2025 (6) TMI 835 - HC - Indian Laws

Proof of transaction - Payment of Rs.2 lakh on the basis of Ext.B2 which was admitted by PW1 rather proved through the evidence of DW1 and Ext.B2 - defendant mainly contends that the trial court went wrong in not adjusting Rs.2 lakh as per Ext.B2 from the principal sum while granting the decree. Whether the trial court was justified in holding that the plaintiff proved the transaction for Rs.6, 50, 000/- that led to the execution of Ext.A1 cheque? - Whether the trial court went wrong in not considering the payment of Rs.2 lakh as adjustment towards the debt in view of Ext.B2 cheque which was admitted by the plaintiff? - Whether the decree and judgment would require interference? - HELD THAT - In the written statement specific contention raised by the defendant is that he borrowed Rs.5 lakh on 24.03.2008 and repaid Rs.2 lakh through Ext.B2 on 02.04.2008. No replication filed disputing this contention at the instance of the plaintiff. In the chief affidavit also this contention was not denied. However during cross-examination PW1 admitted receipt of Rs.2 lakh by encashing Ext.B2 cheque but the case of PW1 during cross-examination is that Ext.B2 was issued for an earlier transaction on 10.02.2008. In fact the evidence of DW2 in no way suggest that DW2 admitted another transaction for Rs.2 lakh in between the plaintiff and himself as contended by the learned counsel for the defendant; and his specific version is that this is the one and only transaction between the plaintiff and defendant though he used to obtain small sum to the tune of Rs.500/- from the plaintiff otherwise being nearest shop owners. In the instant case the plaintiff never disclosed any other transaction between the plaintiff and defendant apart from the present one averred in the plaint till the stage of his cross-examination. The case of the plaintiff is that defendant borrowed Rs.6, 50, 000/- on 24.03.2008 and he failed to return the same though he issued Ext.A1 cheque to discharge the said liability. As per Ext.B2 evidently and admittedly the plaintiff received Rs.2 lakh on 02.04.2008 after the present transaction. Apart from answering a query during cross-examination that Ext.B2 cheque amount was received for a different transaction on 10.02.2008 such a previous transaction in no way either pleaded or proved. Therefore the available evidence would suggest that the plaintiff received Rs.2 lakh out of Rs.6, 50, 000/- borrowed from the defendant on 24.03.2008 and the said amount to be adjusted and reduced for Rs.6, 50, 000/-. Therefore the plaintiff is entitled to get Rs.4, 50, 000/- alone as the amount due to him in this transaction. The decree and judgment of the trial court is interfered and modified to the tune of Rs.4, 50, 000/- instead of Rs.6, 50, 000/- along with interest on the date of the suit that would come to 29, 000/-. What is the rate of interest payable in a suit for money based on a negotiable instrument when the instrument doesn t specify the interest? - How Section 80 of the NI Act and Section 34 of the Code of Civil Procedure would operate? - HELD THAT - In a suit based on negotiable instrument grant of interest shall be at the rate of eighteen per centum per annum as provided under Section 80 of the NI Act. In such view of the matter in deviation from the general prescription regarding grant of interest in a decree for payment of money based on documents other than negotiable instrument as provided under Section 34 of C.P.C. the court has the power to grant interest at eighteen per centum in tune with the mandate of Section 80 of the NI Act. Thus the law is clear on the point that in a decree for payment of money based on documents other than a negotiable instrument Section 34 would govern grant of interest and in decree for payment of money based on a negotiable instrument the interest on the amount due shall be governed by Section 80 of the NI Act notwithstanding any interest relating to the interest between any parties to the instrument. In the instant case the trial court granted only 9% interest and no challenge raised by the plaintiff in the matter of grant of interest. Therefore there is no reason to interfere with 9% interest granted by the trial court for the decree amount. Conclusion - i) The evidence is fully convincing to hold that the defendant borrowed Rs.6, 50, 000/- from the plaintiff and issued Ext.A1 cheque for the same. ii) The Rs.2 lakh received by the plaintiff on 02.04.2008 is to be adjusted and reduced from the principal sum of Rs.6, 50, 000/- as it pertains to the same transaction. iii) In a suit based on negotiable instrument the interest on the amount due shall be governed by Section 80 of the NI Act notwithstanding any agreement relating to interest between the parties. iv) There is no reason to interfere with 9% interest granted by the trial court for the decree amount. This appeal is allowed in part interfering and modifying the decree granted by the trial court and thereby the defendant is directed to pay Rs.4, 79, 000/- along with interest at the rate of 9% per annum on the principal sum of Rs.4, 50, 000/- from the date of the suit till realisation from the defendant and his assets with proportionate cost of the plaintiff in the original suit.

Summary

1. ISSUES PRESENTED and CONSIDERED

(1) Whether the trial court was justified in holding that the plaintiff proved the transaction for Rs.6,50,000/- that led to the execution of Ext.A1 chequeRs.

(2) Whether the trial court erred in not considering the payment of Rs.2 lakh as adjustment towards the debt in view of Ext.B2 cheque, which was admitted by the plaintiffRs.

(3) What is the applicable rate of interest payable in a suit for money based on a negotiable instrument when the instrument does not specify the interestRs.

