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Issues: Meaning of "the principal sum adjudged" and "such principal sum" in section 34 of the Code of Civil Procedure, 1908, and whether interest capitalised on periodical rests can form part of the principal for the award of pendente lite and future interest.
Analysis: The expression "principal sum adjudged" in section 34 was held to include not merely the amount originally advanced but also interest which, under the contract between the parties or a settled banking practice, had been capitalised and had ceased to retain its character as interest. Once capitalised, that amount becomes part of the principal debt and may bear interest accordingly. The amendment of 1956 was understood to prevent interest being awarded on interest adjudged as such, but not to exclude from the principal any amount which had already merged into principal by capitalisation. The same meaning was attributed to "such principal sum" in the later part of section 34, so that the court's power to award pendente lite and future interest extends to the capitalised principal sum. Penal interest, however, cannot be capitalised, and any stipulation or banking practice remains subject to overriding statutory provisions and RBI directions.
Conclusion: Capitalised interest on periodical rests can form part of the principal sum adjudged, and interest pendente lite and future interest may be awarded on that principal sum under section 34.
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