I.K. Merchants Pvt. Ltd. vs. The State Of Rajasthan

1

REPORTABLE
2025 INSC 418

IN THE SUPREME COURT OF INDIA
CIVIL APPELLATE JURISDICTION

CIVIL APPEAL NOS. 4560-4563 OF 2025
(Arising out of SLP (C) Nos. 11779 – 11782 of 2022)

I.K. MERCHANTS PVT. LTD. & ORS. ... APPELLANT(S)

VERSUS

THE STATE OF RAJASTHAN & ORS. ... RESPONDENT(S)

J U D G M E N T

R. MAHADEVAN, J.

Leave granted.

2. These appeals are filed against the judgments and orders dated 26.04.2022
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and 02.05.2022 both passed by the Division Bench of Calcutta High Court in
G.A.No.6 of 2020 and A.P.D.No.63 of 2013 in C.S.No.467 of 1978. Vide order
dated 26.04.2022, the High Court, while upholding and reaffirming the valuation
of shares done by M/s. Ray & Ray at Rs.640/- per share, granted simple interest
at 6% per annum on the enhanced valuation of shares, however, rejected the
Signature Not Verified
Digitally signed by
CHANDRESH
Date: 2025.04.01
17:26:08 IST
Reason:

1
Hereinafter referred to as “the High Court”

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prayer of the appellants for enhancement of interest rates, costs and damages, and
accordingly, disposed of the said cases. Subsequently, vide order dated
02.05.2022, the High Court corrected the rate of interest from 6% to 5% per
annum. Both the orders are assailed in these appeals, at the instance of the
appellants herein.

3. On 25.07.2022, when the appeals were taken up for consideration by this
Court, the learned counsel for the appellants confined the prayer made herein to
the grant of an appropriate rate of interest, which was also recorded in the
proceedings. In view of the same, we proceed to deal with these appeals only to
the limited extent of grant of rate of interest for the difference in valuation of
shares of Respondent No.2 viz. , Rajasthan State Mines and Mineral Ltd., formerly
2
known as Bikaner Gypsums Ltd. , which shares were sold by the appellants to
Respondent No.1 viz ., State of Rajasthan, in 1973.

4. The relevant facts giving rise to the controversy involved herein are as
follows:

4.1. Originally, the appellants preferred a suit being C.S.No.467 of 1978 before
the High Court of Calcutta, and the same was subsequently amended, praying for
a decree for Rs.4,34,21,553.00 against the Respondent No.1; in the alternative a
decree for reasonable price of the shares of the appellants, after determination of

2
For short, “the Company”

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such price by the High Court; in the further alternative, cancellation of the transfer
of shares belonging to the appellants to the Respondent No.1 and restitution of
the original status and retransfer of those shares to the appellants on such terms
to be determined by the High Court, and also interest and costs. On 14.08.2012,
the learned Single Judge of the High Court, while rejecting the valuation reports
produced by the parties, passed a preliminary decree, the operative portion of
which reads as follows:
“There shall be a preliminary decree directing the defendants in particular the
first defendant to appoint anyone of the following firms of Chartered Accountants,
namely Price Water House, Ray & Ray, Lodha and Company of its choice as the
valuer for the purpose of conducting an enquiry for ascertaining the fair and
proper value of the said shares of the plaintiffs at the time when such shares were
transferred to the first defendant by the plaintiffs and upon conclusion of such
enquiry the plaintiffs shall be entitled to apply in this suit for obtaining a final
decree for the amount, if found, due upon such enquiry.

However, the remuneration of the valuer shall be borne entirely by the defendants
or rather the first defendant herein and the first defendant shall pay the
remuneration of the valuer as and when such remuneration is payable or rather
is agreed to be paid by the first defendant and accepted by the valuer. The plaintiffs
shall be entitled to all the costs, charges and expenses of the enquiry proceedings
before the valuer, certified for two counsel. Let the report of the valuer be made
and published within a period of four months from the date of commencement of
the enquiry.

There will also be a decree for costs of the suit assessed at Rs.1,50,000/- and the
plaintiffs will be entitled to the costs over and above the court fees that the
plaintiffs had to pay at the time of institution of the suit.

Needless to mention that the plaintiffs will also be entitled to interests on the final
decree to be passed on the valuation to be made by the valuer appointed by the
preliminary decree, if such valuation, however, goes in favour of the plaintiffs.”



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4.2. Aggrieved by the aforesaid preliminary decree, the respondents herein
preferred A.P.D.No.63 of 2013, in which, the appellants filed their Cross
Objection. During the pendency of the appeal, the High Court, vide order dated
20.08.2019, noted that the dispute essentially was with regard to the valuation of
shares, and in order to arrive at a settlement, appointed M/s. Ray & Ray Co. as
valuer for the purpose of conducting an enquiry and ascertaining the proper value
of the shares of the appellants as on the date, when such shares were transferred
to the State Government. It was further directed that such valuation would be
uninfluenced by previous valuation reports. Accordingly, the valuer M/s. Ray &
Ray valued the shares at Rs.640/- per share and filed its report. However, the
respondents refused to accept the said valuation. As a result of the same, the High
Court proceeded to hear the matter on merits and passed a final judgment and
order on 28.04.2021. The operative portion of the same reads as under:
“In those circumstances, this appeal and cross-objection are disposed of by
declaring that the respondents/plaintiffs are entitled to Rs.640/- per share sold by
them to the appellant and directing that each of the respondents/plaintiffs be paid
by the appellant no.1 Rs.640/- per share of Bikaner Gypsums Ltd. (subsequently
Rajasthan State Mines and Minerals Ltd.) sold by him to the appellant no.1 as
valued by M/s. Ray and Ray less Rs.11.50/- per share already received by him/her
within eight weeks of communication of this order. Considering the appellant is the
government of Rajasthan, the respondents/plaintiffs shall only be entitled to interest
at the rate of 5% simple interest per annum without yearly rests on the said amount
from 8th July, 1975 till the date of payment.

The impugned preliminary judgment and decree dated 14th August, 2012 is
modified to the above extent. In the facts and circumstances, the modified
preliminary judgment and decree shall be treated as the final decree. The suit is
decreed accordingly.

The application (GA 6 of 2020) is also disposed of by this order.”

