2009 (2) TMI 694 - SC - Indian Laws

Nature of interest that the respondent is entitled to in respect of the amount for which he had laid claim and in respect of which a decree was passed in its favour - Held that - The High court was not justified in granting interest at the rate of 18% per annum with monthly rests. Considering the facts and circumstances of the present case we direct that pendente lite and future interest at the rate of 9% shall be paid.

Summary

Issues Involved:
1. Entitlement to interest rate on the amount claimed by the respondent.
2. Applicability of the Interest on Delayed Payments to Small Scale and Ancillary Industrial Undertakings Act, 1993.
3. Appropriate rate of interest under Section 34 of the Code of Civil Procedure, 1908.

Detailed Analysis:

1. Entitlement to Interest Rate on the Amount Claimed by the Respondent
The respondent filed a suit for recovery of Rs. 15,027.75 along with interest at the rate of 24% per annum and 2% per month compounded with monthly rest. The trial court decreed the suit for recovery of Rs. 15,027.75 with interest at 18% per annum. The respondent's cross-objection for a higher interest rate was allowed by the First Appellate Court, modifying the decree to grant interest at 23% per annum with monthly rests from 23.9.1992 till realization. The High Court further modified the decree to grant interest at 18% per annum with monthly rests from 02.04.1993 till payment.

2. Applicability of the Interest on Delayed Payments to Small Scale and Ancillary Industrial Undertakings Act, 1993
The Act came into force on 23.9.1992. The High Court held that the increased rate of interest under the Act would be payable from 02.04.1993. However, the Supreme Court noted that the transaction in question occurred prior to 23.9.1992, thus the Act would not apply. This conclusion was supported by the precedent set in Assam Small Scale Industries Development Corpn. Ltd. & Ors. v. J.D. Pharmaceuticals & Anr., where it was held that the Act applies prospectively and not to transactions prior to its commencement.

3. Appropriate Rate of Interest under Section 34 of the Code of Civil Procedure, 1908
Since the Act did not apply, the interest rate should be determined under Section 34 of the Code of Civil Procedure, 1908. The Supreme Court emphasized that interest should be awarded at a reasonable rate on the principal amount. The Court referred to Clariant International Ltd. v. Securities & Exchange Board of India, which held that interest can be awarded based on agreements, statutory provisions, or equitable considerations, but not as damages unless money is wrongfully withheld. The Court also noted that in Assam Small Scale Industries Development Corpn. Ltd., simple interest at 9% per annum was considered reasonable for transactions prior to the Act.

Conclusion:
The Supreme Court concluded that the High Court erred in granting interest at 18% per annum with monthly rests. The appropriate interest rate, considering the facts and circumstances, was determined to be 9% per annum for both pendente lite and future interest. The decree was modified accordingly, and the appeal was disposed of with this modification.