I N T E R E S T (Important case law on Section 34 of Civil Procedure Code,1908)


I N T E R E S T (Important case law on Section 34 of Civil Procedure Code,1908)

Interest is generally reduced in writing at the time of the money is loaned. The word ‘interest’ is basically two types. One is legal. Another is conventional. It is a comprehensive term to describe any claim or right or privilege of an individual. Legal interest is prescribed by statute. Conventional interest is interest at a rate that has been set and agreed upon by the partiesthemselves without outside intervention. Interest is a premium paid for use of money. It will appear from what the Hon’ble Constitution Bench stated to be the legal position, that ordinarily a person who is deprived of his money to which he is legitimately entitled as of right is entitled to be compensated in deprivation thereof, call it by whatever name. Debt is dependant upon liability to pay in present or in future an ascertainable sum of money and debt includes interest and loan together. Interest is a premium paid for use of money . The Hon’ble Apex Court observed that “Interest” in general terms is the return or compensation for the use or retention by one person of a sum of money belonging to or owned to another. In its narrow sense, “interest” is understood to mean the amount which one has contracted to pay for use of borrowed money. In whenever category “interest” in a particular case may be put, it is a consideration paid either for the use of money or for forbearance in demanding it, after it has fallen due, and thus, it is a charge for the use or forbearance of money . The Constitution Bench of the Hon’ble Apex Court opined that a person deprived of the use of money to which he is legitimately entitled has a right to be compensated for the deprivation, call it by any name. It may be called interest, compensation or damages . See the ruling in the State of Haryana v. M/s.S.L. Arora and Company (AIR 2010SC 1511) as to pay interest on the interest component.

INTEREST : Meaning:-
Black’s Law Dictionary (Fifth Edition) defines these expressions as follows :
“Interest”. – Interest is the compensation allowed by law or fixed by the parties for the use or forbearance or detention of money…Payments a borrower pays a lender for the use of the money.”
“Simple interest”. – That which is paid for the principal or sum lent, at a certain rate or allowance made by law or agreement of parties. Interest calculated on principal where interest earned during periods before maturity of loan is neither added to the principal nor paid to the leader. That paid on the principal lent as distinguished from compound interest which is interest paid on unpaid interest.”
“Compound interest”. – Interest upon interest, i.e., interest paid on principal plus accrued interest. Exists where accrued interest is added to the principal sum, and the whole treated as now principal for the calculation of the interest for the next period. Interest added to principal as interest becomes due and thereafter made to bear interest.” (Union Bank Of India vs Dalpat Gaurishankar Upadyay)
Strouds Judicial Dictionary of Words and Phrases (5th edition):- interest means, inter alia, compensation paid by the borrower to the lender for deprivation of the use of his money.
Section 2(1) of the Usurious Loans Act says, interest is a return to be made, over and above what was actually lent, where the sum is charged or sought to be recovered specifically by way of interest or otherwise.
The essence of interest in the opinion of Lord Wright, in Riches v. Westminister Bank Ltd is that it is a payment which becomes due because the creditor has not had his money at the due date. It may be regarded either as representing the profit he might have made if he had had the use of the money, or, conversely, the loss he suffered because he had not that use.
Black’s Law Dictionary (7th Edition) defines ‘interest’ inter alia as the compensation fixed by agreement or allowed by law for the used or detention of money, or for the loss of money by one who is entitled to its use; especially, the amount owed to a lender in return for the use of the borrowed money .
The Constitution Bench of the Hon’ble Apex Court in Central Bank of India Vs Ravindra held that, the general idea is that the creditor is entitled to compensation for the deprivation; the money due to creditor was not paid, or, in other words, was withheld from him by the debtor after the time when payment should have been made, in breach of his legal rights, and interest was a compensation whether the compensation was liquidated under an agreement or statute.

How to understand section 34 of CPC?

