IN THE SUPREME COURT OF INDIA CIVIL APPELLATE JURISDICTION CIVIL APPEAL NO.4436  OF 2008

(@ Special Leave Petition (Civil) No.13644 of 2005 )

H.U.D.A ...Appellant

Vs.

Raj Singh Rana        ...Respondents

J U D G M E N T

Altamas Kabir,J.

1. Leave granted.

2. One  Baldev  Singh  Nagar  was  allotted

residential  plot  No.718  (later  on  re-

numbered  883)  measuring  14  marlas  in

Sector 13 of the Urban Estate at Karnal

under the provisions of the Punjab Urban

Estate  (Development  and  Regulation)  Act,

1

1964,  which  was  repealed  by  the  Haryana

Urban  Development  Authority  Act,  1997.

The said plot was subsequently transferred

to the respondent herein, Shri Raj Singh

Rana,  as will be evident from the letter

dated  22.3.1974   addressed  to  the

respondent  by  the  Estate  Officer,  Urban

Estate, Karnal. In the said letter various

conditions have been set out in respect of

the  said  allotment,  of  which  we  are

concerned  with  the  condition  nos.

1,2,3,4,8  and  15,  which   are  reproduced

hereinbelow:

“From  The Estate Officer,  Urban Estate,  Karnal.

Transferred vide Memo No.E.O.(M)- 76/5235 Dated 01.10.1976 with condition No.16

To Shri R.S.Rana S/o Shri A.S.Rana, V.P.O. Garhi Distt. Sonepat.

Memo No.1664/718/14/E.O/K Dated : 22.3.1974

2

Subject   : Allotment of Residential plot in the Urban Estate, Karnal.

Reference your application dated 25.9.1971 for the allotment of residential plot in the Urban Estate at Karnal.

1. Plot No.718 measuring 14 Marlas in Sector 13 of the Urban Estate at Karnal is hereby allotted to you.  The total tentative sale price of said plot is Rs.12250/- against which  you have already deposited Rs.6,125/-  of the price mentioned in part 1 above is Rs.Nil.

2. The plot is preferential one and an additional price at the rate of 10 per cent of the price mentioned in para 1 above is Rs. Nil.

3. The total tentative sale price of this plot (normal plus preferential cost) is Rs.Nil.

4. The  above  price  of  the  plot  is  subject  to  variation  with reference to the actual measurement of the plot as well as in case of enhancement of compensation of acquisition cost of land of  this sector  by the court  or otherwise and you shall have  to  pay  this  additional  price  of  the  plot,  if  any,  as determined by the Department within 30 days from the date of demand.

5. ……. 6. ……. 7. ……. 8. Balance 50 per cent of the total tentative sale price shall be

payable either in lumpsum within 60 days from the date of issue  of  allotment   letter  without  interest  or  in  2  equated instalments with interest at the rate of 7 per cent per annum. The first  and  remaining  instalments  of  the  balance  amount together with  interest at the rate of 7 per cent per annum on the unpaid amount of the total tentative sale price  shall fall due to payment as under and no notice shall be served upon you to pay the same but in case in instalment is not paid in time, you will be served with a notice to pay by same within a month together with a sum not exceeding the amount of the instalment as may be determined by the undersigned, by way of penalty.  If the payment is not made within the said period of  such  extended  period  as  may  be  determined  by  the

3

undersigned, not exceeding three months in all from the date on which the instalment was originally due, the same will be recovered as an arrear or land revenue or action will be taken under Section 10 of the Punjab  Urban Estate (Development and Regulation) Act, 1964 :-

No. of instalment          Due date on which the          Payment is to be made

First      2958.93+28.75 = 3387.68 21.3.1975 Second 3166.07+221.61 = 3387.68 21.3.1976 Third Fourth Fifth Sixth:

9. ….. 10. ….. 11. ….. 12. ….. 13. ….. 14. ….. 15. This  allotment  is  subject  to  the  provisions  of  the  Punjab

Urban Estates (Development and Regulation) Act, 1964 and the rules framed there under as amended from time to time and you shall have to accept and abide by them.

