TaxTMI 
TaxTMI 
2025 (4) TMI 103
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....ppeals, at the instance of the appellants herein. 3. On 25.07.2022, when the appeals were taken up for consideration by this Court, the learned counsel for the appellants confined the prayer made herein to the grant of an appropriate rate of interest, which was also recorded in the proceedings. In view of the same, we proceed to deal with these appeals only to the limited extent of grant of rate of interest for the difference in valuation of shares of Respondent No.2 viz., Rajasthan State Mines and Mineral Ltd., formerly known as Bikaner Gypsums Ltd. For short, "the Company", which shares were sold by the appellants to Respondent No.1 viz., State of Rajasthan, in 1973. 4. The relevant facts giving rise to the controversy involved herein are as follows: 4.1. Originally, the appellants preferred a suit being C.S.No.467 of 1978 before the High Court of Calcutta, and the same was subsequently amended, praying for a decree for Rs.4,34,21,553.00 against the Respondent No.1; in the alternative a decree for reasonable price of the shares of the appellants, after determination of such price by the High Court; in the further alternative, cancellation of the transfer of shares belong....
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....ally was with regard to the valuation of shares, and in order to arrive at a settlement, appointed M/s. Ray & Ray Co. as valuer for the purpose of conducting an enquiry and ascertaining the proper value of the shares of the appellants as on the date, when such shares were transferred to the State Government. It was further directed that such valuation would be uninfluenced by previous valuation reports. Accordingly, the valuer M/s. Ray & Ray valued the shares at Rs.640/- per share and filed its report. However, the respondents refused to accept the said valuation. As a result of the same, the High Court proceeded to hear the matter on merits and passed a final judgment and order on 28.04.2021. The operative portion of the same reads as under: "In those circumstances, this appeal and cross-objection are disposed of by declaring that the respondents/plaintiffs are entitled to Rs.640/- per share sold by them to the appellant and directing that each of the respondents/plaintiffs be paid by the appellant no.1 Rs.640/- per share of Bikaner Gypsums Ltd. (subsequently Rajasthan State Mines and Minerals Ltd.) sold by him to the appellant no.1 as valued by M/s. Ray and Ray less Rs.1....
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....t of Rajasthan is for a period of about 50 years on the above valuation. Taking this length of time and the total interest burden on the appellant No.1, in my view, 6% per annum simple interest on the enhanced valuation of the shares will more than adequately compensate the respondents. We reject the prayer for enhancement of the interest rate. The appeal is disposed of accordingly. The judgment and decree of this Court dated 28th April 2021 is reaffirmed." Subsequently, the interest portion was corrected from 6% to 5% per annum, by order dated 02.05.2022. 4.5. With the above background, the appellants have come up with these appeals before us. 5. According to the learned counsel for the appellants, payment of interest owing to the delay in remittance of the fair value of the shares to the appellants is a right recognized in law. Further, the principle underlying the award of interest on the monies entitled to be recovered by a party is simply compensation for the time value of money i.e., compensation for interdicting the investment of that sum at the time when it was due to be paid. In support of the same, the learned counsel relied on the following dec....
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....rnment being a profit-making company between 1974 till 2020. However, without any justification, the High Court awarded only simple interest at the rate of 5% per annum, which will not compensate the appellants for the time value of the cost of shares, and is hence, whimsical and arbitrary. 5.3. It is further submitted that despite giving assurance to the appellants that they will be allowed to make a representation before the valuer by letters dated 27.04.1973 and 06.08.1973, the Respondent No.1 rescinded on this assurance vide letter dated 03.07.1974 and that, a copy of the valuation report dated 28.08.1974 was not supplied to the appellants and their objections thereto were not invited. Though appellant no.1 requested to return the shares if a fair valuation was not possible vide letter dated 10.04.1975, the respondents neither conducted a fair valuation nor returned the shares. Further, the respondents failed to comply with the order dated 20.08.2019 of this Court, as a result of which, the time granted by this court for submission of the report had to be extended on two occasions. Even after dismissal of the appeals of the respondents by this Court, the appellants have not ....
