Write short notes on Interest.

Question: Write short notes on Interest.

Find the answer to the mains question only on Legal Bites. [Write short notes on Interest.]

Answer

The term “Interest” is not defined in the Code. It may mean “a charge that is paid to borrow for use of money”. It is thus compensation allowed by law to the person who has been prevented to use the amount to which he was entitled.

Interest awarded by the court may conveniently be divided under three heads:

i) Interest prior to filling of suit

When the decree is for the payment of money, the court may award interest at such rate as it thinks reasonable on the “principle sum adjudged”.

Section 34 has no application to interest prior to the institution of the suit since it is a matter of substantive law. It can be awarded only when there is an agreement, express or implied, between the parties; or mercantile usage; or under a statutory provision; or by way of damages.

ii) Interest pendent lite, i.e. from the date of the suit to the date of the decree

The award of interest from the date of the suit to the date of the decree is at the discretion of the court. The discretion, however, must be exercised on sound judicial principles. As a general rule, the court should award interest at the contractual rate except where it would be inequitable to do so.

iii) Interest from the date of decree till the payment.

The award of interest from the date of the decree to the date of payment is also at the discretion of the court. The proviso of Section 34 empowers the court to grant further interest at a rate exceeding six per cent per annum but not exceeding the contractual rate of interest, and in absence of a contract to that effect, at the rate of which money are lent or advanced by nationalized banks in relation to commercial transactions.

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