Courts have authority to determine rate of interest: Apex Court

Update: 2025-04-01 19:36 GMT

New Delhi: The Supreme Court on Tuesday said courts were authorised to determine the rate of interest and decide if interest was payable from date of filing a suit, a period prior to that, or from the date of decree, depending on the facts of each case.

The observations of a bench comprising Justices J B Pardiwala and R Mahadevan came in a verdict that ended a 52-year-long legal battle between private parties including I K Merchants Pvt Ltd and the Rajasthan government over the valuation of shares transferred to the state government.

The bench also modified the interest rate applicable to delayed payments concerning the valuation of shares.

Penning a 32-page judgement, Justice Mahadevan said, “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.

The verdict added, “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.”

The appeal was filed by the private firm against the judgments and orders of the Calcutta High Court of April 26, 2022, and May 2, 2022.

The High Court had upheld the valuation of shares conducted by M/s Ray & Ray at Rs 640 per share and granted a simple interest rate of 5 per cent per annum.

Dissatisfied with the judgement, the private firm and others sought an enhancement of the interest rate, while the state government contested the valuation.

The dispute dates back to 1973, when shares of Rajasthan State Mines and Minerals Ltd. (formerly Bikaner Gypsums Ltd.) were transferred by the appellants to the Rajasthan government.

The private firm had initiated a suit in 1978, claiming a higher valuation for their shares.

Over the years, multiple assessments were conducted, and in 2019, M/s Ray & Ray was appointed by the high court to determine the fair value, which was fixed at Rs 640 per share.

After a prolonged legal battle, the high court decreed the payment of Rs 640 per share with the 5 percent simple interest per annum.

However, the appellants challenged this ruling, arguing that the delay of nearly five decades necessitated a higher compensation.

The top court considered the extraordinary delay in receiving the payment and ruled the appellants were entitled to reasonable compensation by way of interest.

It rejected the appellants’ demand for 18 per cent interest with a quarterly rest or 15 per cent with monthly rest, deeming it excessive and beyond the scope of Section 34 of the Civil Procedure Code.

The top court exercised its discretion to balance fairness and financial impact, modifying the interest rate and awarded 6 per cent per annum simple interest from July 8, 1975, until the date of decree.

It further said a 9 per cent per annum simple interest would be paid from the date of decree until realisation of the payment and directed the Rajasthan government to pay the enhanced valuation amount along with the revised interest within two months.

“Be it noted, while the discretion to award interest, whether pendente lite or post-decree, is well recognised, 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…,” the bench said.

The top court said it ought to ensure while the claimant was fairly compensated, the award did not become punitive or unduly burdensome on the judgement debtor.

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