Mahant Narayana Dossjee Varu vs The Board Of Trustees: AIR 1959 AP 64, the Hon’ble Andhra High Court observed that Sir D.F. Mulla in his Civil Procedure Code treats the subject of interest under the following heads, wherein It is explained by the author that interest under the first head is a matter of substantive law, the section does not refer to the payment of interest under the first ‘lead and it applies only to the second and third heads :
“(1) interest accrued due prior to the institution of the suit on the principal sum adjudged.
(2) additional interest on the principal sum adjudged, from the date of the suit to the date of the decree; and
(3) further interest on the aggregate sum adjudged i.e., the principal sum plus interest, from the date of the decree to the date of payment or such earlier date as the Court thinks fit at such rate as the Court deems reasonable”.
when the suit transaction is a commercial transaction within the meaning of the proviso and Explanation II to Section 34(1) C.P.C. which mandates that the Court can grant interest more than 6% though not exceeding contract rate of interest (to say 24% p.a. in the case on hand) as granted by the trial Court from date of decree till realization; By reducing pendent lite to 12% p.a. & post lite to 6% p.a. from date of decree till realization in the impugned first appeal decree now sought for review is on its face contrary to the mandate of Section 34 C.P.C. mainly in reducing to 6% p.a. post lite interest; leave about no reasons assigned to reduce to12% from the contract rate of 24% p.a. from date of suit till date of decree on the principal sum adjudged which is the suit claim and thus, the appellate court’s finding now impugned in the review reading that, “24% p.a. interest granted from date of suit till date of realization by the trial Court appears to be penal without giving any reasons and keeping in view the provisions under Section 34 C.P.C., interest is granted at 12% p.a. from date of suit till date of decree and thereafter, at 6% p.a. till date of realization” is nothing but mistaken or inadvertent and definitely a misreading outcome of Section 34 C.P.C.
Section 34 C.P.C. reads that (1) Where and in so far a decree is for the payment of money, the Court may, in the decree, order interest at such rate as the Court deems reasonable to be paid on the principal sum adjudged, from the date of the suit to the date of the decree, in addition to any interest adjudged on such principal sum for any period prior to the institution of the suit, with further interest at such rate not exceeding six per cent, per annum, as the Court deems reasonable on such principal sum, from the date of the decree to the date of payment, or to such earlier date as the Court thinks fit:
Provided that where the liability in relation to the sum so adjudged had arisen out of a commercial transaction, the rate of such further interest may exceed 6% p.a., but shall not exceed contractual rate of interest or where there is no contractual rate, the rate at which moneys are lent or advanced by nationalized banks in relation to commercial transactions.
Explanation I: In this sub-section, “nationalized bank” means a corresponding new bank as defined in the Banking Companies (Acquisition and Transfer of Undertakings) Act, 1970.
Explanation II: For the purposes of this Section, a transaction is a commercial transaction, if it is connected with the industry, trade or business of the party incurring the liability. (2) Where such a decree is silent with respect to the payment of further interest on such principal sum from date of the decree to the date of payment or other earlier date, the Court shall be deemed to have refused such interest, and a separate suit shall not lie.
‘Under Section 34 CPC, so far as pendent-lite and post-lite interest concerned is no doubt at the discretion of the Court so to fix, however to exercise judiciously to fix is having regard to the principle of restitution and even the Appellate court can reduce rate of interest, subject to reasons.’ – DDA Vs. Joginder S. Monga. Supreme Court of India.
‘Under Section 34 CPC, so far as pendent-lite and post-lite interest concerned is no doubt at the judicial discretion of the Court and granted at 12% p.a. for the amount due by the partnership firm.’ – Mahesh Chandra Bansal Vs Krishna Swaroop Singh. Supreme Court of India.
Section 34 of Civil Procedure Code, 1908 confers a discretion on the Court to award interest at such rate as the Court deems reasonable from the date of the suit to the date of the decree with further reasonable interest on the aggregate sum till date of payment .

Three Divisions of interest:
1. Pre-lite; 2. Pendent-lite; and 3. Post lite.

Pre-lite:-
(1) Pre-lite: interest accrued due prior to the institution of the suit on the principal sum (due) adjudged. Interest for the period anterior to institution of suit is not a matter of Procedure as it is referable to substantive law and can be sub-divided into two sub-heads; (i) where there is a stipulation for the payment of interest at a fixed rate (contract rate) and (ii) where there is no such stipulation as per statutory provisions providing certain rate of interest and in its absence as per the interest Act (from date of demand (from date of service of demand notice) and at prevailing market rate and bank lending rate as guidance). (See M.Rajeswar Rao & others… Vs.Chitluri Satyam (Died) & others (2013).)
Though, the pre lite interest was awarding on grounds of equity also(from common law principle of justice, equity and good conscience) by the courts as per certain precedents including from, Bengal Nagpur Rly Co Ltd Vs Ruttamji Ramji of Privy Council and following it of the Apex Court in Satinder Singh Vs Amrao Singh and Hirachand Kothari Vs State of Rajasthan and from the wording of old Interest Act, 1839 proviso to Section -1-which reads that “interest shall be payable in all cases in which it is now payable by law” and the same since repealed by the Interest Act, 1978 with no such and similar provision, no interest appears to be awarded on equitable grounds so far as pre-lite substantive interest concerned, however held that it requires a detailed examination in an appropriate case as expressed in LIC of India Vs S Sindhu . Thus, the observations in the larger bench (five judges bench) decision of the High Court in APSRTC Vs. B.Vijaya may also require reconsideration to the extent of interest pre lite can be awarded on equitable grounds as a Court of equity, though as on date, it is a binding precedent If there is a stipulation for the rate of interest, from the parties voluntarily agreed upon, the Court must allow that rate up to the date of the suit subject to three exceptions; (i) any provision of law applicable to money lending transactions, or Usurious Loans Act or any other debt relief law governing the parties and having an overriding effect on any stipulation for payment of interest voluntarily entered into between the parties;
(ii) if the rate is penal (under any debt relief law or market rate), the Court must award at such rate as it deems reasonable (as per prevailing market rate); (iii) even if the rate is not penal the Court may reduce it if the interest is found excessive and the transaction was substantially unfair (subject to such observations and conditions supported by reasons).
If there is no express stipulation for payment of interest and rate of interest; the plaintiff is not entitled to interest much less at the rate claimed except on proof of mercantile or trade usage having the force of law or statutory right to interest like by Section 80 of the Negotiable Instruments Act & Section 23 of the Trusts Act or Section 61 of the Sale of Goods Act or the like or an implied agreement and under the provisions of the Interest Act vide decision Vithal Das Vs. Rup Chand .