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....hare, in 1978. Subsequently, they sought amendment with regard to enhancement of valuation of share, which was ordered in 2001, i.e., 23 years later. Thus, the exorbitant interest sought in 2001 cannot be said to be computed from the year 1973. It is also submitted that the appellants / shareholders, who did not subscribe at Rs.10/- per share for fresh infusion of capital, have now got the valuation of Rs.640/- per share, on the same date and therefore, they have not been prejudiced in any manner. 6.2. Denying the allegation that the shares of the appellants had been compulsorily acquired by the State Government, the learned counsel submitted that the events as unfolded during 1969 to 1973 would amply demonstrate that it is owing to mismanagement of the Company that the State had to intervene and infuse further capital in the Company. The State had infused sufficient funds, but still the company could not be revived or sustained by the then management. It is in this context that the shares were acquired by the State. Therefore, it is not a case of compulsory acquisition of shares, but a case of infusion of capital, and getting equity in return just to keep the company afloat; an....
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....te. Thereafter, the litigation to decide the fair price of the share was initiated by the appellants in 1978 by demanding a sum of Rs.70.50 per equity share, but later, on the basis of valuation by a private valuer M/s. Naresh Lakhotia & Company, amended their plaint and claimed Rs.874/- per share. It is worth mentioning that the valuer M/s.Naresh Lakhotia & company and M/s.Ray and Ray are not the valuer appointed by the ICAI. Thus, the appellants are only entitled to the fair price of the share as on April 1973 and not the interest thereon. 7.1. It is further submitted that there was no contract in respect of payment of interest between the parties. In such circumstances, section 34 of the Civil Procedure Code would govern the field, which does not provide for any compound interest of any kind. That apart, Section 34 clearly mandates interest @6% per annum for the principal sum adjudged (both during pendency and till date of payment). Therefore, the question of compound interest does not arise. 7.2. It is ultimately submitted that the appellants have already got the price of their share at Rs.11.50 per equity share and they are only entitled for the difference of amount as uphe....
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....12.12.2022 passed by this court. 11. As already stated, the only issue remains to be considered by us in the present round of litigation is the rate of interest on the enhanced valuation of shares as determined by the High Court and affirmed by this court. 12. Taking note of the interest burden on the State for 50 years on the valuation of shares, the High Court had granted simple interest @ 5% per annum, by judgments and orders dated 26.04.2022 and 02.05.2022 which are impugned herein. According to the appellants, the transactions viz., transfer of shares were commercial in nature. Whereas, the respondents stated that they were not engaged in any industry, trade or business for profit purposes and the investment made was only to keep the loss-making Company unit afloat, and hence, the transactions cannot be treated as commercial transactions. 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....
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....tance or by determinations that the clause is contrary to public policy or to the dominant purpose of the contract'. Uniform Commercial Code $ 2-302 Comment 1.... A bargain is not unconscionable merely because the parties to it are unequal in bargaining position, nor even because the inequality results in an allocation of risks to the weaker party. But gross inequality of bargaining power, together with terms unreasonably favourable to the stronger party, may confirm indications that the transaction involved elements of deception or compulsion, or may show that the weaker party had no meaningful choice, no real alternative, or did not in fact assent or appear to assent to the unfair terms." There is a statute in the United States called the Universal Commercial Code which is applicable to contracts relating to sales of goods. Though this statute is inapplicable to contracts not involving sales of goods, it has proved very influential in, what are called in the United States, "non-sales" cases. It has many times been used either by analogy or because it was felt to embody a general accepted social attitude of fairness going beyond its statutory application to sales of g....
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.... subject-matter, as for example, when a vendor had not received half the value of property sold, or the purchaser had paid more then double value. The maxim "pacta sunt servanda" referred to in the above passage means "contracts are to be kept". 83. It would appear from certain recent English cases that the courts in that country have also begun to recognize the possibility of an unconscionable bargain which could be brought about by economic duress even between parties who may not in economic terms be situate differently (see, for instance, Occidental Worldwide Investment Corpn. v. Skibs A/S Avanti 1976 (1) L Rep. 293, North Ocean Shipping Co. Ltd. v. Hyundai Construction Co. Ltd. 1979 Q.B. 705, Pao On v. Lau Yin Long 1980 A.C. 614 and Universe Tankships of Monrovia v. International Transport Workers Federation 1981 (1) C.R. 129, reversed in 1981 (2) W.L.R. 803and the commentary on these cases in Chitty on Contracts, Twentyfifth Edition, Volume I, paragraph 486). 84. Another jurisprudential concept of comparatively modern origin which has affected the law of contracts is the theory of "distributive justice". According to this doctrine, distributive fairness and j....
