Supreme Court of India
I.K. MERCHANTS PVT. LTD. & ORS.versusTHE STATE OF RAJASTHAN & ORS.
- Citation
- 2025 INSC 418
- Decided
- 1 April 2025
- Disposal
- Disposed off
- Bench
- B PARDIWALA
Holding
The Supreme Court held that, given the commercial nature of the share sale and the prolonged delay, interest should be awarded at 6% per annum from 8 July 1975 to the decree date and 9% per annum thereafter.
Summary
The appellants, I.K. Merchants Pvt. Ltd. and others, sold their shares in a state-owned company in 1973 for Rs.11.50 per share and later sought a higher valuation, which was finally fixed at Rs.640 per share by a court-appointed valuer. The State of Rajasthan, as respondent, delayed payment for over five decades, leading the appellants to claim interest on the enhanced valuation. The High Court had awarded simple interest at 5% per annum, which the appellants contested, arguing that the transaction was a commercial one deserving a higher rate under Section 34 of the CPC. The Supreme Court examined the nature of the transaction, the absence of any contractual interest clause, and the equitable principles governing interest awards, concluding that a higher rate was appropriate. It modified the High Court's order, granting simple interest at 6% per annum from July 8, 1975, to the date of decree and 9% per annum thereafter, and disposed of the appeals.
Issues considered
- The appropriate rate of interest to be awarded on the enhanced valuation of shares sold in 1973.
- Whether the transaction qualifies as a 'commercial transaction' under Section 34(1) of the CPC, permitting interest above 6% per annum.
- The discretion of the court to award interest in the absence of a contractual agreement and the applicable equitable considerations.
Legislation cited
Headnote
Issue for Consideration Issue arose as regards the appropriate rate of interest to be awarded on the enhanced valuation of shares sold by the appellants to the Respondent No.1-State in 1973 as determined by the High Court and affirmed by Supreme Court. Headnotes† Code of s.34 – Interest – Grant of appropriate rate of interest in a commercial transaction – No agreement between the parties relating to grant of interest for delayed payment – In 1973, the appellants sold their shares in Respondent No.2 to the Respondent No.1-State at
Subjects
Section 34 of Code of Civil Procedure, 1908InterestCommercial TransactionValuation of sharesEnhanced valuation of sharesAppropriate rate of interest on enhanced valuation of sharesReasonable price of sharesAppropriate interest rateGrant of interest for delayed paymentNo agreement between parties relating to grant of interest for delayed paymentFair ValuationPublic InterestShare ValuationDiscretion to award interestAward of interest
Judgment
[2025] 4 S.C.R. 2753 : 2025 INSC 418
I.K. Merchants Pvt. Ltd. & Ors.
v.
The State of Rajasthan & Ors.
(Civil Appeal No(s). 4560-4563 of 2025)
01 April 2025
[J.B. Pardiwala and R. Mahadevan,* JJ.]
Issue for Consideration
Issue arose as regards the appropriate rate of interest to be awarded
on the enhanced valuation of shares sold by the appellants to the
Respondent No.1-State in 1973 as determined by the High Court
and affirmed by Supreme Court.
Headnotes†
Code of Civil Procedure, 1908 – s.34 – Interest – Grant of
appropriate rate of interest in a commercial transaction – No
agreement between the parties relating to grant of interest for
delayed payment – In 1973, the appellants sold their shares in
Respondent No.2 to the Respondent No.1-State at Rs.11.50/- per
equity share – Suit filed by appellants in the High Court inter alia
for a decree for reasonable price of their shares – Preliminary
decree was passed for appointment of a CA firm to ascertain
the fair value of the shares when they were transferred by the
appellants to Respondent No.1, which valued the shares at
Rs.640/- per share – Valuation not accepted by respondents –
High Court affirmed the valuation of shares at Rs.640/- per
share with 5% simple interest p.a. – Issue relating to valuation
of shares has become final in view of dismissal of SLP (C) Diary
Nos.27115/2022 and 24887/2022 filed by Respondents – Matter
remanded to High Court – By way of the impugned judgment,
High Court upheld and reaffirmed the valuation of shares at
Rs.640/- per share as also the grant of 5% simple interest p.a. –
Challenge to – Presently, issue only as regards the appropriate
rate of interest to be awarded on the enhanced valuation of
shares:
Held: There has been a transaction of trade, viz. sale and purchase
of goods, which clearly implies a commercial transaction between
the parties – s.34 empowers the court to grant interest at three
* Author
2754 [2025] 4 S.C.R.