Pendent-lite:-
(2) Pendent-lite: In addition to pre-lite interest, it is the additional interest on the principal sum adjudged or declared due from the date of the suit either at contract rate if reasonable or at such rate as the Court deems reasonable in the discretion of the Court (as per Section 34 CPC till date of decree or under Order 34 Rule 11 C.P.C. in case of mortgage debt if contract rate is unreasonable and excessive to reduce even from date of suit till expiry of the period of redemption) as not a substantive law; (See M.Rajeswar Rao & others… Vs.Chitluri Satyam (Died) & others (2013).)

Post-lite:-
(3) Post-lite: In addition to pre-lite interest on principal sum and pendent-lite interest on the principal sum adjudged or found due, it is the further interest on such principal sum (as per Section 34 CPC or under Order 34 C.P.C. as not a substantive law, from the date of the decree to the date of the payment and in mortgage decree from date of preliminary decree till expiry of period of redemption and thereafter till realization/payment as the case may be in any decree for money held due with or without charge preliminary or final or partly final decree) or to such earlier date as the Court thinks fit, in the discretion of the Court, at a rate not exceeding 6 per cent per annum except where the transaction is a business or commercial one to grant above 6 percent but does not exceed contract rate as also laid down by the larger bench of the AP High court in APSRTC Vs. Vijaya . (See Rulings APSRTC Vs. Vijaya; and M.Rajeswar Rao & others… Vs.Chitluri Satyam (Died) & others (2013).)
“Such Principal Sum”:
If suit is decreed for payment of money, the principal sum on the date of the suit would be adjudged by the Court. In the case of M.Rajeswar Rao (supra), it was observed that’ the Court may also be called upon to adjudge interest due and payable by the defendant to the plaintiff for the pre-suit period which interest would, on the findings arrived at and noted hereinabove, obviously be other than such interest as has already stood capitalized and having shed its character as interest, has acquired the colour of the principal and having stood amalgamated in the principal sum would be adjudged so. The principal sum adjudged would be the sum actually loaned plus the amount of interest on periodical rests which according to the contract between the parties or the established banking parties has stood capitalized.
It is well settled that (Central Bank of India Vs. Ravindra) the use of the word may in Section 34 CPC confers a discretion on the Court to award or not to award interest or to award interest at such rate as it deems fit. Such interest, so far as future interest is concerned may commence from the date of the decree and may be made to stop running either with payment or with such earlier date as the Court thinks fit.’

“On such principal sum”:-
The expression “on such principal sum” as occurring twice in the latter part of Section 34(1), the principal sum adjudged should continue to be assigned to “principal sum” at such other places in Section 34(1) where the expression has been used qualified by the adjective “such” that is to say, as “such principal sum”. Recognition of the method of capitalization of interest so as to make it a part of the principal consistently with the contract between the parties or established banking practice does not offend the sense of reason, justice and equity. As we have noticed such a system has a long established practice and a series of judicial precedents upholding the same. Secondly, the underlying principle as noticed in several decided cases is that when interest is debited to the account of the borrower on periodical rests, it is debited because of its having fallen due on that day. Nothing prevents the borrower from paying the amount of interest on the date it falls due. If the amount of interest is paid there will be no occasion for capitalizing the amount of interest and converting it into principal. If the interest is not paid on the date due, from that date the creditor is deprived of such use of the money which it would have made if the debtor had paid the amount of interest on the date due. The creditor needs to be compensated for deprivation. (See M.Rajeswar Rao & others… Vs.Chitluri Satyam (Died) & others (2013).)

