Interest payable on compensation
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When interest due is not paid along with the principal the party is also entitled to receive further interest on the interest amount, writes C.H.Gopinatha Rao
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Photo: Nagara Gopal
Package: Compensation must be all-inclusive.
Alok Shabka Pandey applied for a flat in 1994 under the “Indira Puram Housing Scheme and received the reservation letter with directions to pay seven instalments on specified dates. After paying a few instalments , he opted for an HIG flat which was also allotted to him in 1994 and made necessary payments. When he found that there was no likelihood of the flat being completed and made available to him in the near future, he demanded that the amount paid be refunded
along with 21% per annum interest. The amount was refunded in 2001 without any interest. He sought compensation from the promoters by filing an application under section 12-B of the Monopolies ad Restrictive Practices Act 1969.
The builders responded to the notice replying that the full payment of Rs. 6,64,000/ (estimated cost) as indicated in the Reservation letter was not paid and hence the flat was not handed over to Pandey. The Commission observed that the respondent made no efforts to issue demand letters towards remaining amount. In addition, the estimated cost was not confirmed till 1998. Since the buyer was not only assured of the flat and not delivered, he had no alternative but to cancel the purchase and ask for refund of the amount deposited. This was seen as a clear case of deficiency of services on the part of the builder.
The commission directed the promoters that 12 per cent interest be paid as interest towards the amount he had paid calculated till the date of refund. But Mr. Pandey demanded 21% interest as compensation. When he approached the Supreme Court for a higher rate of interest the Court observed that there was misconception about interest. Interest is not a penalty or punishment at all but it is the normal accretion on capital. For example, if A has to pay B a certain amount, say 10 years ago but he offers that amount to him now then he has pocketed the interest on the principal amount. Had A paid the amount to B 10 years ago, B would have invested that amount somewhere and earned interest thereon but instead of that A kept that amount with himself and earned interest on it. Hence equity demands that A should not only pay back the principal amount but also the interest.
The Court felt that there was no hard and fast rule about how much interest should be granted and it all depended on facts and circumstances of each case. When the interest due to the aggrieved party is not paid along with the principal amount then he is also entitled for interest on such interest amount till date of payment. Since interest was not granted to Mr. Pandey along with the principal amount, the promoters were asked in addition to the interest at the rate of 12% per annum also pay interest at the same rate on the aforesaid interest from the date of payment of instalments.
The author is former National President, Institution of Valuers.
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