1999 PLP 1938 (CLC)

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34. Interest.‑‑‑ (1) Where and in so far as a decree is for the payment of money, the Court may, in the decree, order interest at such rate as the Court deems reasonable to be paid on the principal sum, adjudged, from the date of the suit to the date of the decree in addition to any interest adjudged on such principal sum for any period prior to the institution of the suit; with further interest at such rate as the Court deems reasonable on the aggregate sum so adjudged, from the date of the decree to the date of payment, or to such earlier date as the Court thinks fit. (2) Where such a decree is silent with respect to the payment of further interest on such aggregate sum as aforesaid from the date of the decree to the date of payment or other earlier date, the Court shall be deemed to have refused such interest, and a separate suit, therefore, shall not lie." In the year 1980 two new provisions were introduced in the Code of Civil Procedure, 1908 for the purpose of granting interest of public dues and on dues of a banking company. Section 34‑A was introduced vide Ordinance X of 1980 which provides that in a case where suit is filed to avoid the payment of any public dues, while dismissing such suit, the Court may order for payment of interest on such public dues @ 2% above the prevailing bank rate. It is further provided in section 34‑A, C.P.C. that where it is found that the recovery of any public dues from the plaintiff was unjustified, the Court while disposing of the suit may grant interest on the amount recovered at the rate of 2 % above the prevailing bank rate. The terms "bank rate" and "public dues" were also defined. Section 34‑B was added by the Ordinance LX‑111 of 1980, which provides imposition of interest on the bank dues. All these suggest that sections 34‑A and 34‑B were added keeping in view the method and manner adopted for calculating 8 interest by the Banks, which was not permissible earlier under section.

34. C.P.C. It is, therefore, clear that the rates of interest to be imposed in a simple money suit governed by section 34, C.P.C. would be different from the cases . governed by sections 34‑A and 34‑B. Recently, in the case of Messrs M.Y. Malik & Company and 2 others v. Messrs Splendours International 1997 SCMR 309 the Supreme Court has considered application of section 34, C.P.C. in the following manner:‑‑ "It cannot be disputed that grant of interest pendente lite and after passing of the decree in a money suit, is discretionary with the Court. It is true that under section 34, C.P.C. it is laid down that the interest after the date of the decree may be allowed by the Court at such rates as the Court may deem reasonable on the aggregate sum so adjudged but this does not mean that the Court is bound to grant interest on the aggregate sum so adjudged in the suit. Subsection (2) of section 34, C.P.C. clearly provides that where the decree is silent with regard to the payment of further interest on such aggregate sum, it shall be deemed to have been refused by the Court and for that a separate suit is also barred." Perusal of section 34 reveals that the Courts are competent to order interest at such rate which appears to be reasonable to be paid on the principal sum adjudged, in a suit for money which may be divided into three heads, according to the period for which it is allowed, i.e. from the date of the suit to the date of the decree. Moreover, the Courts are further competent to order interest, in addition to the earlier amount on such principal sum for any period prior to the institution of the suit. The third period for which interest the Courts are permitted to award on the aggregate sum so adjudged is from the date of decree to the date of payment. In all these three situations, the interest so awarded must be at a rate which appears reasonable to the Court. It is not to be awarded as penalty or by way of damages. The term "sum adjudged" is commonly known as the decretal amount. Therefore, any interest accrued on this sum judged/decretal amount, is to be calculated and added on the yearly basis. It is not permissible for the decree‑holder to claim interest accrued in the previous year as it is done in the case of compound interest. Both these terms have been separately defined in Black's Law Dictionary in the following manner:‑ "Simple interest. That which is paid for the principal of sum lent, at a certain rate or allowance, made by law or agreement of parties. Interest calculated on principal where interest earned during periods before maturity of the loan is neither added to the principal nor paid to the lender. That paid on the principal lent as distinguished from compound interest which is interest paid on unpaid interest. B.F. Saul Co. v. West End Park North, Inc. 250 Md. 707. 246 A.2d 591, 598) Difference between 'simple interest' and 'compound interest' is that simple interest' does not merge with principal and, thus, does not become part of base on which future interest is calculated. Wtewart v. Isbell (155 Mich. App. 65, 399 N.W. 2d 440, 446). "Compound interest. Interest upon interest; i.e. interest paid on principal plus accrued interest. Exists where accrued interest is added to the principal sum, and the whole treated as a new principal for the calculation of the interest for the next period. Interest added to principal as interest becomes due and thereafter, made to bear interest. Wieland v. Loon, (79 S.D. 608, 116 N.W. 2d 391, 393)." A plaintiff may be entitled for compound interest provided it was agreed by the defendant. Where there is no express stipulation between the parties, the plaintiff is not entitled to this kind of interest. However, there are few exceptions; firstly, where there is established mercantile practice and by operation of Law. In the case of Namkishum Ram Marwari v. Bansi Singh and others reported in AIR 1929 Pat. 340, it was held by a Division Bench of Patna High Court that compound interest will not be allowed except where there is an agreement, express or implied, to pay it or where the debtor has employed the money in trade and has presumably earned it, or unless its allowance is in accordance with a custom of a particular trade or business. Same view was held by Madras High Court in the case of Narasimha and another v. Venkata Subbayya and another AIR 1933 Mad.

171. A Full Bench of Honourable Supreme Court in the case of Khan Iftikhar Hussain Khan of Mamdot v. Messrs Ghulam Nabi Corporation Ltd PLD 1972 SC 550 upheld the order of the High Court through which interest C4? 6% was granted on the decretal amount while keeping in view the Marchantile passage of Lahore market. On the point that a party is not entitled for a compound interest in absence of any agreement, reference could be trade to the case of Messrs Shifa Medicos (Regd.) and 2 others v. Commercial Bank Ltd. (United Bank Ltd.) Lahore 1988 MLD 1126 and United Bank Ltd. v. Kurnool Muhammad Muneer 1991 CL.C 1758. On 9‑2‑1998 the decree‑holder was directed to file revised statement showing simple interest accrued on the decretal amount. Mr. Kazi Faez Issa has filed fresh calculation at the rate of 10% per annum based on simple interest, which reads as follows:‑‑ "Decretal amount simple interest at the rate Rs.3,92,419.71 ‑ of 10%. per annum from 12‑2‑1973 to 12‑2‑1998 (for 25 years) Rs:9,81.049.29 Total .. Rs.13,73,469.00 Amount of cost Rs.15.028.00 Total amount Rs.13,88.497.00 Accordingly this execution application is granted as the full compliance of section 82, C.P.C. was made vide order, dated 18‑8‑1997 and no objection F has been raised by the J.D. till this date. Consequently, the amount as mentioned above lying in the Account No.II (Food) (Government of Sindh) with State Bank is attached. Intimation be issued to the Director, Accounts Department, State Bank of Pakistan, Central Directorate, Karachi. Q.M.H./M.A.K./U‑34/K Execution Application granted.