Interpretation of Section 3(1)(b) of the Interest Act, 1978 regarding claim for interest

Based on an agreement for sale, the appellants herein obtained an amount of 50,000/- as part of consideration from the respondent on 20.04.1999 and thereafter, they received 30,000/- on 12.10.1999, 10,000/- on 22.10.1999 and 42,000/- more on 29.10.1999.

2. Subsequently, on mutual consent, the contract was rescinded and the appellants agreed to repay the advance money received. They paid an amount of 50,000/- on 28.12.2000. The balance amount was not paid. The respondent sued the appellants for return of the advance money.

3. Initially, the suit was dismissed by the trial court on the question of limitation. An appeal was preferred as A.S.No.18/2007. The lower appellate court allowed the appeal and decreed the suit thereby allowing the respondent herein to realise a sum of 1,00,000/- with interest at the rate of 6% per annum from the date of suit till realisation.

4. Presently what is under challenge is the interest portion alone. Heard.

5. The learned counsel for the appellants has pointed out that the court below ought not to have treated the amount of 1,00,000/- accounted in the plaint as the principal amount. According to the learned counsel for the appellants, as per Section 3(1)(b) of the Interest Act, 1978, the plaintiff could claim interest from the date of notice only, and therefore, the judgment and decree passed by the lower appellate court is liable to be modified.

6. In the plaint, the amount has been shown by claiming interest from the dates of payment till the date of plaint, at the rate of 12% per annum. The plaintiff has added all those interests also along with the amounts paid and treated it as the principal amount thereby totaling the amount at 1,00,000/-. Section 3(1) of the Interest Act, 1978 says:

"3. Power of court to allow interest:- (1) In 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."

7. The provision applicable to this case is the one under Section 3(1)(b) of the Interest Act, 1978 and therefore, in this particular case, the plaintiff could claim interest on the amounts due with effect from the date mentioned in that regard in the written notice. When any such date has not been prescribed or mentioned in Ext.A2, the date of notice can be considered as the date from which the interest is payable, within the meaning of Section 3(1)(b) of the Interest Act, 1978. The total amount admittedly paid by the respondent to the appellants is 1,32,000/- out of which, an amount of 50,000/- was admittedly repaid. Through Ext.A2, the respondent had demanded the balance amount of 82,000/- only with interest and costs. Therefore, as per Section 3(1)(b) of the Interest Act, 1978, respondent/plaintiff can claim an amount of 82,000/- only with interest from 05-02-2001, being the date of notice. The position is covered by the decision of the Apex Court in B.V. Radha Krishna v. Sponge Iron India Ltd.[(1997) 4 SCC 693]. Even though the plaintiff has claimed interest at the rate of 12% pe