================================================================ OIL AND NATURAL GAS CORPORATION LIMITED Versus HINDUSTAN CHEMICALS COMPANY (PROP. HINDUSTAN ENGINEERING AND INDUSTRIES LTD.) ================================================================ Appearance:
MR MIHIR JOSHI, SENIOR ADVOCATE WITH MR KUNAL J VYAS WITH MR VINAYAK V GOSWAMY FOR GANDHI LAW ASSOCIATES(12275) for the Defendant(s) No. 1 ================================================================ CORAM:HONOURABLE MR. JUSTICE A.S. SUPEHIA and HONOURABLE MR. JUSTICE DIVYESH A. JOSHI Date : 21/04/2023 CAV JUDGMENT (PER : HONOURABLE MR. JUSTICE A.S. SUPEHIA)
1. In the present first appeal, the appellant-Oil and Natural Gas Corporation Limited (ONGC)-original plaintiff has assailed the judgment Page 1 of 23 Downloaded on : Fri Apr 21 20:50:31 IST 2023 C/FA/2002/2018 CAV JUDGMENT DATED: 21/04/2023 and decree dated 01.01.2018 passed by the 14th Additional Senior Civil Judge, Vadodara in Special Civil Suit No.281 of 1994 to the extent of denying the interest on the amount of Rs.54,01,332.02.
BRIEF FACTS:
2.1. The plaintiff-ONGC and the defendant-respondent Hindustan Chemicals Company executed a contract dated 12.03.1980 for the supply of natural gas for the manufacturing plant at GIDC Industrial Estate, District Surat, Gujarat of the respondent. The supply of gas by the appellant-ONGC was to commence from 01.05.1982 and remained in force and operation for a period of 5 years upto 30.04.1987 as per the price determined under clause 4.01(i) therein and for a further period of 3 years subject to the acceptance of the price by the defendant-respondent under clause 4.01(ii).
2.2. There was a dispute with regard to fixation of the price of natural gas in view of the notification dated 30.01.1987 issued by the Government of India, Ministry of Petroleum and Natural Gas, which resulted in filing a writ petition being Special Civil Application No.1033 of 1987 by the Association of Natural Gas Consuming Industries of Gujarat. This Court vide its interim order dated 21.03.1987 directed the respondent to pay the ONGC at the rate of Rs.1050/- for 1000 Standard Cubic Meters of supplying the gas. Ultimately, by the judgment and order dated 29.04/01.05.1991 this Court dismissed the writ petition being Special Civil Application No.1033 of 1987 and upheld the notification issued by the Central Government dated 30.01.1987. The same was carried further before the Apex Court by filing Special Leave Petition. It Page 2 of 23 Downloaded on : Fri Apr 21 20:50:31 IST 2023 C/FA/2002/2018 CAV JUDGMENT DATED: 21/04/2023 appears that the Special Leave Petition was also dismissed and after the rejection of the same, the appellant requested the respondent vide letter dated 17.07.1991 to pay the amount of arrears of difference between the government rate and the actual amount paid along with interest.
2.3. It appears that the arrears were paid intermittently by the respondent and the last installment was paid by the respondent to the appellant on 03.01.1992. However, it appears that the respondent did not pay interest on the arrears, which were due for the supply of gas from 01.05.1987 and accordingly, the appellant vide its letter dated 10.06.1992 informed the respondent to clear the arrears of interest. By the communication dated 25.06.1992, the respondent refused to pay interest and denied its liability to pay interest. Ultimately, since no amount was paid towards interest, the appellant filed Special Civil Suit No.281 of 1994 for recovering the amount of Rs.54,01,332.02 from the respondent. The appellant also prayed for payment of interest on the aforesaid amount from the date of filing of the special suit till actual realization of the decretal amount. By the impugned judgment and decree dated 01.01.1980, the trial court allowed the suit in part and directed the respondent to pay the amount of Rs.54,01,332.02. to the appellant, however, the trial court rejected the prayer of the appellant to the extent of the claim towards interest. The denial of interest on the said amount has given rise to the present appeal. The defendant has accepted the judgment and decree for payment of the aforesaid amount.
SUBMISSIONS ON BEHALF OF THE APPELLANT (PLAINTIFF):
3. Learned advocate Mr.Ajay Mehta appearing for the appellant-
C/FA/2002/2018 CAV JUDGMENT DATED: 21/04/2023 ONGC has submitted that the trial court has fallen in error in denying the interest on the amount of Rs.54,01,332=02, which was actually the principal amount of interest on arrears, which was not paid by the respondent though the same was supposed to pay. It is submitted by him that the respondent has enjoyed the amount of interest from 1987 to 1992 and hence, once the amount has remained with them, the appellant would be entitled to interest on such amount. While placing reliance on the provisions of Section 34 of the Civil Procedure Code, 1908 (for short "the CPC"), he has submitted that the appellant is entitled to claim interest pendent lite and future interest since the appellant in fact in the suit had claimed interest on the principal amount of Rs.54,01,332.02. at the rate of 18% per annum, which has been misconceived by the trial court as claim of interest on interest.
