H.U.D.A vs Raj Singh Rana

Memo No.1664/718/14/E.O/K Dated : 22.3.1974 3

Subject : Allotment of Residential plot in the Urban Estate, Karnal.

Reference your application dated 25.9.1971 for the allotment of residential plot in the Urban Estate at Karnal.

1. Plot No.718 measuring 14 Marlas in Sector 13 of the Urban Estate at Karnal is hereby allotted to you. The total tentative sale price of said plot is Rs.12250/- against which you have already deposited Rs.6,125/- of the price mentioned in part 1 above is Rs.Nil.

2. The plot is preferential one and an additional price at the rate of 10 per cent of the price mentioned in para 1 above is Rs. Nil.

3. The total tentative sale price of this plot (normal plus preferential cost) is Rs.Nil.

4. The above price of the plot is subject to variation with reference to the actual measurement of the plot as well as in case of enhancement of compensation of acquisition cost of land of this sector by the court or otherwise and you shall have to pay this additional price of the plot, if any, as determined by the Department within 30 days from the date of demand.

5. .......

6. .......

7. .......

8. Balance 50 per cent of the total tentative sale price shall be payable either in lumpsum within 60 days from the date of issue of allotment letter without interest or in 2 equated instalments with interest at the rate of 7 per cent per annum. The first and remaining instalments of the balance amount together with interest at the rate of 7 per cent per annum on the unpaid amount of the total tentative sale price shall fall due to payment as under and no notice shall be served upon you to pay the same but in case in instalment is not paid in time, you will be served with a notice to pay by same within a month together with a sum not exceeding the amount of the instalment as may be determined by the undersigned, by way of penalty. If the payment is not made within the said period of such extended period as may be determined by the 4

undersigned, not exceeding three months in all from the date on which the instalment was originally due, the same will be recovered as an arrear or land revenue or action will be taken under Section 10 of the Punjab Urban Estate (Development and Regulation) Act, 1964 :-

No. of instalment Due date on which the Payment is to be made

First 2958.93+28.75 = 3387.68 21.3.1975 Second 3166.07+221.61 = 3387.68 21.3.1976 Third Fourth Fifth Sixth:

9. .....

10. .....

11. .....

12. .....

13. .....

14. .....

15. This allotment is subject to the provisions of the Punjab Urban Estates (Development and Regulation) Act, 1964 and the rules framed there under as amended from time to time and you shall have to accept and abide by them.

16. .....

17. .....

Sd/-

Estate Officer Urban Estate Karnal"

3. There is no dispute that the entire

amount, as initially computed as

tentative sale price, was fully paid by 5

the respondent, together with further

amounts on account of enhanced

compensation paid for the plot, on the

basis of the demand notices issued to the

respondent from time to time. The problem

arose when in addition to the above, the

Estate Officer, HUDA, Karnal, by his Memo

dated 15.6.2001 raised an additional

demand of Rs.71,800/- by imposing simple

interest @ 10 per cent per annum up to

31.3.1987, 15 per cent per annum up to

15.1.1988, compound interest @ 15 per

cent up to 31.8.2000 and thereafter again

simple interest @ 15% per annum up to

31.8.2001. According to the respondent,

the rate of interest as indicated in the

allotment letter being 7 per cent simple

interest per annum, the appellant had

acted illegally in demanding interest at

the higher rates, indicated hereinabove

and such demand being arbitrary could not

be sustained.

6

4. Aggrieved by such demand, the respondent

filed complaint case No.591 of 2002 before

the District Consumer Disputes Redressal

Forum praying for refund of Rs.35,200/-,

which according to the respondent was the

excess amount of interest charged over and

above the rate of interest at 7 per cent

indicated in the allotment letter. The

respondent also prayed for interest @ 12

per cent on the refund amount from

2.11.2001, when the interest amount was

demanded and paid under protest, until

repayment. The District Forum accepted the

submissions made on behalf of the

respondent herein and held that the

appellants could charge interest only at

the stipulated rate mentioned in the

allotment letter, namely, 7 per cent per

annum and directed the appellant to

calculate the interest @ 7 per cent on the

3rd and 4th enhancements and to refund the

extra amount charged to the 7

complainant/respondent with interest at

the rate of 7 per cent from the date of

the complaint till its refund. The

decision of the District Forum was

confirmed by the State Commission, and

ultimately, the appellant herein took the

matter in revision to the National

Commission in R.P.No.2217 of 2004. The

National Commission, while confirming the

view taken by the District Forum and the

State Commission as to the rate of

interest which could have been charged by

the appellant, considered another aspect

relating to charging of compound interest

@ 15 per cent per annum from 16.1.1988 to

31.8.2000 and held that the appellant was

not entitled to charge such compound

interest.