16. ….. 17. …..

Sd/- Estate Officer Urban Estate

Karnal”

3. There  is  no  dispute  that  the  entire

amount,  as  initially  computed   as

tentative  sale  price,  was  fully  paid  by

4

the  respondent,  together  with  further

amounts  on  account  of  enhanced

compensation  paid  for  the  plot,  on  the

basis of the demand notices issued to the

respondent from time to time. The problem

arose when in addition to the above, the

Estate Officer, HUDA, Karnal, by his Memo

dated  15.6.2001  raised  an  additional

demand of Rs.71,800/- by imposing simple

interest  @  10  per  cent  per  annum  up  to

31.3.1987,  15 per cent per annum up to

15.1.1988,   compound  interest  @  15  per

cent up to 31.8.2000 and thereafter  again

simple  interest  @  15%  per  annum  up  to

31.8.2001.  According  to  the  respondent,

the rate of interest as indicated in the

allotment letter being 7 per cent simple

interest  per  annum,  the  appellant  had

acted illegally in demanding interest at

the  higher  rates,  indicated  hereinabove

and such demand being arbitrary could not

be sustained.

5

4. Aggrieved by such demand, the respondent

filed complaint case No.591 of 2002 before

the  District  Consumer  Disputes  Redressal

Forum praying for refund of Rs.35,200/-,

which according to the respondent was the

excess amount of interest charged over and

above  the rate of interest at 7 per cent

indicated  in  the  allotment  letter.   The

respondent also prayed for interest @ 12

per  cent  on  the  refund  amount  from

2.11.2001, when the interest  amount was

demanded  and  paid  under  protest,  until

repayment. The District Forum accepted the

submissions  made  on  behalf  of  the

respondent  herein  and  held  that  the

appellants could charge interest only at

the  stipulated  rate  mentioned  in  the

allotment letter,  namely, 7 per cent per

annum  and  directed  the  appellant  to

calculate the interest @ 7 per cent on the

3rd and 4th enhancements and to refund the

extra  amount  charged  to  the

6

complainant/respondent  with  interest  at

the rate of 7 per cent from the date of

the  complaint  till  its  refund.   The

decision  of  the  District  Forum  was

confirmed  by  the  State  Commission,  and

ultimately, the appellant herein took the

matter  in  revision  to  the  National

Commission  in  R.P.No.2217  of  2004.  The

National Commission, while confirming the

view taken by the District Forum and the

State  Commission  as  to  the  rate  of

interest which could have been charged by

the  appellant,  considered  another  aspect

relating to charging of compound interest

@ 15 per cent per annum from 16.1.1988 to

31.8.2000 and held that the appellant was

not  entitled  to  charge  such  compound

interest.

5. It  is  against  the  said  order  of  the

National Commission that this appeal has

been  filed  by  the  Haryana  Urban

7

Development  Authority  (hereinafter

referred to as “HUDA”).

6. On behalf of the HUDA it was strenuously

urged that the rate of interest @ 17 per

cent  per  annum,  as  indicated  in  the

allotment letter, was only with regard to

default in payment of instalments for the

tentative  sale  price  and  not  as  regards

the  additional  amounts   required  to  be

paid  in  case  of  enhancement  of

compensation for acquisition cost of the

land, for which no rate of interest had

been stipulated. It was submitted that  on

account  of  default  in  payment  of  the

instalments of the enhanced compensation,

on account of the low interest which was

being  charged,  a  decision  was  taken  by

HUDA on 15.1.1987 to increase the normal

rate of interest to 10 per cent per annum

and  interest  for  the  delayed  payment  of

instalments  to  18  per  cent  per  annum,

8

which  would  also  include  the  normal

interest of 10 per cent.  It was submitted

that  it  was  on  account  of  such  revised

policy that HUDA had charged interest at

the rates indicated hereinbefore to ensure

that instalments were paid in time. Apart

from  his  aforesaid  submissions,  learned

counsel   for  the  appellant    could  not

justify charging of compound interest as

was done in the instant case.