3.1. Learned advocate Mr.Mehta has further submitted that the trial court has misdirected itself in not appreciating the provisions of Section 34 of the CPC as the amount of Rs.54,01,332.02. cannot be termed as an interest, however, it is the principal amount for which the suit was filed. It is, thus, submitted that even if there is no provision in the contract for awarding an interest on the outstanding amount of the interest, which was enjoyed by the respondent, the appellant would still be entitled to interest on the said amount, which was directed to be paid to the appellant. It is submitted that the amount of arrears was due to be recovered from the respondent since 01.05.1987 and once the respondent has failed to pay the said amount, the appellant was constrained to file the suit on 27.04.1984.
3.2. Finally, it is submitted by the learned advocate Mr.Mehta that Page 4 of 23 Downloaded on : Fri Apr 21 20:50:31 IST 2023 C/FA/2002/2018 CAV JUDGMENT DATED: 21/04/2023 though in the suit the appellant has claimed interest at the rate of 18% per annum on such amount, he would like to invite discretion of this Court to award suitable interest. Thus, it is submitted that this Court may award interest on the aforesaid amount from the date of filing of the suit till the date of realization as per the provisions of Section 34 of the CPC. In support of his submissions, he has placed reliance on the judgment of the Apex Court in the case of ONGC And Another vs. Association of Natural Gas Consuming Industries and Others, (2001) 6 SCC 627 and also on the decision of the Supreme Court in the case of Central Bank of India vs. Ravindra And Others, (2002) 1 SCC 367.
SUBMISSIONS ON BEHALF OF THE DEFENDANT:
4. In response to the aforesaid submissions, learned Senior Advocate Mr.Mihir Joshi has urged that the first appeal is not required to be entertained and the impugned judgment and decree passed by the court below is required to be maintained as the same is precisely and appropriately passed.
5. At the outset, learned Senior Advocate Mr.Joshi has submitted that in fact the trial court, while passing the aforesaid order directing the respondent to pay an amount of Rs.54,01,332.02 is the amount towards the interest on the principal amount, which was due to be paid by the respondent and no further amount could have been directed to be paid in the form of interest on such amount since there is no provision in the contract to pay interest on interest. It is submitted by him that the trial court, after appreciating the documentary as well as the oral evidence, has concluded that the respondent has to pay an amount of Rs.54,01,332.02 Page 5 of 23 Downloaded on : Fri Apr 21 20:50:31 IST 2023 C/FA/2002/2018 CAV JUDGMENT DATED: 21/04/2023 towards interest only.
6. Learned Senior Advocate Mr.Joshi, while placing reliance on the judgment of the Apex Court in the case of Punjab State Electricity Board And Another vs. Raj & Sandeep Ltd., (2004) 13 SCC 584, has submitted that since there is no stipulation in the contract for payment of interest on interest, the appellant is not entitled to such amount. Similarly, reliance is placed in the case of State Bank of India, Bhubaneswar vs. Ganjam District Tractor Owners' Association and Others, (1994) 5 SCC 238. He has also placed reliance on the judgment of the Supreme Court in the case of Ravindra And Others (supra) and has submitted that the Supreme Court while examining the provisions of Section 34 of the CPC has categorically held that the interest pendent lite and future interest as submitted in the provisions of Section 34 of the CPC are only available on the principal amount and not on the interest amount as claimed by the appellant. Thus, it is asserted by him that in wake of any contractual obligations of payment of interest on interest, the trial court is justified in rejecting the claim of future interest on the amount, which is ordered to be paid by the trial court. Thus, it is urged that the first appeal may not be entertained.
ANALYSIS & CONCLUSION:-
7. The established facts from the record is that the plaintiff-ONGC (appellant) and the defendant had entered into a contract on 12.03.1980 with regard to supply of gas as mentioned hereinabove. Since there was some dispute with regard to fixation of gas price, the Association of Natural Gas Consuming Industry filed the writ petition being Special Civil Application No.1033 of 1987 challenging the notification issued by Page 6 of 23 Downloaded on : Fri Apr 21 20:50:31 IST 2023 C/FA/2002/2018 CAV JUDGMENT DATED: 21/04/2023 the Central Government dated 30.01.1987.