“The principal sum ad-judged”:-
The expression “the principal sum ad-judged” may include the amount of interest, charged on periodical rests, and capitalized with the principal sum actually advanced, so as to become an amalgam of principal in such cases where it is permissible or obligatory for the Court to hold so. Where the principal sum (on the date of suit) has been so adjudged, the same shall be treated as “principal sum” for the purpose of “such principal sum” – the expression employed later in Section 34 of C.P.C. The expression “principal sum” cannot be given different meanings at different places in the language of same section, i.e. Section 34 of C.P.C. A creditor can charge interest from his debtor on periodical rests and also capitalize the same so as to make it a part of the principal. Such a course can be justified by stipulation in a contract voluntarily entered into between the parties or by a practice or usage well established in the world to which the parties belong. Such practice is to be found already in vogue in the field of banking business. Such contract or usage or practice can stand abrogated by legislation such as Usury Laws or Debt Relief Laws and so on. (See M.Rajeswar Rao & others… Vs.Chitluri Satyam (Died) & others (2013))

‘Penal interest’ :-
However, ‘penal interest’ has to be distinguished from ‘interest’. Penal interest is an extraordinary liability incurred by a debtor on account of his being a wrong-doer by having committed the wrong of not making the payment when it should have been made, in favour of the person wronged and it is neither related with nor limited to the damages suffered. Thus, while liability to pay interest is founded on the doctrine of compensation, penal interest is a penalty founded on the doctrine of penal action. Penal interest can be charged only once for one period of default and, therefore, penal interest cannot be permitted to be capitalized. Further interest i.e., interest on interest, whether simple or compound or penal cannot be claimed on the amount of penal interest. (See M.Rajeswar Rao & others… Vs.Chitluri Satyam (Died) & others (2013))
No doubt, agricultural borrowings are to be treated on a different pedestal. Even the banks cannot charge interest for agricultural lending other than half yearly rests for seasonal crops and annual rests for other purposes even to compound only as per the RBI circular instructions and directions being guidelines. Even coming to private lending/borrowing, agriculturists cannot be charged with more than 12% p.a. as per Act 4 of 38 for the other than Telangana area of the state of Andhra Pradesh and Act 16 of 1956 in Telangana area of the state of Andhra Pradesh apart from the fact that the Usurious Loans Act always applies to the private lending in considering rate of interest is excessive or reasonable. Even the decision relied upon by the respondents- defendants in State Bank of India Vs. S.H. Associates which speaks that even in commercial transactions, Court is empowered to grant interest lesser than contract rate is not in dispute but for to say what is the reasonable rate of interest applicable to consider. Even in a business transaction for charging pre-lite compound interest, there must be a clear written stipulation/contract or from any statutory provision- as held in State of Haryana Vs SL Arora & Company . (See M.Rajeswar Rao & others… Vs.Chitluri Satyam (Died) & others (2013))
‘So far as bank transactions concerned as per the contract rate and as per RBI Guidelines fixing interest rate from time to time with a minimum and maximum not exceeding the ceiling on rate of interest to exercise within and as per Section 21A of the Banking Regulation Act, 1949 amended by Act 1 of 1984; the debt relief laws and Usurious loans Act to apply and to scale down interest there under have no application, However the Court can under Order 34 Rule 11 and/ or under Section 34 CPC reduce the pendent-lite an post-lite interest rate even from contract rate.’ – M.Rajeswar Rao & others Vs. Chitluri Satyam (Died) & others (2013). See the ruling in Corp. Bank Vs. DS Gowda & M Veerappa Vs. Canara Bank .

Burden of proof:-
On the point that the burden to prove whether the interest charged is penal or usurious in the facts and circumstances is on the respondent and he had not chosen to enter into the witness box at all and hence in such a case, an adverse inference has to be drawn for non-examination of such a party. Strong reliance was placed on Rajappa Hanamantha Ranoji Vs. Mahadev Channabasappa, AIR 2000 S.C. 2108. Konakalla Venkata Satyanarayana Vs. State Bank of India, 1974(2) An. W.R. 217, Vijaya Bank, Guntur Branch Vs. Kommareddy Jaji Reddy, 2002(2) A.L.D. 71, Central Bank of India Vs. Ravindra, 2002(2) A.L.D. 97 (SC).

