The court maintains discretionary authority under the Code of Civil Procedure to determine pendente lite and future interest. This power is independent of contractual stipulations, enabling the court to award moderate, non-penal rates to ensure equitable outcomes and prevent unjustified enrichment.

Headnote:(A) Code of Civil Procedure, 1908 - Section 34 - Negotiable Instruments Act, 1881 - Section 79 - Loan recovery - Discretionary power of Court - Grant of pendente lite and future interest - Contractual rate versus reasonable compensation. (Paras 19, 20, 24)

(B) Pendente lite and future interest awarded under Section 34 of the Code of Civil Procedure is a discretionary power vested in the court, which operates independently of the contractual agreement between the parties. The court is tasked with the duty to ensure that the resulting interest is fair, equitable, and serves the objective of justice while avoiding either undue enrichment or unjust deprivation. (Paras 20, 22, 34)

(C) Stipulated interest rates that are in the nature of a penalty or are deemed unconscionable and extortionate may be scrutinized. While the court respects the autonomy of contract, it is not bound to enforce an interest rate that is manifestly improper or penal in the context of pendente lite and future periods within the framework of judicial discretion. (Paras 28, 33, 34)

Facts of the case:
The appellant filed a recovery suit seeking the principal loan amount along with contractual interest. The trial court decreed the suit but awarded pendente lite and future interest at a lower annual rate, observing that the claimed contractual interest was unconscionable. The appellant challenged this reduction, contending that the contractual rate should have been upheld as the transaction was commercial in nature.

Findings of Court:
The court upheld the trial court's decision, finding that the discretion exercised in awarding a reasonable rate of interest rather than the excessive contractual rate was within the ambit of judicial authority, given that the lower interest was neither arbitrary nor contrary to the equitable considerations governing recovery suits.

Issues: Whether a court of law is mandatorily bound to award the contractual rate of interest for the pendente lite and future period, and whether the reduction of the interest rate by the trial court was a justified exercise of judicial discretion.

Ratio Decidendi: Contractual interest rates govern the pre-suit period, but the grant of pendente lite and future interest is a discretionary power conferred upon the court by statute to ensure justice and proportionality. When a contractual rate is identified as a penalty or an exorbitant pre-estimate of loss, the court is empowered to grant a reduced, reasonable rate.

Result: Appeal dismissed.

Table of Content
1. appeal against decree regarding reduction of interest rates in recovery suits. (Para 1 , 2 , 3 , 4)
2. contention that interest reduction violates contract and party autonomy. (Para 5 , 6 , 7 , 8 , 9)
3. court's limitation in rewriting or creating new contracts between parties. (Para 10 , 11 , 12 , 13)
4. inconsistency in characterizing 'friendly loans' as 'commercial transactions'. (Para 14 , 15 , 16 , 17 , 18)
5. court discretion in interest under section 34 cpc override contract terms. (Para 19 , 20 , 21 , 22 , 23 , 24 , 25 , 26 , 27)
6. stipulated interest as penalty is unenforceable under equitable standards. (Para 28 , 29 , 30 , 31 , 32 , 33 , 34)
7. lower interest award affirmed due to absence of arbitrary judicial exercise. (Para 35 , 36 , 37 , 38 , 39 , 40)

JUDGMENT :

NEENA BANSAL KRISHNA, J.

1. Regular First Appeal under Section 96 of the Code of Civil Procedure, 1908 (Hereinafter referred to as ‘CPC’) has been filed on behalf of the Appellant / Plaintiff against the Judgment dated 27.11.2025 of the learned District Judge whereby the Suit of the Plaintiff / Appellant has been decreed in the sum of Rs. 5.60 Lakhs along with interest to 8% per annum. The challenge by the Plaintiff / Appellant is limited to the reduction of the rate of interest from 3% per month to 8% per annum.

2. Brief facts are that a Civil Suit bearing Civ. DJ No. 610436/2016 under Order XXXVII CPC was filed by the Plaintiff / Appellant for the Recovery of Rs. 5 Lakhs along with interest @ 3% p.m. It was claimed by him that he had given a cash loan of Rs. 5 lakhs to the Defendants for a period of 24 months on a monthly interest of 3%.

3. The Suit was decreed vide Judgement dated 27.11.2025 for the claimed amount of Rs. 5 Lakhs, but the interest was granted @ 8% p.a., instead of claimed interest rate of 3% p.m.

4. The Plaintiff, in the grounds of Appeal, has contended that as per the Loan Agreement and the Promissory Note dated 19.07.2008, the contractual rate of interest was 3% per month, i.e., 36% p.a. The learned District Judge has only granted 8% p.a. pendente lite and future interest, ignoring that it was a commercial loan transaction and the money had been disbursed through cheque dated 23.07.2008.

5. It is contended that the interest, at 8% p.a. has been granted, which is violative of the terms of contract, party autonomy, and statutory discretion under Section 34 CPC, which requires compensatory interest.

6. The Respondents had been wilfully defaulting from 2008-09, despite repeated reminders and Notices, and had been abusing the process by filing frivolous pleas and taking adjournments causing undue enrichment.

7. The vital interests of the Appellant have not been safeguarded by awarding a nominal interest of 8% p.a., thereby penalizing the Plaintiff for litigation delay, orchestrated by the Respondents depriving him of commercial returns on funds, unlawfully retained since July, 2008. The impugned Judgment is contrary not only to law and fact, but has resulted in grave miscarriage of justice. The proceedings were continued for more than 13 years, which has caused not only monetary loss but also mental harassment.

8. It has not been appreciated that this transaction was commercial in nature, since the loan was availed by keeping the property documents as security, for securing the loan. However, the Appellant had committed a fraud because this very property in question, had already been transferred to Mr. Suresh Sangwan. The Appellant can in no manner, recover the amount from the property in question, since the fraud has been committed by the Respondents.

9. The learned District Judge merely opined that the interest @ 3% per month “appears to be unconscionable and extortionate.” This is not a finding of fact, but a subjective value judgment that cannot override the conclusive factual determination, in an earlier proceeding.

10. Reliance is placed on the Judgment of the Constitution Bench of Supreme Court in General Assurance Society Ltd. v

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2026 Supreme(Del) 644

The court maintains discretionary authority under the Code of Civil Procedure to determine pendente lite and future interest. This power is independent of contractual stipulations, enabling the court to award moderate, non-penal rates to ensure equitable outcomes and prevent unjustified enrichment.

Cases Referred (10)