Interest in Mortgage Enforcement Should Be Reasonable: Madras High Court Lowers Demanded Interest Rate

Madras High Court, presided over by Justice A.A. Nakkiran, delivered a significant ruling in Ashok Kumar Rathi v. Henrieta May (Deceased) & Others, Civil Suit No. 678 of 2011. The case centered on the plaintiff's demand for repayment of a loan backed by a registered simple mortgage and an alleged equitable mortgage created through promissory notes. The court awarded a partial decree for the registered mortgage claim, while rejecting the equitable mortgage claim for lack of sufficient evidence.
The case originated from a loan transaction between the plaintiff, Ashok Kumar Rathi, and the deceased mortgagor, C.R. Basil. According to the plaintiff, Basil executed a simple mortgage deed on November 7, 2008, pledging a flat in Mylapore, Chennai, as security for a loan of ₹40,00,000. Later, Basil purportedly borrowed an additional ₹30,00,000, allegedly secured by 60 promissory notes and a "Memorandum of Deposit of Title Deeds," thereby creating an equitable mortgage. Upon Basil's death, the plaintiff sought to enforce both mortgages against the legal heirs of Basil.
Enforceability of the Equitable Mortgage Based on Promissory Notes: The plaintiff claimed an equitable mortgage based on promissory notes allegedly signed by the deceased.
Interest Rate on the Mortgage Debt: The plaintiff demanded a high interest rate of 36% per annum, which the court found excessive.
The court examined the validity of both the simple and equitable mortgages, scrutinizing the evidence presented.
Validity of Equitable Mortgage - Lack of Evidence and Suspicious Circumstances
The plaintiff claimed that Basil had executed 60 promissory notes, each for ₹50,000, in favor of the plaintiff, with these notes allegedly forming the basis of an equitable mortgage. However, the court found inconsistencies and irregularities in the execution of these promissory notes:
Out of 60 promissory notes, only 21 bore Basil's signature, while the remaining 39 had only his thumb impressions, all executed on the same date (November 30, 2008).
The court deemed this pattern suspicious, questioning why Basil would use both signature and thumb impressions inconsistently.
The plaintiff failed to produce attesting witnesses or any corroborative evidence to support the validity of these promissory notes.
The court emphasized that, under the law, the plaintiff had the burden to prove the authenticity of the alleged equitable mortgage. Since the plaintiff did not call any witnesses to corroborate the promissory notes or the Memorandum of Deposit of Title Deeds, the court found that the evidence was insufficient to substantiate the equitable mortgage.
“In the absence of any attesting witnesses or corroborative documentary evidence, the plaintiff has failed to prove the existence of a valid equitable mortgage,” the court stated [Para 12].
In contrast, the defendants admitted the existence of the registered simple mortgage. The mortgage deed, executed on November 7, 2008, for ₹40,00,000, was adequately supported by documentary evidence and acknowledged by the defendants. As such, the court found this claim to be enforceable.
The court ordered a partial decree, allowing recovery of ₹40,00,000 under the simple mortgage, with interest as specified below.
The plaintiff sought an interest rate of 36% per annum on the mortgage debt, a rate the court deemed excessive. Citing principles of fairness in mortgage enforcement, the court reduced the interest rate to:
12% per annum from the date of the plaint until the date of the decree.
6% per annum from the date of the decree until the realization of the debt.
“In mortgage enforcement, interest rates must align with reasonable standards unless specifically justified by credible evidence,” observed the court [Para 13].
The Madras High Court issued a partial decree in favor of the plaintiff, granting recovery of ₹40,00,000 with interest under the registered simple mortgage. However, the court dismissed the claim based on the alleged equitable mortgage due to insufficient evidence.
Simple Mortgage Claim: Decree for ₹40,00,000 with 12% interest per annum until the date of decree and 6% thereafter until realization.
Equitable Mortgage Claim: Dismissed due to lack of corroborative evidence.
The ruling in Ashok Kumar Rathi v. Henrieta May (Deceased) & Others reaffirms the importance of clear, corroborative evidence in mortgage claims, especially where the validity of promissory notes or equitable mortgage arrangements is contested. The judgment also underscores the court’s inclination to enforce reasonable interest rates in mortgage cases, balancing the lender's right to recover with considerations of fairness.
 

Date of decision: 05 November 2024