C/FA/528/2010(GJHC240437022010) JUDGMENT DATED: 16/09/2026

IN THE HIGH COURT OF GUJARAT AT AHMEDABAD

R/FIRST APPEAL NO. 528 of 2010

FOR APPROVAL AND SIGNATURE:

HONOURABLE MR. JUSTICE ILESH J. VORA Sd/-

and

HONOURABLE MR. JUSTICE R. T. VACHHANI Sd/-

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Approved for Reporting Yes No

✔

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STATE OF GUJARAT

Versus

DWARKA CEMENT WORKS LTD.,

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Appearance:

MR BHAVESH DESAI, AGP for the Appellant(s) No. 1

MR. HJ KARATHIYA(7012) for the Defendant(s) No. 1

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CORAM:HONOURABLE MR. JUSTICE ILESH J. VORA

and

HONOURABLE MR. JUSTICE R. T. VACHHANI

Date : 16/09/2026

ORAL JUDGMENT

(PER : HONOURABLE MR. JUSTICE ILESH J. VORA)

1.This First Appeal arise out of the judgment and decree dated

19.05.2009, passed in Special Civil Suit No. 163 of 1995, filed by the

Dwarka Cement Works – plaintiff – respondent against the State

Government and Irrigation Department, wherein and whereby, the

Additional Senior Civil Judge, Gandhinagar, decreed the suit and directed

the State Government to pay outstanding amount of Rs.31,60,966=93ps to

be paid with interest at the rate of 15% p.a. as a pre-suit interest for a

period of 2 years on the due amount and further to pay the interest on the

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principal amount as well as pre-suit interest at the rate of 18% p.a.

pendent lite interest from the date of institution of suit till December,

2000 and the interest at the rate of 15% p.a. till realization

2.Parties are referred to as per their original status before the trial

Court.

3.Brief facts for disposal of present appeal are stated as under:

(1) The respondent plaintiff – Dwarka Cement Works, pursuant

to an agreement dated 02.05.1988, supplied and delivered cement

50,000 MTs. to the irrigation department – State of Gujarat –

appellant herein.

(2)Despite having received and used the supplied cements, the

defendant State had in total breach of agreed terms of payment

failed and neglected to make payment of the outstanding amount of

Rs.34,78.916=85 to the company.

(3)The plaintiff company was compelled to file a suit wherein,

the company had claimed the principal amount of

Rs.34,78,916=85ps and interest at the rate of 24% p.a. amounting

to Rs.32,69,288/- aggregating Rs.67,48,145=21ps together with

further interest at the rate of 24% from the date of institution of suit

till realization.

4.Before the Civil Court, the defendant State in its written statement,

Exh. 21, took the defense of total denial. So far interest part is concerned,

it was contended that, there was no contractual rate fixed between the

parties and therefore, the plaintiff is not entitled for pre-suit, pendente lite

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and post decree interest as claimed.

5.On the basis of pleadings, the Civil Court framed the following

issues :

(1)Whether it is proved that the plaintiff had dispatched cement to the

various consignee as per the supply orders of the defendant?

(2)Whether it is proved that the plaintiff supplied cement within

stipulated period and as per specification?

(3)Whether the defendant proves that the withholding of the payment

is legal?

(4) Whether the plaintiff is entitled to recover the amount?

(5)Whether the plaintiff is entitled to get relief as prayed for?

(6)What order and decree

6.On appreciation of the evidence and hearing the parties, the trial

Court answer the issues as under:

(1)In the affirmative

(2)In the affirmative

(3)In the negative

(4)In the affirmative

(5) & (6) As per final order.

7.Before the trial Court, the plaintiff company in support of its case,

examined a Chairman and MD of the Company Mr. Jiten B. Modi at Exh.

32. He proved the documents at Exh. 52 to 56.

8.On the side of the appellant – State, Mr. D.A. Thakkar, Officer of

Irrigation Department was examined at Exh. 37 and in his evidence, the

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documents at Exh. 38 to 43 were being proved.

