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R.P. No.96/2011
IN THE HIGH COURT OF KARNATAKA AT BENGALURU DATED THIS THE 13TH DAY OF OCTOBER, 2023 PRESENT THE HON’BLE MR. JUSTICE P.S. DINESH KUMAR AND THE HON’BLE MR. JUSTICE T.G. SHIVASHANKARE GOWDA REVIEW PETITION NO.96 OF 2011 IN REGULAR FIRST APPEAL NO.427 OF 2006
BETWEEN :
M/S. KHODAY INDIA LTD (NOW KNOWN AS KHODAY INDIA LIMITED) KHODAY HOUSE R/BY K.L. SRIHARI NO.26/2, SANKEY ROAD BANGALORE-560 052
K.L. RAMACHANDRA HIS P.A. HOLDER K.L. SWAMY CHAIRMAN AND MANAGING DIRECTOR M/S. KHODAY DISTILLERIES LIMITED, KHODAY HOUSE NO.26/2, SANKEY ROAD BANGALORE-560 052
K.L.A. PADMANABHASA GUARANTOR AND JOINT MANAGING DIRECTOR, KHODAY HOUSE NO.26/2, SANKEY ROAD BANGALORE-560 052
K.L. SWAMY PURCHASER GUARANTOR AND DIRECTOR
R.P. No.96/2011
M/S. KHODAY DISTILLERIES LTD KHODAY HOUSE NO.26/2, SANKEY ROAD BANGALORE-560 052 .…PETITIONERS
(BY SHRI. R. ABHINAV, ADVOCATE)
AND :
SRI. MAHADESHWARA SAHAKARA SAKKARE KARKHANE LTD., KOLLEGAL, (UNDER LIQUIDATION) REP. BY THE LIQUIDATOR …RESPONDENT
(BY SHRI. DESHRAJ, ADVOCATE) . . . .
THIS REVIEW PETITION IS FILED UNDER ORDER 47 RULE 1 R/W SECTION 151 AND 152 OF CPC, PRAYING TO ALLOW THE ABOVE REVIEW PETITION, SET ASIDE THE GRANT OF INTEREST AT 12% FROM THE DATE OF DEMAND MADE NAMELY 29.07.1994 TILL 03.08.1994 AND AT THE RATE OF 10% FROM 04.08.1994 TILL THE DATE OF PAYMENT OF THE SAID SUM WITH COSTS AS ORDERED AND DECREED IN RFA NO.427/2006 DATED 12.11.2008 AS CORRECTED ON 20.10.2010 AS ILLEGAL AND ETC.
THIS REVIEW PETITION, HAVING BEEN HEARD AND RESERVED FOR ORDERS ON 27.09.2023, COMING ON FOR PRONOUNCEMENT OF ORDERS THIS DAY, P.S. DINESH KUMAR, J., PRONOUNCED THE FOLLOWING:-
ORDER
This review petition is directed against the judgment and decree dated 12.11.2008 (as corrected on 20.10.2010) passed in RFA No.427/2006 on the file of this Court.
We have heard Shri.R Abhinav for the petitioners and Shri.Deshraj for the respondent.
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Briefly stated the facts of the case are, Shri. Mahadeshwara Sahakara Sakkare Karkhane Ltd., Kollegal1 (respondent herein), filed the instant suit in O.S. No.2808/1997 on the file of City Civil Judge, Bengaluru seeking recovery of Rs.1,00,76,630/- with interest against M/s. Khoday Distilleries Ltd.2, and others. The suit was dismissed as time barred. This Court in RFA No.427/2006 decreed the suit holding defendants liable to repay the sum of Rs. 1,00,76,630/- with interest at 12% p.a. from 29.07.1994 to 03.08.1994 and at 10% p.a. from 04.08.1994 till the date of payment.
This review petition is by Khoday and others with following prayers: “1. Allow the above Review Petition, set aside the grant of interest at 12% from the date of demand made namely 29.07.1994 till 03.08.1994 and at the rate of 10% from 04.08.1994 till the date of payment of the said sum with costs as ordered and decreed in RFA No.427/2006 dated 12.11.2008 as corrected on 20.10.2010 as illegal and
1 ‘Mahadeshwara’ for short 2 ‘Khoday’ for short
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grant any other relief or reliefs as this Hon’ble Court may deem fit in the facts and circumstances of the case including costs, in the interest of justice and equity.
Shri. Abhinav, learned Advocate for the review petitioners – defendants submitted that plaintiff had filed the suit without mentioning a particular rate of interest nor prayed for payment of interest from any particular date. Plaintiff has filed the instant suit on 03.04.1997 and calculated the interest till that date. Therefore, the decree passed by this Court in RFA 427/2006 amounts to charging interests on interest. This is an error on the face of the record.
He submitted that the suit claim is Rs.42,50,517/- as on 11.10.1989. Defendants are prepared to pay interest at the rate of 16% p.a on the said sum from 11.10.1989 till the date of filing the suit namely, 03.04.1997 which works out to Rs.58,26,473/-. The defendants are prepared to pay interest at the rate of 10% p.a. on the principal sum of Rs.
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42,50,517/- from the date of filing the suit i.e., 03.04.1997 till the date of realization.
He contended that plaintiff has already calculated and included interest on the principal sum of Rs.42,50,517/-, till the date of filing the suit. If the defendants are directed to pay interest on the entire sum of Rs.1,00,76,630/-, it amounts to directing them to pay ‘interest on interest’, which is not permissible in law as per Section 34 of the Code of Civil Procedure.
