Report No. 144
Sections 21 to 40
3.1. Section 34 and Rate of Interest
3.1.1. Under section 34, the Court can award interest pendente lite at such rate as it considers "reasonable" (subject to certain restrictions) in a money decree.
3.1.2. Question for consideration.-
On one point concerning section 34 a conflict of views seems to exist. Can the Court acting under section 34, award interest pendente lite at a rate higher than the contractual rate?
3.1.3. In a Rajasthan case,1 the plaintiffs suit was decreed but no interest pendente lite or future interest was awarded. The defendant preferred appeal before the single Judge of the Rajasthan High Court, and the plaintiff filed a cross-objection praying for interest pendente lite and future at the rate of 3% per annum. The learned single Judge dismissed the defendants' appeal, disallowed interest pendente lite, but awarded future interest at the rate of 6% per annum, from the date of decree till the date of payment.
The defendant preferred another appeal before the division Bench of the Rajasthan High court on the ground that when the future interest claimed in the cross-objection was only 3% the plaintiff could not have been allowed 6% per annum future interest, and that ordinarily interest stipulated in a bond is not to be exceeded when future interest is allowed because the creditor has additional security in the shape of a decree.
The Division Bench observed that awarding of future interest on the principles contained in section 34 is fundamentally a matter of judicial discretion and noted that the learned single Judge was persuaded to allow 6% future interest because he had disallowed interest pendente lite, and that the rate of future interest in some casts could possibly act as a lever to accelerate the payment of the decretal amount. They held that the single Judge was right when he awarded 6% per annum future interest against the defendant, even though the rate was higher than the one stipulated in the original bond or more than the interest claimed by the plaintiff in his cross-objection.
1. Lehru Narain v. Kanhaya Lal, AIR 1973 Raj 316 (B.P. Beri,-C.J. and M.L. Joshi, J.).
3.1.4. However, according to the Andhra Pradesh High Court1, the Court cannot grant a higher rate of interest than what was contracted between the parties, even pendente lite. The area is covered by contract or statute. Section 34(1), C.P.C. regulates the grey area. By implication, it is either the contractual rate of less, but not in excess thereof.
1. Union Bank of India v. Krishnaiah, AIR 1989 AP 211.
3.1.5. Accordingly, the Court in Andhra Pradesh held that the grant of rate of interest at 12% from the date of institution till the date of realisation was illegal.
3.1.6. While considering the question whether the Court can award interest pendente lite at a rate of interest higher than the contractual rate, it is to be pointed out that the ward of interest pendente lite itself is discretionary under section 34, and the Court may or may not award such interest. This view has been held by several High Courts.1 The Supreme Court2 has also held that an arbitrator has the power to award interest pendente lite on the principle of section 34 and that it is a matter within his discretion to be exercised in the light of all the facts and circumstances of the case.
1. (a) United Bank of India v. Rashyan Udyog, AIR 1990 Cal 146;
(b) Canara Bank v. K.S. Kushalappa, AIR 1990 Karn 145;
(c) Kalyanpur Cold Storage v. Shohanlal Bajpai, AIR 1990 All 218;
(d) United Commercial Bank, Silchar v. Satish Chandra Ghosh, AIR 1991 Gau 59;
(e) Union Bank of India v. K. Kumarnanunni Nair, AIR 1991 Ker 118;
(f) fain Mills and Electrical Stores v. State of Orissa, AIR 1991 Ori 117.
2. Secretary, Irrigation Department v. G.C. Roy, 1991 (2) SCALE 1369.
3.1.7. The Supreme Court has observed:1
"It is no doubt true that the rate of interest to be allowed in regard to mesne profits or under section 34 in such cases is discretionary, seeing there is in them no question of any contractual rate or any particular rate fixed by statute. The only limitation which is prescribed by section 34, as it stands now is that the rate shall not exceed 6% per annum-a limitation which did not figure in the section before its amendment though courts as a general rule seldom awarded any rate in excess of 6% per annum The amended section 34 is in fact a statutory recognition that 6% is not by itself an unconscionable or an unreasonably high rate."
1. Mahutnt Narayana Dasjee Varu v. Board of Trustees, Tirumala Tirupati Devasthanam, AIR 1965 SC 1231.