9.The trial Court on consideration of the documentary and oral

evidence vide its judgment and decree dated 19.05.2009 found that:-

(i)That the parties had entered into an agreement dated

02.05.1988 for supply of 50,000 MTs of cement pursuant to

a tender No. 3 of 1988-89 floated by the Irrigation

Department; that the plaintiff company had supplied the

cement for the sum of Rs.,5,43,96,823=93ps, against which

the State defendant made payment Rs.5,12,35,855=21ps..;

thus, the plaintiff is entitled to recovery the due amount

Rs.31,60,966=93ps from the State – defendant.

(ii)So far as interest part is concerned, the trial Court has

observed that, in the absence of agreement on the aspect of

interest between the parties, the court may take into

consideration the prevailing bank rate and the provision of

Section 34 of the Code of Civil Procedure and considering

the fact of the case, the trial Court awarded pre-suit interest

at the rate of 15% p.a. for a period of 2 years from

31.12.1988 on the principal amount of Rs.31,60,966=93ps.

and further awarded interest at the rate of 18% p.a. on the

upon the principal amount together with the pre-suit interest

(Rs.31,60,966=93ps +9,48,000/- = Rs.41,08,966=93ps) till

December, 2000 and thereafter, at the rate of 15% p.a.

thereon till realization.

10.In such circumstances, the appellant – State - original defendant,

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being aggrieved by the judgment and decree, has preferred the present

First Appeal.

11.We have heard learned State Counsel Mr. Bhavesh Desai and Mr.

H. J. Karathia for the respective parties.

12.Mr. Desai, learned AGP while assailing the judgment and decree,

has submitted that, the State is confined the prayer to the grant of rate of

interest awarded on the different stages i.e. pre-suit, pendente lite suit and

future and thus, the challenge in this appeal only to the limited extent of

grant of rate of interest.

13.Mr. Desai, learned AGP submitted that, the principal amount

decreed by the Civil Court is Rs.31,60,966.63/-. The controversy which

arises for consideration in the present appeal, in so far as the decree for

interest is concerned, the statement of computation of interest shows that

the balance due was Rs.34,78,916.85/- as on 31.03.1990. The plaintiff

was maintaining the running account and as per the running account,

since 01.04.1989 to 31.03.1990, the payments were made, but with delay

ranging from 18 days to 190 days and so on. Thus, the time of

computation on interest cannot be clubbed together for all the payments

received with delay and therefore, the calculation of interest made by the

trial court @ 15% on the principal amount from the period of 2 years,

amounting to Rs.9,48,000/- is without any basis. On the issue of awarding

pre-suit interest, the State counsel submitted that, the plaintiff-company is

not entitled to claim interest for the period prior to institution of the suit

because there was no agreement to this effect between the parties and as

such, there was no any mercantile usage to award pre-suit interest and

there is no statutory provision like sale of goods, Negotiable Instruments

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Act, 1881 and having regard to the conduct of the plaintiff, on equitable

consideration, no pre-suit interest can be awarded. Thus, it was submitted

that, there is no dispute about the principal amount but the amount of

Rs.9,48,000/- awarded as a pre-suit interest by the trial court is against

the settled principle of law.

14.Mr. Desai, learned AGP while referring Section 34 of the CPC,

submitted that, it is the discretion of the Court to award interest pendente

lite i.e. from the date of institution of the suit till realization of the

amount. In the facts of the case, the judicial discretion has not been

properly exercised while awarding pendente lite interest @ 18% on the

principal amount together with the pre-suit interest (principal amount

Rs.31,60,966.63 + Rs.9,48,000/- pre-suit interest @ 15% for a period of 2

years would come to Rs.41,08,966.63/-.) The trial court while awarding

interest on the principal amount together with pre-suit interest, has not

assigned any reasons and in mechanical manner, awarded an excessive

and unjustifiable interest.

15.Lastly, on the issue of future interest i.e. from the date of suit till

recovery, it was submitted by Mr. Desai that, the agreement for

purchasing cement for the appellant-State was not for the trade or any

commercial transaction, but the object was to purchase a bulk cement for

different departments of the State for the construction of Dams, roads etc.

and therefore, the grant of interest @ 15% by the trial court is against the

proviso of Section 34 of the CPC as Section 34(1) enables the Court to

grant interest from the date of decree till the date of payment at the rate as

the Court deems fit, but where the liability arises out of commercial

transaction, interest should be awarded at the rate not exceeding 6% per

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annum. Thus, it was submitted that, the future interest awarded by the

trial court @ 15% is excessive and against the statutory provision.