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....ns of the national life, when Clause (2) of Article 38 directs the State, in particular, to minimize the inequalities in income, not only amongst individuals but also amongst groups of people residing in different areas or engaged in different vocations, and when Article 39 directs the State that it shall, in particular, direct its policy towards securing that the citizens, men and women equally, have the right to an adequate means of livelihood and that the operation of the economic system does not result in the concentration of wealth and means of production to the common detriment and that there should be equal pay for equal work for both men and women, it is the doctrine of distributive justice which is speaking through these words of the Constitution. 86. Yet another theory which has made its emergence in recent years in the sphere of the law of contracts is the test of reasonableness or fairness of a clause in a contract where there is inequality of bargaining power. Lord Denning, M.R., appears to have been the propounder, and perhaps the originator - at least in England, of this theory. In Gillespie Brothers & Co. Ltd. v. Roy Bowles Transport Ltd. 1973 (1) Q.B. 400 ....
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..... They rest on 'inequality of bargaining power'. By virtue of it, the English law gives relief to one who, without independent advice, enters into a contract on terms which are very unfair or transfers property for a consideration which is grossly inadequate, when his bargaining power is grievously impaired by reason of his own needs or desires, or by his own ignorance or infirmity, coupled with undue influences or pressures brought- to bear on him by or for the benefit of the other. When 1 use the word 'undue' 1 do not mean to suggest that the principle depends on proof of any wrongdoing. The one who stipulates for an unfair advantage may be moved solely by his own selfinterest, unconscious of the distress he is bringing to the other. I have also avoided any reference to the will of the one being 'dominated' or 'overcome' by the other. One who is in extreme need may knowingly consent to a most improvident bargain, solely to relieve the straits in which he finds himself. Again, I do not mean to suggest that every transaction is saved by independent advice. But the absence of it may be fatal. With these explanations, 1 hope this principle will be foun....
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....f his legal duty to fulfil them. In order to determine whether this case is one in which that power ought to be exercised, what your Lordships have in fact been doing has been to assess the relative bargaining power of the publisher and the song writer at the time the contract was made and to decide whether the publisher had used his superior bargaining power to exact from the song writer promises that were unfairly onerous to him. Your Lordships have not been concerned to inquire whether the public have in fact been deprived of the fruit of the song writer's talents by reason of the restrictions, nor to assess the likelihood that they would be so deprived in the future if the contract were permitted to run its full course. It is, in my view, salutary to acknowledge that in refusing to enforce provisions of a contract whereby one party agrees for the benefit of the other party to exploit or to refrain from exploiting his own earning power, the public policy which the court is implementing is not some 19th-century economic theory about the benefit to the general public of freedom of trade, but the protection of those whose bargaining power is weak against being forced by those w....
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....provide what are probably the first examples. The terms of this kind of standard form of contract have not been the subject of negotiation between the parties to it, or approved by any organisation representing the interests of the weaker party. They have been dictated by that party whose bargaining power, either exercised alone or in conjunction with others providing similar goods or services, enables him to say: 'If you want these goods or services at all, these are the only terms on which they are obtainable. Take it or leave it'. To be in a position to adopt this attitude towards a party desirous of entering into a contract to obtain goods of services provides a classic instance of superior bargaining power." 88. The observations of Lord Denning, M.R., in Levison and Anr. v. Patent Steam Carpet Co. Ltd. 1978 (1) Q.B. 69 are also useful and require to be quoted. These observations are as follows (at page 79): "In such circumstances as here the Law Commission in 1975 recommended that a term which exempts the stronger party from his ordinary common law liability should not be given effect except when it is reasonable: see The Law Commission and t....