7. It was urged that enhancement of rate of

interest  being  a  matter  of  policy  to

prevent default in payment of instalments

the  Fora  below  had  erred  in  co-relating

the  rate  of  interest  mentioned   in  the

allotment  letter,  which  was  only

applicable in respect of default payment

of  instalments  for  the  tentative  price

initially fixed, to the defaults committed

in respect of the payment of the enhanced

compensation on account of increase in the

9

acquisition costs. It was also submitted

that  since  the  rate  of  interests

stipulated at 7 per cent per annum has no

application  to  default  in  payment  of

enhanced compensation, the Fora below had

erred  in directing that interest on the

latter  default   be  also  charged  at  the

stipulated rate of 7 per cent per annum.

It is submitted that the understanding of

the terms and conditions of the allotment

letter and the decision  rendered by the

consumer forums on the basis thereof, was

wholly erroneous and was liable to be set

aside.

8. On  behalf  of  the  respondent  it  was

contended  that  apart  from  the  fact  that

the  rate  of  interest  demanded  was

arbitrary, it was also extremely high and

ought  not  to  have  been  levied  from  the

date  of  allotment   inasmuch  as,  the

tentative sale price had been fully paid

10

and  such  demand  could  not  operate

retrospectively,  interest  on  the  unpaid

amount could, if at all, have been raised

for  periods  only  after  the  payment  was

made. In addition it was submitted that it

is  well  settled  that  when  a  contractual

rate of interest has been agreed upon by

the parties, no amount by way of interest

in excess thereof could be raised. It was

submitted  that  following  the  said

principle, first the District Forum, and,

thereafter,  the  State  and  National

Commissions had awarded interests on the

delayed instalments at the rate of 7 per

cent  per  annum  as  mentioned  in  the

allotment letter referred to above. It was

contended  that  condition  No.8  enumerated

in the letter dated 22.3.1974 written to

the  respondent  by  the  Estate  Officer,

Karnal,  would  have  to  be  considered  and

understood in such light. It is submitted

that the orders of the consumer Fora was

11

in consonance with the provisions of the

allotment letter and did not, therefore,

warrant any interference by this Court and

the appeal was liable to be dismissed.   

9. Having   heard  learned  counsel  for  the

parties and having perused the documents

relied upon by them, we are of the view

that the width of the dispute is rather

narrow,  being  confined  only  to  the

question as to whether it was within the

competence  of  the  appellant  to  charge

interest on delayed payments at the rate

at which it has been charged and whether

compound interest could have been charged

without there being any mutual agreement

between the parties to that effect.

10. The  concept  of  levying  or  allowing

interest  is  available  in  almost  all

statutes  involving   financial  deals  and

commercial transactions, but the provision

empowering  Courts  to  allow  interest  is

12

contained in the Interest Act, 1978, which

succeeded and repealed the Interest Act,

1839.  Section 3 of the said Act, inter

alia, provides that in any proceeding for

the recovery of any debt or damages  or in

any  proceeding  in  which  a  claim  for

interest  in  respect  of  debt  or  damage

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 periods indicated in the said Section.

11. What  is  important  is  the  mention  of

allowing  the  interest  at  a  rate  not

exceeding  the  current  rate  of  interest.

Such a provision is, however, excluded  in

respect  of  the  interest  payable  as  of

right  by  virtue  of  any  agreement  as

indicated in sub-section(3) of Section 3.

13

In  other  words,  where  there  is  an

agreement between the parties to payment

of interest at a certain stipulated rate,

the same will have the precedence over the

provision  contained  in  sub-section(1)

which  provides  for  the  Court  to  allow

interest  at  a  rate  not  exceeding  the

current rate of interest.

12. Yet  another  provision  which  is  basic  in

its operation is contained in Section 34

of the Code of Civil Procedure which also,

inter  alia,  provides  that  where  and

insofar 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, till

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

14

rate not exceeding 6 per cent per annum as

the  court  may  deem  reasonable  on  such

principal sum from the  date of the decree

till  the  date  of  payment  or  to  such

earlier date as the court thinks fit.

