1 IN THE HIGH COURT OF KARNATAKA AT BANGALORE DATED THIS THE 5 TH DAY OF APRIL, 2014 BEFORE THE HON BLE MR.JUSTICE B.S.PATIL W.P.Nos.50029/2013 & 51586/2013 (CS-RES) BETWEEN 1. SRI H RAGHAVENDRA RAO S/O SRI H. VENUGOPALA RAO AGED ABOUT 59 YEARS R/A NO.1246, 10TH MAIN ROAD WEST OF CHORD ROAD MAHALAKSHMIPURAM BANGALORE 560086 2. SMT. R. LAKSHMI RAO W/O H. RAGHAVENDRA RAO AGED ABOUT 56 YEARS R/A NO.1246, 10TH MAIN ROAD WEST OF CHORD ROAD MAHALAKSHMIPURAM BANGALORE 560086.... PETITIONERS (By Sri.K.G.RAGHAVAN, SR.COUNSEL FOR Sri L M CHIDANANDAYYA, ADV.) AND 1. THE DEPUTY REGISTRAR OF CO-OP. SOCIETIES NO.146, 3RD MAIN ROAD 8TH CROSS, MARGOSA ROAD MALLESWARAM, BANGALORE 3 2. THE SECRETARY PAVAMANA CREDIT CO-OP. SOCIETY LTD. NO.51, SHRIMAN MADHAVA SANGHA COMPLEX
2 5 TH MAIN ROAD CHAMRAJPET, BANGALORE 18 3. SHRI G. MADHAVA RAO S/O SRI G. KRISHNA MURTHY AGED ABOUT 69 YEARS NO.555, I CROSS HANUMANTHANAGAR BANGALORE 560019.... RESPONDENTS (By Sri. D K SRIRAMAPPA FOR C/R2, Sri KIRAN KUMAR T.L., AGA FOR R1, Sri R.G.HEGDE, ADV. FOR R3) THESE WRIT PETITIONS ARE FILED UNDER ARTICLES 226 & 227 OF THE CONSTITUTION OF INDIA, PRAYING TO CALL FOR RECORDS WHICH ULTIMATELY RESULTED IN PASSING AWARD ANN-A, DT.24.7.09, IN DISPUTE NO.149/2001-02 PASSED BYT HE R1, & THE ORDER ANN-B, IN APPPEAL NO.540/09 & 554/09 DT.10.9.13. THESE PETITIONS HAVING BEEN HEARD AND RESERVED FOR ORDERS ON 01.03.2014, COMING ON FOR PRONOUNCEMENT OF ORDERS THIS DAY, THE COURT MADE THE FOLLOWING: ORDER 1. 1 st petitioner has availed loan from the 2 nd respondent- Credit Co-operative Society. A sum of Rs.15 lakhs was sanctioned. As the amount was not repaid, a dispute was raised by the respondent-society under Section 70 of the Karnataka Co-operative Societies Act, 1959 (for short, the Act ). Guarantor was also made a party respondent. Proceedings were resisted by the petitioner. After enquiry, 1 st respondent has passed an award on 24.07.2009 allowing the dispute and directing the
3 petitioners to pay the sum of Rs.14,85,762/- with interest at 18.5% along with 2% penal interest with effect from 01.02.2002 till the loan was discharged, failing which, ordering recovery of the same by selling the mortgaged property. 2. This award was challenged before the Karnataka Appellate Tribunal (for short, the Tribunal ). The Tribunal upheld the award with certain modifications with regard to interest. It has held that appellants before it were liable to pay an amount of Rs.17,97,100/- jointly and severally with interest at 18.5% per annum from 01.03.2001. Aggrieved by the same, this writ petition is filed. 3. Mr. K.G.Raghavan, learned Senior Counsel appearing for the petitioners in W.P.No.50029/2013 and respondents 3 & 4 in W.P.No.49574/2013 contends that principle underlying Section 34 CPC applies to levy of interest to a dispute raised under Section 70 of the Karnataka Co-operative Societies Act, 1959 (for short, the Act ). In support of the same, he has placed reliance on the decision in the case of SOVINTORG (INDIA) LTD. VS. STATE BANK OF INDIA, NEW DELHI (1999) 6 SCC 406. He has also relied on the judgment of the Apex Court in the case of PATEL ROADWAYS LTD. VS. BIRLA YAMAHA LTD. (2000) 4 SCC 91
4 urging that the term suit is not defined in the Code of Civil Procedure, therefore, it being a generic term encompasses in its wider connotation, any other proceeding or a petition instituted before a quasi judicial body including a proceeding before an Arbitrator under the Act. He, therefore, submits that levy of interest during the pendency of the proceedings before the Arbitrator at the contractual rate is illegal. According to him, there is no application of mind by the Tribunal to the submission made in this regard based on the provisions contained under Section 34 CPC. He invites the attention of the Court to the award passed by the Deputy Registrar wherein contentions urged based on Section 34 CPC is referred. He further points out that the Tribunal has not at all examined this aspect of the matter. 4. It is lastly contended by him that having regard to the fact that petitioner has already deposited entire principal amount and another sum of `5,00,000/- as directed by this Court vide order dated 21.02.2014 passed in W.P.No.49574/2013 and connected case, this Court may direct payment of reasonable interest by modifying the order/award passed. Further, he draws the attention of the Court to a
