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TMI Blog2025 (4) TMI 103X X X X Extracts X X X X X X X X Extracts X X X X ..... s herein. 3. On 25.07.2022, when the appeals were taken up for consideration by this Court, the learned counsel for the appellants confined the prayer made herein to the grant of an appropriate rate of interest, which was also recorded in the proceedings. In view of the same, we proceed to deal with these appeals only to the limited extent of grant of rate of interest for the difference in valuation of shares of Respondent No.2 viz., Rajasthan State Mines and Mineral Ltd., formerly known as Bikaner Gypsums Ltd. For short, "the Company", which shares were sold by the appellants to Respondent No.1 viz., State of Rajasthan, in 1973. 4. The relevant facts giving rise to the controversy involved herein are as follows: 4.1. Originally, the appellants preferred a suit being C.S.No.467 of 1978 before the High Court of Calcutta, and the same was subsequently amended, praying for a decree for Rs.4,34,21,553.00 against the Respondent No.1; in the alternative a decree for reasonable price of the shares of the appellants, after determination of such price by the High Court; in the further alternative, cancellation of the transfer of shares belonging to the appellants to the Respondent No.1 a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at a settlement, appointed M/s. Ray & Ray Co. as valuer for the purpose of conducting an enquiry and ascertaining the proper value of the shares of the appellants as on the date, when such shares were transferred to the State Government. It was further directed that such valuation would be uninfluenced by previous valuation reports. Accordingly, the valuer M/s. Ray & Ray valued the shares at Rs.640/- per share and filed its report. However, the respondents refused to accept the said valuation. As a result of the same, the High Court proceeded to hear the matter on merits and passed a final judgment and order on 28.04.2021. The operative portion of the same reads as under: "In those circumstances, this appeal and cross-objection are disposed of by declaring that the respondents/plaintiffs are entitled to Rs.640/- per share sold by them to the appellant and directing that each of the respondents/plaintiffs be paid by the appellant no.1 Rs.640/- per share of Bikaner Gypsums Ltd. (subsequently Rajasthan State Mines and Minerals Ltd.) sold by him to the appellant no.1 as valued by M/s. Ray and Ray less Rs.11.50/- per share already received by him/her within eight weeks of communicatio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... est burden on the appellant No.1, in my view, 6% per annum simple interest on the enhanced valuation of the shares will more than adequately compensate the respondents. We reject the prayer for enhancement of the interest rate. The appeal is disposed of accordingly. The judgment and decree of this Court dated 28th April 2021 is reaffirmed." Subsequently, the interest portion was corrected from 6% to 5% per annum, by order dated 02.05.2022. 4.5. With the above background, the appellants have come up with these appeals before us. 5. According to the learned counsel for the appellants, payment of interest owing to the delay in remittance of the fair value of the shares to the appellants is a right recognized in law. Further, the principle underlying the award of interest on the monies entitled to be recovered by a party is simply compensation for the time value of money i.e., compensation for interdicting the investment of that sum at the time when it was due to be paid. In support of the same, the learned counsel relied on the following decisions of this court : (i) Union of India v. Tata Chemicals Ltd (2014) 6 SCC 335, wherein it was held that the obligation to refund mo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... m, which will not compensate the appellants for the time value of the cost of shares, and is hence, whimsical and arbitrary. 5.3. It is further submitted that despite giving assurance to the appellants that they will be allowed to make a representation before the valuer by letters dated 27.04.1973 and 06.08.1973, the Respondent No.1 rescinded on this assurance vide letter dated 03.07.1974 and that, a copy of the valuation report dated 28.08.1974 was not supplied to the appellants and their objections thereto were not invited. Though appellant no.1 requested to return the shares if a fair valuation was not possible vide letter dated 10.04.1975, the respondents neither conducted a fair valuation nor returned the shares. Further, the respondents failed to comply with the order dated 20.08.2019 of this Court, as a result of which, the time granted by this court for submission of the report had to be extended on two occasions. Even after dismissal of the appeals of the respondents by this Court, the appellants have not been paid the principal sum, till date. Thus, the respondents have not only breached the contract, but also caused delay at every stage of proceedings in making payment ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sought in 2001 cannot be said to be computed from the year 1973. It is also submitted that the appellants / shareholders, who did not subscribe at Rs.10/- per share for fresh infusion of capital, have now got the valuation of Rs.640/- per share, on the same date and therefore, they have not been prejudiced in any manner. 