Rate of interest :-
M.Rajeswar Rao & others. Vs.Chitluri Satyam (Died) & others (2013) observed that from steep fall in bank lending rate of interest, the reduction from 24% to 12% interest awarded by the Court from date of suit to date of decree is since just and reasonable, there is nothing to interfere. However, insofar as post lite interest from date of decree till realization concerned, from the transaction is a commercial one within the meaning of Section 34 C.P.C. and the rate of interest can be charged above 6% p.a. and there are no special reasons given by the appellate Court even to reduce to 6% p.a. though for pendent lite fixed at 12% p.a. and from the several expressions referred indicate the rate of interest awarded after decree at 9% to 12% is reasonable in such lending and there is no reason to reduce from 12% that is what the rate of interest awarded for pendent-lite, the same rate is just to award in the commercial transaction for post-lite also within the discretionary power of the appellate court
Best Choice Enterprises vs M/S J. Sons Agencies (2011), the Hon’ble Delhi High Court held that the Interest Act, 1978 gives power to the Court to allow interest at a rate not exceeding current rate of interest.
In 2003 (66) DRJ 46 R.C. Datta Vs. Dr. Rajiv Anand a Bench of the Hon’ble Delhi High Court had held that in the absence of any documentary evidence to support the grant of interest @ 24% per annum, interest granted @ 10% per annum from the demand raised i.e. from the date of notice which in that case was 08.5.1995 would be justifiable.
In (1997) 10 SCC 681 Mahesh Chandra Bansal Vs. Krishna Swaroop Singhal & Ors. the Hon’ble Supreme Court had the occasion to examine the percentage of interest to be awarded on a suit for recovery for the period during which the suit was pending before the trial court which was of the year 1980; 12% per annum had been allowed in that case.
M. V. Mahalinga Aiyar v. Union Bank Ltd., AIR 1943 Mad 216, where it was held that any interest awardable from the date of the plaint to the date of the decree can be only upon the principal sum due.

Power to grant interest pendent lite- Guidelines :-
In The Board Of Trustees For Theport … vs Engineers-De-Space-Age: 1996 SCC (1) 516, 1995 SCALE (7)274, it was observed that ‘A Constitution Bench of this Court in Secretary, Irrigation Department, Government of Orissa & Others Vs. G.C. Roy [1992(1) SCC 508] was called upon to consider whether the decision of this Court in Executive Engineer (Irrigation), Balimela & Ors. Vs. Abhaduta Jena & Ors. [1988(1) SCC418] correctly laid down the Rule in regard to Arbitrator’s power to grant interest pendent lite. Dealing with this question the Hon’ble Constitution Bench summed up the legal position in regard to grant of interest pendent lite in the following terms :
“The question still remains whether arbitrator has the power to award interest pendent lite, and if so, on what principle. We must reiterate that we are dealing with the situation where the agreement does not provide for grant of such interest nor does it prohibit such grant. In other words, we are dealing with a case where the agreement is silent as to award of interest. On a conspectus of aforementioned decisions, the following principles emerge :
(i) A person deprived of the use of money to which he is legitimately entitled has a right to be compensated for the deprivation, call it by any name. It may be called interest, compensation or damages. This basic consideration is as valid for the period the dispute is pending before the Arbitrator as it is for the period prior to the arbitrator entering upon the reference. This is the principle of Section 34, Civil Procedure Code and there is no reason or principle to hold otherwise in the case of arbitrator.
(ii) An arbitrator is an alternative form (sic forum) for resolution of disputes arising between the parties. If so, he must have the power to decide all the disputes or differences arising between the parties. If the arbitrator has no power to award interest pendent lite, the party claiming it would have to approach the court for that purpose, even though he may have obtained satisfaction in respect of other claims from the arbitrator. This would lead to multiplicity of proceedings.
(iii) An arbitrator is the creature of an agreement. It is open to the parties to confer upon him such powers and prescribe such procedure for him to follow, as they think fit, so long as they are not opposed to law. (The proviso to Section 41 and Section 3 of the Arbitration Act illustrate this point). All the same, the agreement must be in conformity with law. The arbitrator must also act and make his award in accordance with the general law of the land and the agreement.
(iv) Over the years, the English and Indian courts have acted on the assumption that where the agreement does not prohibit and a party to the reference makes a claim for interest, the arbitrator must have the power to award interest pendent lite. The awards has not been followed in the later decisions of this Court. It has been explained and distinguished on the basis that in that case there was no claim for interest but only a claim for unliquidated damages. It has been said repeatedly that observations in the said judgment were not intended to lay down any such absolute or universal rule as they appear to, on first impression. Until Jena’s case almost all the courts in the country had upheld the power of the arbitrator to award interest pendent lite. Continuity and certainty is a highly desirable feature of law.
(v) Interest pendent lite is not a matter of substantive law, like interest for the people anterior to reference (pre-reference period). For doing complete justice between the parties, such power has always been inferred.”

State Of Haryana & Ors vs M/S S.L.Arora & Company (2010) observed that the McDermott case is not an authority on the question whether the Arbitrator may award compound interest nor does that decision sanction post-award interest be imposed on the aggregate sum and interest pendent lite. In M/S Hyder Consulting(Uk) Ltd vs Governer State Of Orissa Tr.Chief … on 25 November, 2014. (Author: D . H.L).; (Bench: Chief Justice, S.A. Bobde, Abhay Manohar Sapre), the Hon’ble Supreme Court held as” I find no infirmity with the S.L. Arora case (supra), whereby it was held that if the arbitral award is silent about interest from the date of award till the date of payment, the person in whose favour the award is made will be entitled to interest at 18% per annum on the principal amount awarded, from the date of award till the date of payment.’

