaintiff to the defendant no.1 has been exhibited as PW-1/D, along with courier receipts for the same. The amounts shown to be due in the aforesaid letter are to the tune of Rs. 4,55,00,000/- (Rupees Four Crore Fifty-Five Lakhs only).

19. The letter of acknowledgement dated 20th November 2019, executed between the parties and exhibited as PW-1/C, has been extracted as under: CS(OS) 69/2023 10 of 22 Limitation

20. The monies were loaned on various dates, for the first time however, on 5th January 2016, and for the last time on, 4th July 2017. The date of repayment of first payment by the defendant no.1 against the interest accrued, was on, 12th October 2015. The last payment was made by the defendant no. 1 on 24th CS(OS) 69/2023 11 of 22 January 2020, the defendant, thereafter defaulted in repayment of remaining amount. The letter of acknowledgement of liability (PW-1A/C) is dated 20th November 2019. The ledger maintained by defendant no.1 for the amounts received from and paid to the plaintiff, was e-mailed by defendant no. 1’s employee, on 6th September 2022 (PW-1/E).

21. The e-mail dated 6th September 2022, would constitute a fresh cause of action, as per Section 25(3) of the Indian Contract Act, 1872 and Section 18 of the Limitation Act, 1963. The said provisions read as under: i. Section 25, Indian Contract Act, 1872:

CS(OS) 69/2023 12 of 22 In any of these cases, such an agreement is a contract. Explanation 1.—Nothing in this section shall affect the validity, as between the donor and donee, of any gift actually made. Explanation 2.—An agreement to which the consent of the promisor is freely given is not void merely because the consideration is inadequate; but the inadequacy of the consideration may be taken into account by the Court in determining the question whether the consent to the promisor was freely given.” (emphasis supplied) ii. Section 18, Limitation Act, 1963:

CS(OS) 69/2023 13 of 22 to pay, deliver, perform or permit to enjoy, or is coupled with a claim to set off, or is addressed to a person other than a person entitled to the property or right, (b) the word “signed” means signed either personally or by an agent duly authorised in this behalf, and

(c) an application for the execution of a decree or order shall not be deemed to be an application in respect of any property or right.”

22. Even if the e-mail dated 6th September 2022 is disregarded, in light of Section 19 of Limitation Act 1963, the period of limitation would begin afresh on 24th January 2020. Further the order of the Supreme Court in, Cognizance for Extension of Limitation, In re (2022) 3 SCC 117, aids the plaintiff in crossing the bar on limitation. i. Section 19 of the Limitation Act, 1963, reads as under:

CS(OS) 69/2023 14 of 22 (a) where mortgaged land is in the possession of the mortgagee, the receipt of the rent or produce of such land shall be deemed to be a payment. (b) “debt” does not include money payable under a decree or order of a court.” ii. The decision of the Supreme Court in Cognizance for Extension of Limitation, In re (supra), reads as under:

CS(OS) 69/2023 15 of 22

5.3. In cases where the limitation would have expired during the period between 15-3-2020 till 28-2-2022, notwithstanding the actual balance period of limitation remaining, all persons shall have a limitation period of 90 days from 1-3-2022. In the event the actual balance period of limitation remaining, with effect from 1-3-2022 is greater than 90 days, that longer period shall apply.”

23. The suit was filed on 30th January 2023.If the starting point of limitation is taken to be 24th January 2020, in consonance with Section 19 of the Limitation Act, 1963, the limitation period would end on 24th January 2023, however, in light of the Supreme Court’s decision in Cognizance for Extension of Limitation, In re(supra), the suit of the plaintiff would fall wellwithin the limitation period. Liability

24. The testimony of PW-1 remained uncontroverted, unrebutted and unchallenged. There is no reason to disbelieve the testimony of the PW-1 and the exhibited documents i.e. the bank statements (PW-1/A; PW-1/B), the letter of acknowledgement dated 20th November 2019 (PW-1/C), loan recall letter dated 01st July 2022(PW-1/D), the ledger attached with E-mail dated 6th September 2022 (PW-1/E), and legal notice dated 11th January 2023 (PW-1/F).