Supreme Court Reports
different stages of a money decree whereunder, inter alia the
court may grant interest on the total decretal amount from the
date of the decree until payment, at a rate not exceeding 6% p.a
unless otherwise specified in contractual agreements or statutory
provisions – However, if the claim arises from a commercial
transaction, courts may allow interest at a higher rate based on
agreements between the parties – Courts have the authority to
determine the appropriate interest rate, considering the totality of
the facts and circumstances in accordance with law – They have
the discretion to decide whether the interest is payable from the
date of institution of the suit, a period prior to that, or from the date
of the decree, depending on the specific facts of each case – In
the present case, there was no agreement between the parties
relating to grant of interest for the delayed payment – Respondent
No. 1 agreed to pay a fair valuation for the shares to the appellants,
but is yet to make the payment – Appellants having suffered a
delay of five decades in receiving the payment, are entitled to be
reasonably compensated by way of interest – In the peculiar facts
and circumstances, simple interest at the rate of 6% per annum
awarded from 8th July 1975, on the enhanced valuation of shares
till the date of decree and interest at the rate of 9% per annum from
the date of decree till the date of realisation – Impugned judgments
of the High Court modified. [Paras 12, 14, 15, 17]
Interest – Award of, to be guided by equitable considerations:
Held: Discretion to award interest, whether pendente lite or
post-decree is well recognized, its exercise must be guided by
equitable considerations – The rate and period of interest cannot
be applied mechanically or at an unreasonably high rate without
any rationale. [Para 16]
Public Interest – Commercial transactions – Terms if oppressive
or one-sided, constitutional courts can under Article 14 to strike
down such contracts or pass appropriate decrees or orders:
Held: “Public Interest” denotes a wider concept with its genus
rooted to the welfare of the public at large, with different species
attributable to individual and specific impact, depending upon
the concept and the subject under consideration – It deals with
the impact of a policy decision on the society – Generally, public
interest is anathema to commercial transactions – However, by
exception, when the terms are oppressive or one-sided, they
[2025] 4 S.C.R. 2755
I.K. Merchants Pvt. Ltd. & Ors. v. The State of Rajasthan & Ors.
are to be termed as unconscionable, arbitrary and by application
of externalities, public interest will have to lean towards the
individual who has been wronged, as such contracts are deemed
to take away the fairness, affecting the free consent required to
culminate into a valid contract – The constitutional courts, under
such circumstances will be armed with Article 14 to strike down
such contracts or to pass appropriate decrees or orders – In the
present case, the transaction, though commercial, is not between
two businessmen or entities; the State and its instrumentality are
parties to the contract with better bargaining or imposing authority;
and there was no public interest in offering a lesser sum – Further,
with the price fixed found to be unconscionable, this Court affirmed
the enhanced price fixed by the High Court. [Para 12]
Case Law Cited
Alok Shanker Pandey v. Union of India [2007] 2 SCR 737 : (2007)
3 SCC 545; Clariant International Ltd. v. Securities & Exchange
Board of India [2004] Supp. 3 SCR 843 : (2004) 8 SCC 524;
Thazhathe Thazhathe Purayil Sarabi v. Union of India (2009) 7
SCC 372; Rampur Fertiliser Ltd. v. Vigyan Chemicals Industries
[2009] 2 SCR 650 : (2009) 12 SCC 324; M/s Tomorrowland Ltd. v.
Housing and Urban Development Corporation Ltd., 2025 LiveLaw
(SC) 205 – relied on.
Central Inland Water Transport Corp. v. Brojo Nath Ganguly [1986]
2 SCR 278 : (1986) 3 SCC 156; Union of India v. Tata Chemicals
Ltd. [2014] 3 SCR 298 : (2014) 6 SCC 335; Fertilizer Corporation
of India Ltd. v. Coromandal Sacks Pvt. Ltd. [2024] 5 SCR 321 :
(2024) 8 SCC 172; Bernard Francis Joseph Vaz v. Government
of Karnataka [2025] 1 SCR 190 : Civil Appeal No. 17 of 2025;
Manalal Prabhudayal v. Oriental Insurance Co. Ltd. [2006] Supp.