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4.3. Being dissatisfied with the aforesaid judgment and order dated 28.04.2021,
both Respondent Nos.1 & 2 filed two separate appeals viz. , CA.Nos.6145 and
6144 of 2021 [SLP (Civil) Nos.13905/2021 and 13606/2021] respectively, and
the appellants filed C.A.No.6146 of 2021 [SLP (Civil) No.14330/2021]. By a
common order dated 01.10.2021, this Court allowed all the appeals by setting
aside the order dated 28.04.2021 and remanding the matter to the High Court to
deal with the objections and cross objections on the issue of valuation alone, as
per the report of M/s. Ray & Ray and to take a view on the same. Pursuant to the
clarification application viz ., M.A.No.1840 of 2021 in C.A. No.6146 of 2021 filed
by the appellants, this Court vide order dated 26.11.2021 inter alia observed as
follows:
“.... On hearing learned counsel for parties, we are not inclined to open a
pandora’s box once again and are clear that we have remitted on the issue of the
valuation report. However, the consequences of the same would be that the
applicant(s) before us would naturally have a right to agitate the issue of interest
and costs which is a sequitur arising from the delay in the finalization of the
amount payable to the respondent(s). ...”

4.4. In light of the aforesaid orders, the matter was reheard by the High Court
and the impugned judgment and order came to be passed on 26.04.2022, the
operative portion of which, reads as under:
“I am of the view that the valuer has given a very reasonable opinion.
I uphold and reaffirm the valuation.
With regard to the claim of the respondents for interest, because of the long
pendency on the matter, the interest burden on the Government of Rajasthan is for
a period of about 50 years on the above valuation. Taking this length of time and
the total interest burden on the appellant No.1, in my view, 6% per annum simple

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interest on the enhanced valuation of the shares will more than adequately
compensate the respondents. We reject the prayer for enhancement of the interest
rate.
The appeal is disposed of accordingly.
The judgment and decree of this Court dated 28th April 2021 is reaffirmed.”

Subsequently, the interest portion was corrected from 6% to 5% per annum, by
order dated 02.05.2022.

4.5. With the above background, the appellants have come up with these
appeals before us.

5. According to the learned counsel for the appellants, payment of interest
owing to the delay in remittance of the fair value of the shares to the appellants is
a right recognized in law. Further, the principle underlying the award of interest
on the monies entitled to be recovered by a party is simply compensation for the
time value of money i.e., compensation for interdicting the investment of that sum
at the time when it was due to be paid. In support of the same, the learned counsel
relied on the following decisions of this court:
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(i) Union of India v. Tata Chemicals Ltd , wherein it was held that the obligation
to refund money received and retained without right implies and carried with it
the right to interest.
(ii) Fertilizer Corporation of India Ltd and others v. Coromandal Sacks Private
4
Ltd , in which, it was held that ‘neither a penalty nor a punishment but the normal

3
(2014) 6 SCC 335
4
(2024) 8 SCC 172

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accretion on capital, due to the wilful withholding of the payment towards the
claim, resulting in continuous injury until such payment is made or in other
words, until the claim is realized’; and
(iii)Civil Appeal No.17 of 2025 in SLP(C) No.10338 of 2023 titled as ‘ Bernard
Francis Joseph Vaz and others v. Government of Karnataka and others’ , it was
observed as follows:
“… it cannot be gainsaid that the appellants have been deprived of their legitimate
dues for almost 22 years ago. It can also not be controverted that money is what
money buys. The value of money is based on the idea that money can be invested
to earn a return, and that the purchasing power of money decreases over time due
to inflation. What the appellants herein could have bought with the compensation
in 2003 cannot do in 2025. It is, therefore, of utmost importance that the
determination of the award and disbursal of compensation in case of acquisition
of land should be made with promptitude”.

5.1. It is further submitted that the appellants were deprived of the fair value of
their shares, which were compulsorily acquired by the State Government for a
period of more than 50 years due to the faulty valuation commissioned by it.
Therefore, payment of interest on the valuation which has been upheld till this
Court, follows as a matter of course.

5.2. The learned counsel also submitted that Section 34(1) of the Civil
Procedure Code explicitly provides that a rate higher than 6% can be granted in
case of a money decree arising out of commercial transactions. Explanation I to
section 34(1) defines a “commercial transaction” as one connected with industry,
trade or business of the party incurring the liability. In the present case, the

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liability has arisen on account of compulsory acquisition by the state Government
of the shares of the appellants in Bikaner Gypsums, which was renamed as
Respondent No.2 and has consistently earned revenues for the State Government
being a profit-making company between 1974 till 2020. However, without any
justification, the High Court awarded only simple interest at the rate of 5% per
annum, which will not compensate the appellants for the time value of the cost of
shares, and is hence, whimsical and arbitrary.

5.3. It is further submitted that despite giving assurance to the appellants that
they will be allowed to make a representation before the valuer by letters dated
27.04.1973 and 06.08.1973, the Respondent No.1 rescinded on this assurance
vide letter dated 03.07.1974 and that, a copy of the valuation report dated
28.08.1974 was not supplied to the appellants and their objections thereto were
not invited. Though appellant no.1 requested to return the shares if a fair valuation
was not possible vide letter dated 10.04.1975, the respondents neither conducted
a fair valuation nor returned the shares. Further, the respondents failed to comply
with the order dated 20.08.2019 of this Court, as a result of which, the time
granted by this court for submission of the report had to be extended on two
occasions. Even after dismissal of the appeals of the respondents by this Court,
the appellants have not been paid the principal sum, till date. Thus, the
respondents have not only breached the contract, but also caused delay at every
stage of proceedings in making payment of sums legally due to the appellants.

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5.4. It is also submitted that had the money payable by the Respondent No. 1
been invested in any other shares, gold, fixed deposit or land in the year 1973, the
said money would have been enhanced manifold. Since 1973-74 till 2020, the
Respondent No. 2, which is a profit-making company, earned several thousand
rupees as gross profit and hence, they are not entitled to any sympathy on the
ground of being State. Thus, according to the learned counsel, there is no
justification for award of a rate of interest lower than commercial rates for the
fair value of the share of the appellants.

5.5. Referring to the decision of this court in Alok Shanker Pandey v. Union of
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India , it is submitted that during the relevant point of time, the rate of interest
was 15% and hence, the appellants are entitled to receive interest at least @ 15%.

5.6. Thus, the learned counsel submitted that the appellants are entitled to
receive the principal of Rs.3,46,79,373/- with interest @ 15% on monthly rest
basis; and interest @ 15% on monthly rest basis on the aforesaid amount till the
date of realization of the claim. In case, the respondents fail to pay the principal
amount and interest @ 15% on monthly rest basis, the Respondent No.1 may be
directed to pay a further interest at the rate of 15% as penal interest over and
above the amounts to be paid in terms of the above till the payment is made.


5
(2007) 3 SCC 545

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6. On the other hand, the learned counsel for the Respondent No. 1 / State of
Rajasthan, submitted that the facts would clearly indicate that the amount was
neither in debt nor for any damages, which normally entails interest. Due to gross
mismanagement, the Respondent No. 2 (company) was going down, and it
ultimately got merged with the State Government. The shareholders, who were
responsible for the mismanagement of the Company, are now going to get a very
handsome amount in terms of the valuation on 31.03.1973 at a huge sum of
Rs.640/- per share for a subscribed share price of Rs.10/- per share against the
original claim of Rs.70.50 per share.

