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Pragati Builders & Promoters & Ors. v. M/s Ram Murty Pyara Lal & Ors., etc.

Civil Appeal · Neutral citation not assigned (Civil Appeal Nos. 4270-4271 of 2016)Decided 12 Apr 2016
Civil Appeal Nos. 4270-4271 of 2016
Justice Anil R. Dave · Justice Adarsh Kumar Goel

Background

The appellants had purchased property at a bank auction, and a dispute arose over the rate of interest payable to them by the respondent bank on the amount they had paid, after the High Court had earlier awarded them simple interest at only 6% per annum. The appellants challenged this rate as inadequate given the facts of the case.

Decision Breakdown

The Supreme Court held the 6% interest rate fixed by the High Court was too low and directed that the appellants instead be paid simple interest at 15% per annum from the date they paid the purchase amount to the bank. It further directed the bank to calculate and pay this amount within two months, while recovering any shortfall from the respondent-borrower (who was to pay the difference within four months), reasoning that the bank itself would have earned interest at 2% above the prevailing bank rate on the retained funds and the borrower should bear the remaining gap up to 15%. Apart from this change in interest rate, the High Court's judgment was left undisturbed, and the connected 2012 appeals were dismissed as having become infructuous once this dispute was resolved.

Lesson Learnt

When a bank retains money paid by an auction purchaser for a prolonged period due to a later dispute, courts can award a realistic market rate of interest (not just a token rate) to fairly compensate the purchaser, splitting the burden between the bank's presumed earnings and the defaulting borrower's liability.

Official source (sci.gov.in)View Judgment (PDF)

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