6.2. Denying the allegation that the shares of the appellants had been compulsorily acquired by the State Government, the learned counsel submitted that the events as unfolded during 1969 to 1973 would amply demonstrate that it is owing to mismanagement of the Company that the State had to intervene and infuse further capital in the Company. The State had infused sufficient funds, but still the company could not be revived or sustained by the then management. It is in this context that the shares were acquired by the State. Therefore, it is not a case of compulsory acquisition of shares, but a case of infusion of capital, and getting equity in return just to keep the company afloat; and the rate of interest has to be determined in the said background only. 6.3. It is submitted that the second part of Section 34 states that the interest from the date of decree ti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ation by a private valuer M/s. Naresh Lakhotia & Company, amended their plaint and claimed Rs.874/- per share. It is worth mentioning that the valuer M/s.Naresh Lakhotia & company and M/s.Ray and Ray are not the valuer appointed by the ICAI. Thus, the appellants are only entitled to the fair price of the share as on April 1973 and not the interest thereon. 7.1. It is further submitted that there was no contract in respect of payment of interest between the parties. In such circumstances, section 34 of the Civil Procedure Code would govern the field, which does not provide for any compound interest of any kind. That apart, Section 34 clearly mandates interest @6% per annum for the principal sum adjudged (both during pendency and till date of payment). Therefore, the question of compound interest does not arise. 7.2. It is ultimately submitted that the appellants have already got the price of their share at Rs.11.50 per equity share and they are only entitled for the difference of amount as upheld by this Court and therefore, the appellants are not entitled to higher rate of interest than 5% awarded by the High Court. 8. As a riposte, the learned counsel for the appellants submitte ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... determined by the High Court and affirmed by this court. 12. Taking note of the interest burden on the State for 50 years on the valuation of shares, the High Court had granted simple interest @ 5% per annum, by judgments and orders dated 26.04.2022 and 02.05.2022 which are impugned herein. According to the appellants, the transactions viz., transfer of shares were commercial in nature. Whereas, the respondents stated that they were not engaged in any industry, trade or business for profit purposes and the investment made was only to keep the loss-making Company unit afloat, and hence, the transactions cannot be treated as commercial transactions. Here, it cannot be disputed that there has been a transaction of trade, viz. sale and purchase of goods, which clearly implies a commercial transaction between the parties. The term "Public Interest" denotes a wider concept with its genus rooted to the welfare of the public at large, with different species attributable to individual and specific impact, depending upon the concept and the subject under consideration. It deals with the impact of a policy decision on the society. Generally, public interest is anathema to commercial transact ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... unequal in bargaining position, nor even because the inequality results in an allocation of risks to the weaker party. But gross inequality of bargaining power, together with terms unreasonably favourable to the stronger party, may confirm indications that the transaction involved elements of deception or compulsion, or may show that the weaker party had no meaningful choice, no real alternative, or did not in fact assent or appear to assent to the unfair terms." There is a statute in the United States called the Universal Commercial Code which is applicable to contracts relating to sales of goods. Though this statute is inapplicable to contracts not involving sales of goods, it has proved very influential in, what are called in the United States, "non-sales" cases. It has many times been used either by analogy or because it was felt to embody a general accepted social attitude of fairness going beyond its statutory application to sales of goods. In the Reporter's Note to the said Section 208, it is stated at page 112: "It is to be emphasized that a contract of adhesion is not unconscionable per se, and that all unconscionable contracts are not contracts of adhesion. None ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d appear from certain recent English cases that the courts in that country have also begun to recognize the possibility of an unconscionable bargain which could be brought about by economic duress even between parties who may not in economic terms be situate differently (see, for instance, Occidental Worldwide Investment Corpn. v. Skibs A/S Avanti 1976 (1) L Rep. 293, North Ocean Shipping Co. Ltd. v. Hyundai Construction Co. Ltd. 1979 Q.B. 705, Pao On v. Lau Yin Long 1980 A.C. 614 and Universe Tankships of Monrovia v. International Transport Workers Federation 1981 (1) C.R. 129, reversed in 1981 (2) W.L.R. 803and the commentary on these cases in Chitty on Contracts, Twentyfifth Edition, Volume I, paragraph 486). 