4 SCR 666 : (2009) 17 SCC 296 – referred to.
List of Acts
Code of Civil Procedure, 1908; Constitution of India.
List of Keywords
Section 34 of Code of Civil Procedure, 1908; Interest; Commercial
Transaction; Valuation of shares; Enhanced valuation of shares;
Appropriate rate of interest on enhanced valuation of shares;
Reasonable price of shares; Appropriate interest rate; Grant of
2756 [2025] 4 S.C.R.
Supreme Court Reports
interest for the delayed payment; No agreement between parties
relating to grant of interest for delayed payment; Fair Valuation;
“Public Interest”; Share Valuation; Discretion to award interest;
Award of interest.
Case Arising From
CIVIL APPELLATE JURISDICTION: Civil Appeal No(s). 4560-4563
of 2025
From the Judgment and Order dated 26.04.2022 and 02.05.2022
of the High Court at Calcutta in GA No. 6 of 2020 in APD No.
63 of 2013
Appearances for Parties
Advs. for the Appellants:
Ranjit Kumar, Gautam Narayan, Sr. Advs., Ashok Kumar Jain,
Pankaj Jain, Mrs. Meenakshi Jain, Bijoy Kumar Jain.
Advs. for the Respondents:
Shiv Mangal Sharma, A.A.G., Dr. Manish Singhvi, Sr. Adv., Milind
Kumar, Deepak Goel, Apurv Singhvi, Ms. Shalini Haldar.
Judgment / Order of the Supreme Court
Judgment
R. Mahadevan, J.
Leave granted.
2. These appeals are filed against the judgments and orders dated
26.04.2022 and 02.05.2022 both passed by the Division Bench of
Calcutta High Court1 in G.A.No.6 of 2020 and A.P.D.No.63 of 2013
in C.S.No.467 of 1978. Vide order dated 26.04.2022, the High Court,
while upholding and reaffirming the valuation of shares done by
M/s. Ray & Ray at Rs.640/- per share, granted simple interest at 6%
per annum on the enhanced valuation of shares, however, rejected
the prayer of the appellants for enhancement of interest rates,
costs and damages, and accordingly, disposed of the said cases.
1 Hereinafter referred to as “the High Court”
[2025] 4 S.C.R. 2757
I.K. Merchants Pvt. Ltd. & Ors. v. The State of Rajasthan & Ors.
Subsequently, vide order dated 02.05.2022, the High Court corrected
the rate of interest from 6% to 5% per annum. Both the orders are
assailed in these appeals, at the instance of the appellants herein.
3. On 25.07.2022, when the appeals were taken up for consideration
by this Court, the learned counsel for the appellants confined the
prayer made herein to the grant of an appropriate rate of interest,
which was also recorded in the proceedings. In view of the same,
we proceed to deal with these appeals only to the limited extent
of grant of rate of interest for the difference in valuation of shares
of Respondent No.2 viz., Rajasthan State Mines and Mineral Ltd.,
formerly known as Bikaner Gypsums Ltd.2, which shares were sold by
the appellants to Respondent No.1 viz., State of Rajasthan, in 1973.
4. The relevant facts giving rise to the controversy involved herein are
as follows:
4.1 Originally, the appellants preferred a suit being C.S.No.467
of 1978 before the High Court of Calcutta, and the same
was subsequently amended, praying for a decree for
Rs.4,34,21,553.00 against the Respondent No.1; in the
alternative a decree for reasonable price of the shares of
the appellants, after determination of such price by the High
Court; in the further alternative, cancellation of the transfer of
shares belonging to the appellants to the Respondent No.1 and
restitution of the original status and retransfer of those shares
to the appellants on such terms to be determined by the High
Court, and also interest and costs. On 14.08.2012, the learned
Single Judge of the High Court, while rejecting the valuation
reports produced by the parties, passed a preliminary decree,
the operative portion of which reads as follows:
“There shall be a preliminary decree directing
the defendants in particular the first defendant to
appoint anyone of the following firms of Chartered
Accountants, namely Price Water House, Ray & Ray,
Lodha and Company of its choice as the valuer for the
purpose of conducting an enquiry for ascertaining the
fair and proper value of the said shares of the plaintiffs
2 For short, “the Company”
2758 [2025] 4 S.C.R.