5 Division Bench judgment of this Court in the case of R.B.SOMAPPA VS. THE MYSORE CO-OPERATIVE APPELLATE TRIBUNAL, BY ITS SECRETARY, BANGALORE & OTHERS - AIR 1973 MYSORE 37 to contend that Section 34 is applicable even to proceedings before an Arbitrator under Co-operative Societies Act. He has also placed reliance on the judgment in the case of KRISHNA BHAGYA JALA NIGAM LTD. VS. G.HARISCHANDRA REDDY & ANOTHER AIR 2007 SC 817 in support of his contention that the Apex Court, in recent times, has taken note of economic reforms in the country and the interest regime that has changed, resulting in substantial reduction of interest rate. Attention is drawn to paragraph 11 of the said judgment. 5. Learned counsel for the respondent Sri Sriram Reddy placing reliance on the judgment in the case of ASHOKA BASKAR CHITTAR VS. SHIMOGA HOUSING CO-OPERATIVE SOCIETY ILR 1987 KAR 220 contends that principles underlying Section 34 CPC have no application to the interest on loan advanced by a Cooperative Credit Society and the Deputy Registrar/Arbitrator has no such power to award interest based on Section 34 CPC. He further contends that the Society runs its business of lending money based on the deposit made by its members for which interest has been paid by the Society at 15.5% and that
6 what has been now sought to be collected from the Society is only 18.5% which cannot be termed as unreasonable. He further urges that the Society has already waived costs and the entire penal interest levied on the loan amount. Hence, he requests the court to dismiss the writ petition. 6. Having heard the learned counsel for the parties the point that is required to be considered is whether provisions of Section 34 CPC., can be invoked to award interest at a reduced rate than the agreed one in a proceeding instituted under Section 70 of the Act. 7. A Division Bench of Mysore High Court in the case of R.B.SOMAPPA VS. THE MYSORE CO-OPERATIVE APPELLATE TRIBUNAL, BY ITS SECRETARY, BANGALORE & OTHERS - AIR 1973 MYSORE 37, has held that an Arbitrator could call into aid the principles of Section 34 CPC for awarding interest when one of the disputes referred to him for adjudication relates to liability of any party to pay interest. The facts of the said case disclose that a dispute regarding recovery of dues was referred under Section 70 of the Mysore Co-operative Societies Act. The Arbitrator made an award directing payment of the cost of rice along with interest at 12% p.a. from the date of default till the
7 date of recovery of the award amount. Appeal preferred against the said award was dismissed by the Appellate Tribunal. In that background, parties had filed writ petition before this Court. Referring to a judgment of the Apex Court, this Court has held in paragraphs 6 & 7 that an Arbitrator could call into aid principles of Section 34 CPC for awarding interest when one of the disputes referred to him for adjudication relates to liability of any party to pay interest (emphasis supplied). It has further found that, in the absence of any usage or contract, express or implied or of any provision of law to justify award of interest, it is not possible to award interest by way of damages. It has further observed that if the Court cannot award interest by way of damages up to the date of suit muchless could the Arbitrator do so by the principles of Section 34 CPC. It is in that background, the Division Bench interfered with the award of interest made by the Arbitrator applying Section 34 CPC and reduced the rate of future interest to 6% p.a. 8. In the instant case, the issue referred to the arbitrator is not with regard to the liability to pay interest or damages in lieu of interest, but the dispute is with regard to recovery of loan amount along with interest as agreed under the contract
8 entered into between the Society and its member. In such circumstance, question of application of Section 34 CPC to reduce interest exercising the discretion of the Arbitrator does not arise. This is not the scope of the dispute referred before the Arbitrator. Therefore, the Arbitrator has no such power or jurisdiction to exercise his discretion by taking recourse to principles contained in Section 34 CPC. 9. Counsel for the respondent is right and justified in placing reliance on the judgment in the case of ASHOKA BASKAR CHITTAR VS. SHIMOGA HOUSING CO-OPERATIVE SOCIETY ILR 1987 KAR 220, wherein in paragraph 7 of the said judgment by referring to the judgment of the Supreme Court in the case of UNION OF INDIA VS. BUNGO STEEL FURNITURE PRIVATE LIMITED - AIR 1967 SC 1032, it has been held that there is no enabling power in the Arbitrator to award interest pendente lite. He can certainly award interest if it is one of the matters in issue in the dispute raised before him, on the analogy of the principles underlying Section 34 CPC. But Section 34 CPC itself is not applicable to the proceedings before the Tribunal. The rate of interest has to be always contractual rate. An Arbitrator not being a Court within the meaning of a