84. Another jurisprudential concept of comparatively modern origin which has affected the law of contracts is the theory of "distributive justice". According to this doctrine, distributive fairness and justice in the possession of wealth and property can be achieved not only by taxation but also by regulatory control of private and contractual transactions even though this might involve some sacrifice of individual liberty. In Lingappa Pochanna Appelwar v. State of Mahar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he State that it shall, in particular, direct its policy towards securing that the citizens, men and women equally, have the right to an adequate means of livelihood and that the operation of the economic system does not result in the concentration of wealth and means of production to the common detriment and that there should be equal pay for equal work for both men and women, it is the doctrine of distributive justice which is speaking through these words of the Constitution. 86. Yet another theory which has made its emergence in recent years in the sphere of the law of contracts is the test of reasonableness or fairness of a clause in a contract where there is inequality of bargaining power. Lord Denning, M.R., appears to have been the propounder, and perhaps the originator - at least in England, of this theory. In Gillespie Brothers & Co. Ltd. v. Roy Bowles Transport Ltd. 1973 (1) Q.B. 400 where the question was whether an indemnity clause in a contract, on its true construction, relieved the indemnifier from liability arising to the indemnified from his own negligence, Lord Denning said (at pages 415-6): "The time may come when this process of 'construing' the co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of his own needs or desires, or by his own ignorance or infirmity, coupled with undue influences or pressures brought- to bear on him by or for the benefit of the other. When 1 use the word 'undue' 1 do not mean to suggest that the principle depends on proof of any wrongdoing. The one who stipulates for an unfair advantage may be moved solely by his own selfinterest, unconscious of the distress he is bringing to the other. I have also avoided any reference to the will of the one being 'dominated' or 'overcome' by the other. One who is in extreme need may knowingly consent to a most improvident bargain, solely to relieve the straits in which he finds himself. Again, I do not mean to suggest that every transaction is saved by independent advice. But the absence of it may be fatal. With these explanations, 1 hope this principle will be found to reconcile the cases." 87. Though the House of Lords does not yet appear to have unanimously accepted this theory, the observations of Lord Dip lock in A. Schroeder Music Publishing Co. Ltd. v. Macaulay (Formerly Instone) 1974 (1) W.L.R. 1308 are a clear pointer towards this direction. In that case a song writer had e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... perior bargaining power to exact from the song writer promises that were unfairly onerous to him. Your Lordships have not been concerned to inquire whether the public have in fact been deprived of the fruit of the song writer's talents by reason of the restrictions, nor to assess the likelihood that they would be so deprived in the future if the contract were permitted to run its full course. It is, in my view, salutary to acknowledge that in refusing to enforce provisions of a contract whereby one party agrees for the benefit of the other party to exploit or to refrain from exploiting his own earning power, the public policy which the court is implementing is not some 19th-century economic theory about the benefit to the general public of freedom of trade, but the protection of those whose bargaining power is weak against being forced by those whose bargaining power is stronger to enter into bargains that are unconscionable. Under the influence of Bentham and of laissez-faire the courts in the 19th century abandoned the practice of applying the public policy against unconscionable bargains to contracts generally, as they had Formerly done to any contract considered to be usuri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hers providing similar goods or services, enables him to say: 'If you want these goods or services at all, these are the only terms on which they are obtainable. Take it or leave it'. To be in a position to adopt this attitude towards a party desirous of entering into a contract to obtain goods of services provides a classic instance of superior bargaining power." 88. The observations of Lord Denning, M.R., in Levison and Anr. v. Patent Steam Carpet Co. Ltd. 1978 (1) Q.B. 69 are also useful and require to be quoted. These observations are as follows (at page 79): "In such circumstances as here the Law Commission in 1975 recommended that a term which exempts the stronger party from his ordinary common law liability should not be given effect except when it is reasonable: see The Law Commission and the Scottish Law Commission Report, Exemption Clauses, Second Report (1975) (August 5, 1975), Law Com. No. 69 (H.C. 605), pp. 62, 174; and there is a bill now before Parliament which gives effect to the test of reasonableness. This is a gratifying piece of law reform: but 1 do not think we need wait for that bill to be passed into law. You never know what may happen to a b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... qual bargaining power, and when risks are normally borne by insurance, not only is the case for judicial intervention undemonstrated, but there is everything to be said, and this seems to have been Parliament's intention, for leaving the parties free to apportion the risks as they think fit and for respecting their decisions." Lord Diplock said (at page 850-51): "Since the obligations implied by law