6.1. Adding further, it is submitted that in the suit, the appellants initially
claimed only for Rs.70.50 per share, in 1978. Subsequently, they sought
amendment with regard to enhancement of valuation of share, which was ordered
in 2001, i.e., 23 years later. Thus, the exorbitant interest sought in 2001 cannot be
said to be computed from the year 1973. It is also submitted that the appellants /
shareholders, who did not subscribe at Rs.10/- per share for fresh infusion of
capital, have now got the valuation of Rs.640/- per share, on the same date and
therefore, they have not been prejudiced in any manner.

6.2. Denying the allegation that the shares of the appellants had been
compulsorily acquired by the State Government, the learned counsel submitted
that the events as unfolded during 1969 to 1973 would amply demonstrate that it
is owing to mismanagement of the Company that the State had to intervene and

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infuse further capital in the Company. The State had infused sufficient funds, but
still the company could not be revived or sustained by the then management. It is
in this context that the shares were acquired by the State. Therefore, it is not a
case of compulsory acquisition of shares, but a case of infusion of capital, and
getting equity in return just to keep the company afloat; and the rate of interest
has to be determined in the said background only.

6.3. It is submitted that the second part of Section 34 states that the interest
from the date of decree till the date of payment cannot exceed 6%. The
Explanation states that the rate of interest may exceed 6% p.a. if it is a
‘Commercial transaction’. According to the learned counsel, the State was not
engaged in any industry, trade or business and there was complete absence of
motive of profit in the action taken by them. In fact, it was incurring losses, and
the investment made to keep the loss-making Company unit afloat cannot be
termed as a 'Commercial transaction'. Therefore, the interest rate should not
exceed @ 5% as determined by the High Court.

6.4. Referring to the decision of this Court in Manalal Prabhudayal v. Oriental
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Insurance Co. Ltd. , it is submitted that Appellate Courts should not interfere with
the discretion exercised by the lower Courts to award interest unless the same is
arbitrary and capricious. Hence, the High Court correctly exercised its

6
(2009) 17 SCC 296

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jurisdiction to award simple interest at 5% per annum, which does not suffer from
any infirmity.

6.5. It is also submitted that the High Court has reaffirmed the judgment and
decree dated 28.04.2021 which was set aside by this court by order dated
01.10.2021, without any modification and the same does not have any legal
sanctity. Thus, the High Court has not passed any specific order with regard to
the interest from the date of the institution of the suit till the date of decree, and
from the date of decree till the date of the payment. It has merely stated that 5%
p.a. shall be calculated. Therefore, the order of the High Court relating to rate of
interest is reasonable and the same need not be interfered with by this court.

7. In addition to the above submissions made on the side of the Respondent
No.1, the learned counsel for the Respondent No.2 / Rajasthan State Mines and
Minerals Ltd., submitted that the transfer of shares to the State by the company
in the year 1973 was for the reason as the company was facing financial
difficulties to run its business and further, the shareholders were not possessing
faith in the company and therefore, the company decided to bring the public issue
at Rs.10/- per equity share, but the appellants were not ready to purchase the
shares even at such rate. Thereafter, the litigation to decide the fair price of the
share was initiated by the appellants in 1978 by demanding a sum of Rs.70.50 per
equity share, but later, on the basis of valuation by a private valuer M/s. Naresh
Lakhotia & Company, amended their plaint and claimed Rs.874/- per share. It is

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worth mentioning that the valuer M/s.Naresh Lakhotia & company and M/s.Ray
and Ray are not the valuer appointed by the ICAI. Thus, the appellants are only
entitled to the fair price of the share as on April 1973 and not the interest thereon.

7.1. It is further submitted that there was no contract in respect of payment of
interest between the parties. In such circumstances, section 34 of the Civil
Procedure Code would govern the field, which does not provide for any
compound interest of any kind. That apart, Section 34 clearly mandates interest
@6% per annum for the principal sum adjudged (both during pendency and till
date of payment). Therefore, the question of compound interest does not arise.

7.2. It is ultimately submitted that the appellants have already got the price of
their share at Rs.11.50 per equity share and they are only entitled for the
difference of amount as upheld by this Court and therefore, the appellants are not
entitled to higher rate of interest than 5% awarded by the High Court.

8. As a riposte, the learned counsel for the appellants submitted that the
Respondent No. 1 has attempted to make out a new case for the first time through
their reply, alleging that there was mismanagement by the shareholders of the
Respondent No. 2; that, the appellants after a period of 23 years, claimed an
exorbitant sum towards value of shares, Respondent No. 2 was a loss-making
company, etc .


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8.1. The learned counsel further submitted that the respondents never
challenged the order dated 15.09.2001 granting leave to the appellants to amend
their plaint in CS No.467 of 1978, but sought to urge that the proceedings were
delayed due to amendment. That apart, the contention that the Respondent No. 2
was a loss making one, is utterly false and contrary to the record; and the
appellants have placed on record the profit made by Respondent No.2 between
1974 till 2000, which comes to Rs.40,165,790,819. It is also an incorrect
statement that the Government infused lots of fund during management of the
company by the shareholders including the appellants. According to the
appellants, other than giving one or two bank guarantees, the Respondent No.1
had never funded the company. Thus, according to the learned counsel, such new
allegations are not maintainable. All the issues between the parties had attained
finality except the issue of interest payable to the appellants, which has been
raised in the present appeals.

8.2. It is also submitted that the High Court vide order dated 28.04.2021
specifically directed that interest will be paid from 08.07.1975 till the date of
payment. Therefore, the learned counsel prayed this court to allow these appeals
and grant appropriate rate of interest to the appellants.

9. We have considered the submissions made by the learned counsel
appearing for the parties and perused the records carefully and meticulously.


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10. The genesis of the case arises from a five-decade long litigation concerning
the valuation of shares of Respondent No. 2 which were sold by the appellants to
Respondent No.1. The issue relating to valuation of shares has become final in
view of dismissal of SLP (C) Diary Nos. 27115/2022 and 24887/2022 filed by
Respondent Nos. 1 and 2 respectively, vide orders dated 05.12.2022 and
12.12.2022 passed by this court.

11. As already stated, the only issue remains to be considered by us in the
present round of litigation is the rate of interest on the enhanced valuation of
shares as determined by the High Court and affirmed by this court.