8. By an interim order passed by this Court on 21.03.1987 passed in Special Civil Application No.1033 of 1987 the respondent was directed to pay the appellant at the rate of Rs.1,050/- for 1000 Standard Cubic Meters of gas and further the appellant was directed not to discontinue and stop the supply of gas and finally by the judgment and order dated 29.04/01.05.1991, this Court dismissed Special Civil Application No.1033 of 1987 by upholding the notification dated 30.01.1987 of the Central Government of India.
9. The Special Leave Petition filed against the judgment and order passed by this Court was also dismissed. Thus, the dispute arose between the parties with regard to arrears from 01.05.1987 to 10.06.1992 after the litigation between the parties was laid to rest. Accordingly, the appellant demanded the interest at the rate of 18% over the arrears as per the contract dated 12.03.1980, Exh.106, however, since it was refused, the appellant-ONGC was constrained to file Special Civil Suit No.281 of 1994. In the first communication, which was written by the appellant to pay the difference of amount on 17.07.1991 and on 03.01.1992, the respondent paid the principal amount towards the difference of supply of gas. However, since no interest was paid on the arrears, the appellant, by the communication dated 10.06.1992 asked the respondent to pay the interest on the arrears of principal amount. Ultimately, by the communication dated 24.03.1994, the respondent denied the liability to pay the interest, which led to filing of the aforesaid suit claiming to recover the amount of Rs.54,01,332.02. The appellant had also claimed interest at the rate of 18% per annum from the date of suit till realization Page 7 of 23 Downloaded on : Fri Apr 21 20:50:31 IST 2023 C/FA/2002/2018 CAV JUDGMENT DATED: 21/04/2023 of the decretal amount. The trial court framed the issues below Exh.66, which are as under:-
"(1) Whether plaintiff proves that he is entitled to recover the suit amount from the defendant company?
(2) Whether plaintiff proves that he is entitled to get the interest as prayed for?
(3) Whether plaintiff's suit is maintainable at law? (4) Whether defendant proves the contents of his written statement? (5) What order and decree?"
10. So far as the recovery of the suit amount is concerned, the trial court held in favour of the appellant, whereas the issue no.2 was answered in "negative". While answering the aforesaid issue in negative, the trial court has specifically observed that the plaintiff, by making prayers of claiming of interest at the rate of 18%, in fact are claiming interest over interest, which is not permissible since there is no contract between the parties, which shows that the plaintiff is entitled to claim interest over interest amount and in the absence of any such contract, such interest cannot be awarded. The trial court has limited its observations as recorded in paragraph no.9.4, which are as under:-
"(9.4) In the discussion of Issue no.2, the plaintiff has to prove that plaintiff is entitled to claim for interest.
The dispute between plaintiff and defendant is to recover interest over the amount of difference of rate fixed by Central Government and rate fixed by Hon'ble High Court as interim order. There is no dispute about principal amount. Principal amount is paid by the defendant and received by the plaintiff. Plaintiff has sought interest @ 18% over the amount of interest.
Meaning thereby, plaintiff has claimed interest over interest which is not permissible. There is no contract between the parties which shows that plaintiff is entitled to claim interest over interest Page 8 of 23 Downloaded on : Fri Apr 21 20:50:31 IST 2023 C/FA/2002/2018 CAV JUDGMENT DATED: 21/04/2023 amount. In the absence of any such contract, this Court cannot grant interest over the interest amount. Therefore I answer issue no.2 in negative."
Thus, the issue which falls for deliberation before us, is that whether the trial court has precisely construed the claim of interest from the date of filing of the suit till realization of the decretal amount as a claim on interest on interest. In our considered opinion, the trial court has misdirected itself on the issue of awarding the interest pendent lite and future interest as envisaged under Section 34 of the CPC.
11. The appellant had claimed the interest at the rate of 18% per annum on the amount of Rs.54,01,332.02, however, before this Court, it is submitted that the discretion of awarding the fixation of rate of interest is left to the wisdom of this Court. In order to appreciating the rival contentions, it would be apposite to incorporate the provisions of Section 34 of the CPC, on which reliance is placed by both the respective parties:-
"Section 34-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 :
2[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.
C/FA/2002/2018 CAV JUDGMENT DATED: 21/04/2023 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."
