The bench also modified the interest rate applicable to the delayed payments concerning the valuation of shares.
New Delhi, April 1: The Supreme Court of India has clarified that courts have the authority to decide interest rates in legal disputes.
The court can determine whether interest should be applicable from the date of filing the case, a time before that, or from the date of the final ruling. This decision depends on the specific facts of each case.
A Supreme Court bench comprising Justices J B Pardiwala and R Mahadevan delivered this ruling while resolving a 52-year-old legal battle.
The case involved a dispute 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 the delayed payments concerning the valuation of shares.
Justice R Mahadevan, who wrote the 32-page judgment, stated:
“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 Supreme Court further observed:
“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 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 initiated legal proceedings in 1978, seeking a higher valuation for its shares.
Over the years, several assessments were conducted to determine the fair value of these shares. In 2019, the Calcutta High Court appointed M/s Ray & Ray to conduct a valuation, which was fixed at Rs 640 per share.
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In its judgment on April 26, 2022, and May 2, 2022, the Calcutta High Court upheld this valuation and granted a simple interest rate of 5 percent per annum on the delayed payment. However, the private firm challenged the ruling, arguing that due to the decades-long delay, they were entitled to higher compensation. Meanwhile, the Rajasthan government contested the valuation of Rs 640 per share.
After considering all aspects, the Supreme Court acknowledged the long delay in receiving payment and ruled that the appellants should receive fair compensation through interest. However, it rejected their demand for 18 percent interest with quarterly rest or 15 percent with monthly rest, stating it was excessive and beyond the scope of Section 34 of the Civil Procedure Code.
The Supreme Court used its discretion to balance fairness and financial feasibility and ruled:
“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 court modified the interest rate as follows:
- 6 percent per annum simple interest from July 8, 1975, until the date of decree.
- 9 percent per annum simple interest from the date of decree until full payment is made.
The Rajasthan government was directed to pay the enhanced valuation amount along with the revised interest within two months.
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The Supreme Court emphasized that while claimants should be fairly compensated, the awarded interest should not become excessively punitive or financially burdensome for the judgment 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.”