12. Taking note of the interest burden on the State for 50 years on the valuation
of shares, the High Court had granted simple interest @ 5% per annum, by
judgments and orders dated 26.04.2022 and 02.05.2022 which are impugned
herein. According to the appellants, the transactions viz. , transfer of shares were
commercial in nature. Whereas, the respondents stated that they were not engaged
in any industry, trade or business for profit purposes and the investment made
was only to keep the loss-making Company unit afloat, and hence, the
transactions cannot be treated as commercial transactions. Here, it cannot be
disputed that there has been a transaction of trade, viz . sale and purchase of goods,
which clearly implies a commercial transaction between the parties. The term
“Public Interest” denotes a wider concept with its genus rooted to the welfare of
the public at large, with different species attributable to individual and specific

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impact, depending upon the concept and the subject under consideration. It deals
with the impact of a policy decision on the society. Generally, public interest is
anathema to commercial transactions. However, by exception, when the terms are
oppressive or one-sided, they are to be termed as unconscionable, arbitrary and
by application of externalities, public interest will have to lean towards the
individual who has been wronged, as such contracts are deemed to take away the
fairness, affecting the free consent required to culminate into a valid contract. The
constitutional courts, under such circumstances will be armed with Article 14 to
strike down such contracts or to pass appropriate decrees or orders. It will be
useful to refer to the judgment of this court in Central Inland Water Transport
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Corporation Limited and another v. Brojo Nath Ganguly and another , wherein,
it was held as follows:
“82. The position under the American Law is stated in "Reinstatement of the Law-
Second" as adopted and promulgated by the American Law Institute, Volume II
xx which deals with the law of contracts, in Section 208 at page 107, as follows:
“ Section 208 . Unconscionable Contract or Term
If a contract or term thereof is unconscionable at the time the contract is made a
court may refuse to enforce the contract, or may enforce the remainder of the
contract without the unconscionable term, or may so limit the application of any
unconscionable term as to avoid any unconscionable result.”

In the Comments given under that section it is stated at page 107:
“Like the obligation of good faith and fair dealing (S 205), the policy against
unconscionable contracts or terms applies to a wide variety of types of
conduct. The determination that a contract or term is or is not unconscionable is
made in the light of its setting, purpose and effect. Relevant factors include
weaknesses in the contracting process like those involved in more specific rules
as to contractual capacity, fraud and other invalidating causes; the policy also
overlaps with rules which render particular bargains or terms unenforceable on

7
(1986) 3 SCC 156: MANU/SC/0439/1986

17

grounds of public policy. Policing against unconscionable contracts or terms has
sometimes been accomplished by adverse construction of language, by
manipulation of the rules of offer and acceptance or by determinations that the
clause is contrary to public policy or to the dominant purpose of the contract'.
Uniform Commercial Code $ 2-302 Comment 1.... A bargain is not
unconscionable merely because the parties to it are unequal in bargaining
position, nor even because the inequality results in an allocation of risks to the
weaker party. But gross inequality of bargaining power, together with terms
unreasonably favourable to the stronger party, may confirm indications that the
transaction involved elements of deception or compulsion, or may show that the
weaker party had no meaningful choice, no real alternative, or did not in fact
assent or appear to assent to the unfair terms.”

There is a statute in the United States called the Universal Commercial Code
which is applicable to contracts relating to sales of goods. Though this statute is
inapplicable to contracts not involving sales of goods, it has proved very
influential in, what are called in the United States, "non-sales" cases. It has many
times been used either by analogy or because it was felt to embody a general
accepted social attitude of fairness going beyond its statutory application to sales
of goods. In the Reporter's Note to the said Section 208, it is stated at page 112:
“It is to be emphasized that a contract of adhesion is not unconscionable per se,
and that all unconscionable contracts are not contracts of adhesion. Nonetheless,
the more standardized the agreement and the less a party may bargain
meaningfully, the more susceptible the contract or a term will be to a claim of
unconscionability.”

The position has been thus summed up by John R. Pedan in "The Law of Unjust
Contracts" published by Butterworths in 1982, at pages 28-29:
“...Unconscionability represents the end of a cycle commencing with the
Aristotelian concept of justice and the Roman law iaesio enormis, which in turn
formed the basis for the medieval church's concept of a just price and
condemnation of usury. These philosophies permeated the exercise, during the
seventeenth and eighteenth centuries, of the Chancery court's discretionary
powers under which it upset all kinds of unfair transactions. Subsequently the
movement towards economic individualism in the nineteenth century hardened
the exercise of these powers by emphasizing the freedom of the parties to make
their own contract. While the principle of pacta sunt servanda held dominance,
the consensual theory still recognized exceptions where one party was overborne
by a fiduciary, or entered a contract under duress or as the result of fraud.
However, these exceptions were limited and had to be strictly proved. It is
suggested that the judicial and legislative trend during the last 30 years in both
civil and common law jurisdictions has almost brought the wheel full circle. Both
courts and parliaments have provided greater protection for weaker parties from
harsh contracts. In several jurisdictions this included a general power to grant

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relief from unconscionable contracts, thereby providing a launching point from
which the courts have the opportunity to develop a modern doctrine of
unconscionability. American decisions on Article 2. 302 of the UCC have already
gone some distance into this new arena. The expression "laesio enormous used in
the above passage refers to "laesio ultra dimidium vel enormous which in Roman
law meant the injury sustained by one of the parties to an onerous contract when
he had been overreached by the other to the extent of more than one-half of the
value of the subject-matter, as for example, when a vendor had not received half
the value of property sold, or the purchaser had paid more then double value. The
maxim "pacta sunt servanda" referred to in the above passage means "contracts
are to be kept".

83. It would appear from certain recent English cases that the courts in that
country have also begun to recognize the possibility of an unconscionable bargain
which could be brought about by economic duress even between parties who may
not in economic terms be situate differently (see, for instance, Occidental
Worldwide Investment Corpn. v. Skibs A/S Avanti 1976 (1) L Rep. 293, North
Ocean Shipping Co. Ltd. v. Hyundai Construction Co. Ltd. 1979 Q.B. 705, Pao
On v. Lau Yin Long 1980 A.C. 614 and Universe Tankships of Monrovia v.
International Transport Workers Federation 1981 (1) C.R. 129, reversed in 1981
(2) W.L.R. 803and the commentary on these cases in Chitty on Contracts, Twenty-
fifth Edition, Volume I, paragraph 486).