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at the time when such shares were transferred to the
first defendant by the plaintiffs and upon conclusion
of such enquiry the plaintiffs shall be entitled to apply
in this suit for obtaining a final decree for the amount,
if found, due upon such enquiry.
However, the remuneration of the valuer shall be
borne entirely by the defendants or rather the first
defendant herein and the first defendant shall pay
the remuneration of the valuer as and when such
remuneration is payable or rather is agreed to be
paid by the first defendant and accepted by the
valuer. The plaintiffs shall be entitled to all the costs,
charges and expenses of the enquiry proceedings
before the valuer, certified for two counsel. Let the
report of the valuer be made and published within a
period of four months from the date of commencement
of the enquiry.
There will also be a decree for costs of the suit
assessed at Rs.1,50,000/- and the plaintiffs will be
entitled to the costs over and above the court fees
that the plaintiffs had to pay at the time of institution
of the suit.
Needless to mention that the plaintiffs will also be
entitled to interests on the final decree to be passed
on the valuation to be made by the valuer appointed
by the preliminary decree, if such valuation, however,
goes in favour of the plaintiffs.”
4.2 Aggrieved by the aforesaid preliminary decree, the respondents
herein preferred A.P.D.No.63 of 2013, in which, the appellants
filed their Cross Objection. During the pendency of the
appeal, the High Court, vide order dated 20.08.2019, noted
that the dispute essentially was with regard to the valuation
of shares, and in order to arrive at a settlement, appointed
M/s. Ray & Ray Co. as valuer for the purpose of conducting an
enquiry and ascertaining the proper value of the shares of the
appellants as on the date, when such shares were transferred
to the State Government. It was further directed that such
valuation would be uninfluenced by previous valuation reports.
[2025] 4 S.C.R. 2759
I.K. Merchants Pvt. Ltd. & Ors. v. The State of Rajasthan & Ors.
Accordingly, the valuer M/s. Ray & Ray valued the shares at
Rs.640/- per share and filed its report. However, the respondents
refused to accept the said valuation. As a result of the same, the
High Court proceeded to hear the matter on merits and passed
a final judgment and order on 28.04.2021. The operative portion
of the same reads as under:
“In those circumstances, this appeal and cross-
objection are disposed of by declaring that the
respondents/plaintiffs are entitled to Rs.640/- per
share sold by them to the appellant and directing
that each of the respondents/plaintiffs be paid by
the appellant no.1 Rs.640/- per share of Bikaner
Gypsums Ltd. (subsequently Rajasthan State Mines
and Minerals Ltd.) sold by him to the appellant no.1
as valued by M/s. Ray and Ray less Rs.11.50/-
per share already received by him/her within eight
weeks of communication of this order. Considering
the appellant is the government of Rajasthan, the
respondents/plaintiffs shall only be entitled to interest
at the rate of 5% simple interest per annum without
yearly rests on the said amount from 8th July, 1975
till the date of payment.
The impugned preliminary judgment and decree
dated 14th August, 2012 is modified to the above
extent. In the facts and circumstances, the modified
preliminary judgment and decree shall be treated
as the final decree. The suit is decreed accordingly.
The application (GA 6 of 2020) is also disposed of
by this order.”
4.3 Being dissatisfied with the aforesaid judgment and order
dated 28.04.2021, both Respondent Nos.1 & 2 filed two
separate appeals viz., CA.Nos.6145 and 6144 of 2021
[SLP (Civil) Nos.13905/2021 and 13606/2021] respectively,
and the appellants filed C.A.No.6146 of 2021 [SLP (Civil)
No.14330/2021]. By a common order dated 01.10.2021, this
Court allowed all the appeals by setting aside the order dated
28.04.2021 and remanding the matter to the High Court to
deal with the objections and cross objections on the issue of
2760 [2025] 4 S.C.R.
