Power of Court to allow interest
Section 1 of the old Interest Act, 1839 read as follows:-
“Power of Court to allow interest. It is, therefore, hereby enacted that, upon all debts or sums certain payable at a certain time or otherwise, the Court before which such debts or sums may be recovered may, if it shall think fit, allow interest to the creditor at a rate not exceeding the current rate of interest from the time when such debts or sums certain
were payable, if such debts or sums be payable by virtue of some written instrument at a certain time; or if payable otherwise, then from the time when demand of payment shall have been made in writing, so as such demand shall give notice to the debtor that interest will be claimed from the date of such demand until the time of payment: provided that interest shall be payable in all cases in which it is now payable by law.”
Interest Act of 1978.
Section 2(a) reads as under:
“Section 2 – Definitions
In this Act, unless the context otherwise requires,- (a) “court” includes a tribunal and an arbitrator;”
The Act has, therefore, been expanded to cover not merely civil courts but Tribunals as well.
“Section 4 – Interest payable under certain enactments⇒
(1) Notwithstanding anything contained in section 3, interest shall be payable in all cases in which it is payable by virtue of any enactment or other rule of law or usage having the force of law.
(2) Notwithstanding as aforesaid, and without prejudice to the generality of the provisions of subsection (1), the court shall, in each of the following cases, allow interest from the date specified below to the date of institution of the proceedings at such rate as the court may consider reasonable, unless the court is satisfied that there are special reasons why interest should not be allowed, namely:-
(a) where money or other property has been deposited as security for the performance of an obligation imposed by law or contract, from the date of the deposit;
(b) where the obligation to pay money or restore any property arises by virtue of a fiduciary relationship, from the date of the cause of action;
(c) where money or other property is obtained or retained by fraud, from the date of the cause of action;
(d) where the claim is for dower or maintenance, from the date of the cause of action.”
By Section 6(1), the Interest Act of 1839 was repealed.
This view of the law has since been followed in a number of judgments.
In Satinder Singh v. Amrao Singh, (1961) 3 SCR 676 at 697, this Court held as under:
“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”.
This Court in Life Insurance Corporation of India and Another v. Smt. S. Sindhu, (2006) 5 SCC 258 at 263-264, while considering the changes made by the Interest Act, 1978, stated as follows:
“15. Even assuming that interest can be awarded on grounds of equity, it can be awarded only on the reduced sum to be quantified and paid from the date when it becomes due under the policy (that is on the date of death of the assured) and not from any earlier date. We do not propose to examine the question as to whether interest can be awarded at all, on equitable grounds, in view of the enactment of the Interest Act, 1978 making a significant departure from the old Interest Act (32 of 1839). The present Act does not contain the following provision contained in the proviso to Section 1 of the old Act:
“interest shall be payable in all cases in which it is now payable by law”. How far the decisions of this Court in Satinder Singh v. Amrao Singh [(1961) 3 SCR 676 : AIR 1961 SC 908] and Hirachand Kothari v. State of Rajasthan [1985 Supp SCC 17] and the decision of the Privy Council in Bengal Nagpur Rly. Co. Ltd. v. Ruttanji Ramji [(1937-38) 65 IA 66 : AIR 1938 PC 67] holding that interest can be awarded on equitable grounds, all rendered with
reference to the said proviso to Section 1 of the old Interest Act (Act of 1839), will be useful to interpret the provisions of the new Act (Act of 1978) may require detailed examination in an appropriate case.”