Hyderabad High Court can reduce interest rates in commercial loans

Hyderabad: The Hyderabad High Court held that the courts have power to reduce rate of interest agreed between parties in commercial loans.
A division bench comprising Justice Ashutosh Mohunta and Justice M. Satyanarayana Murthy was dismissing a plea by the Indian Bank.

The bank approached the High Court challenging an order passed by the Debt Recovery Tribunal reducing the rate of interest in favour of M/s. Eskaycee Infosys of Visakhapatnam and eight others.

The bank said it approached the DRT against Eskaycee Infosys claiming Rs 92,07,275 being the debt amount together with subsequent interest at 15.75 per cent on the amount of Rs 70,10,809 due under the Secured Over Draft (SOD) loan account and also compound interest at 16.25 per cent per annum on Rs 21,96,387 due under the Medium Term Loan (MTL) loan account with quarterly rests from the date of the realisation of its plea.

Eskaycee and others contended that they have paid Rs 1,01,02,661 after the bank filed the petition before the DRT and they had even come forward to clear the entire claim pleading concession in the rate of interest and to fix it at 10 per cent instead of 16.5 per cent compounded quarterly.

After hearing the case, the DRT concluded that “it is seen that the case was filed in 2003 and proceedings have been going on for the past 8 years. This fact coupled with the pathetic position of the appellants and the powers vested with this tribunal drive it to award interest at 10 per cent simple from the date of filing the plea by the bank date of realization along with costs.”

After hearing the arguments, citing the judgments of Apex Court in Punjab and Sind Bank versus Allied Beverages Company Pvt Ltd and others case, the bench said award of interest pending of litigation and post-decree was discretionary with the court as it was essentially governed by Section 34 Civil Procedure Code PC dehors the contract between the parties.

The bench citied that “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 principal sum actually advanced the court may exercise its discretion in awarding interest pending litigation and post-decree interest at a lower rate or may even decline awarding such interest.”