Courts have authority to determine rate of interest. Appellants having suffered a delay of five decades are entitled to compensation: Supreme Court
Kiran Raj
A Division Bench of the Supreme Court comprising Justice J.B. Pardiwala and Justice R. Mahadevan held that the acquisition of shares by the State of Rajasthan from the appellants in the year 1973 constituted a commercial transaction. Observing that the appellants were deprived of payment for nearly five decades, the Court directed the State to pay simple interest at 6% per annum from 8 July 1975 until the date of decree, and 9% per annum from the date of decree until realisation. The Court rejected the earlier 5% rate allowed by the High Court and clarified that the entire outstanding, including interest, must be paid within two months. Referring to its powers under Section 34 of the Code of Civil Procedure, the Court recorded that “there is no dispute that the court has the power to grant interest in terms of the contract or statutory provisions or based on equity and justice.” It further stated that although the interest claim at 15% or 18% with rests was beyond Section 34, a fair rate must reflect the time value of money withheld.
The dispute traces back to the acquisition of shares in Bikaner Gypsums Ltd. (later Rajasthan State Mines and Minerals Ltd.) by the State of Rajasthan from private shareholders, the appellants, in 1973. The appellants instituted a suit in 1978 before the Calcutta High Court seeking compensation. The prayer sought either a fixed sum, a fair valuation of the transferred shares, or cancellation and restitution of the shares transferred to the State.
The High Court, in its judgment dated 14 August 2012, rejected the valuation reports presented by the parties and passed a preliminary decree directing the defendants, in particular the State, to appoint a valuer from a specified panel to determine the fair value of the shares. The operative part stated: “There shall be a preliminary decree directing the defendants in particular the first defendant to appoint anyone of the following firms of Chartered Accountants, namely Price Water House, Ray & Ray, Lodha and Company...”.
Following this, on 20 August 2019, the High Court appointed M/s. Ray & Ray to conduct the valuation afresh, directing that the process be independent of earlier reports. The valuer fixed the price at ₹640 per share. The respondents, however, refused to accept this valuation.
On 28 April 2021, the High Court declared the appellants entitled to ₹640 per share, less ₹11.50 already received, with interest at 5% simple rate per annum from 8 July 1975. This order was followed by a correction dated 2 May 2022.
The appellants filed appeals before the Supreme Court challenging only the rate of interest awarded. The State and its companies also appealed against the final judgment. The Supreme Court, in its proceedings dated 25 July 2022, recorded that the appellants restricted their prayer to enhancement of interest.
The appellants argued that interest is compensation for the delay and that they were denied use of their money for nearly five decades. Citing various judicial precedents, it was contended that Section 34 of the Code of Civil Procedure, 1908 allowed interest beyond 6% for commercial transactions. They relied on Clariant International Ltd. v. SEBI, Alok Shanker Pandey v. Union of India, and Thazhathe Thazhathe Purayil Sarabi v. Union of India, among others.
The State of Rajasthan and its companies opposed the claim for enhanced interest, submitting that there was no contractual or statutory obligation to pay interest above 6%. They contended that the transaction was not in the nature of commerce but intended to sustain a loss-making entity. It was argued that the original claim of ₹70.50 per share had already been substantially enhanced to ₹640, and that further liability in the form of high interest would be excessive.
The respondents also submitted that no interest had been agreed to at the time of share transfer and that the interest awarded by the High Court was discretionary and reasonable. They argued that the Court should not interfere with such discretionary relief.
The Supreme Court observed that the transaction was a commercial one as it involved the sale and purchase of shares. It stated: “Here, it cannot be disputed that there has been a transaction of trade, viz. sale and purchase of goods, which clearly implies a commercial transaction between the parties.”.
The Court held that even in the absence of an express contractual stipulation, interest may be awarded on equitable grounds or as compensation. Referring to precedents, the Court reiterated: “The courts are consistent in their view that normally when a money decree is passed, it is most essential that interest be granted for the period during which the money was due, but could not be utilised by the person in whose favour an order of recovery of money was passed.”.
It explained that under Section 34 CPC, courts have discretion to award interest for three stages: pre-suit, pendente lite, and post-decree. The Court clarified that higher interest may be granted if the transaction is commercial in nature, as per the Explanation to Section 34.
It further stated: “Though it is not possible to arrive at the actual value of improvement or the inflation on the fair consideration, if paid at the relevant point of time, it is just and necessary that the rate of interest must be a reparation for the appellant.”
The Bench recorded that the appellants had suffered deprivation for five decades. The delay was not attributable to the appellants alone, and the State had yet to comply with payment despite its acceptance of the valuation. The Court stated: “Such being the scenario, wherein, the appellants having suffered a delay of five decades in receiving the payment, are entitled to be reasonably compensated by way of interest.”.
However, the claim for compound interest at 15% or 18% with rests was rejected. The Court held: “...such quarterly or monthly rest is beyond the scope of Section 34.” The award of interest must not be punitive or cause undue burden, but must strike a balance between fairness to the claimant and the financial impact on the debtor.
The Court directed the following:
“We deem it fit, just and appropriate to award simple interest at the rate of 6% per annum from 8th July 1975, on the enhanced valuation of shares till the date of decree and interest at the rate of 9% per annum from the date of decree till the date of realisation.”.
It was further ordered:
“The interest shall be paid along with the amount due towards the enhanced value of the shares, after adjusting the amount already paid, to the appellants, within a period of two months from today.”
Disposing of the appeals, the Court stated:
“Accordingly, all the appeals stand disposed of. The impugned judgments and orders passed by the High Court are modified to the extent indicated above. No costs.”
Advocates Representing the Parties
For the Petitioners: Bijoy Kumar Jain, Advocate
For the Respondents: Deepak Goel, Advocate; Milind Kumar, Advocate
Case Title: I.K. Merchants Pvt. Ltd. & Ors. v. The State of Rajasthan & Ors.
Neutral Citation: 2025 INSC 418
Case Number: Civil Appeal Nos. 4560–4563 of 2025
Bench: Justice J.B. Pardiwala, Justice R. Mahadevan
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