Party Deprived Of Money Entitled To Compensation Through Pendente Lite And Future Interest U/S 34 CPC: Delhi High Court
The Court held that pendente lite and future interest under Section 34 CPC are intended to compensate a party that has been deprived of the use of money lawfully due to it and that, absent valid reasons, future interest cannot be denied after passing of a money decree.
Justice Neena Bansal Krishna, Delhi High Court
The Delhi High Court has held that a successful litigant in a money recovery suit is ordinarily entitled to future interest under Section 34 of the Code of Civil Procedure, 1908, as compensation for being deprived of the use of money rightfully due to it.
The Court observed that while the award of pendente lite and future interest is discretionary, such discretion must be exercised judiciously and cannot result in the denial of future interest without any recorded reason.
The Court was hearing cross appeals arising out of a summary suit decreed in favour of a company for the recovery of money advanced as a friendly loan. While one appeal challenged the dismissal of the defendant's leave to defend application, the other questioned the reduction of pendente lite interest and the denial of future interest despite an agreed rate of interest between the parties.
A Bench of Justice Neena Bansal Krishna, while explaining the rationale underlying Section 34 CPC, observed: “The Courts are thus well within their right to grant the interest in the money decree. The power to award pendente lite and future interest flows from Section 34 of the CPC; it is based on the principle that a party deprived of the use of money rightfully due to it ought to be compensated for the period during which such money remained withheld.”
Advocate Sonakshi Chaturvedi appeared for the plaintiff, while Advocate Niharika Ahluwalia appeared for the defendant.
Background
The dispute arose out of a money recovery claim instituted under Order XXXVII CPC. The plaintiff company asserted that it had advanced ₹50 lakh to the defendant and that the transaction stood acknowledged through a confirmation of accounts signed by both parties, which recorded the amount due and the agreed rate of interest.
The plaintiff consequently sought recovery of the principal amount together with accrued interest and further pendente lite and future interest.
The defendant contested the suit and sought leave to defend, claiming that the amount transferred through banking channels was merely a repayment of money allegedly arranged by him for the benefit of the plaintiff.
The Trial Court rejected the defence, dismissed the leave to defend application and decreed the suit for ₹72,13,890 along with pendente lite interest at 9% per annum from the date of institution of the suit till the date of decree. However, no future interest was granted.
Aggrieved thereby, the defendant challenged the decree itself, while the plaintiff filed a separate appeal seeking restoration of the agreed rate of interest and grant of future interest till realisation of the decretal amount.
Court's Observations
The Court first examined the challenge to the dismissal of the leave to defend application. It noted that the transfer of ₹50 lakh to the defendant's account through banking channels was undisputed. The Bench found that the controversy stood substantially resolved by a signed confirmation of accounts which specifically recorded the loan transaction, the applicable rate of interest and the amount outstanding.
Referring to the document relied upon by the plaintiff, the Court observed: “This Letter not only amounts to the written Agreement/Contract wherein the terms of the loan and the payment due have been reflected, but is also admitted and confirmed by the Defendant.”
The Court rejected the defendant's explanation that the document had been signed merely on the assurance that it would not be acted upon. The Bench observed: “The Appellant himself being a Chartered Accountant, signing such a document could not have come up with a more weak argument, which has no legs to stand on.”
The Court further held that the confirmation of accounts constituted both a written contract and an acknowledgement of liability. Relying on the surrounding circumstances and the contents of the document, the Court concluded: “It is therefore, evident that this Confirmation of Accounts Statement, which is duly signed by the Appellant, amounts to a written contract as well as an acknowledgement of the terms, stated therein.”
Rejecting the defence that the bank transfers merely represented repayment of an earlier cash transaction, the Court found the explanation to be wholly unsupported by material on record. The Bench observed: “The defence of Sandeep Goel, that he had arranged for a cash amount of Rs.50 lakhs for a few days, through cash for the Plaintiff, is nothing but a sham and moonshine.”
The Court therefore upheld the dismissal of the leave to defend application and affirmed the money decree passed by the Trial Court.
Turning to the issue of interest, the Court examined the scope of Order XXXVII CPC and Section 34 CPC. The Bench observed that while a plaintiff in a summary suit may be entitled to interest up to the date of decree in terms of the contractual arrangement, the award of pendente lite and future interest thereafter is governed by Section 34 CPC.
Referring to its earlier decision in Space Enterprises v. Srinivasa Enterprises, the Court noted that the grant of pendente lite and future interest is discretionary, but such discretion cannot be arbitrary.
The Bench observed: “In case the agreed rate of interest is held to be not exorbitant, unconscionable and against public policy of keeping the interest pegged at a reasonable rate of interest which may vary by one or two per cent from the rate of interest at which banks lend and advance monies for the purpose of commercial transactions, it may be granted.”
The Court further referred to Clariant International Limited v. Securities & Exchange Board of India (2004) and observed that interest may be awarded under an agreement, statute, trade usage or equitable principles depending on the facts of a given case.
The Bench also relied on the Constitution Bench decision in Central Bank of India v. Ravindra (2002) and reiterated: “The discretion has to be exercised fairly, judiciously and not for arbitrary or fanciful reasons.”
The Court noted that the Trial Court had consciously reduced the contractual rate of 15% with quarterly rests and awarded pendente lite interest at 9% simple interest. Since the exercise of discretion in reducing the rate was neither arbitrary nor contrary to settled commercial practices, the Bench declined to interfere with that part of the decree.
However, the Court found that no reason whatsoever had been recorded for denying future interest. Observing that the plaintiff continued to remain deprived of the decretal amount after the decree, the Court held: “The Plaintiff is, therefore, in terms of Section 34 of the CPC, justified to claim future interest.”
Conclusion
The Delhi High Court dismissed the defendant's appeal challenging the decree and upheld the rejection of the leave to defend application.
The Court partly allowed the plaintiff's appeal and modified the decree by directing payment of future interest at 9% simple interest per annum from the date of the decree until realisation of the decretal amount.
Cause Title: Sandeep Goel v. Zavenir Developers Private Limited & Zavenir Developers Private Limited v. Sandeep Goel (Neutral Citation: 2026:DHC:5089)