16.In such circumstances, Mr. Desai, learned AGP relying on the

recent judgment of the Supreme Court rendered in the case of I.K.

Merchants Private Limited vs. State of Rajasthan (2025 LiveLaw (SC)

377), contended that, having regard to the facts and evidence on record,

decree on the part of interest may be reasonably modified and to that

extent, appeal may partly be allowed.

17.Vehemently opposing the challenge to the decree on the interest

part, learned counsel Mr. H.J. Karathiya, submitted that, since the date of

agreement dated 02.05.1988, the plaintiff company had supplied huge

stock of cement against which the State-appellant were irregular in

making payment. The clause for payment was 30 days. There was no any

clause for interest in the agreement itself. The appellant without any

reason, retained the money and if it had been released in time, then, the

company could have profitably utilized the same. Thus, therefore, it was

submitted that, having regard to the provision of Section 34 CPC, the trial

court has rightly exercised discretion to grant interest @ 15% on the

principal sum before the pre-suit period and @ 18%, pendent lite interest

and @ 15% for the post decree interest.

18.Mr. Karathiya, learned counsel submitted that, having regard to the

delay in making payment on the part of the appellant herein, the trial

court has while striking balance between both the sides on equitable

consideration, properly exercised discretion in a fair manner and

judiciously which does not needs any interference by the Appellate Court

and therefore, he prayed that, the appeal on the aspect of awarding

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interest, has no merits and same may be dismissed with costs.

19.Reliance having been placed on the decisions, (i) Food

Corporation of India vs. Velji P. & Sons. Agencies (2021 2 GLR 1378

(Gujarat High Court) and (ii) Bhagwati Oxygen Limited vs. Hindustan

Copper Limited [(2005) 6 SCC 462) to contend that, the Civil Court has

discretion under Section 34 CPC to grant interest for pre-suit period and

having regard to the nature of work, the 6% cap as provided under

Section 34(1) for granting interest post-decree would not be applicable.

20.In such circumstances, Mr. Karathiya submitted that, the plaintiff

company deprived of use of money to which he is legitimately entitled to

be compensated for the deprivation by granting reasonable appropriate

amount of interest and same has been done by the trial court while

awarding the interest which does not require any interference.

21.We have heard at length learned counsel for the respective parties.

Perused the case records and judgment impugned.

22.In light of the contentions of the parties and having regard to the

statutory provision Section 34 CPC, the question arise for our

consideration as to whether on the facts and in the circumstances of the

case, the trial court was right in awarding interest @ 15% per annum on

principal amount and then, @ 18% amount from the date of institution of

suit on the principal amount together with the pre-suit interest and

thereafter @ 15% per annum till realization?

23.Admittedly, there was no contractual stipulation between the

parties providing for payment of interest at any particular rate. In the

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absence of any agreement or contract, the provisions of Section 34 of the

CPC dealing with the “interest” would come into play. Section 34 is

reproduced herein below for ready reference:

“34. Interest.—(1) Where and in so far as a decree is for the

payment of money, the Court may, in the decree, order interest

at such rate as the Court deems reasonable to be paid on the

principal sum adjudged, from the date of the suit to the date of

the decree, in addition to any interest adjudged on such principal

sum for any period prior to the institution of the suit, [with

further interest at such rate not exceeding six per cent. per

annum as the Court deems reasonable on such principal sum],

from the date of the decree to the date of payment, or to such

earlier date

as the Court thinks fit:

[Provided that where the liability in relation to the sum so

adjudged had arisen out of a commercial transaction, the rate of

such further interest may exceed six per cent. per annum, but

shall not exceed the contractual rate of interest or where there is

no contractual rate, the rate at which moneys are lent or

advanced by nationalised banks in relation to commercial

transactions.

Explanation I.—In this sub-section, “nationalised bank”

means a corresponding new bank as defined in the Banking

Companies (Acquisition and Transfer of Undertakings) Act, 1970

(5 of 1970).

