IN THE HIGH COURT OF PUNJAB AND HARYANA AT CHANDIGARH RSA No.486 of 2007 Date of Decision: 11.11.2008 The Municipal Council, Kotkapura & another .... Appellants vs. Cheddi Lal & another .... Respondents Coram: Hon'ble Mr. Justice Rajive Bhalla. Present: Ms. Jaspal Kaur Gurna, Advocate for the appellants. Mr. G.S. Sandhu, Advocate for the respondents. **** Rajive Bhalla, J, (Oral) The Municipal Council, Kotkapura, challenges judgments and decrees passed by the Civil Judge (Junior Division), Faridkot and Additional District Judge, Faridkot, awarding interest on delayed payment of retiral benefits at the rate of 18% per annum. Counsel for the appellants submits that in a civil suit interest can only be awarded as per the provisions of Section 34 of the Code of Civil Procedure. The courts below have disregarded the provisions of Section 34 of the Code and awarded interest at 18% per annum. It is submitted that at the relevant time, bank rate of interest was 8% per annum and therefore, the impugned judgments and decrees be modified and the rate of interest be accordingly reduced. Counsel for the respondent, on the other hand, submits that though the respondent retired in the year 2002, his retiral benefits were withheld without just cause. As a result, the courts below were justified in awarding interest at the rate of 18% per annum. I have heard counsel for the parties and perused the impugned judgments. RSA No.486 of 2007 -2- The plaintiff-respondent No.1 filed a suit praying for release of his retiral benefits. Upon notice, the appellants admitted the claim but submitted that as they were in a poor financial condition, they could not pay retiral benefits in time. In view of the stand taken in the written statement, the trial court decreed the suit but directed the appellants to pay retiral benefits to the plaintiff-respondent No.1 with interest at the rate of 18% per annum. The decree sheet however did not refer to the award of interest. The Municipal Council, Kotkapura, filed an appeal. Vide judgment and decree dated 18th October, 2006, the Additional District Judge, Faridkot, dismissed the appeal but modified the decree passed by the trial court and awarded interest at the rate of 18% per annum. The question of law that arises for consideration in the present appeal is :- “Whether the courts below could have disregarded the provisions of Section 34 of the Code of Civil Procedure and granted the interest at the rate of 18% per annum?” The award of interest, in a civil suit is governed by Section 34 of the Code of Civil Procedure which reads as follows:- 34.“Interest-- (1) Where and in so far as a decree is for the payment of money, the Court may, in the decree, order interest at such rate as the Court deems reasonable to be paid on the principal sum adjudged, from the date of the suit to the date of the decree, in addition to any interest adjudged on such principal sum for any period prior to the institution of the suit, with further interest at such rate not exceeding six per cent, per annum as the Court deems reasonable on such principal sum from the date of the decree to the date of payment, or to such earlier date as the Court thinks fit : RSA No.486 of 2007 -3- Provided that where the liability in relation to the sum so adjudged had arisen out of a commercial transaction, the rate of such further interest may exceed six per cent, per annum, but shall not exceed the contractual rate of interest or where there is no contractual rate, the rate at which moneys are lent or advanced by nationalised banks in relation to commercial transactions.” Interest, is essentially compensatory in nature and arises from an obligation to recompense the other party for depriving it of the use of its legitimate monetary claim. Interest is not a largesse that courts disburse or a punishment that they award and therefore, while decreeing a suit interest has to be granted in accordance with the provisions of Section 34 of the Code. Interest to be awarded in the civil suit has three components, namely, (a) interest on the principal sum for any period prior to the institution of the suit, (b) on the principal sum adjudicated from the date of suit to the date of the decree and (c) future interest not exceeding six per cent per annum on such principal sum from the date of the decree to the date of payment or to such earlier date as the court thinks fit. The discretion to award interest must be exercised judicially and in accordance with provisions set out in Section 34 of the Code. The word “reasonable” is a constant variable and varies from case to case. More often than not the rate of interest paid by a bank is a reasonable indicator of the rate of interest to be awarded. The courts below while awarding interest at the rate of 18% per annum disregarded the provisions of Section 34 of the Code and, therefore, exercised their discretion arbitrarily and in violation of the provisions of Section 34 of the Code. As a result, the respondents would be entitled to simple interest at the rate of 8% per annum on retiral benefits, from the date of RSA No.486 of 2007 -4- retirement up to the passing of the decree by the trial court and future interest, on the retiral benefits, at the rate of 6% simple interest per annum from the date of the decree passed by the trial court up to its payment. With the above modifications in the judgments and decrees passed by the courts below, the present appeal is disposed of with no order as to costs. 11.11.2008 (Rajive Bhalla) sk Judge