(1) Where and in so far as 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 six per cent per annum, but shall not exceed the contractual rate of interest or where there is no contractual rate, the rate at which moneys are lent or advanced by nationalised banks in relation to commercial transactions.
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ADVERTISEMENTS:
Explanation I:
In this sub-section “nationalised bank” means a corresponding new bank as defined in the Banking Companies (Acquisition and Transfer of Undertakings) Act, 1970 (5 of 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 liability.
ADVERTISEMENTS:
(2) Where such a decree is silent with respect to the payment of further interest on such principal sum from the date of the decree to the date of the payment or other earlier date, the court shall be deemed to have refused such interest, and a separate suit there for shall not lie.
Scope of Section 34—Post-institution on suit interest— Commercial transactions:
Section 34 has no application to interest prior to the institution of the suit, which is a matter of substantive law. It is concerned only with interest during the pendency of the suit and after the decree, which is in the discretion of the Court.
The proviso added to section 34 by the Amendment Act, 1976, increases the post-decretal interest in relation to a liability arising out of the commercial transaction. A commercial transaction means a transaction connected with the industry, trade or business of the party incurring the liability.
ADVERTISEMENTS:
As regards the interest accrued due prior to the institution of the suit or the principal sum adjudged, which is outside the scope of the present section, the law is that if there is a stipulation for the payment of interest at a fixed rate, the court must allow it up to the date of the suit, unless the rate is penal or excessive on account of the transaction being unfair, when the court may allow reasonable rate of interest.
If there is no express stipulation for payment of interest, the plaintiff is not entitled to it except in the case of (a) mercantile usage, (b) statutory right to interest, as under section 80 of the Negotiable Instruments Act when no rate of interest is specified in a promissory note or bill of exchange, the court shall award interest at 6 per cent per annum from the date of the amount due and (c) implied agreement.
Post suit—Interest:
As regards interest due from the date of the suit to the date of the decree and that due from the date of the decree to the date of payment, that is governed by section 34 mentioned above. The section applies where the decree is for a definite sum of money.
It embraces also a claim to unliquidated damages. In money suits, therefore, the question of interest after the institution of the suit passes from the domain of contract into that of judgment and the court has discretion as to the rate of interest. That discretion, however, is a judicial discretion to be exercised on proper judicial grounds and not arbitrarily.
Interest in the Decree:
The jurisdiction to provide interest in the decree notwithstanding the fact that there is no reference to it in the judgment is one which is peculiar to money decree and the Courts are vested with such jurisdiction under section 34, C.RC.
In the decree in a suit for the payment of money, the Court can, at its discretion, provide for the payment of reasonable interest on the principal amount adjudged : (a) from the date of suit to the date of decree; (b) in addition direct the payment of any interest adjudged on such principal sum for any period prior to the institution of the suit; and (c) may also direct the payment of further interest at such rate not exceeding 6 per cent as the Court deems reasonable on such principal sum from the date of the decree to the date of payment or such earlier date as the Court thinks fit.
In case of recovery of loan order levying future interest on principal sum adjudged is valid.
Interest pendente lite be awarded at reasonable rate. Interest at the rate of 12% p.a. was claimed by the appellant. It was held that reasonable rate of interest for the pendente lite interest was 12% p.a. Interest rate at 6% p.a. is prescribed for the period after passing decree and is not for period, suit was pending in court.
Arbitrator under Section 13 of Arbitration Act (1940) has power to award preference in interest in references made after coming into force of Interest Act (1978).
There was settlement between parties as regards dues and the court passed consent decree fixing rate of interest at 30% considering the conduct of paying party and facts of the case were not routine. The Supreme Court reduced the rate of interest to 15% considering the prevailing rate of interest on bank loans, etc.
Rate of future interest as awarded on money decree was reduced from 18% to 12%. The reason for this was that the relationship between parties was not only that of lender and borrower but there was agreement similar to cash credit arrangement with bank and Bank rate of interest at relevant time was 12%.
Deposit Court without notice to Decree holder—Interest allowed:
Compensation amount was deposited in court but no information was given to claimants about such deposit either by judgment-debtor or by court. Interest on decretal amount was allowed from date of deposit till decree holder got information of deposit in view of Order XXI, Rule 1, C.P.C. The awardee was deprived of opportunity of gainfully utilising the amount of award in absence of notice about the deposit made by judgment-debtor.
Where deposit of decretal amount is made in court without notice of deposit to decree holder, it cannot be deemed towards the principal.
Interest in mortgage suits:
In a decree passed in a suit for foreclosure, sale or redemption where interest is legally recoverable, the court may order payment of interest to the mortgagee as follows:
(a) Interest up to the date of the payment of the amount found due under the preliminary decree to be made by the mortgagor (i) on the principal amount found or declared due on the mortgage, at the rate payable on the principal or, where no such rate is fixed, at such rate as the court deems reasonable; and (ii) on the amount adjudged due to the mortgagee for costs, charges and expenses properly incurred by the mortgagee in respect of the mortgage security up to the date of the preliminary decree and added to mortgage money, at the rate agreed between the parties, or, failing such rate, at such rate not exceeding six per cent per annum as the court deems reasonable;
(b) Subsequent interest up to the date of realisation or actual payment on the aggregate of the principal sums specified in clause (a) as calculated in accordance with that clause at such rate as the court deems reasonable. (Order XXXIV, Rule 11).
In case of mortgage suits special provisions in Order XXXIV, Rule 11 alone are applicable and section 34 is not applicable.
Grant of interest in suit for recovery of electricity and water consumption:
Where suit for recovery of electricity and water consumption from lessee was made. Held, that liability did not arise out of commercial transaction. Therefore, interest awarded at the rate of 18% was reduced to 6% per annum.
Claim for enhanced rate of interest allowed on suit for recovery of loan by bank:
Where in a suit for recovery of loan by bank enhanced rate of interest was claimed as per agreement between the parties. Observations by Trial Court that there was no record to show that defendants had agreed to pay higher rate of interest was contrary to terms of agreement. Subsequent acknowledgement made by defendants also indicated that they had acknowledged their liability of amount due which was calculated on the basis of enhanced rate of interest.
Held, that there was no question of taking separate consent of defendant as rate was increased as per terms of agreement. There was also no violation of principles of natural justice for want of notice to the defendants. As such, agreement for enhanced rate of interest was allowed.
Charging of additional interest for period of default in terms of contract:
Where for enforcement of contract of guarantee, additional interest was charged for period of default in terms of contract, held that it did not amount to charge of penal interest.