Indo Arya Central Transport Ltd. vs M/s Khatema Fibers Ltd. and Others

Valmiki J Mehta, J.—The subject suit was filed by the plaintiff for recovery of Rs. 1,01,18,685.50 being the balance due on a running

account between the plaintiff and the defendant No. 1. Plaintiff is a transporter and it transported the goods of the defendant No. 1. The invoices

which have been raised by the plaintiff upon the defendant No. 1 are with respect to transportation charges. The suit was filed on 26.12.1998.

Immediately, after filing of the suit and service of the summons, the suit was compromised on 7.1.1999 i.e. just within 14 days. As per the

compromise application, being I.A. No. 80/1999, it was agreed that the principal amount due with respect to the freight was Rs. 69,26,298.50.

This amount was admittedly paid by the defendants to the plaintiff under the compromise. As per para 7 of the compromise application, the issue

of interest was to be mutually decided between the plaintiff and the defendants. The suit was disposed of in terms of the compromise on 7.1.1999,

however, the same was revived on an application being I.A. No. 654/2000 of the plaintiff on the ground that no settlement could take place with

regard to the interest. The issue now to be decided is therefore only as regards the interest which the plaintiff claims to be payable by the

defendants. The following issues in this regard were framed by this Court on 24.5.2007:-

Whether there was any oral settlement or any other settlement whereby the plaintiff agreed to waive interest? (OPD)

Whether the plaintiff is entitled to any interest? If so, at what rate, on what amount and for which period? (OPP)

Relief.

ISSUE NO. 1 AND 2

Both these issues can be dealt with together. Interest is payable from the date from which there is default in making payment of the principal

amount due. In the present case, I put it to counsel for the plaintiff that how the plaintiff has proved the invoices with respect to the principal

amount paid under the compromise of Rs. 69,26,298.50, and to which the counsel for the plaintiff had no option but to frankly concede that there

does not exist on the record all the invoices for proving as to what are those invoices which totals to the said principal amount. The different

invoices would be of different amounts and different dates and thus the amount of interest (if payable) would have been different qua each invoice.

It was necessary for the plaintiff to file and prove all the invoices (each and every one of them) because the interest would be payable at best from

the date of invoice or from the date fixed for payment after the grace period till payment. The figure of Rs. 69,26,298.50/- is not one consolidated

figure of one invoice containing only that one figure. Since the invoices will be of different dates and for separate amounts obviously interest would

be of different amounts i.e. separate amount and different periods. Unless the different periods are proved by proving the invoices interest cannot

be calculated. Therefore, since invoices have not been filed and proved by the plaintiff, there cannot be awarded any interest to the plaintiff.

Counsel for the plaintiff, therefore, at this stage, confines his relief to grant of pendente lite and future interest.

Counsel for the plaintiff argues that the plaintiff is entitled to interest during the entire pendency of the present suit i.e. from the date when suit

was filed till today and thereafter till payment.

The issue is that what is the pendente lite period and what should be the rate of interest for that pendente lite period. The plaintiff claims that

interest due prior to filing of the suit had become a principal amount due on which interest is payable for pendente lite period and till the date when

such amount will be paid.

5(i). Firstly there can be no valid claim of interest because as already held above that to claim interest all the invoices had to be proved for

determining the separate amounts of the interest qua the separate invoices and the separate periods for the separate amounts and which the plaintiff

has failed to do.

(ii) Secondly, it is settled law vide a Constitution Bench judgment of the Supreme Court in the case of Central Bank of India Vs. Ravindra and

Others, that only if there is an agreement to pay compound interest and that compound interest is not paid, the same merges into the principal

amount i.e. interest payable thereafter would be on the total of the amount of the principal plus interest. In the present case, admittedly, there is no

contract to pay compound interest. The invoices in question relied upon by the plaintiff, issued to the defendants, only mentions interest at 24% per

annum. Obviously, therefore, this means that the interest at 24% per annum is a simple interest and not compound interest. Though the invoices

with respect to freight charges have not been filed and exhibited by the plaintiff, since the defendants have filed a few of them, I am referring to the

same. Therefore, there is no contract between the parties to pay compound interest and since there is no contract between the parties to pay

compound interest, interest amount if remaining due cannot be merged with the principal amount for future interest to be claimed on the total

amount of the principal plus interest. I, therefore, reject the argument urged on behalf of the plaintiff that plaintiff is entitled to compound interest.

(iii) In my opinion, even assuming that the interest payable was compound interest, the issue of interest would only have arisen if the principal

amount was not paid. Interest is always payable on the principal, and if principal is paid, there does not arise the issue of continuation of interest.

As already stated above, the suit was filed on 26.12.1998, and the defendants paid the principal amount of Rs. 69,26,298.50 on 7.1.1999. At

best therefore, the amount of interest which would be payable on this principal amount of Rs. 69,26,298.50 would be for the pendente lite period

and which will be from 26.12.1998 to 7.1.1999 only. There does not arise any issue of payment of interest after 7.1.1999 inasmuch as, once the

principal amount stood paid on 7.1.1999 there does not arise any issue of payment of interest thereafter.

(iv) Though, as per invoices, plaintiff seeks interest at 24% per annum, however, the Supreme Court in its recent trend of judgments reported as

Rajendra Construction Company Vs. Maharashtra Housing and Area Development Authority and Others, , McDermott International Inc. Vs.

Burn Standard Co. Ltd. and Others, , Rajasthan State Road Transport Corpn. Vs. Indag Rubber Ltd., , Krishna Bhagya Jala Nigam Ltd. Vs. G.

Harischandra Reddy and Another, & State of Rajasthan Vs. Ferro Concrete Construction Pvt. Ltd (2009) 3 Arb. LR 140 (SC) has held that high

rates of interest should not be granted by the Courts as on account of the changed economic scenario where rates of interest have consistently

fallen. I am therefore not inclined to grant interest @ 24%, and I grant the plaintiff interest at the rate of 9% per annum simple on the amount of the

Rs. 69,26,298.50 from 26.12.1998 to 7.1.1999.

The liability under the present judgment will only be of defendant No. 1-company, and there will be no liability of defendant Nos. 2 to 4, who

have no privity of contract, and hence no liability towards the plaintiff. In fact, the plaint does not even contain averments as to how liability can be

legally fastened on to the defendant Nos. 2 to 4.

Relief.

Issue nos. 1 and 2 are therefore decided by holding that the suit of the plaintiff shall stand decreed against defendant No. 1 only for the interest

component on Rs. 69,26,298.50 at 9% per annum simple for the period from 26.12.1998 to 7.1.1999. Parties are left to bear their own costs.

Decree sheet be prepared.