Case Title:
Uttar Pradesh Avas Evam Vikas Parishad And Another vs State Consumer Disputes Redressal Commission And 2 Others
Date of Order:
23rd September 2024
Bench:
Justice Chandra Kumar Rai
Parties:
Petitioner: - Uttar Pradesh Avas Evam Vikas Parishad And Another
Respondent: - State Consumer Disputes Redressal Commission And 2 Others
Subjects:
The party involved in the case sought additional interest on funds that had been returned in a dispute regarding housing allocation. The Uttar Pradesh Avas Evam Vikas Parishad experienced a significant reprieve when the High Court ruled that the practice of collecting interest on interest contravenes established legal principles and statutory limitations. This ruling deemed the determinations made by consumer forums unlawful.
Important Provisions
The Interest Act
Article 3(3): Nothing in this section,
(a) shall apply in relation to
(i) any debt or damages upon which interest is payable as of right, by virtue of any agreement; or
(ii) any debt or damages upon which payment of interest is barred, by virtue of an express agreement;
(b) shall affect
(i) the compensation recoverable for the dishonour of a bill of exchange, promissory note or cheque, as defined in the Negotiable Instruments Act, 1881 (26 of 1881); or
(ii) the provisions of Rule 2 of Order II of the First Schedule to the Code of Civil Procedure, 1908 (5 of 1908);
(c) shall empower the Court to award interest upon interest.
Code of Criminal Procedure
Section 34(2): Any powers conferred by the Chief Judicial Magistrate or by the District Magistrate may be withdrawn by the respective Magistrate by whom such powers were conferred.
Facts
The contention is to a residence assigned to respondent no. 3 by the Uttar Pradesh Avas Evam Vikas Parishad under the Dev Prayagam Scheme. Respondent no. 3 submitted an application for a Middle Income Group (MIG) residence and paid a registration fee of ₹20,000.
During the lottery draw conducted on February 23, 2005, House No. A-110 was allocated to respondent no. 3. An allotment letter was subsequently issued on July 30, 2005, stating that a payment of ₹1,92,956 was required by August 31, 2005, with the remaining balance of ₹2,63,300 to be paid in 120 monthly installments at an interest rate of 13%.
Respondent 3 submitted ₹4,52,325 to the petitioners to obtain a no-objection certificate for a bank loan. The petitioners conveyed to him that execution was not possible, as the total amount owed for the property remained unpaid, despite his wish for the sale agreement to be executed and ownership to be transferred.
Annoyed by the postponement, respondent no. 3 requested a refund on February 13, 2008, and the petitioners reimbursed ₹4,72,990 on March 4, 2008. On May 14, 2008, respondent no. 3 submitted a complaint to the State Consumer Disputes Redressal Commission, requesting compound interest at an annual rate of 18% on the deposited sum of ₹4,72,990 from the date of payment to the date of reimbursement.
The District Consumer Forum accepted the complaint on May 22, 2010, and mandated the petitioners to remit 15% interest on the sum from the date of deposit to the date of full payment. The petitioners submitted an appeal to the State Commission, which was rejected on February 1, 2017.
Respondent no. 3 commenced an execution action and, throughout the proceedings, requested an extra 15% interest on the sum until July 6, 2019, amounting to ₹3,02,821. On January 1, 2020, the District Consumer Forum issued a recovery certificate against the petitioners for ₹3,02,821.
The petitioners contested this verdict via a revision petition to the State Commission, which was rejected on March 15, 2021. On November 24, 2021, a further appeal presented to the National Consumer Disputes Redressal Commission (NCDRC) was considered inadmissible and hence dismissed. Consequently, the petitioners submitted the current writ petition.
Argument of Petitioners
The petitioners contended that the District Consumer Forum's award of 15% interest was unwarranted and unlawful. They argued that they were offering housing under a no-profit, no-loss model, and that the use of such a high interest rate was unjustified.
The petitioners asserted that respondent no. 3 failed to comply with the installment payment schedule, a critical element of the agreement. The petitioners claimed that the whole amount provided by respondent no. 3 was fully refunded, without any deductions, after the cancellation of the allocation.
It was also contended that respondent no. 3 was ineligible for any interest on the reimbursed sum post-April 17, 2008, since the refund was executed quickly and without any deductions. The petitioners said that they had fully paid the interest on the deposited sum in accordance with the rulings of May 22, 2010, and February 1, 2017, and thus, respondent no. 3 was not entitled to any further interest.
The petitioners said that the law does not allow for the awarding of interest on interest, and that respondent no. 2 (District Consumer Forum) had made a clear mistake by issuing the recovery certificate. They cited Section 34(2) of the Code of Civil Procedure (CPC), which specifies that interest applies only to the principal amount and not to the interest portion of the award.