12. The Constitution Bench of the Supreme Court in the case of Ravindra And Others (supra) has exhaustively examined the provisions of Section 34 of the CPC, more particularly the expression used therein "principal sum adjudged". The relevant observations of the Supreme Court are as under:-
37. Black's Law Dictionary (7th Edition) defines 'interest' inter alia as the compensation fixed by agreement or allowed by law for the used or detention of money, or for the loss of money by one who is entitled to its use; especially, the amount owed to a lender in return for the use of the borrowed money. According to Stroud's Judicial Dictionary of Words and Phrases (5th edition) interest means, inter alia, compensation paid by the borrower to the lender for deprivation of the use of his money. In Secretary, Irrigation Department, Government of Orissa & Ors. v. G.C. Roy, [1992] 1 SCC 508, the Constitution Bench opined that a person deprived of the use of money to which he is legitimately entitled has a right to be compensated for the deprivation, call it by any name. It may be called interest, compensation or damages........this is the principles of Section 34, Civil Procedure Code. In Dr. Shamlal Narula v. C.I.T., Punjab, [1964] 7 SCR 668, this Court held that interest is paid for the deprivation of the use of the money. The essence of interest in the opinion of Lord Wright, in Riches v. Westminister Bank Ltd., [1947] 1 All ER 469, 472, is that it is a payment which becomes due because the creditor has not had his money at the due date. It may be regarded either as representing the profit he might have made if he had had the use of the money, or, conversely, the loss he suffered Page 10 of 23 Downloaded on : Fri Apr 21 20:50:31 IST 2023 C/FA/2002/2018 CAV JUDGMENT DATED: 21/04/2023 because he had not that use. The general idea is that he is entitled to compensation for the deprivation; the money due to creditor was not paid, or, in other words, was withheld from him by the debtor after the time when payment should have been made, in breach of his legal rights, and interest was a compensation whether the compensation was liquidated under an agreement or statute. A Division Bench of the High Court of Punjab speaking through Tek Chand, J. in C.I.T., Punjab v. Dr. Shamlal Narula, AIR (1963) Punjab 411 thus articulated the concept of interest -
"8. the words "interest" and "compensation" are sometimes used interchangeably and on other occasions they have distinct connotation. "Interest" in general terms is the return or compensation for the use or retention by one person of a sum of money belonging to or owned to another. In its narrow sense,"interest" is understood to mean the amount which one has contracted to pay for use of borrowed money.......... In whenever category "interest" in a particular case may be put, it is a consideration paid either for the use of money or for forbearance in demanding it, after it has fallen due, and thus, it is a charge for the use or forbearance of money. In this sense, it is a compensation allowed by law or fixed by parties, or permitted by custom or usage, for use of money, belonging to another, or for the delay in paying money after it has become payable."
It is the appeal against this decision of Punjab High Court which was dismissed by Supreme Court in Dr. Shamlal Manila's case (supra)
38...........
39. Mulla on the Code of Civil Procedure (1995 Edition) sets out three divisions of interest as dealt in Section 34 of CPC. The division is according to the period for which interest is allowed by the Court, namely - (1) interest accrued due prior to the institution of the suit on the principal sum adjudged; (2) additional interest on the principal sum adjudged, from the date of the suit to the date of the decree, at such rate as the Court deems reasonable; (3) further interest on the principal sum adjudged, from the date of the decree to the date of the payment or to such earlier date as the Court thinks fit, at a rate not exceeding 6 per cent per annum. Popularly the three interests are called pre-suit interest, interest pendente lite and interest post-decree or future interest. Interest for the period anterior to institution of suit is not a matter of procedure; interest pendente lite is not a matter of substantive law (See, Secretary, Irri-gation Department, Government of Orissa & Ors. v. G.C. Roy, [1992] 1 SCC 508, Pr. 44-iv). Pre-suit interest is referable to substantive law and can be sub-divided into Page 11 of 23 Downloaded on : Fri Apr 21 20:50:31 IST 2023 C/FA/2002/2018 CAV JUDGMENT DATED: 21/04/2023 two sub-heads; (i) where there is a stipulation for the payment of interest at a fixed rate; and (ii) where there is no such stipulation. If there is a stipulation for the rate of interst, the Court must allow that rate upto the date of the suit subject to three exceptions; (i) any provision of law applicable to money lending transactions, or usury laws or any other debt law governing the parties and having an overriding effect on any stipulation for payment of interest voluntarily entered into between the parties; (ii) if the rate is penal, the Court must award at such rate as it deems reasonable; (iii) even if the rate is not penal the Court may reduce it if the interest is excessive and the transaction was substantially unfair. If there is no express stipulation for payment of interest the plaintiff is not entitled to interest except on proof of mercantile usage, statutory right to interest, or an implied agreement. Interest from the date of suit to date of decree is in the discretion of the Court. Interest from the date of the decree to the date of payment or any other earlier date appointed by the Court is again in the discretion of the Court - to award or not to award as also the rate at which to award. These principles are well established and are not disputed by learned counsel for the parties. We have stated the same only by way of introduction to the main controversy before us which has a colour little different and somewhat complex. The learned counsel appearing before us are agreed that pre-suit interest is a matter of substantive law and a voluntary stipulation entered into between the parties for payment of interest would being the parties as also the Court excepting in any case out of the three exceptions set out hereinbefore.
