I.K. Merchants Pvt. Ltd. v. The State of Rajasthan
Background
In 1973, the appellants' shares in a mining company (originally Bikaner Gypsums Ltd., later Rajasthan State Mines and Minerals Ltd.) were compulsorily transferred to the State Government of Rajasthan. Disputing the fairness of the valuation, the appellants sued in 1978, and after decades of litigation (including a court-appointed valuer, multiple rounds before the Calcutta High Court, and an earlier remand by the Supreme Court itself) the share value was finally fixed at Rs.640 per share. By the time this appeal reached the Supreme Court, only one issue remained: what rate of interest the State should pay for the roughly 50-year delay in paying the appellants their due compensation.
Decision Breakdown
The Court held that where a decree involves payment of money and there is no contractual interest rate, Section 34 of the CPC governs, and courts have discretion (guided by fairness and equity, not mechanical application) to fix a reasonable rate for the period before suit, during the suit, and post-decree. It rejected the appellants' demand for 18% interest with quarterly rests as excessive and punitive, noting interest is compensatory (for the "time value of money"), not a penalty. Balancing the extraordinary 50-year delay and the fact that the entire burden fell on the State exchequer, the Court fixed simple interest at 6% per annum from 8 July 1975 until the date of the decree, and 9% per annum from the decree until actual payment, to be paid within two months.
Lesson Learnt
When the government (or anyone) delays paying money it legally owes you, courts will compensate you with interest for the lost "time value" of that money, but the interest rate must be reasonable and equitable, not punitive, and is fixed case-by-case rather than at whatever rate the claimant demands.