5. It is against the said order of the

National Commission that this appeal has

been filed by the Haryana Urban 8

Development Authority (hereinafter

referred to as "HUDA").

6. On behalf of the HUDA it was strenuously

urged that the rate of interest @ 17 per

cent per annum, as indicated in the

allotment letter, was only with regard to

default in payment of instalments for the

tentative sale price and not as regards

the additional amounts required to be

paid in case of enhancement of

compensation for acquisition cost of the

land, for which no rate of interest had

been stipulated. It was submitted that on

account of default in payment of the

instalments of the enhanced compensation,

on account of the low interest which was

being charged, a decision was taken by

HUDA on 15.1.1987 to increase the normal

rate of interest to 10 per cent per annum

and interest for the delayed payment of

instalments to 18 per cent per annum, 9

which would also include the normal

interest of 10 per cent. It was submitted

that it was on account of such revised

policy that HUDA had charged interest at

the rates indicated hereinbefore to ensure

that instalments were paid in time. Apart

from his aforesaid submissions, learned

counsel for the appellant could not

justify charging of compound interest as

was done in the instant case.

7. It was urged that enhancement of rate of

interest being a matter of policy to

prevent default in payment of instalments

the Fora below had erred in co-relating

the rate of interest mentioned in the

allotment letter, which was only

applicable in respect of default payment

of instalments for the tentative price

initially fixed, to the defaults committed

in respect of the payment of the enhanced

compensation on account of increase in the 10

acquisition costs. It was also submitted

that since the rate of interests

stipulated at 7 per cent per annum has no

application to default in payment of

enhanced compensation, the Fora below had

erred in directing that interest on the

latter default be also charged at the

stipulated rate of 7 per cent per annum.

It is submitted that the understanding of

the terms and conditions of the allotment

letter and the decision rendered by the

consumer forums on the basis thereof, was

wholly erroneous and was liable to be set

aside.

8. On behalf of the respondent it was

contended that apart from the fact that

the rate of interest demanded was

arbitrary, it was also extremely high and

ought not to have been levied from the

date of allotment inasmuch as, the

tentative sale price had been fully paid 11

and such demand could not operate

retrospectively, interest on the unpaid

amount could, if at all, have been raised

for periods only after the payment was

made. In addition it was submitted that it

is well settled that when a contractual

rate of interest has been agreed upon by

the parties, no amount by way of interest

in excess thereof could be raised. It was

submitted that following the said

principle, first the District Forum, and,

thereafter, the State and National

Commissions had awarded interests on the

delayed instalments at the rate of 7 per

cent per annum as mentioned in the

allotment letter referred to above. It was

contended that condition No.8 enumerated

in the letter dated 22.3.1974 written to

the respondent by the Estate Officer,

Karnal, would have to be considered and

understood in such light. It is submitted

that the orders of the consumer Fora was 12

in consonance with the provisions of the

allotment letter and did not, therefore,

warrant any interference by this Court and

the appeal was liable to be dismissed.

9. Having heard learned counsel for the

parties and having perused the documents

relied upon by them, we are of the view

that the width of the dispute is rather

narrow, being confined only to the

question as to whether it was within the

competence of the appellant to charge

interest on delayed payments at the rate

at which it has been charged and whether

compound interest could have been charged

without there being any mutual agreement

between the parties to that effect.

