Case Note & Summary
The respondent (original plaintiff) filed a suit for specific performance of a contract for sale of property, or in the alternative, for refund of earnest money of Rs. one lakh with interest at 18% per annum. The trial court partly decreed the suit, refusing specific performance but granting refund of Rs. one lakh with interest at 18% per annum from the date of agreement (12.3.2004) till realisation. The appellant (original defendant) appealed, and the first appellate court reduced the interest rate to 12% per annum from the same date. Dissatisfied, the appellant filed a second appeal. The High Court admitted the appeal on a substantial question of law regarding the award of interest from the date of transaction. During hearing, an additional substantial question was framed: whether the first appellate court was right in awarding interest at 12% per annum in the absence of pleading and evidence of a commercial transaction. The appellant argued that there was no pleading or evidence that the transaction was commercial or that the parties agreed to interest at a commercial rate. The respondent did not appear. The High Court held that in the absence of any pleading or evidence that the transaction was commercial or that there was an agreement to pay interest from the date of transaction, the courts below erred in awarding interest from the date of agreement. The court noted that the suit was for specific performance, which is not a commercial transaction per se. Applying Section 34 of the Code of Civil Procedure, 1908, the court held that interest can only be awarded from the date of suit at the rate of 6% per annum. Accordingly, the High Court modified the decree, directing refund of Rs. one lakh with interest at 6% per annum from the date of suit (date of filing of Special Civil Suit No. 22 of 2007) till realisation. The appeal was partly allowed.
Headnote
A) Civil Procedure - Interest - Section 34 CPC - Award of interest from date of transaction - In a suit for specific performance or refund of earnest money, interest cannot be awarded from the date of transaction unless there is pleading and evidence that the transaction was commercial or that the parties agreed to such interest. The court held that in the absence of such pleading and evidence, interest under Section 34 CPC can only be awarded from the date of suit at the rate of 6% per annum. (Paras 6-9) B) Contract Law - Specific Performance - Earnest Money - Refund with Interest - Where the agreement does not stipulate interest on refund of earnest money and the transaction is not commercial, the court cannot award interest from the date of agreement. The proper course is to award interest under Section 34 CPC from the date of suit at the rate of 6% per annum. (Paras 7-9)
Issue of Consideration
Whether the courts below were right in awarding interest from the date of transaction (12.3.2004) on the principal sum of Rs. one lakh, and whether the first appellate court was right in awarding interest at 12% per annum in the absence of any pleading and evidence that it was a commercial transaction.
Final Decision
The appeal is partly allowed. The judgment and decree of the first appellate court are modified. The appellant shall pay to the respondent Rs. one lakh with interest at 6% per annum from the date of suit (date of filing of Special Civil Suit No. 22 of 2007) till realisation. No order as to costs.
Law Points
- Interest from date of transaction not permissible without pleading and evidence of commercial transaction
- Interest under Section 34 CPC from date of suit at 6% per annum
- No agreement for interest rate in absence of commercial transaction
