Storage penalties are impermissible where the seller’s failure to supply caused delayed lifting.

FCI accepted the plaintiff firm’s tender for damaged food grains for ₹65,38,110.

After the plaintiff paid the tender amount in January 1999, FCI made deductions from its bills, including deductions towards commercial tax and charges relating to delayed lifting of the goods.

The plaintiff sued to recover the amount deducted; the trial court decreed ₹2,46,960 with interest at 12% per annum.

FCI appealed, challenging the deductions and the rate of interest.

1. Whether FCI was entitled under the tender terms or applicable law to deduct commercial tax and charges for delayed lifting from the plaintiff’s bills

2. Whether the trial court’s award of interest at 12% per annum should be modified under Section 34 of the Code of Civil Procedure, 1908

Section 34 CPC permits a court to award reasonable interest on a money decree from the date of suit to the date of decree, and further interest after the decree, ordinarily not exceeding 6% per annum.

For liability arising from a commercial transaction, further interest may exceed 6% but cannot exceed the contractual rate or, absent one, the rate at which nationalised banks lend for commercial transactions.

The court also considered the parties’ accepted tender terms in determining whether the deductions were authorised.

The court found that the accepted tender contained no provision for deducting commercial tax, and FCI’s witness admitted that the tax deducted was not payable and had not been deposited with the Commercial Tax Department.

The evidence also showed that FCI could not supply the prescribed quantity of goods, so the plaintiff could not fairly be charged penalties for delayed lifting attributable to FCI.

As to interest, the plaintiff had produced no evidence of commercial loss warranting a higher rate, and the record disclosed no contractual or statutory basis for 12%; the court therefore considered 6% reasonable under Section 34 CPC.

The decree for the principal amount of ₹2,46,960 was upheld, but interest was reduced from 12% to 6% per annum from the date of institution of the suit, 27 March 2002, until realization.

The decree was modified accordingly, with the remaining part left unaltered.