10. The concept of levying or allowing

interest is available in almost all

statutes involving financial deals and

commercial transactions, but the provision

empowering Courts to allow interest is 13

contained in the Interest Act, 1978, which

succeeded and repealed the Interest Act,

1839. Section 3 of the said Act, inter

alia, provides that in any proceeding for

the recovery of any debt or damages or in

any proceeding in which a claim for

interest in respect of debt or damage

already paid is made, the Court may, if it

thinks fit, allow interest to the person

entitled to the debt or damages or to the

person making such claim, as the case may

be, at a rate not exceeding the current

rate of interest, for the whole or part of

the periods indicated in the said Section.

11. What is important is the mention of

allowing the interest at a rate not

exceeding the current rate of interest.

Such a provision is, however, excluded in

respect of the interest payable as of

right by virtue of any agreement as

indicated in sub-section(3) of Section 3. 14

In other words, where there is an

agreement between the parties to payment

of interest at a certain stipulated rate,

the same will have the precedence over the

provision contained in sub-section(1)

which provides for the Court to allow

interest at a rate not exceeding the

current rate of interest.

12. Yet another provision which is basic in

its operation is contained in Section 34

of the Code of Civil Procedure which also,

inter alia, provides that where and

insofar as a decree is for the payment of

money, 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, till

the date of the decree in addition to any

interest adjudged on such principal sum

for any period prior to the institution of

the suit, with further interest at such 15

rate not exceeding 6 per cent per annum as

the court may deem reasonable on such

principal sum from the date of the decree

till the date of payment or to such

earlier date as the court thinks fit.

13. The rates of interest charged by the

appellant, purportedly in accordance with

their policy decisions, appear to have

been influenced by the provisions of the

Interest Act and also the Code of Civil

Procedure on the supposition that the

payment of additional price on account of

enhancement of compensation was not

covered by the provisions of the allotment

letter relating to payment of interest.

The view expressed by the District forum

have been accepted by the State and

National Commissions.

14. It is no doubt true that the law relating

to allowing interest and the rates

thereof has been considered and settled in 16

the case of Ghaziabad Development

Authority vs. Balbir Singh (2004 (5) SCC

65), which has since been followed in

various subsequent decisions. The said

decision was also one rendered under the

provisions of the Consumer Protection Act,

1986, though in the said case it was a

reverse situation in which the

authorities were held to be liable to

compensate for misfeasance in public

office. In the said case interest was

allowed @ 18% per annum which was

unacceptable to this Court which observed

that the power to award compensation does

not mean that irrespective of the facts of

the case compensation can be awarded in

all matters at a uniform rate of 18 per

cent per annum. This Court noticed that

the National Forum had been awarding

interest at a flat rate of 18 per cent per

annum irrespective of the facts of each

case. The same was held to be 17

unsustainable. In the said state of facts

this Court observed in para 8, as follows:

"However, the power and duty to award compensation does not mean that irrespective of facts of the case compensation can be awarded in all matters at a uniform rate of 18% per annum. As seen above, what is being awarded is compensation i.e. a recompense for the loss or injury. It therefore necessarily has to be based on a finding of loss or injury. No hard-and-fast rule can be laid down, however, a few examples would be where an allotment is made, price is received/paid but possession is not given within the period set out in the brochure. The Commission/Forum would then need to determine the loss. Loss could be determined on basis of loss of rent which could have been earned if possession was given and the premises let out or if the consumer has had to stay in rented premises then on basis of rent actually paid by him. Along with recompensing the loss the Commission/Forum may also compensate for harassment/injury, both mental and physical. Similarly, compensation can be given if after allotment is made there has been cancellation of scheme without any justifiable cause."

15. Applying the aforesaid principle laid down

in the aforesaid case, it was the duty of 18

the Consumer Fora to consider the

circumstances of the case and keep in mind

the provisions of Section 3 of the

Interest Act in awarding the high rate of

interest, without linking the same to the

current rate of interest. As was mentioned

in Balbir Singh's case, and, thereafter,

in HUDA vs. Prem Kumar Agarwal and another

(2008(1) SCALE 484); Bihar State Housing

Board vs. Arun Dakshy (2005 (7) SCC 103);

Haryana Urban Development Authority vs.

Manoj Kumar (2005 (9) SCC 541) and

Krishna Bhagya Jala Nigam Limited vs.