13. The  rates  of  interest  charged  by  the

appellant, purportedly in accordance with

their  policy  decisions,  appear  to  have

been influenced by the provisions of the

Interest Act and also the Code of Civil

Procedure  on  the  supposition  that  the

payment of additional price on account of

enhancement  of  compensation  was  not

covered by the provisions of the allotment

letter  relating  to  payment  of  interest.

The view expressed by the District forum

have  been  accepted  by  the  State  and

National Commissions.

14. It is no doubt true that the law relating

to  allowing  interest  and   the  rates

thereof has been considered and settled in

15

the  case  of  Ghaziabad  Development

Authority vs. Balbir Singh (2004 (5) SCC

65),  which  has  since  been  followed  in various  subsequent  decisions.  The  said

decision was also one rendered  under the

provisions of the Consumer Protection Act,

1986, though in the said case  it was a

reverse  situation   in  which  the

authorities  were  held  to  be  liable  to

compensate  for  misfeasance  in  public

office.   In  the  said  case  interest  was

allowed  @  18%  per  annum   which  was

unacceptable to this Court which observed

that the power  to award compensation does

not mean that irrespective of the facts of

the  case  compensation  can  be  awarded  in

all matters at a uniform rate of 18 per

cent per annum.  This Court noticed that

the  National   Forum  had  been  awarding

interest at a flat rate of 18 per cent per

annum  irrespective  of  the  facts  of  each

case.  The  same  was  held  to  be

16

unsustainable. In the said state of facts

this Court observed in para 8, as follows:

“However, the power and duty to award compensation  does  not  mean  that irrespective  of  facts  of  the  case compensation  can  be  awarded  in  all matters at a uniform rate of 18% per annum.  As seen above, what is being awarded  is  compensation  i.e.  a recompense for the loss or injury. It therefore necessarily has to be based on a finding of loss or injury.  No hard-and-fast rule can be laid down, however, a few examples would be where an   allotment  is  made,  price  is received/paid  but  possession  is  not given within the period set out in the brochure.  The  Commission/Forum  would then need to determine the loss. Loss could be determined on basis of loss of rent which could have been earned if  possession  was  given  and  the premises  let out or if the consumer has  had  to  stay  in  rented  premises then on basis of rent actually paid by him. Along with recompensing the loss the  Commission/Forum  may  also compensate for harassment/injury, both mental  and  physical.   Similarly, compensation  can  be  given  if  after allotment  is  made  there  has  been cancellation  of  scheme  without  any justifiable cause.”

15. Applying the aforesaid principle laid down

in the aforesaid case, it was the duty of

17

the  Consumer  Fora  to  consider  the

circumstances of the case and keep in mind

the  provisions  of  Section  3  of  the

Interest Act in awarding the high rate of

interest, without linking the same to the

current rate of interest. As was mentioned

in Balbir Singh’s case, and, thereafter,

in HUDA vs. Prem Kumar Agarwal and another

(2008(1) SCALE 484); Bihar State Housing

Board vs. Arun Dakshy (2005 (7) SCC 103);

Haryana  Urban  Development  Authority  vs.

Manoj  Kumar  (2005  (9)  SCC  541)   and

Krishna  Bhagya  Jala  Nigam  Limited  vs.

G.Harischandra Reddy and another (2007 (2)

SCC  720)  the  rate  of  interest  is  to  be

fixed in the circumstances  of each case

and it should not be imposed at a uniform

rate  without  looking  into  the

circumstances leading to a situation where

compensation was required to be paid.  