Shri. Deshraj, learned Advocate for the respondent submitted that the transaction between the parties, is a commercial transaction. The defendants were due in a sum of Rs.42,50,517/- as on 11.10.1989. They did not pay the agreed amount towards purchase of plant and machinery compelling the plaintiff to file the suit in 1989 which has been concluded with the judgment of the Supreme Court in C.A. No.2432/2019 decided on March 1. 2019.
R.P. No.96/2011
Shri. Deshraj further contended that, it is true that plaintiff has calculated the interest from the date on which the principal amount was due till the date of filing the suit. Hence, as on the date of filing the suit, defendants were liable to pay the amount claimed by the plaintiff. The suit has been decreed by this Court. Therefore, defendants are liable to pay the entire amount claimed in the suit with interest as directed by this Court and prayed for dismissal of this review petition.
We have carefully considered rival contentions and perused the records.
Undisputed facts of the case are, suit was dismissed by the City Civil Court. On appeal, this Court has decreed the suit directing the defendants to pay interest at 12% p.a. from 29.07.1994 to 03.08.1994 and at 10% p.a. from 04.08.1994 till the date of repayment.
This review petition is with regard to payment of interest on the ‘interest component’ in the suit claim. In substance, defendants’ case is that, the suit claim is inclusive
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of the interest on the principal. Therefore, defendants cannot be directed to pay ‘interest on interest’.
Plaintiffs’ specific case as averred in para 3 of the plaint is that defendant had entered into an agreement dated 09.10.1986 agreeing to purchase the Sugar Factory along with its land, plant and machinery; and buildings as an ongoing concern for a consideration of Rs.549 Lakhs. The defendants had requested to permit them to pay a sum of Rs.134 Lakhs out of the agreed sale consideration in three annual installments as they were short of funds. Accordingly, a deed of guarantee-cum-indemnity bond dated 27.11.1986 was executed by the defendants agreeing to pay a sum of Rs.134 Lakhs. In para 4 of the plaint it is averred that defendants had agreed to pay interest at the rate of 14% p.a. from the date of registration of sale deed on the sum of Rs.134 Lakhs plus 2% penal interest, in case of default in making payment of installments as stipulated in the agreement. It is further averred that defendants were chronic defaulters and were due in a sum of Rs.42,50,157/-; and the
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suit was brought to recover the principal amount together with interest thereon and in all, a sum of Rs.1,00,76,630/-.
It was submitted by Shri. Abhinav that defendants are prepared to pay the sum of Rs.58,26,473/-, being the interest at 16% p.a. on the principal.
A careful perusal of the plaint, the judgment and decree passed by this Court clearly shows that the transaction between the parties is a ‘commercial transaction’ involving sale of a Sugar Factory. Defendants have executed a deed of guarantee-cum-indemnity agreeing to pay interest at 14% and a penal interest at 2% p.a., in case of default.
The solitary ground urged before us is that directing to pay interest on the ‘interest component’ is contrary to Section 34 of CPC.
We may record that defendants do not have any objection to pay the principal amount and the interest computed at 16% p.a., which works out to Rs.1,00,76,630/-.
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If the said amount was paid by the defendants, upon receipt of the suit summons or any time thereafter, the same would have inured to the benefit of the plaintiff. It is relevant to note that suit is filed in the year 1997. The plaintiff is a co-operative Sugar Factory. If the claim amount was received, plaintiff could deploy the money as deemed fit. It would be incongruous to countenance the argument advanced on behalf of the defendants that they are not liable to pay interest on the ‘interest component’. The entire argument is illogical; firstly because, as on the date of filing the suit plaintiff was entitled to recover Rs.1,00,76,630/-; secondly because, the transaction between the parties is sale and purchase of Sugar Factory, which is a commercial transaction; thirdly because, defendants have executed a deed of guarantee-cum-indemnity to pay interest at 14% p.a. and additional interest at 2% p.a. in case of default;
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fourthy because, plaintiff has been deprived of making the best use of the principal amount from 1989 and best use of the suit claim amount from 1997. If the suit claim was invested in any security, plaintiff could have earned interest on the entire suit claim of Rs.1,00,76,630/- and not just on the principal amount of Rs.42,50,157/-.
In support of his contention, Shri. Abhinav has placed reliance on State of Haryana and others Vs. S.L.Arora and Company3 The same is not applicable to the facts of this case because, the point for consideration in that case as recorded in para 8 of the said judgment was, whether Section 31(7) of the Arbitration and Conciliation Act, authorizes the Arbitral Tribunal to award ‘interest on interest’.
In our considered view, the authority in Central Bank of India Vs.Ravindra and others4., a decision rendered
3 (2010) 3 SCC 690 4 (2002) 1 SCC 367 para 44
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by the Constitutional Bench of the Apex Court, is apt, wherein it is held that if the amount of interest is paid by the defendant, there would be no occasion for capitalizing the amount of interest and converting it into principal.
It is settled that under Section 34 of the Code of Civil Procedure, a Civil Court can award interest for the period during pendency of the suit as well as for the period subsequent to the decree till realization5.
In Shew Kissen Bhattar Vs. The Comissioner of Income Tax, Calcutta6, the Apex Court has held that when interest payable is not paid, the same becomes a part of the principal and thereafter, interest has to be paid not only on the original principal but also on that part of the interest which had become a part of the principal.
Therefore, the contention urged on behalf of the defendants that they are not liable to pay interest on the
5 Renusagar Power Co.Ltd.Vs.General Electric Co.1994 Supp (1)SCC 644, para 137 6 (1973) 4 SCC 115, para 6
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‘interest component’ included in the suit claim is devoid of merits and liable to be rejected.
Resultantly, this review petition fails and it is accordingly dismissed with cost of Rs.1,00,000/- payable by the petitioners/defendants to the respondent/plaintiff.
Sd/- JUDGE
Sd/- JUDGE
SPS