Interest Applies Only to Principal Amount Not On Interest Awarded By Court:. Allahabad HC.

Allahabad High Court Ruling on Interest Payments

The Allahabad High Court has ruled that, according to Section 3(3) of The Interest Act, 1978, interest can only be charged on the principal amount, not on any interest awarded by the court.

Background of the Case

Advocate Bal Mukund, referred to as respondent no. 3, sought registration for an MIG 45/75 type house under the Dev Prayagam Scheme of U.P. Awas Evam Vikas Parishad in Allahabad. He paid a registration fee of ₹20,000. Following a successful lottery draw, he received an allotment letter stipulating that he must deposit ₹1,92,956 by August 31, 2005, along with the remaining ₹2,63,300 plus interest at 13%, payable in 120 monthly installments.

Loan and Payment Issues

After obtaining a no-objection certificate for a bank loan, Mukund deposited ₹4,52,325 with the petitioner-Parishad. However, when he applied for the sale deed and possession, his request was denied due to the incomplete final costing of the house. In 2008, he sought a refund and cancellation of the allotment. He received a total refund of ₹4,72,990 on March 4, 2008, but subsequently filed a complaint demanding compound interest at 18% per annum on this amount from September 13, 2005, until May 2, 2008.

The complaint was upheld, and the petitioner was ordered to pay 15% interest on ₹4,72,990.

Appeals and Dismissals

The petitioner’s appeal against this decision was rejected. In the execution proceedings, Mukund claimed ₹3,02,821 as 15% interest. The petitioner then filed a revision against this recovery, which was also dismissed. Subsequently, the petitioner approached the National Consumer Disputes Redressal Commission in New Delhi, but this appeal was deemed not maintainable. The petitioner has now taken the matter to the High Court following the State Consumer Disputes Redressal Commission’s dismissal of the revision.

Court’s Findings on Interest Regulations

The Court noted that Section 34 of the CPC allows for a maximum interest rate of 12% per annum on the principal amount. Justice Chandra Kumar Rai emphasized that, according to Section 3(3) of the Interest Act, interest is to be calculated only on the principal sum, not on any awarded interest.

Key Rulings

The Court ruled that since the Consumer Forum had already set the interest rate at 15% per annum, no additional interest could be imposed on the petitioner in the recovery certificate. It referenced the Supreme Court case, D. Khosla and Company v. Union of India, which clarified that courts typically do not grant interest on interest unless explicitly stated by statute or contract. The ruling highlighted that while courts have the authority to award interest on interest in certain circumstances, they usually refrain from doing so without clear legal backing.

As a result, the recovery certificate issued during the execution proceedings and the State Consumer Disputes Redressal Commission’s dismissal of the petitioner’s revision were both overturned.

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