25. Certificate under Section 65B of Indian Evidence Act, 1872, along with the plaint and the statement of truth appear to be of an unimpeachable character.

26. In light of the aforesaid evidence, the liability of the defendant no. 1 stands established. CS(OS) 69/2023 16 of 22 Pendente Lite and Future Interest Payable

27. The plaintiffs’ plea of relief can be trifurcated in the following portions: i. Recovery of principal amount: Rs. 3,50,00,000/- (Rupees Three Crore Fifty Lakhs only). ii. Recovery of interest receivable under contract at the rate of 12 percent per annum:Rs. 1,26,00,000/- (Rupees One Crore Twenty-Six Lakhs only) iii. Pendente Lite and Future interest at the rate of 18 percent per annum.

28. At this juncture, it is apposite to refer to Section 34 of the Code of Civil Procedure, 1908, (‘CPC’), which reads as under:

CS(OS) 69/2023 17 of 22 moneys are lent or advanced by nationalised banks in relation to commercial transactions. Explanation I.—In this sub-section, “nationalised bank” means a corresponding new bank as defined in the Banking Companies (Acquisition and Transfer of Undertakings) Act, 1970 (5 of 1970). Explanation II.—For the purposes 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.] (2) Where such a decree is silent with respect to the payment of further interest[on such principal sum] from the date of the decree to the date of payment or other earlier date, the Court shall be deemed to have refused such interest, and a separate suit therefor shall not lie.”

29. The Supreme Court in Central Bank of India v. Ravindra (2002) 1 SCC 367, held as under:

CS(OS) 69/2023 18 of 22 (i.e. interest post-decree not exceeding 6 per cent per annum) shall be awarded on such principal sum i.e. the principal sum adjudged on the date of the suit.It is well settled that the use of the word “may” in Section 34 confers a discretion on the court to award or not to award interest or to award interest at such rate as it deems fit. Such interest, so far as future interest is concerned may commence from the date of the decree and may be made to stop running either with payment or with such earlier date as the court thinks fit. Shortly hereinafter we propose to give an indication of the circumstances in which the court may decline award of interest or may award interest at a rate lesser than the permissible rate.” …..

44. We are of the opinion that the meaning assigned to the expression “the principal sum adjudged” should continue to be assigned to “principal sum” at such other places in Section 34(1) where the expression has been used qualified by the adjective “such”, that is to say, as “such principal sum”. Recognition of the method of capitalisation of interest so as to make it a part of the principal consistently with the contract between the parties or established banking practice does not offend the sense of reason, justice and equity. As we have noticed, such a system has a long-established practice and a series of judicial precedents upholding the same. Secondly, the underlying principle as noticed in several decided cases is that when interest is debited to the account of the borrower on periodical rests, it is debited because of it having fallen due on that day. Nothing prevents the borrower from paying the amount of interest on the date it falls due. If the amount of interest is paid there will be no occasion for capitalising the amount of interest and converting it into principal. If the interest is not paid on the date due, from that date the creditor is deprived of such use of the money which it would have made if the debtor had paid the amount of interest on the date due. The creditor needs to be compensated for deprivation. As held in Pazhaniappa Mudaliar v. Narayana Ayyar [AIR 1943 Mad 157: (1942) 2 MLJ 753] the fact situation CS(OS) 69/2023 19 of 22 is analogous to one as if the creditor has advanced money to the borrower equivalent to the amount of interest debited. We are, therefore, of the opinion that the expression “the principal sum adjudged” may include the amount of interest, charged on periodical rests, and capitalised with the principal sum actually advanced, so as to become an amalgam of principal in such cases where it is permissible or obligatory for the court to hold so. Where the principal sum (on the date of suit) has been so adjudged, the same shall be treated as “principal sum” for the purpose of “such principal sum” — the expression employed later in Section 34 CPC. The expression “principal sum” cannot be given different meanings at different places in the language of same section i.e. Section 34 CPC. …..