The petitioners cited the rule of the Hon'ble Supreme Court in D. Khosla and Company vs. Union of India, which established that interest is applicable only to the principal amount, excluding cumulative interest.
Arguments presented by Respondent
Respondent no. 3, represented by counsel Bal Mukund, contended that the contested orders were lawful and warranted no intervention. He argued that the writ petition was not maintainable since an alternative remedy existed and owing to laches, as the petition was submitted after an unreasonable wait.
Respondent no. 3 said that he had sent ₹4,03,324 along with ancillary fees subsequent to securing a bank loan, however had not received ownership of the designated residence. Due to the difficulties encountered, he submitted a complaint to the District Consumer Forum, which mandated the payment of interest at 15% on ₹4,72,990 from September 13, 2005, till the reimbursement date of May 2, 2008.
He stated that the petitioners failed to comply with this order and instead challenged it before the State Commission, which upheld the ruling of the District Consumer Forum.
After the State Commission denied the appeal, respondent no. 3 sought the issuance of a recovery certificate for ₹3,02,821, which included additional interest at a rate of 15% up to July 6, 2019. Respondent no. 3 asserted that the petitioners made a mistake in contesting this ruling, contending that the District Consumer Forum acted judiciously in issuing the recovery certificate.
He cited the Supreme Court's decision in Alok Shanker Pandey vs. Union of India and Ors., which established that interest is not punitive but rather an inherent consequence of holding another's assets. Respondent no. 3 articulated that the petitioners were endeavoring to intimidate him through their challenge to the orders.
Analysis of the Court
The arguments from both parties were assessed by the High Court of Judicature in Allahabad, which was presided over by Hon'ble Justice Chandra Kumar Rai. The Court observed that respondent no. 3 was undisputedly assigned a residence in 2005 and had remitted ₹4,52,325 to the petitioners. The full deposit quantity was reimbursed to responder no. 3 without any deductions
The Court evaluated the legitimacy of the interest granted by the District Consumer Forum and the subsequent issuance of a recovery certificate. It is related to Section 34 of the Code of Civil Procedure, which allows the court to grant interest on the principal amount awarded but forbids interest on the interest component of an award.
The Court emphasized that the notion outlined in D. Khosla and Company vs. Union of India was unambiguous: interest may only be granted on the original quantity, excluding accumulated interest.
Justice Rai noted that the District Consumer Forum had previously granted 15% interest from the date of deposit to the date of reimbursement. He also stated that any additional interest on this interest amount would be in violation of established legal standards.
The Court concluded that respondent no. 2 exceeded its authority by issuing the recovery certificate for extra interest, and that the petitioners could not be compelled to pay interest on interest.
The court additionally cited Article 3(3) of the Interest Act, 1978, which forbids the compounding of interest. The Court highlighted that the District Consumer Forum breached its statutory obligation by allocating additional interest.
Justice Rai highlighted that the principle of compound interest, or interest on interest, is often regarded as impermissible unless clearly articulated in legislation or a contract. No provision of that nature was included in this instance.
The Court recognized the argument concerning the no-profit, no-loss principle of the program that governed the allocation of the residence. Justice Rai stated that the petitioners were instrumental in enabling affordable housing through government initiatives, and that enforcing a high interest rate would directly oppose the objectives of these programs.
The court decided that respondent no. 3's claim for further interest was unjustified, given the petitioners returned the whole amount without any deductions. Judge Rai analyzed Respondent No. 3's claims on maintainability and laches.
Given the serious legal problems at hand, the Court determined that the delay in submitting the writ petition was insufficient to justify a total dismissal. The Court found that the exercise of writ jurisdiction was permissible notwithstanding the availability of an alternative remedy, since the orders in question were illegal or included evident legal mistakes.
The Court holds that the directions issued by respondent number 1 (State Consumer Disputes Redressal Commission) on March 15, 2021, and respondent number 2 (District Consumer Forum) on January 1, 2020, are invalid and null.
The court found that the petitioners were not required to pay interest on interest since doing so would violate established judicial precedents and legislative constraints. The court granted the writ petition and overturned the contested rulings. The petitioners were so freed of their responsibility to pay the extra interest demanded by respondent no. 3.
Conclusion
The court determined that respondent no. 3's request for supplemental interest was unjustified, as the petitioners returned the entire amount without deductions and within a reasonable timeframe. By paying interest on interest, the District Consumer Forum and the State Consumer Disputes Redressal Commission exceeded their jurisdiction, which is prohibited by law. The court ruled in favour of the petitioners, dismissing the contested orders and relieving them of any need to pay the extra interest claimed by respondent no. 3. This conclusion was made using Section 34 of the CPC, Article 3(3) of the Interest Act, and applicable legal precedents.
