In a landmark judgment, the Supreme Court of India clarified the application of Section 34 of the Code of Civil Procedure (CPC), reaffirming that courts have the authority to determine interest rates in the absence of a specific contractual agreement between parties. The ruling was delivered in the context of a long-standing dispute involving the valuation of shares and the associated delayed payment interest.
Background of the Case:
The appellants challenged two orders passed by the Division Bench of the Calcutta High Court in connection with a civil suit dating back to 1978. The High Court, while accepting the share valuation of Rs. 640 per share as determined by M/s. Ray & Ray, granted simple interest at 6% per annum from 8th July 1975 on the enhanced value of the shares. However, their plea for a higher interest rate, additional damages, and costs was declined.
Subsequently, a correction order dated 2nd May 2022 revised the interest rate to 5% per annum. Both these decisions were contested before the Supreme Court.
Supreme Court’s Key Observations:
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The apex court noted that there was no written agreement between the parties regarding interest on delayed payment.
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It was held that mere exchange of communications between the parties was insufficient to imply any agreement on interest.
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In such scenarios, Section 34 of the CPC becomes applicable, which empowers courts to award reasonable interest based on the facts and circumstances of the case.
The Court also emphasized that:
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Courts have discretion in deciding the applicable rate of interest and the relevant period for which it is payable—be it from the date of filing the suit, the date of decree, or a prior date.
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The absence of an agreement does not bar courts from awarding interest under legal provisions.
Final Verdict:
The Supreme Court deemed it just and fair to:
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Grant simple interest at 6% per annum from 8th July 1975 until the date of decree.
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Award enhanced interest at 9% per annum from the date of decree until the date of realization.
The Court directed that the calculated interest and the enhanced value of the shares—after adjusting any amount already paid—be paid to the appellants within a two-month timeframe.
Significance of the Ruling:
This decision reinforces the principle that courts are vested with discretionary power to determine interest under Section 34 CPC, especially in cases where no specific contract governs the payment of interest. It underscores the judiciary’s role in ensuring fairness and equity in long-pending commercial disputes.
Case Title: K. Merchants Pvt. Ltd. & Ors. vs. State of Rajasthan & Ors.
Court: Supreme Court of India
Judgment Date: Appeals against Calcutta High Court orders dated 26.04.2022 and 02.05.2022
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