[S. 3(3) Of Interest Act, 1978] Interest Is Payable Only On Principal Sum Not On Interest Awarded By Court: Allahabad High Court

The Allahabad High Court has held that under Section 3(3) of The Interest Act, 1978 interest cannot be imposed on interest award, it is only payable on the principal sum.

Advocate Bal Mukund, respondent no. 3, applied for registration in MIG 45/75 type house under Dev Prayagam Scheme of U.P. Awas Evam Vikas Parishad, Allahabad. Rs. 20,000 was deposited as registration amount. Thereafter, he won the lottery draw and allotment letter was issued to him with a condition that Rs.1,92,956/- must be deposited upto 31.08.2005 and remaining amount of Rs.2,63,300/- along with interest at the rate of 13% was to be deposited in 120 monthly instalments.

A no objection was given to him for bank loan, after which Rs.4,52,325/- were deposited with the petitioner-Parishad. When respondent applied by for execution of sale deed and delivery of possession, the same was denied on grounds that final costing of the house was not done.

In 2008, respondent applied for refund and cancellation of allotment. The total deposited amount of Rs.4,72,990/- has been refunded to him on 04.03.2008, however, he filed a complaint praying that petitioners be directed to pay compound interest at the rate of 18% per annum on the amount of Rs.4,72,990/- from the date of payment, i.e., 13.09.2005 to the date of actual refund, i.e., 02.05.2008.the complaint was allowed and petitioner was directed to pay 15% interest on Rs.4,72,990/-.

Appeal filed by the petitioner was dismissed. In execution proceedings, respondent claimed the 15% interest as Rs.3,02,821/-. Petitioner filed a revision against the recovery proceedings which was also dismissed. Thereafter, petitioner filed a revision before National Consumer Disputes Redressal Commission, New Delhi which was also dismissed as not maintainable.

Petitioner approached the High Court against the dismissal of revision by the State Consumer Disputes Redressal Commission.

The Court observed that Section 34 of the CPC provided maximum interest as 12% per annum on the principal sum. Perusing Section 3(3) of the 1978 Act, Justice Chandra Kumar Rai held that “interest is payable on the principal sum and not on interest part of the award.”

The Court held that once the Consumer Forum had awarded an interest of 15% per annum, no further interest could be levied on the petitioner in the recovery certificate.

The Court observed that in D. Khosla and Company v. Union of India, the Supreme Court, taking into account Section 34 of CPC and Section 3(3) of the Interest Act, held that

“In the light of the above legal provisions and the case law on the subject, it is evident that ordinarily courts are not supposed to grant interest on interest except where it has been specifically provided under the statute or where there is specific stipulation to that effect under the terms and conditions of the contract. There is no dispute as to the power of the courts to award interest on interest or compound interest in a given case subject to the power conferred under the statutes or under the terms and conditions of the contract but where no such power is conferred ordinarily, the courts do not award interest on interest.”

Accordingly, the recovery certificate issued in the execution proceedings and the order of the State Consumer Disputes Redressal Commission dismissing petitioner's revision were set aside.

Case Title: Uttar Pradesh Avas Evam Vikas Parishad And Another v. State Consumer Disputes Redressal Commission And 2 Others [WRIT - C No. - 27185 of 2022]

Counsel for Petitioner: Nipun Singh

Counsel for Respondent: Bal Mukund

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