Interest is the compensation for the use or delay in the payment of money belonging to another person. The court's decision was influenced by the interpretation of 'bank interest' and the application of S.80 of the Negotiable Instruments Act.

John Mathew, J.

What is the rate of interest payable when the parties agree to pay bank interest?

2. This question arises in this appeal filed by the plaintiffs in a suit for money where the lower court granted only 5% interest per annum. The 1st defendant is the brother of the 1st plaintiff. The 2nd plaintiff is 1st plaintiff's son. The 2nd defendant is 1st defendant's wife. The plaint schedule property was acquired by the 1st plaintiff and defendants 1 and 2 along with the deceased wife of the 1st plaintiff for establishing an unaided English Medium Residential School. The School was established in the name and style 'St. John's Residential School'. The 1st plaintiff was the Headmaster of the school and the 1st defendant was the manager of the school. 1st plaintiff's wife died. The 2nd plaintiff is their only son. Differences of opinion arose between the 1st plaintiff and the 1st defendant. Those differences were settled through the mediation of some persons as per Ext.A5 settlement dated 14-8-1984. Under the agreement the plaintiff agreed to assign his rights over the plaint schedule items in favour of the defendants for a sum of Rs.5 lakhs, even though the plaintiffs estimated the value of their right at Rs.7.5 lakhs. The defendants agreed to pay Rs.2 lakhs on or before 14-10-1984 and the balance amount of Rs.3 lakhs within a period of 11/2 years together with interest at bank rate. The 1st plaintiff agreed to relinquish his post as Headmaster of the school with effect from Ext.A5 dale, thereby suffering a loss of Rs.800/- per month. It was further agreed that if the defendant committed breach of the agreement, he will pay compensation to the 1st plaintiff at the rate of Rs.800/- per month till the entire Rs.5 lakhs and interest was paid. Time was fixed as essence of the contract. As per Ext.A3 the plaintiff sent a draft of the proposed sale deed to the 1st defendant for approval on 7-10-1984. The defendants wanted to modify the draft by deleting the clause regarding bank interest and salary compensation. Defendants did not care to pay the agreed amount of Rs.2 lakhs and to take the sale deed. Later the plaintiff executed the sale deed in favour of the defendants after accepting Rs.2 lakhs and salary compensation for three months. The balance sale consideration of Rs.3 lakhs was reserved to be paid on or before 14-2-1986. On the date of agreement the rate of interest collected by the commercial banks was at the rate of 18% per annum with quarterly rests. With effect from 1-4-1985 the rate of interest was reduced by 0.5%, that is 17.5% per annum with quarterly rests from 1-4-1984. The other allegations in the plaint are not relevant in this appeal. The suit was filed for recovery of Rs.3 lakhs together with interest at 18% per annum from 14-8-1984 to 30-3-1985 and thereafter at 17.5% per annum till date of plaint. Future interest and compensation for loss of salary, amounting to Rs. 20,000/- less an amount of Rs. 2,400/- paid together with interest at 12% per annum were also claimed.

3. The defendants contended that the value of the plaintiffs share did not come to Rs.5 lakhs but the defendant agreed to purchase plaintiff's rights for Rs.5 lakhs on realising that it was impossible for the defendant to continue the working of the school with the co-operation of the plaintiffs. The rate of interest claimed in the plaint was without any bona fides. The bank rate for bank deposits in all scheduled banks is only 5% interest. For Savings Bank account in Post Office the existing rate of interest is only 5%. The lower court held that only 5% simple interest was payable by the defendants. Accordingly the suit was decreed for an amount of Rs.3 lakhs together with interest at 5% per annum till the date of decree and thereafter at 6% per annum till realisation.

4. In the memorandum of appeal interest claimed is at the rate of 18% per annum up to 30-3-1985 and at the rate of 17.5% per annum from 1-4-1985 till the date of suit. H