Section 34 of Code of Civil Procedure,1908
By Joy Puri
Introduction
The Section 34 of the Code of Civil Procedure, 1908, enumerates and envisages the issue of interest that may be awarded by a court of law on decrees thereof.
Therefore, It allows the court of law to award interest on the principal amount adjudged in a suit from the date of the suit until the date of the decree, as well as post-decree interest until the payment is made.
Section 34 of the Code of Civil Procedure,1908
Interest
(1) Where and in so far as a decree is for the payment of money, the Court may, in the decree, order interest at such rate as the Court deems reasonable to be paid on the principal sum adjudged, from the date of the suit to the date of the decree, in addition to any interest adjudged on such principal sum for any period prior to the institution of the suit, 1 [with further interest at such rate not exceeding six per cent. per annum as the Court deems reasonable on such principal sum], from the date of the decree to the date of payment, or to such earlier date as the Court thinks fit :
Provided that where the liability in relation to the sum so adjudged had arisen out of a commercial transaction, the 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.
Explanation I.–In this Sub-section, “nationalised bank” means a corresponding new bank as defined in the Banking Companies (Acquisition and Transfer of Undertakings) Act, 1970 (5 of 1970).
Explanation II.– For the purposes of this section, a transaction is a commercial transaction, if it is connected with the industry, trade or business of the party incurring the liability.
(2) Where such a decree is silent with respect to the payment of further interest 3[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.
Landmark Case Laws
Bank of India Vs Harish Chandra, 1998
The proviso to section 34 does not cast a mandate on the court to grant at the contractual rate but only enables the court to grant interest beyond 6% and not exceed the contractual rate if the same is provided for.
TVC Skyshop Ltd Vs Reliance Communication & Infrastructure, 2013
Where the plaintiff charged interest at the rate of 30% p.a. on the amount due as per the terms of agreement, the defendant had paid earlier bills at same rate, the defendant’s plea that the rate of interest charged was excessive was repelled.
Devinder Kumar v Syndicate Bank, 1994
Future interest will be awarded on the contractual rate of interest and if the contractual rate of interest is not established, at the rate at which the monies are lent or advanced by the nationalised banks in relation to commercial transactions. In the present case, the loan was advanced by the Bank and as such it is a commercial transaction
Videsh Sanchar Nigam Ltd UTI Bank Ltd, 2013
Where the bank guarantee provided for payment of interest at the rate of 18% per annum, in the changed economic scenario where the rates of interest had gone down, the Courts are under duty to reduce the high rates of interest. Court allowed interest at the rate of 12% per annum.
Union Bank of India v Chhatarpur Siliment Sales Corp, 2002
Interest pendente lite would be awarded at the rate which the Court considers reasonable. Future interest from the date of suit till payment would ordinarily not exceed the rate of 6% per annum, but in case of commercial transaction, rate of such interest could exceed he rate of 6% per annum, but shall not exceed the contractual rate or where there is no contractual rate of interest then the rates at which money is lent or advanced by nationalised Banks in relation to commercial transaction.
Kolli Venkata Apparao v State Bank of India, 1998
The bank charged interest and compounded it at half yearly rests. It neither pleaded nor proved its entitlement to charge. Therefore, charging of interest on service/incidental and other charges debited to the appellant’s account from time to time was unsustainable in law.
Venkatesh Construction Co v Karnataka Vidyuth Karkhane Ltd (KAVIKA), 2016
Where in a contract of construction, the contractor has done extra work and the suit is pending for long period, the Court has discretion to award interest on the amount decreed. Interest 6% per annum was allowed.
Conclusion
The court of law has discretion in deciding the rate of interest, which should be reasonable and just, considering the circumstances of the case.
However, the interest rate post-decree cannot exceed 6% per annum, unless the parties have agreed to a higher rate or unless it is provided for by some law.
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