84. Another jurisprudential concept of comparatively modern origin which has
affected the law of contracts is the theory of "distributive justice". According to
this doctrine, distributive fairness and justice in the possession of wealth and
property can be achieved not only by taxation but also by regulatory control of
private and contractual transactions even though this might involve some
sacrifice of individual liberty. In Lingappa Pochanna Appelwar v. State of
Maharashtra and Anr. MANU/SC/0236/1984 : [1985]2 SCR 224 this Court, while
upholding the constitutionality of the Maharashtra Restoration of Lands to
Scheduled Tribes Act, 1974, said (at page 493):

“The present legislation is a typical illustration of the concept of distributive
justice, as modern jurisprudence know it. Legislators, Judges and administrators
are now familiar with the concept of distributive justice. Our Constitution permits
and even directs the State to administer what may be termed 'distributive justice'.
The concept of distributive justice in the sphere of law-making connotes, inter
alia, the removal of economic inequalities and rectifying the injustice resulting
from dealings or transactions between unequals in society. Law should be used
as an instrument of distributive justice to achieve a fair division of wealth among
the members of society based upon the principle: 'From each according to his
capacity, to each according to his needs'. Distributive justice comprehends more
than achieving lessening of inequalities by differential taxation, giving debt relief

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or distribution of property owned by one to many who have none by imposing
ceiling on holdings, both agricultural and urban, or by direct regulation of
contractual transactions by forbidding certain transactions and, perhaps, by
requiring others. It also means that those who have been deprived of their
properties by unconscionable bargains should be restored their property. All such
laws may take the form of forced redistribution of wealth as a means of achieving
a fair division of material resources among the members of society or there may
be legislative control of unfair agreements.”

85. When our Constitution states that it is being enacted in order to give to all the
citizens of India "JUSTICE, social, economic and political", when Clause (1) of
Article 38 of the Constitution directs the State to strive to promote the welfare of
the people by securing and protecting as effectively as it may a social order in
which social, economic and political justice shall inform all the institutions of the
national life, when Clause (2) of Article 38 directs the State, in particular, to
minimize the inequalities in income, not only amongst individuals but also
amongst groups of people residing in different areas or engaged in different
vocations, and when Article 39 directs the State that it shall, in particular, direct
its policy towards securing that the citizens, men and women equally, have the
right to an adequate means of livelihood and that the operation of the economic
system does not result in the concentration of wealth and means of production to
the common detriment and that there should be equal pay for equal work for both
men and women, it is the doctrine of distributive justice which is speaking through
these words of the Constitution.

86. Yet another theory which has made its emergence in recent years in the sphere
of the law of contracts is the test of reasonableness or fairness of a clause in a
contract where there is inequality of bargaining power. Lord Denning, M.R.,
appears to have been the propounder, and perhaps the originator - at least in
England, of this theory. In Gillespie Brothers & Co. Ltd. v. Roy Bowles Transport
Ltd. 1973 (1) Q.B. 400 where the question was whether an indemnity clause in a
contract, on its true construction, relieved the indemnifier from liability arising
to the indemnified from his own negligence, Lord Denning said (at pages 415-6):

“The time may come when this process of 'construing' the contract can be pursued
no further. The words are too clear to permit of it. Are the courts then powerless?
Are they to permit the party to enforce his unreasonable clause, even when it is so
unreasonable, or applied so unreasonably, as to be unconscionable? When it gets
to this point, I would say, as I said many years ago:
there is the vigilance of the common law which, while allowing freedom of
contract, watches to see that it is not abused': John lee & Son (Grantham) Ltd. v.
Railway Executive 1949 (2) All. E.R. 581, 584. It will not allow a party to exempt
himself from his liability at common law when it would be quite unconscionable
for him to do so.”

20


In the above case the Court of Appeal negatived the defence of the indemnifier
that the indemnity clause did not cover the negligence of the indemnified. It was
in Lloyds Bank Ltd. v. Bundy 1974 (3) All E.R. 757 that Lord Denning first clearly
enunciated his theory of "inequality of bargaining power". He began his
discussion on this part of the case by stating (at page 763):

“There are cases in our books in which the courts will set aside a contract, or a
transfer of property, when the parties have not met on equal terms, when the one
is so strong in bargaining power and the other so weak that, as a matter of
common fairness, it is not right that the strong should be allowed to push the weak
to the wall. Hitherto those exceptional cases have been treated each as a separate
category in itself. But I think the time has come when we should seek to find a
principle to unite them. I put on one side contracts or transactions which are
voidable for fraud or misrepresentation or mistake. All those are governed by
settled principles. I go only to those where there has been inequality of bargaining
power, such as to merit and intervention of the court.”

He then referred to various categories of cases and ultimately deduced therefrom
a general principle in these words (at page 765):

“Gathering all together, I would suggest that through all these instances there
runs a single thread. They rest on 'inequality of bargaining power'. By virtue of
it, the English law gives relief to one who, without independent advice, enters into
a contract on terms which are very unfair or transfers property for a
consideration which is grossly inadequate, when his bargaining power is
grievously impaired by reason of his own needs or desires, or by his own
ignorance or infirmity, coupled with undue influences or pressures brought- to
bear on him by or for the benefit of the other. When 1 use the word 'undue' 1 do
not mean to suggest that the principle depends on proof of any wrongdoing. The
one who stipulates for an unfair advantage may be moved solely by his own self-
interest, unconscious of the distress he is bringing to the other. I have also avoided
any reference to the will of the one being 'dominated' or 'overcome' by the
other. One who is in extreme need may knowingly consent to a most improvident
bargain, solely to relieve the straits in which he finds himself. Again, I do not
mean to suggest that every transaction is saved by independent advice. But the
absence of it may be fatal. With these explanations, 1 hope this principle will be
found to reconcile the cases.”

87. Though the House of Lords does not yet appear to have unanimously accepted
this theory, the observations of Lord Dip lock in A. Schroeder Music Publishing
Co. Ltd. v. Macaulay (Formerly Instone) 1974 (1) W.L.R. 1308 are a clear pointer
towards this direction. In that case a song writer had entered into an agreement
with a music publisher in the standard form whereby the publishers engaged the

21

song writer's exclusive services during the term of the agreement, which was five
years. Under the said agreement, the song writer assigned to the publisher the full
copyright for the whole world in his musical compositions during the said term.
By another term of the said agreement, if the total royalties during the term of the
agreement exceeded 5,000 the agreement was to stand automatically extended by
a further period of five years. Under the said agreement, the publisher could
determine the agreement at any time by one month's written notice but no
corresponding right was given to the song writer. Further, while the publisher
had the right to assign the agreement, the song writer agreed not to assign his
rights without the publisher's prior written consent. The song writer brought an
action claiming, inter alia, a declaration that the agreement was contrary to
public policy and void. Plowman, J., who heard the action granted the declaration
which was sought and the Court of Appeal affirmed his judgment. An appeal filed
by the publishers against the judgment of the Court of Appeal was dismissed by
the House of Lords. The Law Lords held that the said agreement was void as it
was in restraint of trade and thus contrary to public policy. In his speech Lord
Diplock however, outlined the theory of reasonableness or fairness of a bargain.
The following observations of his on this part of the case require to be reproduced
in extenso (at pages 1315-16):

“My Lords, the contract under consideration in this appeal is one whereby the
respondent accepted restrictions upon the way in which he would exploit his
earning power as a song writer for the next ten years. Because this can be
classified as a contract in restraint of trade the restrictions that the respondent
accepted fell within one of those limited categories of contractual promises in
respect of which the courts still retain the power to relieve the promisor of his
legal duty to fulfil them. In order to determine whether this case is one in which
that power ought to be exercised, what your Lordships have in fact been doing
has been to assess the relative bargaining power of the publisher and the song
writer at the time the contract was made and to decide whether the publisher had
used his superior bargaining power to exact from the song writer promises that
were unfairly onerous to him. Your Lordships have not been concerned to inquire
whether the public have in fact been deprived of the fruit of the song writer's
talents by reason of the restrictions, nor to assess the likelihood that they would
be so deprived in the future if the contract were permitted to run its full course.

