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Report No. 63

Appendix 1

Interest Act and Fraud

This Appendix deals with selected cases relating to fraud. In Trojen & Co. v. Nagappa, AIR 1963 SC 645, the Supreme Court held that interest would be allowed by a Court of Equity in the case of money obtained or retained by fraud. In this case, it was held that by reason of the transaction brought about by fraudulent concealment of facts with regard to the purchase of shares in certain companies, the plaintiff paid to the defendants or his agents a sum of Rs. 89,000 in cash which he would not have parted with otherwise, and he also lost the money which stood to his credit with the defendants. The Supreme Court held that the agents had a large sum of the plaintiff with them which they would not have acquired but for the fraud that they practised on him. The Court held that the agent must pay interest in all cases of fraud and on all bribes and secret profits received by him during his agency.

This case was followed by the Patna High Court.1 In the Patna case, money was entrusted to the defendant for a particular purpose at a time when the defendant was working as an employee of the plaintiff. The defendant was found to have wrongfully and illegally retained that money which was entrusted to him. The court purporting to (apply the principle in the Trojan case held that the plaintiff was entitled to the money so entrusted and the interest thereon, because the equitable jurisdiction of the court was attracted.

1. Jaggennath Singh v. Narayan Sarogi, AIR 1955 Pat 300.

Comment.- It is suggested that, in the Patna case, the defendant did not set the money initially by any fraud though his retention of it was wrongful and illegal. So to this extent, it can be said that by wrongful retention of money interest would become payable. The Patna case seems to have extended the principle in the Trojan case that interest is payable where money is obtained by fraud to cases where money is wrongfully or illegally retained.

In one old Madras case,1 the Madras High Court has held that any money obtained by fraud can be recovered with interest under the law. In this case, A and B were two Brothers who jointly advanced a sum of Rs. 1,000 on a mortgage. In October 1901, A realised Rs. 1,000 from the mortgagor in full satisfaction of the debt, without the knowledge of B's representative C. In 1906, at the time of division between C and A, the latter fraudulently misrepresented to him that the mortgage was still outstanding. In December 1908, C became aware of the fraud, and, in 1909, sued to recover from A half of the sum which was due from the mortgagor when A realised the debt from the mortgagor. It was held that C was entitled to a decree for Rs. 500, being the amount actually collected by A, with interest from the beginning of 1906 till December 1908 and from the date2 of the suit till recovery.

1. Avanchea Lakshminarasamma v. Lakshamma, (1913) 21 Ind Cas 294 (Mad HC).

2. Date of the suit appears to be in 1909.

Comment.- It is not clear why interest was not allowed for the period from December 1908, when plaintiff became aware of the fraud to the date of the suit?

Interest Act, 1839 Back

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