Pendente Lite Interest Is In Court's Discretion, Contractual Rate Not Mandatory: DRAT Mumbai

The Debts Recovery Appellate Tribunal (DRAT) at Mumbai recently reiterated that pendente lite interest (interest pending litigation) need not always follow the contractual rate and can be reduced in appropriate cases based on judicial discretion exercised by the tribunal.

Chairperson Justice G. Chandrasekharan made the observation while deciding cross-appeals arising from a recovery proceeding before the DRT, Aurangabad, in which recovery of Rs. 10,12,68,365 together with interest had been ordered in favour of Invent Assets Securitisation and Reconstruction Pvt Ltd.

Relying on the top court's observations in Central Bank of India v. Ravindra and Ors, the tribunal observed.

“It is the discretion of the Tribunal/Court to award pendente lite interest, not necessarily on the basis of contractual rate. In a fitting case contractual rate of interest can be reduced subject to reasons recorded,” the tribunal said.

The appeals were filed by the creditor seeking restoration of the contractual rate of interest and by the Official Liquidator of GGT Kaypee Ltd challenging certain aspects of the recovery, including attachment of property. The creditor argued that in commercial transactions, contractual interest should ordinarily be awarded.

The tribunal reiterated that under Section 34 of the Code of Civil Procedure, the grant of pendente lite interest is discretionary and need not always be at the contractual rate.

The tribunal noted that the borrower company had been wound up on September 12, 1996 and was under liquidation, and that other claims, including those of workmen, were yet to be cleared. It observed that if contractual interest were awarded, the pendente lite interest would run into crores, making it difficult for the Official Liquidator to settle the claims of other stakeholders.

Holding that contractual interest may be reduced in appropriate cases for recorded reasons, the tribunal found that the reduction of interest to 12% per annum (simple) was just and proper. Accordingly, the tribunal upheld the DRT's order and dismissed both appeals.