"Such Principal Sum"-meaning of:
40. Let us paraphrase the relevant part of Section 34(1) as under and then deal with the question posed before us:
"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, 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."
41. A few points are clear from a bare reading of the provision. While decreeing a suit if the decree be for payment of money, the Page 12 of 23 Downloaded on : Fri Apr 21 20:50:31 IST 2023 C/FA/2002/2018 CAV JUDGMENT DATED: 21/04/2023 Court would adjudge the principal sum on the date of the suit. The Court may also be called upon to adjudge interest due and payable by the defendant to the plaintiff for the pre-suit period which interest would, on the findings arrived at and noted by us hereinabove, obviously be other than such interest as has already stood capitalised and having shed its character as interest, has acquired the colour of the principal and having stood amalgamated in the principal sum would be adjudged so. The principal sum adjudged would be the sum actually loaned plus the amount of interest on periodical rests which according to the contract between the parties or the established banking parties has stood capitalised. Interest pendente lite and future interest (i.e. interest post-decree not exceeding 6 per cent per annum) shall be awarded on such principal sum i.e. the principal sum adjudged on the date of the suit. It is well settled that the use of the word 'may' in Section 34 confers a discretion on the Court to award or not to award interest or to award interest at such rate as it deems fit. Such interest, so far as future interest is concerned may commence from the date of the decree and may be made to stop running either with payment or with such earlier date as the Court thinks fit. Shortly hereinafter we propose to give an indication of the circumstances in which the Court may decline award of interest or may award interest at a rate lesser than the permissible rate.
42. ........
43.....
44. We are of the opinion that the meaning assigned to the expression 'the principal sum adjudged' should continue to be assigned to "principal sum" at such other places in Section 34(1) where the expression has been used qualified by the adjective "such" that is to say, as "such principal sum". Recognition of the method of capitalisation of interest so as to make it a part of the principal consistently with the contract between the parties or established banking prac-tice does not offend the sense of reason, justice and equity. As we have noticed such a system has a long established practice and a series of judicial precedents upholding the same. Secondly, the underlying principle as noticed in several decided cases is that when interest is debited to the account of the borrower on periodical rests, it is debited because of its having fallen due on that day. Nothing prevents the borrower from paying the amount of interest on the date it falls due. If the amount of interest is paid there will be no occasion for capitalising the amount of interest and converting it into principal. If the interest is not paid on the date due, from that date the creditor is deprived of such use of the money which it would have made if the debtor had paid the amount of interest on the date due. The creditor needs to be compensated Page 13 of 23 Downloaded on : Fri Apr 21 20:50:31 IST 2023 C/FA/2002/2018 CAV JUDGMENT DATED: 21/04/2023 for deprivation. As held in Pazhaniappa Mudaliar and Ors. v. Narayana Ayyar and Ors. (supra) the fact-situation is analogous to one as if the creditor has advanced money to the borrower equivalent to the amount of interest debited. We are, therefore, of the opinion that the expression "the principal sum ad-judged" may include the amount of interest, charged on periodical rests, and capitalised with the principal sum actually advanced, so as to become an amalgam of principal in such cases where it is permissible or obligatory for the Court to hold so. Where the principal sum (on the date of suit) has been so adjudged, the same shall be treated as "principal sum" for the purpose of "such principal sum" - the expression employed later in Section 34 of C.P.C.. The expression "principal sum" cannot be given different meanings at different places in the language of same section, i.e. Section 34 of C.P.C..
45.....
to
57....
58. Subject to the above we answer the reference in following terms : (1) Subject to a binding stipulation contained in a voluntary contract between the parties and/or an established practice or usage interest on loans and ad-vances may be charged on periodical rests and also capitalised on remaining unpaid. The principal sum actually advanced coupled with the interest on periodical rests so capitalised is capable of being adjudged as principal sum on the date of the suit. (2) The principal sum so adjudged is 'such principal sum' within the meaning of Section 34 of the Code of Civil Procedure Code, 1908 on which interest pendente lite and future interest i.e. post-decree interest, at such rate and for such period which the Court may deem fit, may be awarded by the Court.
(3) Corporation Bank v. H.S. Gowda and Anr., [1994] 5 SCC 213 and Bank of Baroda v. Jagannath Pigment & Chem. have been correctly decided.
