[31st
March, 1978]
An Act to consolidate and amend the law relating
to the allowance of interest in certain cases.
BE it enacted
by Parliament in the Twenty-ninth year of the Republic of India as
follows;-
1.Short
title, extent and commencement.- (1) This Act may be called the
Interest Act, 1978.
(2) It extends to the whole of India
except the State of Jammu and Kashmir.
(3) It shall come into
force on such date as the Central Government may, by notification in
the Official Gazette, appoint.
2.Definitions.- In this
Act, unless the context otherwise requires;-
(a) "court
includes a tribunal and an arbitrator;
(b) "current rate of
interest" means the highest of the maximum, rates at which interest
may be paid on different classes of deposits (other than those
maintained in savings account or those maintained by charitable or
religious institutions) by different classes of Scheduled banks in
accordance with the directions given or issued to banking companies
generally by the Reserve Bank of India under the Banking Regulation
Act, 1949 (10 of 1949).
Explanation ;- In this clause,
"scheduled Bank" means a bank , not being a Co-operative bank ,
transacting any business authorised by the Banking
Regulation
Act, 1949 (10 of 1949);
(c) "debt" means any liability for an
ascertained sum of money and includes a debt payable in kind , but
does not include a judgment debt;
(d) "personal injuries"
includes any diseases and any impairment of a person physical or
mental condition;
(e) all other words and expression used
herein but not defined and defined in the Reserve Bank of India Act,
1934 (2 of 1934) shall have the meanings respectively assigned to
them in the Act.
3.Power of court to allow
Interest.- (1) In any proceeding for the recovery of any debt or
damage 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.
(2) Where in any
such proceedings as are mentioned in sub-section (1) :-
(a)
judgment, order or award is given for a sum which , apart from
interest on damages, exceeds four thousand rupees, and
(b)
the sum represents or includes damages in respect of personal
injuries to the plaintiff or any other person or in respect of a
person's death. then ,
the power conferred by that sub-section
shall be exercised so as to include in that sum interest on those
damages or on such part of them as the court considers appropriate
for the whole or part of the period from the date mentioned in the
notice to the date of institution of the proceedings, unless the
court
is satisfied that there are special reasons why no interest
should be given in respect of those damages.
(3)Nothing in
this Section ;-
(a) shall apply in relation to:-
(i)
any debt or damages upon which interest is payable as of right, by
virtue of any agreement; or
(ii) any debt or damages upon
which payment of interest is barred , by virtue of an express
agreement;
(b) shall affect:-
(i) the compensation
recoverable for the dishonour of a bill of exchange, promissory note
or cheque, as defined in the Negotiable instrument Act, 1881:
or
(ii) the provisions of rule 2 of Order II of the First
Schedule to the Code of Civil Procedure, 1908;
(c) shall
empower to court to award interest upon interest.
Comment: Under certain
circumstances even compound interest may be allowed by Courts,
especially when dealing with commercial or bank contracts. See Renusagar Power Co. Ltd. v.
General Electric Co AIR 1994 SUPREME COURT 860
4.Interest payable under
certain enactments.- (1) Notwithstanding anything contained in
section 3, interest shall be payable in all cases in which it
is
payable by virtue of any enactment or other rule of law or
usage having the force of law.
(2) Notwithstanding as
aforesaid, and without prejudice to the generality of the provisions
of sub-section (1), the court shall, in each of the
following
cases, allow interest from the date specified below to
the date of institution of the proceedings at such rate as the court
may consider reasonable,
unless the Court is satisfied that there
are special reasons why interest should not be allowed,
namely;-
(a) where money or other property has been deposited
as security for the performance of any obligation imposed by law or
contract from the date
of the deposit;
(b) where the
obligation to pay money or restore any property arises by virtue of
a fiduciary relationship from the date of the cause of
action;
(c) where money or other property is obtained or
retained by fraud, from the date of the cause of action;
(d)
where the claim is of dower of maintenance, from the date of the
cause of action.
5.Selection 34 of the Code of
Civil Procedure, 1908 to apply.- Nothing in this Act shall
affect the provisions of section 34 of the Code of
Civil
Procedure, 1908 (5 of 1908).
6.Repeal and saving.- (1)
As from the commencement of this act, the Interest Act, 1839 (32 of
1839) and any other law corresponding thereto in
force in any
State immediately before such commencement shall stand
repealed.
(2) The provisions of this act, not apply to any
suit or other legal proceeding pending at the commencement of this
Act and the provisions of the
corresponding law applicable
immediately before such commencement shall, notwithstanding the
repeal of such law by sub-section (1), continue
to apply to such
suit or other legal proceeding.
(3)The mention of particular
matters in sub-section (2) shall not be held to prejudice or affect
the general application of section 6 of the General
Clauses Act,
1897 (10 of 1897), with regard to the effect of repeal.