Principal Sum Adjudged and Three Stages of Interest Under Section 34 CPC

 In money decrees, one of the most important questions is: what exactly is the principal sum adjudged, and how is interest calculated before the suit, during the pendency of the suit, and after the decree. Under Section 34 of the Code of Civil Procedure, this distinction is crucial because the court does not treat all kinds of interest in the same manner.

For district judge interview purposes, the concept should be understood in three parts: first, the meaning of principal sum adjudged; second, the three stages of interest; and third, the leading case law explaining the doctrine.

Meaning of principal sum adjudged

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Whether plaintiff is entitled to get interest on decretal amount in suit for malicious prosecution?

 Under Section 34 of the Code the Court has a discretion to order interest when "a decree is for the payment of money". The learned Counsel for the plaintiff relied upon the judgment of the Division Bench of the Madras High Court in Ramalingam Chettiyar (supra) to urge that the expression "money" should not be understood in a limited sense of an unascertained sum. It was held by the Division Bench in that case that a decree for payment of damages was also a decree "for the payment of money" as contemplated by Section 34 of the Code. This judgment has been subsequently followed by the Division Bench of the Kerala High Court in K.S.E. Board (supra). Following the view as taken by the Division Bench of the Madras High Court, it is held that a decree for payment of money would also include a decree for grant of damages. On that count the plaintiff is entitled to claim interest on the said decree from the date of filing of the suit. It is by now well settled that the grant of interest pendente lite is a matter within discretion of the Court and its grant is not limited only to commercial transactions. Reference in that regard can be made to the decision in Vikram Somaji Dhabale (supra). There has to be a justifiable reason therefore to deny a successful plaintiff the grant of pendente lite interest. In the facts of the present case, there does not appear to be any reason whatsoever to deny the plaintiff that relief. Though it was urged on behalf of the defendant Nos. 1 and 2 that they could not be blamed for the delay in deciding the proceedings, the same cannot be a reason to deprive the successful plaintiff the fruits of interest pendente lite. The appellate Court without assigning any reason did not grant interest pendente lite. Substantial question of law No. 3 is answered by holding that the plaintiff is entitled to interest on the decreetal amount from the date of filing of the suit.

IN THE HIGH COURT OF BOMBAY (NAGPUR BENCH)

Second Appeal No. 63 of 2018 and Cross Objection/Appeal No. 22 of 2018 in Second Appeal No. 63 of 2018

Decided On: 29.06.2018

 Rajendra  Vs. Ashish and Ors.

Hon'ble Judges/Coram:

A.S. Chandurkar, J.

Citation: 2019(4) MHLJ 451

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Notes on S 34 of CPC- Payment of interest

S 34 of CPC makes provision for payment of interest in cases where the decree is for payment of money.

In any suit for money,the interest which may be awarded to a plaintiff may be divided into following three heads:

a). Interest prior to institution of suit: This is actually a matter of substantive law and not procedural.If parties have stipulated the rate of such interest,the court will normally allow that rate.If that rate is excessive,it will be scaled down by court under money lender'sAct or usurious loans Act or S 74 of Indian contract Act.

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Whether court can grant pre-suit interest as per S 34 of CPC?

 Section 34 of the Code of Civil Procedure, 1908 (CPC)empowers the court to award interest for the period from the date of the suit to the date of the decree and from the date of the decree to the date of payment where the decree is for payment of money. Section 34 of the CPC does not empower the court to award pre-suit interest. The pre-suit interest would ordinarily depend on the contract (express or implied) between the parties or some statutory provisions or the mercantile usage. Be that as it may, we do not find that on equitable considerations the landlady is entitled to interest for the period January 20, 2000 to July 20, 2005.

SUPREME COURT OF INDIA

Secretary/General Manager Chennai Central Co-operative Bank Ltd. & ANR. Vs S. Kamalaveni Sundaram

Dated:JANUARY 4, 2011

R.M. Lodha, J.

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Whether purchase of medicine by government is commercial transaction?

 In M/s.Meenakshi Pharma Distributors V.
State of Karnataka and others (AIR 1999 Karnataka
192), the State of Karnataka purchased medicines from
the plaintiff for the purpose of distribution among
government hospitals. The parties agreed that rate of
interest will be 15% per annum on the amount due. In
the suit filed by the supplier of medicines, the trial court
awarded interest only at the rate of 6% per annum from
the date of suit till the date of realisation. Challenging
the same, the plaintiff (supplier) filed appeal. Dismissing
the appeal, the Karnataka High Court held thus:-
“ the definition of the commercial transaction has to be
taken in conjunction with the person against whom the
liability has arisen. The person who has incurred the
liability is not the person who is the claimant of the money
or interest. It means when we have to judge the
commercial transaction, it has to be looked into whether
the person incurring the liability under the transaction has
incurred the liability in the context of trade or business or
industry. The respondent in this case purchased medicines
from the plaintiff - appellant and incurred the liability for
sums claimed. In ordinary course, Government purchases
medicines for being distributed among the Government
Hospitals. In Government Hospitals, the medicines are
provided to the ordinary people, common people as well as
to those who are down-trodden and for the betterment of
the people. By examining the nature of transaction it
cannot be said to be connected with any industry, trade or
business of the party who has incurred the liability, and
cannot be said to be commercial transaction as the
Government's Health Department purchased the same to
supply the medicines to various Government Hospitals for
the benefit of citizens and to be provided to common
persons subjected to various ailments.
Therefore, in my opinion, this transaction cannot be
termed as a commercial transaction. In this view of the
matter, the proviso of Section 34 will not be applicable to
the present transaction because when the medicines have
been purchased by the Government, it is nobody's case
that they were purchased to sell. It is no doubt that
Government purchases medicines to provide them to the
Government Hospitals for the welfare of the people as it
is the duty and responsibility of the Government to
ensure public health i.e the duty of the State under the
Constitution of India”.