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valuation alone, as per the report of M/s. Ray & Ray and to take
a view on the same. Pursuant to the clarification application
viz., M.A.No.1840 of 2021 in C.A. No.6146 of 2021 filed by the
appellants, this Court vide order dated 26.11.2021 inter alia
observed as follows:
“.... On hearing learned counsel for parties, we are
not inclined to open a pandora’s box once again
and are clear that we have remitted on the issue of
the valuation report. However, the consequences of
the same would be that the applicant(s) before us
would naturally have a right to agitate the issue of
interest and costs which is a sequitur arising from
the delay in the finalization of the amount payable
to the respondent(s). ...”
4.4 In light of the aforesaid orders, the matter was reheard by the
High Court and the impugned judgment and order came to be
passed on 26.04.2022, the operative portion of which, reads
as under:
“I am of the view that the valuer has given a very
reasonable opinion.
I uphold and reaffirm the valuation.
With regard to the claim of the respondents for
interest, because of the long pendency on the matter,
the interest burden on the Government of Rajasthan is
for a period of about 50 years on the above valuation.
Taking this length of time and the total interest burden
on the appellant No.1, in my view, 6% per annum
simple interest on the enhanced valuation of the
shares will more than adequately compensate the
respondents. We reject the prayer for enhancement
of the interest rate.
The appeal is disposed of accordingly.
The judgment and decree of this Court dated
28th April 2021 is reaffirmed.”
Subsequently, the interest portion was corrected from 6% to
5% per annum, by order dated 02.05.2022.
[2025] 4 S.C.R. 2761
I.K. Merchants Pvt. Ltd. & Ors. v. The State of Rajasthan & Ors.
4.5 With the above background, the appellants have come up with
these appeals before us.
5. According to the learned counsel for the appellants, payment of
interest owing to the delay in remittance of the fair value of the
shares to the appellants is a right recognized in law. Further, the
principle underlying the award of interest on the monies entitled to
be recovered by a party is simply compensation for the time value
of money i.e., compensation for interdicting the investment of that
sum at the time when it was due to be paid. In support of the same,
the learned counsel relied on the following decisions of this court:
(i) Union of India v. Tata Chemicals Ltd3, wherein it was held that
the obligation to refund money received and retained without
right implies and carried with it the right to interest.
(ii) Fertilizer Corporation of India Ltd and others v. Coromandal
Sacks Private Ltd4, in which, it was held that ‘neither a penalty
nor a punishment but the normal accretion on capital, due to the
wilful withholding of the payment towards the claim, resulting in
continuous injury until such payment is made or in other words,
until the claim is realized’; and
(iii) Civil Appeal No.17 of 2025 in SLP(C) No.10338 of 2023 titled
as ‘Bernard Francis Joseph Vaz and others v. Government of
Karnataka and others’, it was observed as follows:
“…it cannot be gainsaid that the appellants have been
deprived of their legitimate dues for almost 22 years
ago. It can also not be controverted that money is
what money buys. The value of money is based on
the idea that money can be invested to earn a return,
and that the purchasing power of money decreases
over time due to inflation. What the appellants
herein could have bought with the compensation in
2003 cannot do in 2025. It is, therefore, of utmost
importance that the determination of the award and
disbursal of compensation in case of acquisition of
land should be made with promptitude”.
3 (2014) 6 SCC 335
4 (2024) 8 SCC 172
2762 [2025] 4 S.C.R.
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5.1 It is further submitted that the appellants were deprived of the
fair value of their shares, which were compulsorily acquired by
the State Government for a period of more than 50 years due to
the faulty valuation commissioned by it. Therefore, payment of
interest on the valuation which has been upheld till this Court,
follows as a matter of course.
5.2 The learned counsel also submitted that Section 34(1) of the
Civil Procedure Code explicitly provides that a rate higher than
6% can be granted in case of a money decree arising out of
commercial transactions. Explanation I to section 34(1) defines
a “commercial transaction” as one connected with industry, trade
or business of the party incurring the liability. In the present case,
the liability has arisen on account of compulsory acquisition by
the state Government of the shares of the appellants in Bikaner
Gypsums, which was renamed as Respondent No.2 and has
consistently earned revenues for the State Government being
a profit-making company between 1974 till 2020. However,
without any justification, the High Court awarded only simple
interest at the rate of 5% per annum, which will not compensate
the appellants for the time value of the cost of shares, and is
hence, whimsical and arbitrary.