13. In order to answer the issue raised in the present appeal, the following observations are culled out in brief from the law enunciated by the Apex Court in the aforementioned decision:-
a) The principal sum adjudged would be the sum actually loaned plus the amount of interest on periodical rests which according to the contract Page 14 of 23 Downloaded on : Fri Apr 21 20:50:31 IST 2023 C/FA/2002/2018 CAV JUDGMENT DATED: 21/04/2023 between the parties or the established banking parties has stood capitalised. Interest pendente lite and future interest (i.e. interest post- decree not exceeding 6 per cent per annum) shall be awarded on such principal sum i.e. the principal sum adjudged on the date of the suit.
b) The use of the word 'may' in Section 34 confers a discretion on the Court to award or not to award interest or to award interest at such rate as it deems fit. Such interest, so far as future interest is concerned may commence from the date of the decree and may be made to stop running either with payment or with such earlier date as the Court thinks fit.
c) If the amount of interest is paid there will be no occasion for capitalising the amount of interest and converting it into principal. If the interest is not paid on the date due, from that date the creditor is deprived of such use of the money which it would have made if the debtor had paid the amount of interest on the date due. The creditor needs to be compensated for deprivation.
d) The principal sum so adjudged is 'such principal sum' within the meaning of Section 34 of the Code of Civil Procedure Code, 1908 on which interest pendente lite and future interest i.e. post-decree interest, at such rate and for such period which the Court may deem fit, may be awarded by the Court. However, the grant of further interest in commercial transaction is governed by proviso to sub-section(1) to Section 35.
14. The Supreme Court has held that there are three divisions of interest as dealt in Section 34 of CPC. The division is according to the period for which interest is allowed by the Court, namely:- (1) interest accrued due prior to the institution of the suit on the principal sum Page 15 of 23 Downloaded on : Fri Apr 21 20:50:31 IST 2023 C/FA/2002/2018 CAV JUDGMENT DATED: 21/04/2023 adjudged; (2) additional interest on the principal sum adjudged, from the date of the suit to the date of the decree, at such rate as the Court deems reasonable; (3) further interest on the principal sum adjudged, from the date of the decree to the date of the payment or to such earlier date as the Court thinks fit, at a rate not exceeding 6 per cent per annum. Popularly the three interests are called pre-suit interest, interest pendente lite and interest post-decree or future interest. Interest for the period anterior to institution of suit is not a matter of procedure; interest pendente lite is not a matter of substantive law. It is further held that pre-suit interest is referable to substantive law and can be sub-divided into two sub-heads;
(i) where there is a stipulation for the payment of interest at a fixed rate; and (ii) where there is no such stipulation. If there is a stipulation for the rate of interest, the Court must allow that rate upto the date of the suit subject to three exceptions; (a) any provision of law applicable to money lending transactions, or usury laws or any other debt law governing the parties and having an overriding effect on any stipulation for payment of interest voluntarily entered into between the parties; (b) if the rate is penal, the Court must award at such rate as it deems reasonable; (c) even if the rate is not penal the Court may reduce it if the interest is excessive and the transaction was substantially unfair.
15. It is further held that interest from the date of suit to date of decree is in the discretion of the Court and interest from the date of the decree to the date of payment or any other earlier date appointed by the Court is again in the discretion of the Court. The Supreme Court, while examining the expression of "Such Principal Sum", has held that the principal sum adjudged would be the sum actually loaned plus the amount of interest on Page 16 of 23 Downloaded on : Fri Apr 21 20:50:31 IST 2023 C/FA/2002/2018 CAV JUDGMENT DATED: 21/04/2023 periodical rests which according to the contract between the parties or the established banking parties has stood capitalised. Interest pendente lite and future interest (i.e. interest post-decree not exceeding 6 per cent per annum) shall be awarded on such principal sum i.e. the principal sum adjudged on the date of the suit. It is further held that such interest, so far as future interest is concerned may commence from the date of the decree and may be made to stop running either with payment or with such earlier date as the Court thinks fit. The upper limit of 6% is prescribed for all transactions except where the liability has arisen from commercial transactions. In a given case, such as in the present one, where the liability has arisen from commercial transaction Court can grant "further interest", exceeding 6%, but shall not exceed the contractual rate of interest if or where there is no contractual rate, the rate at which mony is lent or advanced by the nationalised banks in relation to commercial transactions. Explanation-II states that a transaction is a commercial transaction, if it is connected with the industry, trade or business of the party incurring the liability. In the present case the liability has arisen out of a commercial transaction. It is also true that in a given case, even in respect of liability arising out of commercial transactions courts can grant further interest at a rate less than the contractual rate or even disallow it altogether. The courts can also disallow pendente lite interest.