G.Harischandra Reddy and another (2007 (2)

SCC 720) the rate of interest is to be

fixed in the circumstances of each case

and it should not be imposed at a uniform

rate without looking into the

circumstances leading to a situation where

compensation was required to be paid. 19

16. In the instant case, the provision of the

allotment letter dated 22.3.1974 appears

to have been wrongly interpreted by the

Consumer Fora since the stipulated rate of

interest only takes into consideration

payment of the total tentative sale price

while Condition No.4 of the allotment

letter mentions that the total tentative

sale price was subject to variation in

certain circumstances and that the

allottee would have to pay an additional

price for the plot as a consequence

thereof. It does not mention that interest

at the rate of 7 per cent per annum would

be payable also in respect of the

additional price required to be paid on

account of increase of the acquisition

cost. The said position is further

clarified by condition No.8 which also

speaks of payment of the total tentative

sale price and the rate of interest at 7

per cent per annum on the instalments to 20

be paid in respect thereof. There is

nothing further in the agreement which

provides for the rate of interest to be

levied on the additional price on account

of the enhancement of the acquisition

cost.

17. On such score we are inclined to agree

with the learned counsel for the appellant

that the appellant was entitled, even in

terms of the allotment letter to charge

interest on balance dues at a rate which

was different from that stipulated in the

allotment letter. At the same time, we are

in agreement with the views expressed in

Balbir Singh's case (supra) which gives

an indication of the matters which are

required to be considered by the Courts

while granting interest where there is no

mutual understanding or agreement with

regard to the rate of interest that could

be charged. While we also agree that for 21

unpaid dues the appellant is entitled to

charge interest, such an exercise will

have to be undertaken within the

parameters of circumstances and reason and

the rate of interest should not be fixed

arbitrarily. In the decisions referred to

hereinabove, this Court has sounded a note

of caution that rates of interest fixed by

the Courts must not be arbitrary and

should take into account the current bank

rates which in recent years have shown a

tendency to slide downwards. In fact, in

many of the aforesaid cases, the rate of

interest has been reduced substantially.

18. In the aforesaid circumstances, even

though the rate of interest indicated in

the allotment letter dated 22.3.1974 may

not have application as far as payment of

the additional price is concerned, the

District Forum has erred on the site of

reason and has allowed interest at the 22

rate of 7 per cent per annum upon holding

that the demand made by the appellant at

the higher rate was contrary to the mutual

agreement contained in the allotment

letter. In our view, even though a policy

may have been adopted by the appellant for

imposing a deterrent rate of interest on

defaults committed by allottees in

payment of their dues, such imposition has

to be in keeping with the provisions of

Section 3 of the Interest Act, 1978 and

not in a unreasonable manner. It may

perhaps be even more pragmatic if a

condition regarding charging of interest

at the prevailing banking rates were

included in the allotment letters, having

regard to the provisions of sub-section(3)

of Section 3 of the said Act.

19. We, therefore, allow this appeal, set

aside the orders dated 10.3.04 passed by

the District Forum, Chandigarh in 23

Complaint Case no.591 of 2002, as affirmed

by the State Commission, Chandigarh, on

9.7.2004 and the order passed in Revision

by the National Commission on 19.11.2004,

which is the subject matter of this

appeal, and quash the additional demand of

Rs.71,800 raised on behalf of the

appellant vide Memo No. EO 8682 dated

15.6.2001 and direct that the appellant

will be entitled to impose simple interest

on the basis of the prevailing current

rate of interest for the purpose indicated

in para 6 of the complaint filed by the

respondent (Complaint Case No.591 of 2002)

before the District Forum, Chandigarh.

Such a computation is to be completed

within a month from the date of receipt of

this order. Since, we have been informed

at the Bar that the entire amount by way

of additional demand has been deposited

upon protest, any amount which is in

excess of the amount to be computed on the 24

basis of this order, shall be refunded to

the respondent within two weeks of such

computation.

20. In the facts and circumstances of the

case, the parties will bear their own

costs.

....................................J. (ALTAMAS KABIR)

......................................J. (MARKANDEY KATJU) New Delhi Dated: July 16, 2008