M.G. Kapoor (Lt. Col.) vs Union Of India & Ors.
1999 Latest Caselaw 296 Del

ORDER

K.S. Gupta, J.

1. Respondent No. 3 - H.B. Portfolio Leasing Limited has filed this application under Section 151 CPC for modification of that part of the order dated 25th September, 1998 by which respondent No.3 was directed to pay further interest at the rate of 14% till 31st October, 1998 on the amount of interest on allotment money from 26th March, 1995 till 30th April, 1995.

2. It is, inter alia, alleged that respondent No. 3 came out with a Public issue of 1,60,000 Fully Convertible Debentures and Rights Issue of 1,74,02,424 Fully Convertible Debentures of Rs. 65/- each in November/December 1994. As per the terms of Prospectus and Letter of Offer a sum of Rs. 20/- per debenture was payable on application while further sum of Rs. 45/- per debenture was payable on allotment. Pursuant to the decision of the Board of Directors, respondent No. 3 called upon the allottees to make the payment of Call money of Rs. 45/- per debenture by 25th March, 1995. It is further stated that because of impending financial year ending on 31st March, 1995, around 90% allottees could not pay the amount of Call money and, therefore, the last date to pay the allotment money was extended by 30th April, 1995. The present writ petition was filed by the petitioner seeking direction to respondent No. 3 to make the payment of 14% interest for the period 26th March, 1995 to 30th April, 1995 to all those allottees, who had paid the allotment money at the said rate before 25th March, 1995. With respect to this prayer of the petitioner, without prejudice to the rights and contentions, respondent No. 3 filed C.M. 7799/98 agreeing to pay interest at the rate of 14% for the said period to all those debenture holders, who had paid the allotment money upto 25th March, 1995. On the said application order was passed on 25th September, 1998. Omitting the immaterial portion the order reads:-

"As prayed in C.M. No. 7799/98, respondent No. 3/company is granted three months time to pay interest on allotment money for the period from 26th March, 1995 till 30th April, 1995 with further interest on that amount @ 14% till 31st October, 1998............

3. Grant of interest over interest was not even prayed for by the petitioner in the writ petition. Respondent No. 3 also had not agreed to pay the same while filing C.M. 7799/98. The application moved by respondent No. 3 (C.M. 7799/98) was still under consideration. Final order had not been passed. The petitioner had to file reply to the said application. In the meanwhile feeling aggrieved, respondent No. 3 filed Special Leave Petition before the Supreme Court, which came up for hearing on 15th February, 1999. During the course of the hearing it was observed by the Court that the question of payment of interest over interest had not been brought to the notice of this court. Accordingly, learned counsel appearing for respondent No. 3 prayed for the withdrawal of the Special Leave Petition and to make an appropriate application in the matter before this court. It is further stated that grant of interest over interest is prohibited under Section 3(3)(c) of the Interest Act, 1978 and, therefore, part of the said order dated 25th September, 1998 (underlined by us) granting interest over interest at the rate of 14% till 31st October, 1998 deserves to be varied.

4. We have heard the learned counsel for the parties and have also been taken through the averments made in C.M. 7799/98 filed by respondent No. 3 applicant.

5. Section 3 of the Interest Act, 1978 which is relevant provides as under:-

"3. Power of Court to allow interest.-(1) Any proceedings for the recovery of any debt or damages or in any proceedings in which a claim for interest in respect of any debt or damages already paid is made, the court may, if it thinks fit, allow interest to the person entitled to the debt or damages or to the person making such claim, as the case may be, at a rate not exceeding the current rate of interest, for the whole or part of the following period, that is to say,-

(a) if the proceedings relate to a debt payable by virtue of a written instrument at a certain time, then, from the date when the debt is payable to the date of institution of the proceedings:

(b) if the proceedings do not relate to any such debt, then, from the date mentioned in this regard in a written notice given by the person entitled or the person making the claim to the person liable that interest will be claimed, to the date of institution of the proceedings.

Provided that where the amount of the debt or damages has been repaid before the institution of the proceedings interest shall not be allowed under this section for the period after such repayment.

(2) Where, in any such proceedings as are mentioned in Sub-section (1),.-

(a) judgment, order or award is given for a sum which, apart from interest on damages, exceeds four thousand rupees, and

(b) the sum represents or includes damages in respect of personal injuries to the plaintiff or any other person or in respect of a person's death,

then, the power conferred by the sub-section shall be exercised so as to include in that sum interest on those damages or on such part of them as the court considers appropriate for the whole or part of the period from the date mentioned in the notice to the date of institution of the proceedings, unless the court is satisfied that there are special reasons why no interest should be given in respect of those damages.

(3) Nothing in this section, -

(a) shall apply in relation to -

(i) any debt or damages upon which interest is payable as of right, by virtue of any agreement; or

(ii) any debt or damages upon which payment of interest is barred, by virtue of an express agreement;

(b) shall affect -

(i) the compensation recoverable for the dishonour of a bill of exchange, promissory note or cheque, as defined in the Negotiable Instrument Act, 1881 (26 of 1981); or

(ii) the provisions of rule 2 of Order II of the First Schedule to the Code of Civil Procedure, 1908 (5 of 1908);

(c) shall empower the court to award interest upon interest.'

6. It may be noticed that there is prohibition contained in clause (c) of sub-section (3) of Section 3 of Interest Act as regards award of interest upon interest by the court. Furthermore, in the aforesaid C.M. 7799/98 without prejudice to its rights and contentions respondent No. 3 had agreed to pay interest for the period only from 26th March, 1995 to 30th April, 1995 to all the debenture holders, who had deposited the allotment money on or before 25th March, 1995. There is also no prayer made in the petition for award of interest over interest. Order was passed without noticing the prohibition contained in Section 3(3)(c) of the Interest Act. That being so, part of the order dated 25th September, 1998 calling upon respondent No. 2 to pay interest over interest at the rate of 14% till 31st October, 1998 deserve to be recalled.

7. Consequently, the application is allowed. The order dated 25th September, 1998 is modified to the extent as indicated in the preceding para of the order. Time for making payment of interest by respondent No. 3 for the period from 26th March, 1995 to 30th April, 1995 at the rate of 14% is extended by two weeks from today. Application stands disposed of.