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....Contract Terms Act, 1977, said (at page 843): "This Act applies to consumer contracts and those based on standard terms and enables exception clauses to be applied with regard to what is just and reasonable. It is significant that Parliament refrained from legislating over the whole field of contract. After this Act, in commercial matters generally, when the parties are not of unequal bargaining power, and when risks are normally borne by insurance, not only is the case for judicial intervention undemonstrated, but there is everything to be said, and this seems to have been Parliament's intention, for leaving the parties free to apportion the risks as they think fit and for respecting their decisions." Lord Diplock said (at page 850-51): "Since the obligations implied by law in a commercial contract are those which, by judicial consensus over the years or by Parliament in passing a statute, have been regarded as obligations which a reasonable businessman would realise that he was accepting when he entered into a contract of a particular kind, the court's view of the reasonableness of any departure from the implied obligations which would be involv....
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....s country social and economic justice. Article 14 of the Constitution guarantees to all persons equality before the law and the equal protection of the laws. The principle deducible from the above discussions on this part of the case is in consonance with right and reason, intended to secure social and economic justice and conforms to the mandate of the great equality clause in Article 14. This principle is that the courts will not enforce and will, when called upon to do so, strike down an unfair and unreasonable contract, or an unfair and unreasonable clause in a contract, entered into between parties who are not equal in bargaining power. It is difficult to give an exhaustive list of all bargains of this type. No court can visualize the different situations which can arise in the affairs of men. One can only attempt to give some illustrations. For instance, the above principle will apply where the inequality of bargaining power is the result of the great disparity in the economic strength of the contracting parties. It will apply where the inequality is the result of circumstances, whether of the creation of the parties or not. It will apply to situations in which the weaker par....
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....t adjudged on such principal sum for any period prior to the institution of the suit, with further interest at such rate not exceeding six per cent per annum as the court deems reasonable on such principal sum, from the date of the decree to the date of payment, or to such earlier date as the court thinks fit. Provided that where the liability in relation to the sum so adjudged had arisen out of a commercial transaction, the rate of such further interest may exceed six per cent per annum, but shall not exceed the contractual rate of interest or where there is no contractual rate, the rate at which moneys are lent or advanced by nationalised banks in relation to commercial transactions. (2) Where such a decree is silent with respect to the payment of further interest on such principal sum 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 therefor shall not lie." 13.1. The above provision 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....
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....the entire amount mentioned above must be paid to the appellant within two months from the date of this judgment.' (iii) Thazhathe Thazhathe Purayil Sarabi v. Union of India ( 2009 ) 7 SCC 372 "25. It is, therefore, clear that the court, while making a decree for payment of money is entitled to grant interest at the current rate of interest or contractual rate as it deems reasonable to be paid on the principal sum adjudged to be payable and/or awarded, from the date of claim or from the date of the order or decree for recovery of the outstanding dues. There is also hardly any room for doubt that interest may be claimed on any amount decreed or awarded for the period during which the money was due and yet remained unpaid to the claimants. 26. The courts are consistent in their view that normally when a money decree is passed, it is most essential that interest be granted for the period during which the money was due, but could not be utilised by the person in whose favour an order of recovery of money was passed. ... 30. As we have indicated hereinbefore, when there is no specific provision for grant of interest on any amount due, the cou....
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....hich inter alia provides that "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." 49. "It is trite law that under Section 34 of the CPC, the award of interest is a discretionary exercise steeped in equitable considerations. The law in this regard has been succinctly discussed in the Constitution Bench judgment of this Court in Central Bank of India v. Ravindra & Ors.; (2002) 1 SCC 367, which states: "Award of interest pendente lite or post-decree is discretionary with the Court as it is essentially governed by Section 34 of the CPC de hors the contract between the parties. In a given case if the Court finds that in the principal sum adjudged on the date of the suit, the component of interest is disproportionate with the component of the principal sum actually advanced, the Court may exercise its discretion in awarding interest pendente lite and post-decree interest at a lower rate or may even decline to award such interest. The discretion shall be exercised fairly, judiciously, and for not arbitrary or fanciful reasons." 58. ....