It is, in my view, salutary to acknowledge that in refusing to enforce provisions of
a contract whereby one party agrees for the benefit of the other party to exploit
or to refrain from exploiting his own earning power, the public policy which the
court is implementing is not some 19th-century economic theory about the benefit
to the general public of freedom of trade, but the protection of those whose
bargaining power is weak against being forced by those whose bargaining power
is stronger to enter into bargains that are unconscionable. Under the influence of
Bentham and of laissez-faire the courts in the 19th century abandoned the practice

22

of applying the public policy against unconscionable bargains to contracts
generally, as they had Formerly done to any contract considered to be usurious;
but the policy survived in its application to penalty clauses and to relief against
forfeiture and also to the special category of contracts in restraint of trade. If one
looks at the reasoning of 19th-century judges in cases about contracts in restraint
of trade one finds lip service paid to current economic theories, but if one looks
at what they said in the light of what they did, one finds that they struck down a
bargain if they thought it was unconscionable as between the parties to it and
upheld it if they thought that it was not.

So I would hold that the question to be answered as respects a contract in restraint
of trade of the kind with which this appeal is concerned is: "Was the bargain
fair?" The test of fairness is, no doubt, whether the restrictions are both
reasonably necessary for the protection of the legitimate interests of the promisee
and commensurate with the benefits secured to the promisor under the contract.
For the purpose of this test all the provisions of the contract must be taken into
consideration.”

Lord Diplock then proceeded to point out that there are two kinds of standard
forms of contracts. The first is of contracts which contain standard clauses which
"have been settled over the years by negotiation by representatives of the
commercial interests involved and have been widely adopted because experience
has shown that they facilitate the conduct of trade". He then proceeded to state,
"If fairness or reasonableness were relevant to their enforceability the fact that
they are widely used by parties whose bargaining power is fairly matched would
raise a strong presumption that their terms are fair and reasonable." Referring to
the other kind of standard form of contract Lord Diplock said (at page 1316):

“The same presumption, however, does not apply to the other kind of standard
form of contract. This is of comparatively modern origin. It is the result of the
concentration of particular kinds of business in relatively few hands. The ticket
cases in the 19th century provide what are probably the first examples. The terms
of this kind of standard form of contract have not been the subject of
negotiation between the parties to it, or approved by any organisation
representing the interests of the weaker party. They have been dictated by that
party whose bargaining power, either exercised alone or in conjunction with
others providing similar goods or services, enables him to say: 'If you want these
goods or services at all, these are the only terms on which they are
obtainable. Take it or leave it'.

To be in a position to adopt this attitude towards a party desirous of entering into
a contract to obtain goods of services provides a classic instance of superior
bargaining power.”


23

88. The observations of Lord Denning, M.R., in Levison and Anr. v. Patent Steam
Carpet Co. Ltd. 1978 (1) Q.B. 69 are also useful and require to be quoted. These
observations are as follows (at page 79):

“In such circumstances as here the Law Commission in 1975 recommended that
a term which exempts the stronger party from his ordinary common law liability
should not be given effect except when it is reasonable: see The Law Commission
and the Scottish Law Commission Report, Exemption Clauses, Second Report
(1975) (August 5, 1975), Law Com. No. 69 (H.C. 605), pp. 62, 174; and there is
a bill now before Parliament which gives effect to the test of reasonableness. This
is a gratifying piece of law reform: but 1 do not think we need wait for that bill to
be passed into law. You never know what may happen to a bill. Meanwhile the
common law has its own principles ready to hand. In Gillespie Bros. & Co. Ltd.
v. Roy Bowles Transport Ltd. 1973 Q.B. 400, I suggested that an exemption or
limitation clause should not be given effect if it was unreasonable, or if it would
be unreasonable to apply it in the circumstances of the case. I see no reason why
this should not be applied today, at any rate in contracts in standard forms where
there is inequality of bargaining power.”

89. The Bill referred to by Lord Denning in the above passage, when enacted,
became the Unfair Contract Terms Act, 1977. This statute does not apply to all
contracts but only to certain classes of them. It also does not apply to contracts
entered into before the date on which it came into force, namely, February 1,
1978; but subject to this it applies to liability for any loss or damage which is
suffered on or after that date. It strikes at clauses excluding or restricting liability
in certain classes of contracts and torts and introduces in respect of clauses of
this type the test of reasonableness and prescribes the guidelines for determining
their reasonableness. The detailed provisions of this statute do not concern us but
they are worth a study.

90. In Photo Production Ltd. v. Securicor Transport Ltd. 1980 A.C. 827 a case
before the Unfair Contract Terms Act, 1977, was enacted, the House of Lords
upheld an exemption clause in a contract on the defendants' printed form
containing standard conditions. The decision appears to proceed on the ground
that the parties were businessmen and did not possess unequal bargaining power.
The House of Lords did not in that case reject the test of reasonableness or
fairness of a clause in a contract where the parties are not equal in bargaining
position. On the contrary, the speeches of Lord Wilberforce, Lord Diplock and
Lord Scarman would seem to show that the House of Lords in a fit case would
accept that test. Lord Wilberforce in his speech, after referring to the Unfair
Contract Terms Act, 1977, said (at page 843):



24

“This Act applies to consumer contracts and those based on standard terms and
enables exception clauses to be applied with regard to what is just and
reasonable. It is significant that Parliament refrained from legislating over the
whole field of contract. After this Act, in commercial matters generally, when the
parties are not of unequal bargaining power, and when risks are normally borne
by insurance, not only is the case for judicial intervention undemonstrated, but
there is everything to be said, and this seems to have been Parliament's intention,
for leaving the parties free to apportion the risks as they think fit and for
respecting their decisions.”

Lord Diplock said (at page 850-51):
“Since the obligations implied by law in a commercial contract are those which,
by judicial consensus over the years or by Parliament in passing a statute, have
been regarded as obligations which a reasonable businessman would realise that
he was accepting when he entered into a contract of a particular kind, the court's
view of the reasonableness of any departure from the implied obligations which
would be involved in construing the express words of an exclusion clause in one
sense that they are capable of bearing rather than another, is a relevant
consideration in deciding what meaning the words were intended by the parties
to bear.”

