2025 (4) TMI 103 - SC - Indian Laws

Supreme Court awards enhanced share valuation with interest against State in unconscionable pricing dispute under Article 14

I.K. MERCHANTS PVT. LTD. & ORS. Versus THE STATE OF RAJASTHAN & ORS.

SC modified HC judgment in share valuation dispute between private parties and State of Rajasthan. Court held that despite commercial nature of ... Appropriate rate of interest to be applied to the enhanced valuation of shares sold by the appellants to the State of Rajasthan - delay in remittance of the fair value of the shares to the appellants - HELD THAT:- Here, it cannot be disputed that there has been a transaction of trade, viz. sale and purchase of goods, which clearly implies a commercial transaction between the parties. The term “Public Interest” denotes a wider concept with its genus rooted to the welfare of the public at large, with different species attributable to individual and specific impact, depending upon the concept and the subject under consideration. It deals with the impact of a policy decision on the society. Generally, public interest is anathema to commercial transactions. However, by exception, when the terms are oppressive or one-sided, they are to be termed as unconscionable, arbitrary and by application of externalities, public interest will have to lean towards the individual who has been wronged, as such contracts are deemed to take away the fairness, affecting the free consent required to culminate into a valid contract. The constitutional courts, under such circumstances will be armed with Article 14 to strike down such contracts or to pass appropriate decrees or orders. In the present case, the transaction, though commercial, is not between two businessmen or entities; the State and its instrumentality are parties to the contract with better bargaining or imposing authority; and from the records, we find that there was no public interest in offering a lesser sum. Further, with the price fixed found to be unconscionable, this Court affirmed the enhanced price fixed by the High Court. Pertinently, it is to be pointed out at this juncture that there was no agreement between the parties relating to grant of interest for the delayed payment. Even the exchange of communications between the parties remains silent on this aspect. In the absence of any agreement or contract, the provisions of Section 34 of the Code of Civil Procedure dealing with ‘interest’ would come into play. Section 34 of the Code of Civil Procedure empowers the court to grant interest at three different stages of a money decree viz., (i) the court may award interest on the principal sum claimed at a rate it deems reasonable, for the period before the suit was filed. Such interest is generally governed by agreements between the parties; (ii) The court may award interest on the principal amount from the date of filing the suit until the date of the decree, at a reasonable rate. Here, the court has full discretion to determine the interest rate based on fairness, commercial usage and equity; and (iii)the court may grant interest on the total decretal amount (principal + interest before decree) from the date of the decree until payment, at a rate not exceeding 6% per annum unless otherwise specified in contractual agreements or statutory provisions. However, if the claim arises from a commercial transaction, courts may allow interest at a higher rate based on agreements between the parties. Thus, it is abundantly clear that the Courts have the authority to determine the appropriate interest rate, considering the totality of the facts and circumstances in accordance with law. That apart, the Courts have the discretion to decide whether the interest is payable from the date of institution of the suit, a period prior to that, or from the date of the decree, depending on the specific facts of each case. Considering the prolonged pendency of the dispute regarding the valuation of shares, which has only been determined recently, and the substantial share amount involved, and also keeping in mind that this is a commercial transaction, and the entire burden of interest along with principal value falls upon the Government, it is necessary in the present case to award reasonable interest, in order to strike a balance between the parties. Thus, in these peculiar facts and circumstances, it is deemed fit, just and appropriate to award simple interest at the rate of 6% per annum from 8th July 1975, on the enhanced valuation of shares till the date of decree and interest at the rate of 9% per annum from the date of decree till the date of realisation. The interest shall be paid along with the amount due towards the enhanced value of the shares, after adjusting the amount already paid, to the appellants, within a period of two months from today. Conclusion - The High Court's judgment modified, awarding simple interest at 6% per annum from 8th July 1975 until the date of decree and 9% per annum from the date of decree until realization. The impugned judgments and orders passed by the High Court are modified - appeal disposed off. 1. ISSUES PRESENTED and CONSIDEREDThe core legal issue considered in this case was the appropriate rate of interest to be applied to the enhanced valuation of shares sold by the appellants to the State of Rajasthan, given the prolonged delay in payment. The appellants sought a higher interest rate, arguing that the transaction was commercial in nature, while the respondents contended that the interest should not exceed 5% per annum as determined by the High Court.2. ISSUE-WISE DETAILED ANALYSISThe primary issue was the determination of the interest rate on the enhanced valuation of shares, considering the delay in payment and the nature of the transaction.- Relevant legal framework and precedents: The legal framework centered around Section 34 of the Civil Procedure Code, which governs the award of interest in money decrees. Relevant precedents included Union of India v. Tata Chemicals Ltd (2014) and Alok Shanker Pandey v. Union of India (2007), which discussed the principles of awarding interest based on the time value of money and equitable considerations.- Court's interpretation and reasoning: The Court recognized that the transaction was commercial in nature, involving the sale and purchase of shares. It emphasized the need to balance fairness and financial impact when determining the interest rate, considering the prolonged delay and the substantial share amount involved.- Key evidence and findings: The Court noted that the appellants were deprived of the fair value of their shares for over 50 years due to faulty valuation and delay by the respondents. The valuation of shares at Rs.640/- per share was affirmed, and the Court acknowledged the appellants' entitlement to compensation for the time value of money.- Application of law to facts: The Court applied Section 34 of the Civil Procedure Code to determine the interest rate, considering the commercial nature of the transaction and the prolonged delay. It rejected the appellants' claim for compound interest but recognized the need for reasonable compensation through interest.- Treatment of competing arguments: The Court considered the appellants' argument for a higher interest rate based on commercial transaction principles and the respondents' argument for a lower rate due to the non-commercial nature of the State's involvement. It balanced these arguments by awarding simple interest at different rates for different periods.- Conclusions: The Court concluded that the appellants were entitled to simple interest at 6% per annum from 8th July 1975 until the date of decree and 9% per annum from the date of decree until realization, ensuring fair compensation without unduly burdening the respondents.3. SIGNIFICANT HOLDINGS- Preserve verbatim quotes of crucial legal reasoning: 'The Court must ensure that while the claimant is fairly compensated, the award does not become punitive or unduly burdensome on the Judgement Debtor.'- Core principles established: The Court established the principle that in commercial transactions, interest should compensate for the time value of money, balancing fairness and financial impact. It emphasized the need for reasonable compensation without punitive measures.- Final determinations on each issue: The Court modified the High Court's judgment, awarding simple interest at 6% per annum from 8th July 1975 until the date of decree and 9% per annum from the date of decree until realization. The interest, along with the enhanced value of shares, was to be paid to the appellants within two months.