Absent a commercial transaction, post-decree interest under Section 34 CPC cannot exceed 6% per annum.

Dwarka Cement Works supplied 50,000 metric tonnes of cement to the Irrigation Department of the State of Gujarat under an agreement dated 2 May 1988.

Although the State received and utilised the cement, payments were made irregularly, leaving a principal balance of approximately ₹31,60,966.63 outstanding.

The plaintiff instituted Special Civil Suit No. 163 of 1995 seeking recovery of the principal amount, pre-suit interest, pendente lite interest, and future interest.

The trial court decreed the principal amount and awarded pre-suit interest at 15% per annum, pendente lite interest at 18% per annum on the principal together with the pre-suit interest, and post-decree interest at 15% per annum.

The State appealed, restricting its challenge to the interest component of the decree.

Whether the plaintiff was entitled to pre-suit interest at 15% per annum on the principal amount in the absence of a contractual stipulation or statutory provision providing for such interest?

Whether the trial court was justified in awarding pendente lite interest at 18% per annum on the principal amount together with the pre-suit interest?

Whether the transaction constituted a “commercial transaction” under Section 34 CPC so as to permit post-decree interest exceeding 6% per annum?

What rate of pendente lite and post-decree interest was reasonable and legally sustainable under Section 34 CPC?

The Court applied Section 34 of the Code of Civil Procedure, 1908, under which interest from the date of suit to the date of decree is discretionary and must be fixed at a reasonable rate; post-decree interest ordinarily cannot exceed 6% per annum, except where the liability arises from a commercial transaction, in which case it may exceed 6% but cannot exceed the contractual rate or, in the absence of such rate, the rate at which nationalised banks lend for commercial transactions.

Pre-suit interest may be granted where authorised by contract, statute, usage, or equitable principles, but such discretion must be exercised fairly, judicially, and on reasoned grounds.

Relying on Central Bank of India v. Ravindra and M/s. Tomorrowland Ltd. v. HUDCO, the Court reiterated that award of interest is discretionary and founded on justice, equity, and good conscience, not arbitrary or fanciful considerations.

Under Explanation II to Section 34, a transaction is commercial only if it is connected with the industry, trade, or business of the party incurring the liability.

The Court held that there was no contractual provision for payment of interest and no applicable statutory basis for the plaintiff’s claim for pre-suit interest.

The plaintiff’s computation was based on separate invoices and varying periods of delay, whereas the State maintained a running account; therefore, the amounts and periods of delay could not be mechanically clubbed together.

The trial court had also failed to explain why two years and a rate of 15% were selected, and the plaintiff had delayed instituting the suit even after service of the statutory notice.

Accordingly, the award of ₹9,48,000 as pre-suit interest was held unsustainable.

For the period from institution of the suit to the decree, the Court found the trial court’s award of 18% excessive and unsupported by adequate reasons.

Considering the delayed payments and the circumstances of the case, it fixed pendente lite interest at 12% per annum on the principal amount alone.

As to post-decree interest, the Court found that the State procured cement for governmental construction and departmental purposes, not for its industry, trade, or business.

The transaction therefore did not fall within the commercial-transaction exception in Section 34, making interest above 6% legally impermissible.

The award of ₹9,48,000 as pre-suit interest at 15% per annum was set aside.

The plaintiff was awarded simple pendente lite interest at 12% per annum on ₹31,60,966.63 from 12 July 1991, the date of institution of the suit, until 19 May 2009, the date of the trial court’s decree.

It was further awarded post-decree interest at 6% per annum on the principal amount from 19 May 2009 until realization.

The decree for the principal amount remained unaltered, and the judgment and decree were modified accordingly.