Lord Scarman, while agreeing with Lord Wilberforce, described (at page 853) the
action out of which the appeal before the House had arisen as "a commercial
dispute between parties well able to look after themselves" and then added, "In
such a situation what the parties agreed (expressly or impliedly) is what matters;
and the duty of the courts is to construe their contract according to its tenor.

91. As seen above, apart from judicial decisions, the United States and the United
Kingdom have statutorily recognized, at least in certain areas of the law of
contracts, that there can be unreasonableness (or lack of fairness, if one prefers
that phrase) in a contract or a clause in a contract where there is inequality of
bargaining power between the parties although arising out of circumstances not
within their control or as a result of situations not of their creation. Other legal
systems also permit judicial review of a contractual transaction entered into in
similar circumstances. For example, Section 138(2) of the German Civil Code
provides that a transaction is void "when a person" exploits "the distressed
situation, inexperience, lack of judgmental ability, or grave weakness of will of
another to obtain the grant or promise of pecuniary advantages . . . which are
obviously disproportionate to the performance given in return." The position
according to the French law is very much the same.

92. Should then our courts not advance with the times? Should they still continue
to cling to outmoded concepts and outworn ideologies? Should we not adjust our
thinking caps to match the fashion of the day? Should all jurisprudential

25

development pass us by, leaving us floundering in the sloughs of nineteenth-
century theories? Should the strong be permitted to push the weak to the wall?
Should they be allowed to ride roughshod over the weak? Should the courts sit
back and watch supinely while the strong trample under foot the rights of the
weak? We have a Constitution for our country. Our judges are bound by their
oath to "uphold the Constitution and the laws". The Constitution was enacted to
secure to all the citizens of this country social and economic justice. Article 14 of
the Constitution guarantees to all persons equality before the law and the equal
protection of the laws. The principle deducible from the above discussions on this
part of the case is in consonance with right and reason, intended to secure social
and economic justice and conforms to the mandate of the great equality clause in
Article 14. This principle is that the courts will not enforce and will, when called
upon to do so, strike down an unfair and unreasonable contract, or an unfair and
unreasonable clause in a contract, entered into between parties who are not equal
in bargaining power. It is difficult to give an exhaustive list of all bargains of this
type. No court can visualize the different situations which can arise in the affairs
of men. One can only attempt to give some illustrations. For instance, the above
principle will apply where the inequality of bargaining power is the result of the
great disparity in the economic strength of the contracting parties. It will apply
where the inequality is the result of circumstances, whether of the creation of the
parties or not. It will apply to situations in which the weaker party is in a position
in which he can obtain goods or services or means of livelihood only upon the
terms imposed by the stronger party or go without them. It will also apply where
a man has no choice, or rather no meaningful choice, but to give his assent to a
contract or to sign on the dotted line in a prescribed or standard form or to accept
a set of rules as part of the contract, however unfair, unreasonable and
unconscionable a clause in that contract or form or rules may be. This principle,
however, will not apply where the bargaining power of the contracting parties is
equal or almost equal. This principle may not apply where both parties are
businessmen and the contract is a commercial transaction. In today's complex
world of giant corporations with their vast infra-structural organizations and with
the State through its instrumentalities and agencies entering into almost every
branch of industry and commerce, there can be myriad situations which result in
unfair and unreasonable bargains between parties possessing wholly
disproportionate and unequal bargaining power. These cases can neither be
enumerated nor fully illustrated. The court must judge each case on its own facts
and circumstances.”

In the present case, the transaction, though commercial, is not between two
businessmen or entities; the State and its instrumentality are parties to the contract

26

with better bargaining or imposing authority; and from the records, we find that
there was no public interest in offering a lesser sum. Further, with the price fixed
found to be unconscionable, this Court affirmed the enhanced price fixed by the
High Court.

13. Pertinently, it is to be pointed out at this juncture that there was no
agreement between the parties relating to grant of interest for the delayed
payment. Even the exchange of communications between the parties remains
silent on this aspect. In the absence of any agreement or contract, the provisions
of Section 34 of the Code of Civil Procedure dealing with ‘interest’ would come
into play, and the same is extracted below, for ready reference:
“34. Interest.—(1) Where and insofar 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.
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.

(2) Where such a decree is silent with respect to the payment of further interest
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.”

13.1. The above provision empowers the court to grant interest at three different
stages of a money decree viz ., (i) the court may award interest on the principal

27

sum claimed at a rate it deems reasonable, for the period before the suit was filed.
Such interest is generally governed by agreements between the parties; (ii) The
court may award interest on the principal amount from the date of filing the suit
until the date of the decree, at a reasonable rate. Here, the court has full discretion
to determine the interest rate based on fairness, commercial usage and equity; and
(iii)the court may grant interest on the total decretal amount (principal + interest
before decree) from the date of the decree until payment, at a rate not exceeding
6% per annum unless otherwise specified in contractual agreements or statutory
provisions. However, if the claim arises from a commercial transaction, courts
may allow interest at a higher rate based on agreements between the parties.

14. Furthermore, it is noteworthy to refer to the following case laws and the
observations made therein concerning the issue involved herein:
(i) Clariant International Limited and another v. Securities & Exchange Board of
8
India
“Interest can be awarded in terms of an agreement or statutory provisions. It can
also be awarded by reason of usage or trade having the force of law or on equitable
considerations. Interest cannot be awarded by way of damages except in cases
where money due is wrongfully withheld and there are equitable grounds therefor,
for which a written demand is mandatory. In absence of any agreement or statutory
provision or a merchantile usage, interest payable can be only at the market rate.
Such interest is payable upon establishment of totality of circumstances justifying
exercise of such equitable jurisdiction.”



8
2004 (8) SCC 524

28

(ii) Alok Shanker Pandey (supra)
“We are of the opinion that there is no hard-and-fast rule about how much interest
should be granted and it all depends on the facts and circumstances of each case.
We are of the opinion that the grant of interest of 12% per annum is appropriate
in the facts of this particular case. However, we are also of the opinion that since
interest was not granted to the appellant along with the principal amount, the
respondent should then in addition to the interest at the rate of 12% per annum
also pay to the appellant interest at the same rate on the aforesaid interest from
the date of payment of instalments by the appellant to the respondent till the date
of refund of this amount, and the entire amount mentioned above must be paid to
the appellant within two months from the date of this judgment.’

9
(iii) Thazhathe Thazhathe Purayil Sarabi v. Union of India
“25. It is, therefore, clear that the court, while making a decree for payment of
money is entitled to grant interest at the current rate of interest or contractual rate
as it deems reasonable to be paid on the principal sum adjudged to be payable
and/or awarded, from the date of claim or from the date of the order or decree for
recovery of the outstanding dues. There is also hardly any room for doubt that
interest may be claimed on any amount decreed or awarded for the period during
which the money was due and yet remained unpaid to the claimants.

