Payment of interest in equity in India

Unjust enrichment by withholding the amount can be compensated by award of Interest:

Effect of Interest Act

Interest can be awarded in terms of an agreement or statutory provisions. It can also be awarded by reason of usage or trade having the force of law or on equitable considerations. Interest cannot be awarded by way of damages except in cases where money due is wrongfully withheld and there are equitable grounds therefore, for which a written demand is mandatory.

Clariant International Limited and Another v. Securities and Exchange Board of India, (2004) 8 SCC 524 at 539

When there is no specific provision for grant of interest on any amount due, the court and even tribunals have been held to be entitled to award interest in their discretion, under the provisions of Section 3 of the Interest Act and Section 34 of the Civil Procedure Code.

Tahazhathe Purayil Sarabi & Ors. v. Union of India & Another, (2009) 7 SCC 372 at 380-381

The power to award interest on equitable grounds or under any other provisions of the law is expressly saved by the proviso to s. 1. This question was considered by the Privy Council in Bengal-Nagpur Railway Co. Ltd. v. Ruttanji Ramji [65 IA 66 SC : AIR 1938 PC 67]. Referring to the proviso to s. 1 of the Act the Privy Council observed “this proviso applies to cases in which the Court of equity exercises its jurisdiction to allow interest

Satinder Singh v. Amrao Singh, (1961) 3 SCR 676 at 697 followed in Hirachand Kothari v. State of Rajasthan, 1985 Supp SCC 17 at 25-26.

The important question which has to be answered in the present case is as to whether the expression “other rule of law” contained in Section 4(1) would enable the Court to continue with the position as it was under the proviso to Section 1 of the 1839 Act – namely, whether this expression would subsume interest being awarded in equity.

A learned single Judge of the Bombay High Court has, in Prabhavati Ramgarib B. v. Divisional Railway Manager, (2010) 4 Mah LJ 691 at 702-703, specifically held as follows:

“35. The petitioner’s claim for interest would fall within the ambit of the words “or other rule of law” in section 4(1). The other rule of law being on grounds of equity. Even under the Interest Act, 1839, interest was payable under the proviso to section 1 which reads: “Provided that interest shall be payable in all cases in which it is now payable by law.” Interest was payable by law under that Act in equity. This was recognized in a series of judgments. For instance in Trojan and Co. v. Nagappa Chettiar, 1953 SCR 789, the Supreme Court, in paragraph 23, observed that it was well settled that interest is allowed by a Court of equity in the case of money obtained or retained by fraud. Interest was, therefore, awarded in equity.

36. The position is not different under the Interest Act, 1978. The words, in section 4(1) “or other rule of law” would include interest payable in equity. In fact, interest has been awarded by our Courts in equity as well as on principles analogous to section 34 of the Code of Civil Procedure on the basis that section 34 is based upon principles of justice, equity and good conscience.”

We agree with the aforesaid statement of the law. It is clear, therefore, that the Interest Act of 1978 would enable Tribunals such as the SAT to award interest from the date on which the cause of action arose till the date of commencement of proceedings for recovery of such interest in equity.

[Source: Dushyant N. Dalal vs. SEBI decided by SC on Oct. 4, 2017]
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