Compound interest :-
In Central Bank of India vs. Ravindra – 2002 (1) SCC 367, a constitution bench of the Hon’ble Supreme Court, after exhaustive consideration of the case law, summarized the legal position regarding compound interest thus:
“The English decisions and the decisions of this Court and almost all the High courts of the country have noticed and approved long established banking practice of charging interest at reasonable rates on periodical rests and capitalising the same on remaining unpaid. Such a practice is prevalent and also recognised in non-banking money lending transactions. Legislature has stepped in from time to time to relieve the debtors from hardship whenever it has found the practice of charging compound interest and its capitalization to be oppressive and hence needing to be curbed. The practice is permissible, legal and judicially upheld excepting when superseded by legislation. There is nothing wrong in the parties voluntarily entering into transactions, evidenced by deeds incorporating covenant or stipulation for payment of compound interest at reasonable rates, and authorising the creditor to capitalise the interest on remaining unpaid so as to enable interest being charged at the agreed rate on the interest component of the capitalised sum for the succeeding period. Interest once capitalised, sheds its colour of being interest and becomes a part of principal so as to bind the debtor/borrower.”

The right to receive the interest:-
In Satinder Singh v. Umrao Singh, AIR 1961 SC 908 their Lordships held that the right to receive the interest takes the place of the right to retain possession and a deprived owner can base his claim for interest on the general rule and if he is deprived of his land, he should immediately put in possession of the compensation money. (also see: Smt. Swarnamayi Panigrahi And … vs Land Acquisition Collector, AIR 1964 Ori 113).
In Executive Engineer, Dhenkanal, Minor Irrigation Division, Orissa and Others vs. N.C. Budharaj (Deceased) by Lrs. And Others [(2001) 2 SCC 721] held that a person deprived of the use of money to which he is legitimately entitled has a right to be compensated for the deprivation by whatever name it may be called, namely, interest, compensation or damages.

“Non-obstante clause” in Section 21-A
of the Banking Regulation Act, 1949:-

In N.M. Veerappa vs. Canara Bank, (1998) 2 SCC 317 = AIR 1998 SC 1101, the Hon’ble Supreme Court while considering Section 21A of the Banking Regulation Act, 1949 which was introduced by Act 1 of 1984, w.e.f. 15.02.1984 has held, in para 23, as follows:- ” … …. Firstly, it will be noticed that the effect of the “non-obstante clause” in Section 21-A is to override the Central Act, namely, the Usurious Loans Act, 1918 and any other “law relating to indebtedness in force in any State”. Also see: Punjab & Sind Bank vs M/S Allied Beverages Company (2010), Ruling of the Hon’ble Supreme Court of India.

For which period,
Interest can be awarded for that period?
According to Ruttanji Ranji’s case, AIR 1938 PC 67 and Vithal Dass v. Rup Chand AIR 1967 SC 188, interest can be awarded for that period (1) when there is an agreement for payment of the same, or (2) when it is payable by the usage of trade having the force of law, or (3) when the payment of the same is contemplated by the provision of any substantive law. or (4) under the Interest Act. It may also sometimes be awarded under the rule of equity. The second period is the one which intervenes the date of suit and the date of decree. Also See: Union Of India (Uoi) vs Hindustan Lever Limited And Ors, AIR 1975 P H 259.

A statute or a statutory rule
or an executive instruction – What prevails?
(2004) 2 SCC 297, in DDA and Ors. v. Joginder S. Monga and Ors, the Hon’ble Supreme Court categorically held: “It is not a case where a conflict has arisen between a statute or a statutory rule on the one hand and an executive instruction, on the other. Only in a case where a conflict arises between a statute and an executive instruction, indisputably, the former will prevail over the latter.”
Some other important points as to ‘Interest’:

