Tag Archives: loan

Interest – Meaning of

In Halsbury’s Laws of England, 4th Edition, Vol. 32, “interest” has been defined as follows:

“127. Interest in General.—Interest is the return or compensation for the use or retention by one person of a sum of money belonging to or owed to another. Interest accrues from day to day even if payable only at intervals, and is, therefore, apportionable in respect of time between persons entitled in succession to the principal.”

 

According to Law Lexicon, by P.Ramanatha Aiyar, 3rd Edition (2005) Vol. 2:

“Interest” means the time value of the funds or money involved, which unless otherwise agreed, is calculated at the rate and on the basis customarily accepted by the banking community for the funds of money involved.”

 

In Words and Phrases Permanent Edition, Vol. 22, P. 148, “interest” means:

(i) “Interest” is compensation for loss of use of principal. Jersey City v. Zink, 44 A 2d 825 : 133 NJ Law 437 (1945).

(ii) “Interest” means compensation for the use or forbearance of money. Commr. of Internal Revenue v. Meyer, 139 F 2d 256 (6th Cir 1943).

 

Black’s Law Dictionary, 6th Edition. (p. 812) defines “interest” as:

For use of money.—Interest is the compensation allowed by law or fixed by the parties for the use or forbearance of borrowed money. Jones v. Kansas Gas and Electric Company, 222 Kan 390 : 565 P 2d 597 (1977).

 

There is no manner of doubt that normally a person would be entitled to interest for the period he is deprived of the use of money and the same is used by the person with whom the money is lying. State of Karnataka v. Karnataka Pawn Brokers Association, (2018) 6 SCC 363.

   

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Pre-Deposit for Appeal under Section 18 of Securitisation Act – Refund of

The Appeal under Section 18 of the Securitisaton Act is permissible only against the order passed by Debt Recovery Tribunal under Section 17 of the Act. Under Section 17, the scope of enquiry is limited to the steps taken under Section 13(4) against the secured assets. The partial deposit before the DRAT as a pre-condition for considering the appeal on merits in terms of Section 18 of the Act, is not a secured asset. It is not a secured debt either, since the borrower or the aggrieved person has not created any security interest on such pre-deposit in favour of the secured creditor. If that be so, on disposal of the appeal, either on merits or on withdrawal, or on being rendered infructuous, in case, the appellant makes a prayer for refund of the pre-deposit, the same has to be allowed and the pre-deposit has to be returned to the appellant, unless the Appellate Tribunal, on the request of the secured creditor but with the consent of the depositors, had already appropriated the pre-deposit towards the liability of the borrower, or with the consent, had adjusted the amount towards the dues, or if there be any attachment on the pre-deposit in any proceedings under section 13(10) of the Act read with Rule 11 of the Security Interest (Enforcement) Rules, 2002, or if there be any attachment in any other proceedings known to law. Axis Bank v. S.B.S. Organics Pvt. Ltd., 2016 (132) RD 507.

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Recovery of Loan – Bank cannot be permitted to take possession of the hypothecated vehicle

In a recent Judgment of the Allahabad High Court in C.M.W.P. No. 71057 of 2011 decided on 09.02.2012, reported in 2012 (3) A.W.C. 2821 it was held as under:

“The bank or financial institution cannot be permitted to take a decision on their own that there has been a default and proceed to take possession of the hypothecated vehicle without giving an opportunity to the borrower to present his case. In this manner, the banks would be judging their own cause with the right of execution, as they themselves would unilaterally determine that there has been a default and proceed to execute their own decision by taking possession of the hypothecated vehicle through their own appointed agencies, which may be muscle men. Adopting such a recourse would clearly be a blatant violation of the mandate of Hon’ble Supreme Court.

In case of default in repayment of its loan, it is always open for the Banks to get the agreement with its borrower enforced through the process of law. Even the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 which gives special power to the bank for realization of its dues also provides for certain safeguards. Section 13(2) of the act of 2002 has been interpreted by the Apex Court in the case of Mardia Chemicals Ltd. V. Union of India, (2004) 4 SCC 311 : AIR 2004 SC 2371 that the borrower has a right to submit his reply to the said notice. Pursuant to the decision of the Apex Court, sub-section (3-A) of Section 13 has been inserted making it obligatory on the financial institutions (including banks) to pass an order after considering the reply submitted by the borrower. It is only thereafter that proceedings for taking over possession can be initiated under Section 13(4) of the Act of 2002.”

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