Explanation II.—For the purposes of this section, a

transaction is a commercial transaction, if it is connected with

the industry, trade or business of the party incurring the liability.]

(2) Where such a decree is silent with respect to the

payment of further interest 4[on such principal sum] from the

date of the decree to the date of payment or other earlier date,

the Court shall be deemed to have refused such interest, and a

separate suit therefor shall not lie.”

24.The aforesaid provision provides for the payment of interest where

the decree is for payment of money. In the decree in a suit for payment of

money, the Court has discretion to grant interest at such rate on the

principal sum adjudged from the date of the suit to the date of decree and

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also from the date of decree till the date of realization, however, further

interest should not exceed 6% per annum when the liability arises out of

commercial transaction. In other words, the liability in relation to the sum

so adjudged had arisen out of commercial transaction, rate of such further

interest may exceed 6% per annum, but shall not exceed the contractual

rate of interest or where there is no contractual rate, the rate at which

moneys are lent or advanced by nationalized banks in relation to

commercial transactions.

25.It is settled position of law that, the interest can be awarded by

Court of law do complete and full justice between the parties. The

rational underlying the doctrine is based upon justice, equity and good

conscience.

26.Reverting to the facts of the present case, it is not in dispute that,

the trial court after appreciation of evidence, concluded that, the

appellant-State is liable to pay the principal amount of Rs.31,60,966.63/-

which was due on account of transaction entered into between the parties

on the basis of tender agreement dated 02.05.1988. Admittedly, as per the

statement of computation produced before the trial court, as on

31.03.1990, the amount was due to be paid to the plaintiff – company.

The suit was instituted on 12.07.1991. Statutory notice was served under

Section 80 CPC (Exh.56 on 10.01.1991). In such circumstances, so far as

interest is concerned, the plaintiff company relied on statement of

computation of interest produced as Annexure-B with the plaint. If we

perused the annexure, it is evident that, the interest was charged @ 24%

not on the due amount as on 31.03.1990, but on the invoices of each and

every transaction of supply being considered. In other words, on the

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different dates, the amount of respective invoices were pending and the

delay of each invoice ranges from 4 days to 200 days. The account of the

plaintiff maintained by the State was running account. The plaintiff had

claimed interest prior to the date of filing of the suit which was computed

to the tune of Rs.32,69,228/- @ 24% and together with the prior suit

interest amount, the principal amount sought to be recovered was

Rs.67,48,145/-. The trial court relying on the computation of interest at

Annexure-B, without any justification, awarded pre-suit interest @ 15%

for a period of 2 years and the amount of interest awarded as a pre-suit by

the trial court was Rs.9,48,000/-. In our opinion, how the trial court had

calculated two years, that has not been properly explained and why 15%

amount being chosen, that also require to be properly explained by the

trial court.

Pre-suit interest

27.Thus, the issue further arise for our consideration as to whether in

the facts of the case, the plaintiff company is entitled for pre-suit interest

as awarded by the trial court.

28.Recently, in the case of M/s. Tomorrowland Limited vs. Housing

and Urban Development Corporation Limited and Anr. (2025 INSC

207), the Supreme Court while referring to the Five Judge Bench

judgment (Central Bank of India vs. Ravindra (1996 (5) SCC 279), held

that, the award of interest is discretionary exercise steeped into equitable

consideration. The award of interest pendente lite or post decree is

discretionary as it is essentially governed by Section 34 of CPC dehors

the contract between the parties and said discretion shall be exercised

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fairly, judiciously and not for arbitrary of fanciful reasons.

29.In the present case, the computation of interest prepared by the

plaintiff company has no any legal basis and considering the current

account maintained by the State Government, the computation of the

interest on the different invoice of different dates, cannot be considered

for clubbing together the amount of interest. Thus, therefore, the trial

court, in our opinion, has not properly exercised discretion in granting

interest @ 15% for a period of 2 years on the principal amount as a pre-

suit interest because admittedly, there was neither any agreement between

the parties, nor, the interest is payable under the substantive applicable

law. In such circumstances, the interest on equitable ground also cannot

be considered because, there was a delay on the part of the plaintiff after

service of statutory notice to institute the suit at the earliest.

