I.K. Merchants Pvt. Ltd. & Ors. vs The State of Rajasthan & Ors.

Held: There has been a transaction of trade, viz. sale and purchase of goods, which clearly implies a commercial transaction between the parties – s.34 empowers the court to grant interest at three different stages of a money decree whereunder, inter alia the court may grant interest on the total decretal amount from the date of the decree until payment, at a rate not exceeding 6% p.a 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 – Courts have the authority to determine the appropriate interest rate, considering the totality of the facts and circumstances in accordance with law – They 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 – In the present case, there was no agreement between the parties relating to grant of interest for the delayed payment – Respondent No. 1 agreed to pay a fair valuation for the shares to the appellants, but is yet to make the payment – Appellants having suffered a delay of five decades in receiving the payment, are entitled to be reasonably compensated by way of interest – In the peculiar facts and circumstances, simple interest at the rate of 6% per annum awarded 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 – Impugned judgments of the High Court modified. [Paras 12, 14, 15, 17] Interest – Award of, to be guided by equitable considerations: Held: Discretion to award interest, whether pendente lite or post-decree is well recognized, its exercise must be guided by equitable considerations – The rate and period of interest cannot be applied mechanically or at an unreasonably high rate without any rationale. [Para 16]

Public Interest – Commercial transactions – Terms if oppressive or one-sided, constitutional courts can under Article 14 to strike down such contracts or pass appropriate decrees or orders: Held: “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 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. [Para 12]