in a commercial contract are those which, by judicial consensus over the years or by Parliament in passing a statute, have been regarded as obligations which a reasonable businessman would realise that he was accepting when he entered into a contract of a particular kind, the court's view of the reasonableness of any departure from the implied obligations which would be involved in construing the express words of an exclusion clause in one sense that they are capable of bearing rather than another, is a relevant consideration in deciding what meaning the words were intended by the parties to bear." Lord Scarman, while agreeing with Lord Wilberforce, described (at page 853) the action out of which the appeal before the House had arisen as "a commercial dispute between pa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... urts will not enforce and will, when called upon to do so, strike down an unfair and unreasonable contract, or an unfair and unreasonable clause in a contract, entered into between parties who are not equal in bargaining power. It is difficult to give an exhaustive list of all bargains of this type. No court can visualize the different situations which can arise in the affairs of men. One can only attempt to give some illustrations. For instance, the above principle will apply where the inequality of bargaining power is the result of the great disparity in the economic strength of the contracting parties. It will apply where the inequality is the result of circumstances, whether of the creation of the parties or not. It will apply to situations in which the weaker party is in a position in which he can obtain goods or services or means of livelihood only upon the terms imposed by the stronger party or go without them. It will also apply where a man has no choice, or rather no meaningful choice, but to give his assent to a contract or to sign on the dotted line in a prescribed or standard form or to accept a set of rules as part of the contract, however unfair, unreasonable and unco ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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. (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 payment or other earlier date, the court shall be deemed to have refused such interest, and a separate suit therefor shall not lie." 13.1. The above provision empowers the court to grant interest at three different stages of a money decree viz., (i) the court may award interest on the principal sum claimed at a rate it deems reasonable, for the period before the suit was filed. Such interest is generally governed by agreements between the parties; (ii) The court may award interest on the principal amount from the date of filing the suit until the date of the decree, at a reasonable rate. Here, the court has full discretion to determine the interest rate based on fairness, commercial usage and equity; and (iii)the court may grant interest on the total decretal amount (prin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... te of claim or from the date of the order or decree for recovery of the outstanding dues. There is also hardly any room for doubt that interest may be claimed on any amount decreed or awarded for the period during which the money was due and yet remained unpaid to the claimants. 26. The courts are consistent in their view that normally when a money decree is passed, it is most essential that interest be granted for the period during which the money was due, but could not be utilised by the person in whose favour an order of recovery of money was passed. ... 30. As we have indicated hereinbefore, when there is no specific provision for grant of interest on any amount due, the court and even tribunals have been held to be entitled to award interest in their discretion, under the provisions of Section 3 of the Interest Act and Section 34 of the Civil Procedure Code." (iv) Rampur Fertiliser Limited v. Vigyan Chemicals Industries ( 2009 ) 12 SCC 324 "19. It was further held in Clariant International case [(2004) 8 SCC 524] that in the absence of any agreement or statutory provision or a mercantile usage, interest payable can be only at the market rate and such interest is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of interest pendente lite or post-decree is discretionary with the Court as it is essentially governed by Section 34 of the CPC de hors the contract between the parties. In a given case if the Court finds that in the principal sum adjudged on the date of the suit, the component of interest is disproportionate with the component of the principal sum actually advanced, the Court may exercise its discretion in awarding interest pendente lite and post-decree interest at a lower rate or may even decline to award such interest. The discretion shall be exercised fairly, judiciously, and for not arbitrary or fanciful reasons." 58. "We are conscious of the fact that as a general principle, in commercial disputes, the award of interest pendente lite or post-decree is typically granted as a matter of course. This is because such interest serves to compensate the aggrieved party for the time value of money that was due but withheld during the legal process." Thus, it is abundantly clear that the Courts have the authority to determine the appropriate interest rate, considering the totality of the facts and circumstances in accordance with law. That apart, the Courts have the discretion to ..... X X X X Extracts X X X X X X X X Extracts X X X X
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