48. It was also submitted that Section 34 CPC is general in its application to all money suits and if banking practice or banking contracts providing for capitalisation of interest charged on periodical rests were to be recognised it will mean that application of Section 34 would be different in suits filed by banks and in suits filed by creditors other than bankers. In our opinion it is bound to be so. Section 34 is a general procedural provision and whether it would apply or not and if apply then to what extent would obviously depend on the fact situation of each case.

49. We are, therefore, of the opinion that the two-Judge Bench decision of this Court in Corpn. Bank v. D.S. Gowda [(1994) 5 SCC 213] and the three-Judge Bench decision in Bank of Baroda v. Jagannath Pigment & Chemicals [(1996) 5 SCC at p. 280] are correctly decided and are, therefore, affirmed. A creditor can charge interest from his debtor on periodical rests and also capitalise the same so as to make it a part of the principal. Such a course can be justified by stipulation in a contract voluntarily entered into between the parties or by a practice or usage well established in the world to which the parties belong. Such practice is to be found already in vogue in the field of banking business. Such contract or usage or practice CS(OS) 69/2023 20 of 22 can stand abrogated by legislation such as usury laws or debt relief laws and so on. ….. 55...However, we propose to place on record a few incidental observations, without which, we feel, our answer will not be complete and that we do as under: (1) Though interest can be capitalised on the analogy that the interest falling due on the accrued date and remaining unpaid, partakes the character of amount advanced on that date, yet penal interest, which is charged by way of penalty for non-payment, cannot be capitalised. Further interest i.e. interest on interest, whether simple, compound or penal, cannot be claimed on the amount of penal interest. Penal interest cannot be capitalised. It will be opposed to public policy. (2) Novation, that is, a debtor entering into a fresh agreement with a creditor undertaking payment of previously borrowed principal amount coupled with interest by treating the sum total as principal, any contract express or implied and an express acknowledgement of accounts, are the best evidence of capitalisation. Acquiescence in the method of accounting adopted by the creditor and brought to the knowledge of the debtor may also enable interest being converted into principal. A mere failure to protest is not acquiescence. (3) The prevalence of banking practice legitimatises stipulations as to interest on periodical rests and their capitalisation being incorporated in contracts. Such stipulations incorporated in contracts voluntarily entered into and binding on the parties shall govern the substantive rights and obligations of the parties as to recovery and payment of interest. CS(OS) 69/2023 21 of 22 (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. ….. (8) Award of interest pendente lite and post-decree is discretionary with the court as it is essentially governed by Section 34 CPC dehors the contract between the parties. In a given case if the court finds that in the principal sum adjudged on the date of the suit the component of interest is disproportionate with the component of the principal sum actually advanced the court may exercise its discretion in awarding interest pendente lite and postdecree interest at a lower rate or may even decline awarding such interest. The discretion shall be exercised fairly, judiciously and for reasons and not in an arbitrary or fanciful manner. CS(OS) 69/2023 22 of 22

30. In view of the aforesaid position of law and considering that the last payment was made in the year 2020, post which, the defendant no.1 has neither replied to notices/letters issued by the plaintiff nor appeared in the proceedings before this Court, and also, in view of contractual rate of interest, the prevalent market rates of interest and the nature of the transaction between the parties, the Court deems it fit to allow the prayer of the plaintiff and direct the defendant no.1 to pay pendente lite and future interest, till the date of realization, at the rate of 12 percent per annum. Relief

31. Accordingly, the suit of the plaintiff is decreed for a total amount of Rs.4,76,00,000/- (Rupees Four Crore Seventy-Six Lakhs only) [inclusive of the principal amount (Rs. 3,50,00,000/-) and interest accrued thereupon, as on 31st December 2022 (Rs. 1,26,00,000/-)] along with pendente lite and future interest, on the said amount, at the rate of 12 percent per annum, from the date of institution of the suit, till the date of payment by the defendant.

32. Decree sheet be drawn up accordingly.

33. Pending applications, if any, be rendered infructuous.

JUDGE MARCH 12, 2025