Report No. 144
3.2.2. Question for consideration.-
The question is whether the provisions of section 34 of the Code of Civil Procedure in so far as it concerns interest pendente lite, override the provisions of section 79 of the Negotiable Instruments Act, 1881. According to section 79, Negotiable Instruments Act, 1881, "when interest at a specified rate is expressly made payable on a promissory note or bill of exchange interest shall be calculated at the rate specified, on the amount of principal money due thereon, from the date of instrument, until such date after the institution of a suit to cover such amount, as the court directs.
Section 79 thus, makes (what appears to be) a mandatory provisions regarding interest, and the words "such date after the institution of a suit" seem to suggest that even for some period after the institution of the suit, the interest must run at the contractual rate, though the court has a discretion to fix the outer limit of the period.
3.2.3. In contrast, the provisions of section 34 of the Code of Civil Procedure leave the matter to the discretion of the court for the entire period commencing with the institution of suit. Generally the contractual rate of interest is awarded by civil courts in decrees for the payment of money, where the contract provides for interest. Still, in exceptional circumstances, the court can, under section 34 of the Code, award a different rate of interest for the period beginning with the suit. Thus, there is a conflict between the two statutory provisions, inasmuch as-
(i) the Code of Civil Procedure leaves the matter to the discretion of the court, while
(ii) the Negotiable Instruments Act makes the award of interest at the contractual rate mandatory.
3.2.4. Consequently, judicial decisions on the subject are also conflicting. According to the High Court of Rajasthan, the provisions of section 79, Negotiable Instruments Act, prevail over those of section 34 of the Code of Civil Procedure.1
1. Utsay Lai v. Mohan Bros., AIR 1975 Raj 236 (237, 238), paras. 4, 5, 6, (V.P. Tyagi, J.), following Ram Singh v. Dewan Chand, AIR 1960 Punj 286 and dissenting from Piara Lal v. S. Herchand Singh, AIR 1961 Punj 442.
3.2.5. In contrast, the High Court of Andhra Pradesh has held that section 34 of the Code of Civil Procedure prevails over section 79 of the Negotiable Instruments Act. According to that High Court, the court has a discretion to award such interest as it thinks reasonable for the period of pendency of the suit on a promissory note or bill of exchange. It is not necessary that the court must grant interest at the rate specified in the promissory note or bill of exchange, as provided in section 79, Negotiable Instruments Act.1
1. United Bank of India v. P. Krishnaiah, AIR 1989 AP 211 (Ramaswamy, J.).
3.2.6. The Jammu and Kashmir High Court (in a Division Bench ruling) has also held that even where section 79 of the Negotiable Instruments Act applies, the court is not bound to award interest at the contractual rate, and that the discretion of the court under section 34, Code of Civil Procedure remains unaffected, even in suits on negotiable instruments.1
1. United Commercial Bank v. Hans Raj Saraf, AIR 1989 J&K 28 (30), para. 8 (DB).