NATIONAL BANK OF PAKISTAN Versus ORIENTAL FASHIONS LTD
ORDER
1. In this case a decree was passed, in which amount of over 5 lacs claimed as penal interest was also included. The defendants made an application for setting aside the decree. The decree was not set aside but by consent, by order dated 5‑5‑1985, the decree was amended as follows:‑‑‑
2. "Consequently, it is ordered, by consent, that the decree passed on 29‑10‑1984 be amended so that it may be read as a partial decree of Rs.43,61,030 with 14% interest with quarterly rests from 14th August, 1983 till realization and proportionate costs of the suit. It is further ordered by consent of the two learned counsel that the question of penal interest would be argued by the parties and then the balance of the decree may be awarded, if found due:"
3. The case is fixed today for considering the question whether penal interest can be claimed by the bank in the present suit and if so, whether the amount of the penal interest should be added to the decree already passed.
4. Mr. Mamnoon Hassan, learned counsel for plaintiff‑bank has argued, firstly, that there is a Circular of the Pakistan Banking Council to the effect that where a borrower does not pay the amount within the stipulated period, the concerned lending‑bank is entitled to claim penal interest. The other argument is that interest is awarded as a kind of damages and in the instant case, as the borrowers did not make payment of the amount within the stipulated period, they are liable to pay an extra amount, over and above the agreed rate of interest, as damages and this extra amount the plaintiff‑bank can claim as penal interest. According to the learned counsel, this penal interest is not a penal interest but it is in the nature of damages.
5. On a question from the Court, Mr. Mamnoon Hassan stated that there is no agreement between the parties for payment of penal interest. I have already taken the view by order dated 7‑11‑1985 in Suit No.736/83 also filed by United Bank Limited against another borrower that in the absence of a specific provision of law, the nationalized banks cannot charge penal interest, for which there is no agreement between the concerned bank and its customer. I have not been persuaded by the learned counsel for the plaintiff7bank to revise the view that I have already taken. The Circular, if any, of the Pakistan Banking Council authorizing the nationalized banks to charge penal interest must be backed by some specific provision of law, or there should be an agreement between the bank and the borrower about payment of penal interest, in which case also it would be a moot question whether penal interest can at all be claimed by way of penal interest or as damages.
6. As there is no agreement between the parties for payment of penal interest, no amount can be claimed by the plaintiff‑bank as penal interest from the defendants and as such the amount represented by penal interest cannot be included in the decree passed in this suit. Accordingly decree of Rs.43,61,030 with 14% interest with quarterly rests from 14‑8‑1983 till realization and proportionate costs of the suit will be deemed to be the final decree.
7. H.B.T./N‑402/K Order accordingly.