Appeal restores simple interest at 6% p.a. from 16 April 2010 until Rs.285 lakh deposited, earlier restriction set aside

NCLAT (PB) set aside the NCLT's limited interest award and held respondents liable for simple interest at 6% p.a. from 16.04.2010 until the day the Rs.285 lakh was deposited. The tribunal found respondents at fault for failing to pay per the 08.09.2009 settlement (or by instalments by 15.04.2010) and that the NCLT's restriction of interest to 07.01.2022-28.02.2023 lacked basis. Appeal disposed.

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ISSUES PRESENTED AND CONSIDERED

1. Whether interest on a sum payable under a settlement recorded by the erstwhile adjudicatory body is payable from the date of the settlement or from a later date, and if so, from which date.

2. Whether the appropriate rate of interest for delayed payment under the settlement should be simple interest at 18% per annum as claimed by the applicant, or a lesser rate in the discretion of the Tribunal.

3. Whether the Tribunal erred in limiting the period for which interest was awarded to a short, specific interval despite the settlement and subsequent judicial directions restoring the settlement.

ISSUE-WISE DETAILED ANALYSIS

Issue 1 - Date from which interest is payable (settlement date vs. later date)

Legal framework: A party entitled to a payment under a recorded settlement or decree is ordinarily entitled to interest for the period of delay in payment; the date from which interest runs depends on when the obligation to pay crystallised (i.e., when the settlement/decree became binding and enforceable) and on any intervening events that lawfully suspended enforcement.

Precedent Treatment: The Tribunal examined the recorded settlement dated 08.09.2009 which expressly stated the amount was to be paid "in one go" and that the terms "bind the parties." The Tribunal treated the settlement as reinstated by the higher court's order; the NCLT originally limited interest to a later period, while the Appellate Tribunal corrected that limitation.

Interpretation and reasoning: The Court held that the settlement created an obligation to pay the full amount, and that the respondent's subsequent conduct (proposing instalments, litigating) did not cure or negate the original obligation. Although the respondent sought time on 08.09.2009 to approach bankers and later proposed instalments up to 15.04.2010, that proposal was not accepted; alternatively, even if accepted, the latest date by which instalments could have been completed (15.04.2010) marks the outer limit of permissible delay. The Court reasoned that respondents were at fault from either 08.09.2009 (if obligation accepted strictly) or, at the latest, from 16.04.2010 when instalment option lapsed, and therefore interest ought to run from 16.04.2010 until deposit of the principal.

Ratio vs. Obiter: Ratio - obligation under a recorded settlement gives rise to entitlement to interest from the date the obligation crystallised; where a later instalment proposal was not agreed (or not complied with), the creditor is entitled to interest from the date by which payment should have been completed (here, 16.04.2010). Obiter - observations on parties' conduct and ability to have paid earlier as matters of common knowledge.

Conclusion: Interest was payable from 16.04.2010 (if not from 08.09.2009), because respondents failed to make payment per the settlement or within any agreed instalment timeline; the Tribunal's limitation of interest to 07.01.2022-28.02.2023 was without basis and set aside to the extent of that limitation.

Issue 2 - Rate of interest (claimed 18% vs. awarded 6%)

Legal framework: Courts exercise discretion in awarding pre-decree or compensation interest for delayed performance based on principles of justice and commercial fairness; rates may reflect contractual rate, statutory rate, or a judicially determined fair rate (simple vs. compound). Where a specific rate is claimed, the claimant must justify entitlement to that contractual or higher rate; absent such justification, the Tribunal may award an equitable rate to compensate time value of money.

Precedent Treatment: The original adjudicatory body (NCLT) awarded simple interest at 6% per annum. The Appellate Tribunal endorsed the rate of 6% as a reasonable award in the interest of justice, while addressing the temporal extent of liability.

Interpretation and reasoning: The Court noted the appellant's claim for 18% interest but did not find sufficient basis in the record (settlement or subsequent orders) to justify such a high rate. The Court emphasised equitable compensation for time value of money rather than punitive or contractual enhancement absent clear terms. Considering delay spanning many years but also litigation and procedural developments (including the company being struck off and proceedings being sub judice), the Court found simple interest at 6% p.a. to be appropriate and reasonable.

Ratio vs. Obiter: Ratio - absent an express contractual entitlement or other concrete basis for a higher rate, the Tribunal may award a reasonable simple interest rate (here, 6% p.a.) to compensate for delayed payment. Obiter - commentary on unjust enrichment and accretion in company property value as supportive equity considerations, but not replacing a contractual rate.

Conclusion: The Tribunal's award of simple interest at 6% per annum was upheld as appropriate; the claimed rate of 18% was not justified on the materials before the Court.

Issue 3 - Discretion to limit period of interest and appellate correction of such limitation

Legal framework: A tribunal's discretion in fixing compensatory interest includes determining both rate and period; however, such discretion must be exercised on cogent reasoning and consistent with the binding terms of a settlement or decree. Appellate intervention is warranted where the exercise of discretion lacks basis or fails to give effect to a binding settlement.

Precedent Treatment: The impugned order limited interest to a discrete period (07.01.2022-28.02.2023) without adequate reasoning despite recognising the original settlement; the Appellate Tribunal found this exercise of discretion unsupported.

Interpretation and reasoning: The Court observed that the NCLT, while correctly addressing time value of money, failed to explain why interest should be confined to that narrow interval despite the recorded settlement binding the parties from 08.09.2009. Given respondents' failure to pay per settlement or by the instalment cut-off, respondents were at fault from 16.04.2010 at the latest. The Appellate Tribunal therefore set aside the limitation and directed interest from 16.04.2010 until deposit, with a caveat to deduct any interest already paid in the interim.

Ratio vs. Obiter: Ratio - discretionary limitation of interest must be supported by cogent reasons; absent such reasons, appellate court will correct to reflect the correct period of liability arising from the settlement or its operative alternatives. Obiter - procedural history (e.g., stay, striking off) considered relevant to context but did not justify truncation of interest period without reasoned findings.

Conclusion: The Tribunal properly interfered with and set aside the NCLT's unexplained limitation of the interest period; interest was declared payable from 16.04.2010 until the day the principal was deposited, subject to deduction of any interim interest paid.

Ancillary procedural and remedial conclusions

1. The settlement recorded on 08.09.2009 was reinstated by the higher court and binds the parties; enforcement must reflect that reinstatement.

2. Any interest paid during the intervening period is to be deducted from the total interest liability.

3. The appeal was disposed of accordingly and ancillary applications were dismissed as spent.

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