Facts: Shrinika Infra Limited (Plaintiff) filed a commercial suit against Rajdhani Textiles Pvt. Ltd. (Defendant) for foreclosure of an English Mortgage, seeking a money decree of Rs. 44,05,62,418 with 21% interest p.a. The loan was originally advanced to Birla Power Solutions Ltd. (BPSL), secured by mortgaged property. The Defendants, acting as guarantors, filed an Interim Application seeking a preliminary decree under Order XXXIV of the CPC, essentially seeking redemption and a reduction in the contractual interest rate. They argued that interest capitalized should not partake the character of principal and that the court should reduce the interest rate.
Procedural Posture: The case is before the High Court of Judicature at Bombay in its Ordinary Original Civil Jurisdiction. The specific matter under consideration is an Interim Application filed by the Defendants in a Commercial Suit. The court is ruling on the Defendant's application for a preliminary decree and reduction of interest.
Issue: (1) Whether interest after capitalization partakes the character of principal; and (2) Whether the Court should exercise its discretion to reduce the contractual rate of interest in the present case.
Holding: (1) Yes, interest upon capitalization partakes the character of principal. (2) No, the Court will not exercise its discretion to reduce the contractual rate of interest. The Defendant's Interim Application is dismissed.
Reasoning: The Court reasoned that the Supreme Court in Central Bank of India v. Ravindra had already established that interest once capitalized sheds its character of being interest and becomes part of the principal. The Court found that Order XXXIV Rule 11(a) does not contemplate a complete waiver of interest. The Court also considered the conduct of the Defendants, noting their delays and objections throughout the proceedings, which disentitled them from equitable relief. The Court emphasized that commercial bargains should ordinarily be enforced according to their terms, and the legislative policy, as reflected in amendments to Section 34 of the CPC and the Commercial Courts Act, 2015, supports this principle. The Court also noted that the value of the mortgaged property has no correlation with the rate of interest chargeable under a mortgage.