In a significant ruling on Tuesday, the Supreme Court emphasized that courts possess the authority to determine interest rates applicable in legal disputes, including the discretion to decide if interest should be payable from the date a suit was filed, from a period prior, or from the date of the decree. The ruling came at the end of a protracted 52-year legal battle involving I K Merchants Pvt Ltd and the Rajasthan government over share valuation disputes.
Justices J B Pardiwala and R Mahadevan, who presided over the bench, delivered a detailed 32-page judgment. Justice Mahadevan clarified, “It is abundantly clear that the courts have the authority to determine the appropriate interest rate, considering the totality of the facts and circumstances in accordance with law.”
The legal dispute originated in 1973 when shares of Rajasthan State Mines and Minerals Ltd. (formerly Bikaner Gypsums Ltd.) were transferred to the Rajasthan government. The appellants initiated legal proceedings in 1978, contesting the valuation of their shares and subsequently challenging various judicial decisions over the decades.
In 2019, an assessment by M/s Ray & Ray, appointed by the Calcutta High Court, valued the shares at Rs 640 each. Although the High Court ruled in favor of this valuation and set a simple interest rate of 5% per annum, the appellants sought a higher rate due to the near half-century delay in resolving the dispute.
The Supreme Court, acknowledging the extraordinary delay, ruled that the appellants were entitled to reasonable compensation by way of interest, adjusting the interest rate to more appropriately reflect the duration and circumstances of the case. The court set a revised rate of 6% per annum simple interest from July 8, 1975, until the date of the decree and 9% per annum from the decree until the payment realization.
Further, the court directed the Rajasthan government to settle the revised valuation amount along with the accrued interest within two months. In its judgment, the court stressed the importance of equitable considerations in awarding interest, stating, “Be it noted, while the 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.”