18

16. In the instant case, the provision of the

allotment  letter  dated  22.3.1974  appears

to  have  been  wrongly  interpreted  by  the

Consumer Fora since the stipulated rate of

interest  only  takes  into  consideration

payment of the total tentative  sale price

while  Condition  No.4  of  the  allotment

letter mentions that the total tentative

sale  price  was  subject  to  variation  in

certain  circumstances  and  that  the

allottee  would have  to pay an additional

price  for  the  plot  as  a  consequence

thereof. It does not mention that interest

at the rate of 7 per cent per annum would

be  payable  also  in  respect  of  the

additional  price  required  to  be  paid  on

account  of  increase  of  the  acquisition

cost.  The  said  position  is  further

clarified  by  condition  No.8  which  also

speaks of payment of the total tentative

sale price and the rate of interest at 7

per cent per annum on the instalments to

19

be  paid  in  respect  thereof.  There  is

nothing  further  in  the  agreement  which

provides for the rate of interest to be

levied on the additional price on account

of  the  enhancement  of  the  acquisition

cost.  

17. On  such  score  we  are  inclined  to  agree

with the learned counsel for the appellant

that the appellant was entitled, even in

terms  of  the  allotment  letter  to  charge

interest on balance dues at a rate which

was different from that stipulated in the

allotment letter. At the same time, we are

in agreement with the views expressed in

Balbir Singh’s case (supra)  which gives

an  indication  of  the  matters  which  are

required  to  be  considered  by  the  Courts

while granting interest where there is no

mutual  understanding  or  agreement  with

regard to the rate of interest that could

be charged. While we also agree that for

20

unpaid dues the appellant is entitled to

charge  interest,  such  an  exercise  will

have  to  be  undertaken  within  the

parameters of circumstances and reason and

the rate of interest should not be fixed

arbitrarily. In the decisions referred to

hereinabove, this Court has sounded a note

of caution that rates of interest fixed by

the Courts must not be arbitrary    and

should take into account the current bank

rates which in recent years have shown a

tendency to slide downwards. In fact, in

many of the aforesaid cases, the rate of

interest has been reduced substantially.

18. In  the  aforesaid  circumstances,  even

though the rate of interest indicated in

the allotment letter dated 22.3.1974 may

not have application as far as payment of

the  additional  price  is  concerned,  the

District Forum has erred on the site of

reason  and  has  allowed  interest  at  the

21

rate of 7 per cent per annum upon holding

that the demand made by the appellant at

the higher rate was contrary to the mutual

agreement  contained  in  the  allotment

letter. In our view, even though a policy

may have been adopted by the appellant for

imposing a deterrent rate of interest on

defaults  committed  by   allottees  in

payment of their dues, such imposition has

to be in keeping  with the provisions of

Section 3 of the Interest Act, 1978 and

not  in  a  unreasonable  manner.  It  may

perhaps   be  even  more  pragmatic  if  a

condition  regarding  charging  of  interest

at  the  prevailing  banking  rates  were

included in the allotment letters,  having

regard to the provisions of sub-section(3)

of Section 3 of the said Act.

19. We,  therefore,  allow  this  appeal,  set

aside the orders dated 10.3.04 passed by

the  District  Forum,  Chandigarh  in

22

Complaint Case no.591 of 2002, as affirmed

by  the  State  Commission,  Chandigarh,  on

9.7.2004 and the order passed in Revision

by the National Commission on 19.11.2004,

which  is  the  subject  matter  of  this

appeal, and quash the additional demand of

Rs.71,800  raised  on  behalf  of  the

appellant  vide  Memo  No.  EO  8682  dated

15.6.2001  and direct that the appellant

will be entitled to impose simple interest

on  the  basis  of  the  prevailing  current

rate of interest for the purpose indicated

in para 6 of the complaint filed by the

respondent (Complaint Case No.591 of 2002)

before  the  District  Forum,  Chandigarh.

Such  a  computation  is  to  be  completed

within a month from the date of receipt of

this order. Since, we have been informed

at the Bar that the entire amount by way

of  additional  demand  has  been  deposited

upon  protest,   any  amount  which  is  in

excess of the amount to be computed on the

23

basis of this order, shall be refunded to

the  respondent  within  two  weeks  of  such

computation.

20. In  the  facts  and  circumstances  of  the

case,  the  parties  will  bear  their  own

costs.

………………………………J. (ALTAMAS KABIR)

………………………………..J. (MARKANDEY KATJU)

New Delhi Dated: July 16, 2008

24