30.Thus, in our opinion, the findings of the trial court on the pre-suit

interest as awarded, is contrary to the settled principle of law and having

regard to the facts of the case, the amount of interest of Rs.9,48,000/-

awarded for a period of 2 years @ 15% is not sustainable in the eye of

law.

Interest Pendente lite & post decree

31.In the facts of the case, the trial court awarded interest @ 18% on

principal amount together with pre-suit interest from filing of the suit till

December, 2000 and thereafter, @ 15 % till realization. It is relevant to

note that, why the trial court awarded 15% interest till realization, has not

been clarified in its judgment. The court has referred letter of Bank of

India to consider the rate of interest prevalent on 13.03.2009. In our

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opinion, the trial court ought to have taken into account the rate of

interest of the nationalized bank either on the date of service of notice for

recovery or date of institution of the suit. In such circumstances, the rate

of interest awarded by the trial court is excessive and being awarded

arbitrarily. Thus, having regard to the delay in making payment by the

appellant and the amount involved, the reasonable rate of interest would

be 12% per annum and accordingly, instead of 18%, we are awarding the

interest @ 12% on the principal amount of Rs.31,60,966.63/-. Thus, the

respondent-plaintiff is entitled to recover the interest @ 12% per annum

on principal amount of Rs.31,60,966.63/- from the date of institution of

the suit till the date of disposal i.e. from 12.07.1991 to 19.05.2009.

32.So far as post decree interest is concerned, the trial court awarded

15% interest from the date of disposal of the suit till realization. It is

argued by the State that, the transactions cannot be said to be commercial

transactions and therefore, the trial court could not have awarded 15%

interest. On the other hand, learned counsel appearing for the plaintiff

contended that, by way of tender, the plaintiff had agreed to supply

quantity of cement and therefore, the transaction certainly fall under the

commercial transaction and having regard to the delay on the part of the

appellant, the award of 15%, cannot be said to be excessive and arbitrary.

In the facts of the case, the liability arose out of transaction with

Government Department. The Irrigation Department and R & B Division

entered into agreement to procure the cement for their divisions as well as

other divisions of the State Government, for construction of bridge etc.

The plaintiff failed to prove that, for the purpose of profit, the

procurement was done by the State Government. The proviso of Section

34 of the CPC enables the Court to grant interest from the date of decree

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till the date of payment, where the liability arises out of commercial

transaction at the rate exceeding 6% per annum, but not exceeding the

contractual rate of interest, and in the absence of contract, not exceeding

the rate at which the moneys are lent or advanced by nationalized bank in

relation to a commercial transaction. Explanation (II) of Section 34 states

that, the transaction is a commercial transaction if it is connected with the

industry, trade or business. In our opinion, the activities for which the

quantity of cement procured by the appellant-State cannot be connected

with the industry, trade or business. Thus, while awarding the post decree

interest @ 15%, the trial court failed to appreciate the statutory provision

as well as activities of the appellant State Government and therefore, the

interest awarded by the trial court exceeding 6% per annum is factually as

well as legally not sustainable in the eye of law. However, having regard

to the facts of the case, the plaintiff respondent is entitled to receive

interest @ 6% on the principal amount of Rs.31,60,966.63/- from the date

of disposal of the suit till the realization of the amount.

33.For the aforementioned reasons, the appeal is partly allowed. The

judgment and decree on awarding the interest is modified to the following

extent:

(i) The award of pre-suit interest Rs.9,48,000/- @ 15% on the

principal amount is set aside.

(ii)The plaintiff – respondent shall be entitled to simple interest

@ 12% per annum on the principal sum of Rs.31,60,966.63/-

from the date of institution of the suit till its disposal.

(iii)The plaintiff – respondent shall be entitled to simple interest

@ 6% per annum on the principal amount of

Rs.31,60,966.63/- from the date of disposal of the suit till its

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recovery i.e. realization.

(iv)The judgment and decree shall stands modified to the

aforesaid extent and the same be drawn accordingly. The

decree of principal amount shall remain unaltered.

34.The R & P be sent back to the trial court concerned.

Sd/-

(ILESH J. VORA,J)

Sd/-

(R. T. VACHHANI, J)

TAUSIF SAIYED

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