16. The Supreme Court has categorically held that the interest once capitalised ceases to be interest and becomes a part of principal sum or capital. That being so the interest forming amalgam with the principal, in view of having been capitalized, is principal sum and therefore the question of awarding interest on interest does not arise at all. The Page 17 of 23 Downloaded on : Fri Apr 21 20:50:31 IST 2023 C/FA/2002/2018 CAV JUDGMENT DATED: 21/04/2023 Supreme Court also observed that if the borrower does not pay the interest on the date due, then from that date the creditor is deprived of such use of the money, which it would have made if the debtor had paid the amount of interest on the date due and the creditor needs to be compensated for deprivation. By placing reliance in the case of Pazhaniappa Mudaliar and Ors. vs. Narayana Ayyar and Ors., AIR (1943) Madras 157, it is observed that the fact-situation is analogous to one as if the creditor has advanced money to the borrower equivalent to the amount of interest debited and hence, it is held that the opinion that the expression "the principal sum ad-judged" may include the amount of interest, charged on periodical rests, and capitalised with the principal sum actually advanced, so as to become an amalgam of principal in such cases where it is permissible or obligatory for the Court to hold so.
17. Ultimately, the Apex Court in paragraph no.58, more particularly sub-para (2) has held that the principal sum so adjudged is 'such principal sum' within the meaning of Section 34 of the Code of Civil Procedure Code, 1908 on which interest pendente lite and future interest i.e. post- decree interest, at such rate and for such period which the Court may deem fit, may be awarded by the Court.
18. In the present case, the trial court, while denying the interest from the date of suit till realization of the decretal amount is primarily impressed upon the terms of the contract. The trial Court has absolutely did not delve in the provisions of Section 34 of the CPC . The amount for recovery of Rs.54,01,332.02, for which the suit was filed, though is the claim of interest on the differential amount of the rights on which the gas was supplied by the appellant to the respondent, is in fact is to be Page 18 of 23 Downloaded on : Fri Apr 21 20:50:31 IST 2023 C/FA/2002/2018 CAV JUDGMENT DATED: 21/04/2023 construed as "the principal amount". It is not in dispute that the differential amount of arrears of principal amount was due to be paid by the respondent to the appellant in the year 1992. The arrears of principal amount was paid on 03.01.1992, however, since the interest on differential amount/arrears was not paid, the suit was filed claiming 18% interest. Thus, when the principal amount, was paid by the respondent on 03.01.1992, it was obligatory on their part to pay the arrears along with interest as per the recitals of the contract. Since the aforesaid amount, which stems out of the contract in the form of interest, was not paid, the appellant was constrained to file the suit. The trial court has fallen in error by observing that since there is no stipulation in the contract with regard to payment of interest on interest, no further interest can be awarded except, which is ordered to be paid. The trial court appears to be oblivious of the fact that the aforesaid amount of Rs.54,01,332.02 of interest has arisen only because the defendant did not pay the arrears as on 03.01.1992 and hence, the claim of the aforesaid amount of interest is required to be seen as principal amount, for which the suit was filed. The Trial Court did not appreciate the fact that since the amount of interest was not captilized with the principal amount, hence it was required to be treated as separate and distinct from the principle amount which was already paid before filing of the suit.
19. Under these circumstances, it would be erroneous to hold that the appellant is not entitled to interest pendente lite and further interest on the said amount by construing the amount of Rs.54,01,332.02 as "interest". The moment when the suit is filed claiming the amount of Rs.54,01,332.02, as interest on arrears, such amount of interest will have the color of "principal amount", and it has to be construed as a separate Page 19 of 23 Downloaded on : Fri Apr 21 20:50:31 IST 2023 C/FA/2002/2018 CAV JUDGMENT DATED: 21/04/2023 and distinct amount for the purpose of awarding interest pendente lite and further interest.
20. The appellant has not claimed interest from 1992 when the principal amount was awarded, but the appellant has claimed interest from the date of filing of the suit till realization of the decretal amount, I.e pendent lite and future interest. As observed by the Supreme Court in the aforenoted decision in the case of Ravindra And Others (supra), the trial court is not debarred from awarding any rate of interest and it is left on the discretion of the trial court to award interest pendente lite and future interest i.e. post-decree interest and such period, which the court may deem fit.