26. The courts are consistent in their view that normally when a money decree is
passed, it is most essential that interest be granted for the period during which the
money was due, but could not be utilised by the person in whose favour an order of
recovery of money was passed.
…
30. As we have indicated hereinbefore, when there is no specific provision for grant
of interest on any amount due, the court and even tribunals have been held to be
entitled to award interest in their discretion, under the provisions of Section 3 of the
Interest Act and Section 34 of the Civil Procedure Code.”

10
(iv) Rampur Fertiliser Limited v. Vigyan Chemicals Industries
“19. It was further held in Clariant International case [(2004) 8 SCC 524] that in
the absence of any agreement or statutory provision or a mercantile usage, interest
payable can be only at the market rate and such interest is payable upon
establishment of totality of circumstances justifying exercise of such equitable

9
(2009) 7 SCC 372
10
(2009) 12 SCC 324

29

jurisdiction. It was also held that in ascertaining the rate of interest the courts of
law can take judicial notice of both inflation as also fall in bank rate of interest.
The bank rate of interest both for commercial purposes and other purposes has
been the subject-matter of statutory provisions as also the judge-made laws. In the
said case reference was made to the decisions in Kaushnuma Begum v. New India
Assurance Co. Ltd. [(2001) 2 SCC 9 : 2001 SCC (Cri) 268] , H.S. Ahammed
Hussain v. Irfan Ahammed [(2002) 6 SCC 52 : 2002 SCC (Cri) 1263] and United
India Insurance Co. Ltd. v. PatriciaJean Mahajan [(2002) 6 SCC 281 : 2002 SCC
(Cri) 1294] and it was observed that: (Clariant International case [(2004) 8 SCC
524] , SCC p. 541, para 36)
“ 36. … Even in cases of victims of motor vehicle accidents, the courts have upon
taking note of the fall in the rate of interest held 9% interest to be reasonable.”

20. In Assam Small Scale Industries Development Corpn. Ltd. [(2005) 13 SCC 19]
also in terms of Section 34 of the Code, in relation to the transactions made prior
to coming into force of the Act, simple interest at the rate of 9% per annum was
granted taking the same to be bank rate at the relevant time.

21. Therefore, in view of the foregoing legal proposition, we hold that the High
Court was not justified in granting interest at the rate of 18% per annum with
monthly rests. Considering the facts and circumstances of the present case we direct
that pendente lite and future interest at the rate of 9% shall be paid.”



(v) M/s. Tomorrowland Limited v. Housing and Urban Development Corporation
11
Limited and another
“48. “The Appellant, of course, can seek award of interest under Section 34 of the
CPC, which inter alia provides that “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.”

49. “It is trite law that under Section 34 of the CPC, the award of interest is a
discretionary exercise steeped in equitable considerations. The law in this regard
has been succinctly discussed in the Constitution Bench judgment of this Court in
Central Bank of India v. Ravindra & Ors.; (2002) 1 SCC 367, which states:
“Award of interest pendente lite or post-decree is discretionary with the Court as
it is essentially governed by Section 34 of the CPC de hors the contract between
the parties. In a given case if the Court finds that in the principal sum adjudged
on the date of the suit, the component of interest is disproportionate with the

11
2025 LiveLaw (SC) 205

30

component of the principal sum actually advanced, the Court may exercise its
discretion in awarding interest pendente lite and post-decree interest at a lower
rate or may even decline to award such interest. The discretion shall be exercised
fairly, judiciously, and for not arbitrary or fanciful reasons.”

58. “We are conscious of the fact that as a general principle, in commercial
disputes, the award of interest pendente lite or post-decree is typically granted as
a matter of course. This is because such interest serves to compensate the
aggrieved party for the time value of money that was due but withheld during the
legal process.”

Thus, it is abundantly clear that the Courts have the authority to determine the
appropriate interest rate, considering the totality of the facts and circumstances in
accordance with law. That apart, the Courts have the discretion to decide whether
the interest is payable from the date of institution of the suit, a period prior to that,
or from the date of the decree, depending on the specific facts of each case.

15. Admittedly, the shares belonging to the appellants were transferred to the
State Government in 1973. In 1978, the appellants instituted the suit claiming a
valuation of Rs.70.50 per share. Thereafter, they sought an amendment increasing
the valuation to Rs.874/- per share, based on the report of a private valuer
M/s. Naresh Lakhotia & Co. The amendment sought was allowed on 12.09.2001.
Subsequently, the appellants accepted the valuation of Rs.640/- per share as
determined by M/s Ray & Ray, which was also ordered by the High Court and
affirmed by this Court. It is also an admitted fact that the Respondent No. 1
agreed to pay a fair valuation for the shares to the appellants, but is yet to make
the payment. Such being the scenario, wherein, the appellants having suffered a

31

delay of five decades in receiving the payment, are entitled to be reasonably
compensated by way of interest. However, their claim of interest at 18% with
quarterly rest or 15% with monthly rest, in the opinion of this court, is
unreasonable and cannot be accepted as such quarterly or monthly rest is beyond
the scope of Section 34.

16. Be it noted, while the discretion to award interest, whether pendente lite or
post-decree, is well recognized, its exercise must be guided by equitable
considerations. The rate and period of interest cannot be applied mechanically or
at an unreasonably high rate without any rationale. Though it is not possible to
arrive at the actual value of improvement or the inflation on the fair consideration,
if paid at the relevant point of time, it is just and necessary that the rate of interest
must be a reparation for the appellant. The Court must ensure that while the
claimant is fairly compensated, the award does not become punitive or unduly
burdensome on the Judgement Debtor. Therefore, the rate of interest should be
determined in a manner that balances both fairness and financial impact, taking
into account the “loss of use” principle and economic prudence, in the specific
facts of each case.

17. Considering the prolonged pendency of the dispute regarding the valuation
of shares, which has only been determined recently, and the substantial share
amount involved, and also keeping in mind that this is a commercial transaction,
and the entire burden of interest along with principal value falls upon the

32

Government, it is necessary in the present case to award reasonable interest, in
order to strike a balance between the parties. Thus, in these peculiar facts and
circumstances, we deem it fit, just and appropriate to award simple interest at the
th
rate of 6% per annum from 8 July 1975, on the enhanced valuation of shares till
the date of decree and interest at the rate of 9% per annum from the date of decree
till the date of realisation. The interest shall be paid along with the amount due
towards the enhanced value of the shares, after adjusting the amount already paid,
to the appellants, within a period of two months from today.

18. Accordingly, all the appeals stand disposed of. The impugned judgments
and orders passed by the High Court are modified to the extent indicated above.
No costs. Connected Miscellaneous Application(s), if any, shall stand disposed
of.

............................. J.
[J.B. Pardiwala]


.............................J.
[R. Mahadevan]
NEW DELHI;
APRIL 01, 2025