5.3 It is further submitted that despite giving assurance to the
appellants that they will be allowed to make a representation
before the valuer by letters dated 27.04.1973 and 06.08.1973,
the Respondent No.1 rescinded on this assurance vide letter
dated 03.07.1974 and that, a copy of the valuation report
dated 28.08.1974 was not supplied to the appellants and
their objections thereto were not invited. Though appellant
no.1 requested to return the shares if a fair valuation was not
possible vide letter dated 10.04.1975, the respondents neither
conducted a fair valuation nor returned the shares. Further, the
respondents failed to comply with the order dated 20.08.2019 of
this Court, as a result of which, the time granted by this court for
submission of the report had to be extended on two occasions.
Even after dismissal of the appeals of the respondents by this
Court, the appellants have not been paid the principal sum,
till date. Thus, the respondents have not only breached the
contract, but also caused delay at every stage of proceedings
in making payment of sums legally due to the appellants.
[2025] 4 S.C.R. 2763
I.K. Merchants Pvt. Ltd. & Ors. v. The State of Rajasthan & Ors.
5.4 It is also submitted that had the money payable by the
Respondent No. 1 been invested in any other shares, gold,
fixed deposit or land in the year 1973, the said money would
have been enhanced manifold. Since 1973-74 till 2020, the
Respondent No. 2, which is a profit-making company, earned
several thousand rupees as gross profit and hence, they are not
entitled to any sympathy on the ground of being State. Thus,
according to the learned counsel, there is no justification for
award of a rate of interest lower than commercial rates for the
fair value of the share of the appellants.
5.5 Referring to the decision of this court in Alok Shanker Pandey v.
Union of India5, it is submitted that during the relevant point of
time, the rate of interest was 15% and hence, the appellants
are entitled to receive interest at least @ 15%.
5.6 Thus, the learned counsel submitted that the appellants are
entitled to receive the principal of Rs.3,46,79,373/- with interest
@ 15% on monthly rest basis; and interest @ 15% on monthly
rest basis on the aforesaid amount till the date of realization of the
claim. In case, the respondents fail to pay the principal amount
and interest @ 15% on monthly rest basis, the Respondent
No.1 may be directed to pay a further interest at the rate of
15% as penal interest over and above the amounts to be paid
in terms of the above till the payment is made.
6. On the other hand, the learned counsel for the Respondent No. 1 /
State of Rajasthan, submitted that the facts would clearly indicate that
the amount was neither in debt nor for any damages, which normally
entails interest. Due to gross mismanagement, the Respondent
No. 2 (company) was going down, and it ultimately got merged with
the State Government. The shareholders, who were responsible
for the mismanagement of the Company, are now going to get a
very handsome amount in terms of the valuation on 31.03.1973 at
a huge sum of Rs.640/- per share for a subscribed share price of
Rs.10/- per share against the original claim of Rs.70.50 per share.
6.1 Adding further, it is submitted that in the suit, the appellants initially
claimed only for Rs.70.50 per share, in 1978. Subsequently, they
5 (2007) 3 SCC 545
2764 [2025] 4 S.C.R.
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sought amendment with regard to enhancement of valuation of
share, which was ordered in 2001, i.e., 23 years later. Thus,
the exorbitant interest sought in 2001 cannot be said to be
computed from the year 1973. It is also submitted that the
appellants / shareholders, who did not subscribe at Rs.10/- per
share for fresh infusion of capital, have now got the valuation
of Rs.640/- per share, on the same date and therefore, they
have not been prejudiced in any manner.
6.2 Denying the allegation that the shares of the appellants had
been compulsorily acquired by the State Government, the
learned counsel submitted that the events as unfolded during
1969 to 1973 would amply demonstrate that it is owing to
mismanagement of the Company that the State had to intervene
and infuse further capital in the Company. The State had infused
sufficient funds, but still the company could not be revived or
sustained by the then management. It is in this context that the
shares were acquired by the State. Therefore, it is not a case
of compulsory acquisition of shares, but a case of infusion of
capital, and getting equity in return just to keep the company
afloat; and the rate of interest has to be determined in the said
background only.
