Case Note & Summary
The Supreme Court allowed the appeal filed by the Chief Executive Officer and Vice Chairman, Gujarat Maritime Board, against the judgment of the Gujarat High Court dated 24.07.2015. The respondent, Asiatic Steel Industries Ltd., had been allotted Plot V-10 for ship-breaking after making the highest bid of ₹3,61,20,000/-, which was accepted on 08.11.1994. The payment was made on 22.03.1995. Asiatic Steel faced difficulties due to rocky terrain and lack of connectivity, and after several representations, abandoned the contract on 19.05.1998, demanding a refund. The Board agreed to refund the principal but without interest. Asiatic Steel filed a writ petition seeking refund with interest. The High Court, through an interim order dated 26.02.2002, directed the Board to deposit the principal with interest at 10% p.a. from 19.05.1998 to 15.04.2002. The Board complied. Later, the High Court directed the Board to pay interest on the principal at 6% p.a. from 08.11.1994 to 19.05.1998, reasoning that the Board had enjoyed the money and suffered no loss. The Supreme Court held that the contract was neither void nor voidable, and no breach was proved. Sections 64 and 65 of the Indian Contract Act, 1872, which deal with restitution in void or voidable contracts, were not applicable. The Board had already refunded the principal with interest from the date of abandonment. The court found no legal basis to award interest for the period prior to abandonment. The appeal was allowed, and the High Court's direction to pay interest from 08.11.1994 to 19.05.1998 was set aside.
Headnote
A) Contract Law - Interest on Refund - Sections 64 and 65, Indian Contract Act, 1872 - The court considered whether interest is payable on refund of contract consideration when the contract is abandoned by mutual consent and no breach is proved. Held that Sections 64 and 65 apply only to void or voidable contracts, not to valid contracts abandoned by mutual agreement. The Board had already refunded the principal with interest from the date of abandonment; no further interest was payable for the period prior to abandonment. (Paras 1-7) B) Contract Law - Compensation for Use of Money - Section 73, Indian Contract Act, 1872 - The court examined whether the Board was liable to pay interest for the period it retained the money before abandonment. Held that without proof of breach or wrongful retention, the Board was not liable to pay interest for the period prior to the date of abandonment. The High Court's direction to pay interest from the date of deposit was set aside. (Paras 8-18)
Issue of Consideration
Whether the Gujarat Maritime Board is liable to pay interest on the principal amount of ₹3,61,20,000/- for the period from 08.11.1994 (date of acceptance of bid) to 19.05.1998 (date of abandonment of contract) when the contract was neither void nor voidable and no breach was proved.
Final Decision
The Supreme Court allowed the appeal, setting aside the High Court's direction to pay interest on the principal amount of ₹3,61,20,000/- for the period from 08.11.1994 to 19.05.1998. The Board had already refunded the principal with interest from 19.05.1998, and no further interest was payable.
Law Points
- Interest on refund of contract consideration
- Sections 64 and 65 of Indian Contract Act
- 1872
- Compensation for use of money
- Breach of contract
- Void/voidable contract
- Mutual abandonment of contract