9 Court cannot award interest on the analogy of Section 34 CPC which has no application. The above decision arose out of the proceedings under Section 70 of the Act, wherein it is clearly held that Section 34 CPC has no application. Therefore, it has to be held that on the analogy of Section 34 CPC petitioner cannot claim levy of interest at a lesser rate during the pendency of the proceedings and also subsequently thereafter till realization. 10. The judgments on which Mr. K.G.Raghavan, learned Senior Counsel for the appellant has placed reliance have no application to the facts and the issue on hand. In the case of SOVINTORG (INDIA) LTD. VS. STATE BANK OF INDIA, NEW DELHI (1999) 6 SCC 406, a complaint had been filed before the State Consumer Disputes Redressal Commission claiming proceeds of the amount deposited along with interest at 24% p.a. The said claim for compensation and damages was rejected, but interest at 12% p.a. was awarded on the principal amount from the date of its receipt. The Apex Court in paragraph 6 of the judgment has held that there was no contract between the parties regarding payment of interest on the delayed deposit or on account of delay on the part of the
10 opposite party to render the service. It is observed that interest could not be claimed under Section 34 CPC as its provisions were not specifically made applicable to the proceedings under the Consumer Protection Act. The Apex Court has however, observed that the general provision of Section 34 CPC being based upon justice, equity and good conscience, would authorize the Redressal Forum and Commissions to also grant interest appropriately under the circumstances of each case. 11. In the instant case, the parties have expressly agreed regarding the rate of interest to be charged on the loan advanced. Therefore, observations made in paragraph 6 of the judgment referred to above, have no application to the facts of the present case. 12. In the case of PATEL ROADWAYS LIMITED VS. BIRLA YAMAHA LIMITED (2000) 4 SCC 91, question raised was whether a complaint before the Consumer Disputes Redressal Agencies against common carrier alleging loss or damage to goods entrusted to it for transportation was maintainable. The Apex Court, considering the provisions of the Consumer Protection Act and the provisions contained in Section 9 of the Carriers Act, 1865 has held that provisions of Consumer Protection Act
11 made it clear that Consumer Disputes Redressal Agencies have been vested with powers of adjudication of all types of consumer disputes including claims for loss or damage to goods entrusted to the carrier for transportation. In this connection, while dealing with the term suit used in Section 9 of the Carriers Act, the Apex Court has observed in paragraphs 48 & 49 that the term suit has not been defined in the Carriers Act, nor has it been provided in the said Act that the term suit will have the same meaning as in the Code of Civil Procedure. Therefore, the ordinary dictionary meaning of the term suit will have to be taken for ascertaining its meaning. The Apex Court has further observed that the term suit is a generic term taking within its sweep all proceedings initiated by a party for realization of a right vested in him under law. 13. The contention of Sri Raghavan is that as the term suit is not defined in CPC, it being a generic term, it applies to all proceedings initiated by a party for realization of a right vested in him under law and includes even proceedings under Section 70 of the Karnataka Co-operative Societies Act and therefore, Section 34 CPC is applicable and the Arbitrator who passes the award is clothed with power to grant interest using his
12 discretion as provided under Section 34 CPC. The judgment relied on by Sri Raghavan in the case of PATEL ROADWAYS LIMITED did not relate to the application of Section 34 CPC to other proceedings, particularly those arising under Section 70 of the Karnataka Co-operative Societies Act before an Arbitrator. Merely because the term suit as used in Section 9 of the Carriers Act is held to include in its generic term other proceedings including proceedings under the Consumer Protection Act as well, it cannot be inferred that powers under Section 34 CPC can be exercised by the Arbitrator who passes award under Section 70 of the Act. 14. Therefore, I am of the view that for a dispute raised under Section 70 of the Karnataka Co-operative Societies Act, 1959, regarding recovery of loan amount advanced, wherein parties have agreed and stipulated the rate of interest payable in the contract entered into between them, Section 34 CPC is not applicable. Hence, this writ petition being devoid of merits is dismissed. PKS/KK Sd/- JUDGE