IN THE HIGH COURT OF KERALA AT ERNAKULAM
PRESENT:
THE HONOURABLE MR.JUSTICE K.T.SANKARAN
&
THE HONOURABLE MR. JUSTICE P.D.RAJAN
THURSDAY, THE 16TH DAY OF OCTOBER 2014
AS.No. 533 of 2000 ( )
-----------------------

 THE SUPERINTENDING ENGINEER,
Vs
 m p varghese
Citation;AIR 2015(NOC)530 kerala

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Whether "commercial transaction" include "professional transaction." for purpose of S34 of CPC?

In view of this, 'profession' will have to be treated as different from 'industry', 'trade', and 'business'. There is a clear distinction between the profession on one hand, and industry, trade and business on the other. While dealing with the 'commercial transactions" for the purpose of Section 34, C.P.C. the Legislature has not used the word 'profession' along with the words, 'industry' 'trade, or 'business'. The commercial transactions which are strictly connected with the industry, trade or business alone are included for the purposes of Section 34, C.P.C. as provided in Explanation II. Though the 'commercial transaction" is inclusive of "industry, trade and business", but it is exclusive of "profession". The fact that the Legislature has not included the word 'profession' along with the, words "industry, trade and business" to specify the "commercial transaction" cannot be igorned. The proviso to Section 34, C.P.C. will, therefore, not govern the cases where the

loan is advanced for the 'profession' or for "professional transactions".

 In our opinion, the words "commercial transaction" do not include the "profession" or "professional transaction."

We, therefore, find that the learned trial Judge was right in holding in the absence of any evidence to that effect that the present loan is a professional loan, and cannot be termed as a commerical transaction. Awarding future interest at the rate of 6 p.c. p.a. cannot be said to be in contravention of the provisions of Section 34, C.P.C.

Bombay High Court

Dena Bank, Ahmednagar vs Prakash Birbhan Kataria And .
.. on 26 April, 1993

Equivalent citations: AIR 1994 Bom 343, 
1994 (1) BomCR 537, 1994 (1) MhLj 198

Bench: B Deshmukh, V Sirpurkar

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Leading judgment on grant of interest

 Award of interest pendente lite and 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 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 awarding such interest. The discretion shall be exercised fairly, judiciously and for reasons and not in an arbitrary or fanciful manner.
Supreme Court of India

Central Bank Of India vs Ravindra And Ors. on 18 October, 2001

Equivalent citations: AIR 2001 SC 3095, 2002 (50) BLJR 207

Author: R Lahoti

Bench: A Anand, K Thomas, R Lahoti, N S Hegde, S Variava

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General rule of appropriation towards a decretal amount

 From what has been stated in the said decision, the following principles emerge:

a) The general rule of appropriation towards a decretal amount was that such an amount was to be adjusted strictly in accordance with the directions contained in the decree and in the absence of such directions adjustments be made firstly towards payment of interest and cost and thereafter towards payment of the principal amount subject, of course, to any agreement between the parties.

b) The legislative intent in enacting sub-rules 4 and 5 is clear to the pointer that interest should cease to run on the deposit made by the judgment debtor and notice given or on the amount being tendered outside the Court in the manner provided in Order XXI Rule 1 sub-clause (b).

c) If the payment made by the judgment debtor falls short of the decreed amount, the decree holder will be entitled to apply the general rule of appropriation by appropriating the amount deposited towards the interest, then towards cost and finally towards the principal amount due under the decree.

d) Thereafter, no further interest would run on the sum appropriated towards the principal. In other words if a part of the principal amount has been paid along with interest due thereon as on the date of issuance of notice of deposit interest on that part of the principal sum will cease to run thereafter. e) In cases where there is a shortfall in deposit of the principal amount, the decree holder would be entitled to adjust interest and cost first and the balance towards the principal and beyond that the decree holder cannot seek to reopen the entire transaction and proceed to recalculate the interest on the whole of the principal amount and seek for re-appropriation.

Supreme Court of India

Bharat Heavy Electricals Ltd. vs R.S.Avtar Singh & Co. on 5 October, 2012

Author: …..……….…………………………...J.

Bench: B.S. Chauhan, Fakkir Mohamed Kalifulla

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Meaning of principal sum adjudged for charging interests by banks

(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.
Supreme Court of India

CENTRAL BANK OF INDIA vs. RAVINDRA AND ORS.

DATE OF JUDGMENT: 18/10/2001

BENCH:DR. A.S. ANAND CJ &  K.T. THOMAS & R.C. LAHOTI & N. SANTOSH HEGDE & S.N.
VARIAVA
Citation : (2002)1 SCC 367
Case No. : Special Leave Petition (civil)  2421 of 1993

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