Summary
In a five-decade-old dispute over the price of shares in Bikaner Gypsums Ltd. (now Rajasthan State Mines and Minerals Ltd.) sold by the appellants to the State of Rajasthan in 1973, the only surviving question was the rate of interest on the enhanced valuation of Rs.640 per share. The Supreme Court held that, in the absence of any agreement on interest, Section 34 CPC governs; the sale was a commercial transaction, so post-decree interest may exceed 6%, but compounding with monthly or quarterly rests is outside Section 34. The High Court's 5% simple interest was modified to 6% simple interest from 8 July 1975 till decree and 9% from decree till realisation, payable within two months.
Issues
- What rate of interest should be awarded on the enhanced valuation of the appellants' shares, which the State has not paid for over fifty years?
- Whether the 1973 transfer of shares to the State was a commercial transaction for the purposes of the proviso to Section 34(1) CPC, so that post-decree interest may exceed 6% per annum.
- Whether the appellants could claim compound interest (15% with monthly rests or 18% with quarterly rests) under Section 34 CPC in the absence of any agreement on interest.
Provisions considered
- Section 34, Code of Civil Procedure, 1908Since neither the parties' agreement nor their correspondence dealt with interest on delayed payment, Section 34 governed. The Court read the section as empowering interest at three stages: pre-suit (ordinarily by agreement), from suit to decree at a reasonable rate in the court's discretion, and post-decree at not more than 6% unless the liability arose out of a commercial transaction, when the proviso allows a higher rate up to the contractual or nationalised-bank lending rate. Monthly or quarterly rests are beyond the scope of the section. (¶¶ 13, 13.1, 14, 15, 17)
- Article 14, Constitution of IndiaRelying on Central Inland Water Transport Corporation v. Brojo Nath Ganguly, the Court observed that constitutional courts may invoke Article 14 to refuse enforcement of unconscionable, one-sided contracts where the parties are unequal in bargaining power. Here the State and its instrumentality were the stronger parties, no public interest justified the lower price, and the original price had been found unconscionable, which is why the enhanced valuation had been affirmed. (¶ 12)
Held
- The sale and purchase of shares between the appellants and the State was a transaction of trade and therefore a commercial transaction, notwithstanding the State's plea that it merely infused capital to keep a loss-making company afloat. Public interest ordinarily does not override commercial bargains, but where the terms are oppressive or one-sided the court, armed with Article 14, will lean towards the wronged individual; on the record there was no public interest in offering a lesser price, and the price fixed had been found unconscionable. (¶ 12)
- Where there is no agreement or contract on interest, Section 34 CPC applies. The court may award interest for the period before suit, from suit to decree at a rate it deems reasonable, and from decree to payment at a rate not exceeding 6% per annum, save that for a liability arising out of a commercial transaction the post-decree rate may exceed 6%. (¶¶ 13, 13.1)
- Reviewing Clariant International, Alok Shanker Pandey, Thazhathe Purayil Sarabi, Rampur Fertiliser and Tomorrowland, the Court reiterated that courts have the authority to fix the appropriate rate of interest on the totality of the facts and the discretion to decide whether interest runs from the institution of the suit, an earlier date or the date of decree. Award of interest pendente lite or post-decree is discretionary and steeped in equitable considerations. (¶ 14)
- A claimant who has waited five decades for payment of the fair value of shares is entitled to be reasonably compensated by interest, but a claim for compound interest with monthly or quarterly rests cannot be accepted, as such rests are beyond the scope of Section 34 CPC. (¶ 15)
- The discretion to award interest must be guided by equitable considerations; the rate and period cannot be applied mechanically or at an unreasonably high rate without rationale. Interest must be a reparation for the claimant's loss of use of money, yet must not become punitive or unduly burdensome on the judgment debtor; the court balances fairness and financial impact on the facts of each case. (¶ 16)
- Having regard to the prolonged pendency, the substantial amount, the commercial nature of the transaction and the fact that the entire burden falls on the Government, the Court awarded simple interest at 6% per annum from 8 July 1975 on the enhanced valuation till the date of decree and 9% per annum from the date of decree till realisation, payable with the balance principal within two months. (¶ 17)
Result
Appeals disposed of; the High Court's orders dated 26.04.2022 and 02.05.2022 modified: simple interest at 6% per annum from 8 July 1975 on the enhanced share valuation till the date of decree and 9% per annum from decree till realisation, to be paid with the balance principal (after adjusting amounts already paid) within two months. No costs.