The Hindu Business Line : An interest pile on instalments

FIRST, a warning: In case numbers numb you, this case is not for you. For the rest of us, the story begins on September 1, 1976, when Tata Engineering and Locomotive Co Ltd (Telco) entered into a hire purchase (HP) agreement with Sarangpur Transport Co (STC) to sell a motor vehicle for Rs 1,42,672.92, with down payment being Rs 15,371.92.

Telco found that STC was irregular in paying the instalments and so issued a notice in 1977 seeking the payment of Rs 29,096, the amount then due. STC gave two cheques, but they were dishonoured. Thereafter, Telco filed a suit before the Bombay High Court to recover: a) Rs 72,311, that is, principal Rs 63,677 plus interest at 18 per cent as on the date of the suit; and b) Rs 1,15,595 towards damages plus interest at 18 per cent per annum. The two sums add up to Rs 1,87,906, not counting interest till payment; and we'll revert to this later. As for the vehicle, Telco took possession of it, sold it and realised Rs 90,464.

The court noted that STC had paid three instalments, adding up to Rs 11,706, after the initial payment of Rs 15,371.92. Thus, if the entire agreement is to be worked out, the total amount liable to be paid by STC to Telco was Rs 1,42,672.92, and after giving credit of the amount paid (that is, Rs 15,371.92 + Rs 11,706 = Rs 27,077.92), the balance amount due and payable by STC to Telco is 1,15,595 (that is, Rs 1,42,672.92 - Rs 27,077.92), said the court.

From Rs 1,15,595, the court subtracted the sale proceeds, Rs 90,464. "Thus, the balance amount payable under the agreement by the defendants to the plaintiffs is in my opinion only of Rs 25,131," said Justice S. U. Kamdar of the Bombay High Court. "The total price of the vehicle under the agreement is admittedly only Rs 1,42,672.92. Whereas by virtue of prayers (a) and (b) the plaintiff is seeking not only the amount which is much larger than the total amount of the agreement itself but the plaintiffs are not even giving credit for the amount recovered by them by sale of the said vehicle of Rs 90,464," he added.

Confronted by these facts, Telco's counsel said he did not press for prayer (b) of the suit, that is, claim for Rs 1,15,595 towards damages. However, he wasn't willing to give credit to the amount recovered by sale of the vehicle saying that the vehicle belonged to Telco as the owners "until the entire instalments are paid" by virtue of a clause in the HP agreement.

Justice Kamdar said that Telco's argument was not acceptable, and cited from the judgment of the apex court in Sundaram Finance Ltd vs The State of Kerala: "When a person desiring to purchase goods and not having sufficient money on hand borrows the amount needed from a third person and pays it over to the vendor, the transaction between the customer and the lender will unquestionably be a loan transaction."

That apart, the judge was of the view that Telco's `so-called claim for damages' was "unjust and totally contrary to the well-settled principles of damages which require plaintiffs to prove the damages suffered by them".

Telco is not entitled to more than the amount it would have received "if the transaction as contemplated under the agreement would have been completed," opined the judge and passed a decree in favour of Telco for Rs 25,131, plus interest at 18 per cent per annum "from the date of the sale of the said vehicle till payment and/or realisation".

If interested, you may compute the interest element as: Rs 25,131 x 29 years x 0.18, that is, Rs 1,31,183.82. Add the principal, Rs 25,131 and the total is Rs 1,56,314.82, which is short of Rs 1,87,906 (that is, (a) and (b) put together) by only Rs 31,591.18.

Moral of the story, therefore, is: Pay in time.

LawLane@TheHindu.co.in

D. Murali

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