(4) How do Section 80 of the Negotiable Instruments Act, 1881 (NI Act) and Section 34 of the Code of Civil Procedure, 1908 (C.P.C.) operate with regard to interest in such suitsRs.

(5) Whether the decree and judgment require interference based on the above considerationsRs.

(6) Relief and costs.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1: Proof of transaction for Rs.6,50,000/- and execution of Ext.A1 cheque

The plaintiff alleged that the defendant borrowed Rs.6,50,000/- on 24.03.2008 and issued Ext.A1 cheque dated 24.04.2008 in discharge of the debt. The defendant admitted borrowing Rs.5 lakh but contended partial repayment of Rs.2 lakh by Ext.B2 cheque, thereby disputing the total amount claimed.

The trial court examined the evidence of PW1 and PW2 for the plaintiff and DW1 and DW2 for the defendant. Despite minor anomalies, the evidence of PW1 and PW2 was found convincing on material particulars, establishing that the defendant borrowed Rs.6,50,000/- and issued Ext.A1 cheque. The court held that the plaintiff proved the transaction and the execution of the cheque.

The defendant's plea that the amount borrowed was only Rs.5 lakh was rejected on the basis of the plaintiff's credible testimony and documentary evidence. The court confirmed the trial court's finding in this regard.

Issue 2: Adjustment of Rs.2 lakh payment under Ext.B2 cheque

The defendant contended that Rs.2 lakh was repaid by Ext.B2 cheque on 02.04.2008 and should have been adjusted against the debt. The plaintiff admitted encashment of Rs.2 lakh under Ext.B2 but asserted it pertained to a different transaction dated 10.02.2008, which was neither pleaded nor proved by the defendant.

On scrutiny, the written statement and evidence of DW2 indicated that the Rs.2 lakh payment was related to the same transaction and no other transaction was established. The plaintiff's admission during cross-examination that Ext.B2 was for a prior transaction was unsupported by pleadings or evidence.

The court held that the Rs.2 lakh received by the plaintiff was part payment of the Rs.6,50,000/- debt and must be adjusted accordingly. This finding led to modification of the decree amount from Rs.6,50,000/- to Rs.4,50,000/- as the outstanding principal sum.

Issue 3 & 4: Applicable rate of interest and interplay of Section 80 NI Act and Section 34 C.P.C.

The trial court granted interest at 9% per annum from the date of suit till realization. The defendant argued that Section 34 C.P.C. limits post-decree interest to 6%, and thus the interest rate should be reduced. The plaintiff contended that Section 80 NI Act applies to negotiable instruments, prescribing 18% interest when no rate is specified, and this special provision overrides the general provisions of the C.P.C.

Section 34 C.P.C. allows the court to grant interest at a reasonable rate from the date of suit till decree and further interest not exceeding 6% per annum from decree till payment, except in commercial transactions where higher contractual rates may apply. Section 80 NI Act mandates 18% interest on negotiable instruments where no rate is specified, effective from 30.12.1988.

The court distinguished between suits based on contracts and those based on negotiable instruments. It held that special law (NI Act) prevails over general law (C.P.C.) and thus, for negotiable instruments, Section 80 NI Act governs interest, entitling the holder to 18% interest notwithstanding any agreement to the contrary.

However, since the trial court granted only 9% interest and the plaintiff did not challenge this, the court declined to interfere with the interest rate granted. The court also noted the legislative gap in Section 34 C.P.C. regarding post-decree interest rates, recommending amendment to reflect current financial realities.

Issue 5: Whether the decree and judgment require interference

The court found merit in the defendant's contention regarding adjustment of Rs.2 lakh payment, which was not considered by the trial court. Consequently, the decree was modified to reduce the principal sum to Rs.4,50,000/-. The interest rate and other aspects of the trial court's decree were upheld. Thus, the decree required partial interference and modification.

Issue 6: Relief and costs

The appeal was allowed in part. The defendant was directed to pay Rs.4,79,000/- comprising Rs.4,50,000/- principal and Rs.29,000/- interest at 9% per annum from the date of suit till realization. Costs in the original suit were awarded proportionately to the plaintiff. Both parties were directed to bear their own costs in the appeal.

3. SIGNIFICANT HOLDINGS

"The evidence is fully convincing to hold that the defendant borrowed Rs.6,50,000/- from the plaintiff and issued Ext.A1 cheque for the same."

"The Rs.2 lakh received by the plaintiff on 02.04.2008 is to be adjusted and reduced from the principal sum of Rs.6,50,000/- as it pertains to the same transaction."

"In a suit based on negotiable instrument, the interest on the amount due shall be governed by Section 80 of the NI Act, notwithstanding any agreement relating to interest between the parties."

"The provisions of special law would prevail over the general law. Similarly, a special provision would override a general provision."

"In a decree for payment of money based on documents other than a negotiable instrument, Section 34 of C.P.C. governs grant of interest, and in a decree based on negotiable instrument, Section 80 of the NI Act governs the interest."

"The legislature should consider amending Section 34 of C.P.C. regarding post decree interest to increase the rate from 6% to a reasonable sum in tune with present financial realities."