Clariant International Ltd. & Anr vs Securities & Exchange Board Of India,(2004) the Apex Court held: ‘We also do not agree with the contention that the payment of interest for delay in making the public offer is a commercial transaction.’
([2006] 8 SCC 457), Gurpreet Singh v. Union of India referring to Sec.26 of the Act it is held, “every award shall be deemed to be a decree within the meaning of Section 2(2) of the Code of Civil Procedure and every reasoned award shall be deemed to be a judgment as defined in Section 2(9) of the Code of Civil Procedure”.
([2011] 4 SCC 734), State of Punjab v. Amarjit Singh, the Hon’ble Supreme Court was dealing with various factors to be taken into account while awarding compensation under Sec.23(1A) of the Act.
Malladi Krishnayya S/o. Satyanarayana and another Vs Tadikonda Siva Suryaprakasa Rao (died) S/o. Krishnayya and two others (2014), his lordship HONBLE Dr. JUSTICE B.SIVA SANKARA RAO observed that it is to be kept in mind that, interest is a premium paid for use of money vide decision in AIR 1959 AP 64. Loan is the amount that lent. Debit is the amount that is fallen due. Thus, loan is the principal sum and debt is inclusive of interest on such principal sum vide decisions in AIR 1968 SC 1042 & AIR 1972 Bombay 238 .
Bhika Ram v. Union of India, 238 ITR 113 (Del). He invited our attention towards following observations of the Hon’ble Delhi High Court :- “However, learned counsel for the petitioner relied on Satinder Singh v. Umrao Singh, AIR 1961 SC 908, to submit that compensation would not be treated as income. Learned counsel further submitted that the decision of the Supreme Court in Satinder Singh’s case AIR 1981 SC 908 was not brought to the notice of the Supreme Court when Bikram Singh’s case [1997] 224 ITR 551, was decided. It is also submitted that the reasoning on which their Lordships have proceeded in the case of Satinder Singh, AIR 1961 SC 908, was also not argued before the Supreme Court in Bikram Singh’s case [1997] 224 ITR 551. Not only are we not satisfied about the correctness of the submission so made, we are also of the opinion that such a plea is not open for consideration by us and Bikram Singh’s case [1997] 224 ITR 551 (SC), being a later pronouncement of the Supreme Court by a Bench of co-equal strength, it is binding on us”. (Also see Datamatics Financial Services’ case: (2005) 95 TTJ Mum 944).

TABLE OF CASES:
1) Malladi Krishnayya S/o. Satyanarayana and another Vs Tadikonda Siva Suryaprakasa Rao (died) S/o. Krishnayya and two others (2014);
2) State of Haryana v. M/s.S.L. Arora and Company (AIR 2010SC 1511)
3) The Board Of Trustees For Theport … vs Engineers-De-Space-Age: 1996 SCC (1) 516
4) Mahant Narayana Dossjee Varu vs The Board Of Trustees: AIR 1959 AP 64
5) Dr. Shamlal Narula v. C.I.T., Punjab
6) Secretary, Irrigation Department, Government of Orissa & Ors. v. G.C. Roy
7) Union Bank Of India vs Dalpat Gaurishankar Upadyay
8) Black’s Law Dictionary (7th Edition
9) Strouds Judicial Dictionary of Words and Phrases (5th edition
10) Riches v. Westminister Bank Ltd
11) Mahant Narayana Dossjee Varu vs The Board Of Trustees: AIR 1959 AP 64,
12) Mahesh Chandra Bansal Vs Krishna Swaroop Singh AIR 1968 SC 1042 & AIR 1972 Bombay 23
13) APPEAL SUIT No.1313 OF 1998, dt. 29-04-2014
14) Satinder Singh v. Umrao Singh, AIR 1961 SC 908
15) Bengal Nagpur Rly Co Ltd Vs Ruttamji Ramji of Privy Council
16) Satinder Singh Vs Amrao Singh and Hirachand Kothari Vs State of Rajasthan
17) LIC of India Vs S Sindhu
18) Vithal Das Vs. Rup Chand
19) APSRTC Vs. Vijaya
20) Central Bank of India Vs. Ravindra
21) Corp. Bank Vs. DS Gowda & M Veerappa Vs. Canara Bank
22) Rajappa Hanamantha Ranoji Vs. Mahadev Channabasappa, AIR 2000 S.C. 2108.
23) Konakalla Venkata Satyanarayana Vs. State Bank of India, 1974(2) An. W.R. 217,
24) Vijaya Bank, Guntur Branch Vs. Kommareddy Jaji Reddy, 2002(2) A.L.D. 71,
25) Central Bank of India Vs. Ravindra, 2002(2) A.L.D. 97 (SC).
26) M.Rajeswar Rao & others. Vs.Chitluri Satyam (Died) & others (2013)
27) Best Choice Enterprises vs M/S J. Sons Agencies (2011),
28) 2003 (66) DRJ 46 R.C. Datta Vs. Dr. Rajiv Anand
29) 1997) 10 SCC 681 Mahesh Chandra Bansal Vs. Krishna Swaroop Singhal & Ors
30) M. V. Mahalinga Aiyar v. Union Bank Ltd., AIR 1943 Mad 216
31) The Board Of Trustees For Theport’s case: 1996 SCC (1) 516, 1995 SCALE (7)274,
32) Secretary, Irrigation Department, Government of Orissa & Others Vs. G.C. Roy [1992(1) SCC 508] Balimela & Ors. Vs. Abhaduta Jena & Ors. [1988(1) SCC418]
33) State Of Haryana & Ors vs M/S S.L.Arora & Company (2010)
34) M/S Hyder Consulting(Uk) Ltd vs Governer State Of Orissa Tr.Chief … on 25 November, 2014
35) Central Bank of India vs. Ravindra – 2002 (1) SCC 367
36) Smt. Swarnamayi Panigrahi And … vs Land Acquisition Collector, AIR 1964 Ori 113).
37) Executive Engineer, Dhenkanal, Minor Irrigation Division, Orissa and Others vs. N.C. Budharaj (Deceased) by Lrs. And Others [(2001) 2 SCC 721]
38) N.M. Veerappa vs. Canara Bank, (1998) 2 SCC 317 = AIR 1998 SC 1101
39) Punjab & Sind Bank vs M/S Allied Beverages Company (2010),
40) ([2011] 4 SCC 734), State of Punjab v. Amarjit Singh
41) ([2006] 8 SCC 457), Gurpreet Singh v. Union of India
42) Clariant International Ltd. & Anr vs Securities & Exchange Board Of India,(2004)
43) (2004) 2 SCC 297, in DDA and Ors. v. Joginder S. Monga and Ors
44) Union Of India (Uoi) vs Hindustan Lever Limited And Ors, AIR 1975 P H 259
45) Ruttanji Ranji’s case, AIR 1938 PC 67
46) Vithal Dass v. Rup Chand AIR 1967 SC 188
47) Bikram Singh’s case [1997] 224 ITR 551 (SC)
48) Datamatics Financial Services’ case: (2005) 95 TTJ Mum 944
49) Satinder Singh v. Umrao Singh, AIR 1961 SC 908
50) Bhika Ram v. Union of India, 238 ITR 113 (Del)
-x-