21. The provisions of Section 34 of the CPC do not in any manner disallow the interest pendent lite or future interest. It is not the case of the plaintiff that they are claiming interest on interest amount, but it would be a case of not paying the interest on the arrears of principal amount by the defendant, which they were supposed to pay. The aforesaid amount has remained with the defendant, and they have enjoyed such amount of arrears and hence, once the trial court has determined the outstanding amount of interest, which was required to be paid, the trial court was supposed to apply its mind whether further directions with regard to payment of interest pendent lite and future interest was required or not by appreciating the provision of section 34 of the CPC, and such claim could not have been rejected for the reason that the contract does not stipulate payment of further interest. In fact, in the entire judgment and decree there is no whisper of section 34 of the CPC.
C/FA/2002/2018 CAV JUDGMENT DATED: 21/04/2023
22. The trial court has misdirected itself in rejecting the claim of the appellant claiming interest on the decretal amount from the date of filing of the suit till realization by observing that there is no such provision made in the contract. The trial court was oblivious of the fact that the claim of recovery of interest on the unpaid principal amount; though it was covered as per the clauses of the agreement, the interest, which was claimed by the appellant was pendent lite, which can never be encompassed in the contract since the parties to the agreement would not foresee the filing of litigation claiming interest pendent lite. The parties to the contract will always confine to the terms of the payment and repayment and in absence of any such payment, the interest to be paid on such amount in case the amount is not paid within stipulation as provided in the contract. It is pertinent to note that in case of Association of Natural Gas Consuming Industries & ors. (supra), the Apex Court in the controversy of payment of interest to the ONGC having similar contract to that of present case, has held that the ONGC is entitled to interest on principal amount at the rate of ½ % as per Clause 5.02. The Supreme Court has noticed the judgment dated 4.5.1990 passed by this Court from which the issue raised in the present suit has arisen. In the present case, it is noticed by us that the plaintiff has claimed the aforesaid amount of Rs.54,01,332.02 ps by calculating 18% interest which has been decreed in its favour. The defendant has not challenged the aforesaid judgment and decree. Be that as it may, the trial court has totally misdirected itself in denying the interest pendent lite and further interest as per the provision of section 34 of the CPC on the decretal amount.
23. The judgments in the case of Raj & Sandeep Ltd. (supra) and in Page 21 of 23 Downloaded on : Fri Apr 21 20:50:31 IST 2023 C/FA/2002/2018 CAV JUDGMENT DATED: 21/04/2023 the case of Ganjam District Tractor Owners' Association and Others (supra) will not rescue the respondent since the issue is raised in the first appeal rests on the provisions of Section 34 of the CPC and not as per the contract agreed upon between the parties. The law enunciated by the Apex Court in the said decisions will not apply to the facts of the present case, but the issue is governed by the decision of the Constitution Bench of the Apex Court in the case of Ravindra (supra).
24. Since the respondent was expected to pay the arrears along with the principal amount, which was paid on 03.01.1992 and despite calling upon the respondent, they have chosen not to pay the interest on arrears and denied the liability and the appellant was constrained to file special civil suit for recovery of the said amount, the trial court was required to suitably compensate the appellant by awarding interest pendent lite. Since a specific statement is made before this Court by the learned advocate Mr.Mehta for the appellant leaving on the discretion to the Court to fix the appropriate rate of interest on such decretal amount, we are not inclined to grant 18% interest pendent lite as claimed in the suit.
25. In the considered opinion of this Court, looking to the facts and in the interest of justice, it would be appropriate that the respondent is directed to pay the interest of 6% on the decretal amount from date of filing of the suit till the date of decree. However, as per the proviso to sub-section(1) to Section 35 of the CPC, since the liability has arisen out of commercial transaction, the grant of further interest from the date of decree till realization will be governed by contractual rate as per clause 5.02 of the Contract, Exh.106 which is fixed at ½%. Thus, the plaintiff shall be entitled to ½ % interest on such amount till its realization.
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26. The first appeal is allowed in the aforesaid terms. Registry shall accordingly draw the decree.
27. As a sequel, the civil application does not survive and the same is disposed of accordingly. Record and proceedings are ordered to be sent back to the concerned trial court. No order as to costs.
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(A. S. SUPEHIA, J) Sd/-
(DIVYESH A. JOSHI,J) FURTHER ORDER After the judgment was pronounced, learned senior advocate Mr. Mihir Joshi requests for stay of the judgment and order passed by this Court, since the matter is pending since 2018 and the suit is of the year 1994. Hence, the operation and implementation of the judgment and order is stayed for a period of twelve weeks.
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(A. S. SUPEHIA, J) Sd/-
(DIVYESH A. JOSHI,J) ABHISHEK/2 Page 23 of 23 Downloaded on : Fri Apr 21 20:50:31 IST 2023