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12 Comments (+add yours?)

  1. shardafoundation
    Oct 11, 2015 @ 08:06:38

    Reblogged this on shardafoundation and commented:
    AN ENLIGHTENING ARTICLE FOR THOSE WHO HAVE QUEST OF LAW..THANKS TO AUTHOR.

    Reply

  2. S K SINGAL
    Jan 24, 2016 @ 16:43:19

    Thanks for such well compiled useful summary of landmark judgements;

    Reply

  3. Surrender
    Jan 24, 2016 @ 17:14:24

    Fantastic compilation of relevant useful citations with commentary; Thanks

    Reply

  4. Surrender
    Jan 24, 2016 @ 17:16:46

    Very useful compilation of relevant citations with commentary; Thanks Js. Y S Rao

    Reply

  5. Sharadchandra Patel
    Mar 26, 2016 @ 13:00:38

    True and accurate to the brim. Very useful information. But almost all lawyer says not to insist for interest and accept the principal. Cases of interest are hardly won. Why ?
    Honourable Apex Court has said that “a person deprived of the use of money to which he is legitimately entitled has a right to be compensated for the deprivation, call it by any name.”. Then why are not all the INTEREST CLAIM cases won ?
    Er. S.K.Patel, Mumbai

    Reply

  6. Sharadchandra Patel
    Mar 26, 2016 @ 13:18:16

    True and accurate to the brim. Thanks to you Sir for this valuable information.
    But almost all lawyers says not to insist for interest and accept the principal sum in such disputes. Cases of interest are hardly won. Why ?
    Honourable Apex Court has said that “a person deprived of the use of money to which he is legitimately entitled has a right to be compensated for the deprivation, call it by any name.”. Then why are not all the INTEREST CLAIM cases won ?
    Er. S.K.Patel, Mumbai

    Reply

  7. Azad Singh
    Aug 15, 2016 @ 06:33:10

    Good compilation of useful case law on interest.

    Reply

  8. O P Gaddhyan
    Mar 02, 2017 @ 08:52:48

    An article covering relevant issues relating to admissibility for payment of Interest.

    Reply

  9. Sanjiv
    Mar 19, 2017 @ 09:30:16

    I have given 21Lac to a person on interest @2%p.m in March 2012 through cheques without any agreement, but I didn’t get single penny of interest from the person. Before ending of 3years I filled civil suit depositing court fee for including interest of 3 years. My bank evidence are almost over.Respondents have approached me to make settlement by taking principal Amount in Instalments. Kindly suggest me if I shall get my money with interest through court and on what rate of interest?
    Regards

    Reply

  10. Sanjiv
    Mar 19, 2017 @ 09:32:25

    I have given 21Lac to a person on interest @2%p.m in March 2012 through cheques without any agreement, but I didn’t get single penny of interest from the person. Before ending of 3years I filled civil suit depositing court fee for including interest of 3 years. My bank evidence are almost over.Respondents have approached me to make settlement by taking principal Amount in Instalments. Kindly suggest me if I shall get my money with interest through court and on what rate of interest?
    Regards

    Reply

  11. MAHENDRA GEHLOT
    Apr 21, 2017 @ 06:18:05

    good knowledge regarding interest

    Reply

  12. narinder nath
    Oct 13, 2017 @ 11:27:48

    a compromise held in 1979 mortgager will get 35000 after giving vacant possession to the mortgagee .way of draft mortgagee deposit in the court but possession was taken by mortgagee by court on compromise on year 2012 is any interest on that money for mortgager how to get

    Reply

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