6.3 It is submitted that the second part of Section 34 states that the
interest from the date of decree till the date of payment cannot
exceed 6%. The Explanation states that the rate of interest may
exceed 6% p.a. if it is a ‘Commercial transaction’. According
to the learned counsel, the State was not engaged in any
industry, trade or business and there was complete absence
of motive of profit in the action taken by them. In fact, it was
incurring losses, and the investment made to keep the loss-
making Company unit afloat cannot be termed as a ‘Commercial
transaction’. Therefore, the interest rate should not exceed @
5% as determined by the High Court.
6.4 Referring to the decision of this Court in Manalal Prabhudayal v.
Oriental Insurance Co. Ltd.6, it is submitted that Appellate
Courts should not interfere with the discretion exercised by
the lower Courts to award interest unless the same is arbitrary
6 (2009) 17 SCC 296
[2025] 4 S.C.R. 2765
I.K. Merchants Pvt. Ltd. & Ors. v. The State of Rajasthan & Ors.
and capricious. Hence, the High Court correctly exercised its
jurisdiction to award simple interest at 5% per annum, which
does not suffer from any infirmity.
6.5 It is also submitted that the High Court has reaffirmed the
judgment and decree dated 28.04.2021 which was set aside by
this court by order dated 01.10.2021, without any modification
and the same does not have any legal sanctity. Thus, the High
Court has not passed any specific order with regard to the interest
from the date of the institution of the suit till the date of decree,
and from the date of decree till the date of the payment. It has
merely stated that 5% p.a. shall be calculated. Therefore, the
order of the High Court relating to rate of interest is reasonable
and the same need not be interfered with by this court.
7. In addition to the above submissions made on the side of the
Respondent No.1, the learned counsel for the Respondent No.2 /
Rajasthan State Mines and Minerals Ltd., submitted that the transfer
of shares to the State by the company in the year 1973 was for the
reason as the company was facing financial difficulties to run its
business and further, the shareholders were not possessing faith in
the company and therefore, the company decided to bring the public
issue at Rs.10/- per equity share, but the appellants were not ready
to purchase the shares even at such rate. Thereafter, the litigation
to decide the fair price of the share was initiated by the appellants
in 1978 by demanding a sum of Rs.70.50 per equity share, but later,
on the basis of valuation by a private valuer M/s. Naresh Lakhotia
& Company, amended their plaint and claimed Rs.874/- per share.
It is worth mentioning that the valuer M/s.Naresh Lakhotia & company
and M/s.Ray and Ray are not the valuer appointed by the ICAI. Thus,
the appellants are only entitled to the fair price of the share as on
April 1973 and not the interest thereon.
7.1 It is further submitted that there was no contract in respect of
payment of interest between the parties. In such circumstances,
section 34 of the Civil Procedure Code would govern the field,
which does not provide for any compound interest of any kind.
That apart, Section 34 clearly mandates interest @6% per
annum for the principal sum adjudged (both during pendency
and till date of payment). Therefore, the question of compound
interest does not arise.
2766 [2025] 4 S.C.R.
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7.2 It is ultimately submitted that the appellants have already got
the price of their share at Rs.11.50 per equity share and they
are only entitled for the difference of amount as upheld by this
Court and therefore, the appellants are not entitled to higher
rate of interest than 5% awarded by the High Court.
8. As a riposte, the learned counsel for the appellants submitted that
the Respondent No. 1 has attempted to make out a new case for the
first time through their reply, alleging that there was mismanagement
by the shareholders of the Respondent No. 2; that, the appellants
after a period of 23 years, claimed an exorbitant sum towards value
of shares, Respondent No. 2 was a loss-making company, etc.
8.1 The learned counsel further submitted that the respondents
never challenged the order dated 15.09.2001 granting leave
to the appellants to amend their plaint in CS No.467 of 1978,
but sought to urge that the proceedings were delayed due to
amendment. That apart, the contention that the Respondent
No. 2 was a loss making one, is utterly false and contrary to
the record; and the appellants have placed on record the profit
made by Respondent No.2 between 1974 till 2000, which comes
to Rs.40,165,790,819. It is also an incorrect statement that the
Government infused lots of fund during management of the
company by the shareholders including the appellants. According
to the appellants, other than giving one or two bank guarantees,
the Respondent No.1 had never funded the company. Thus,
according to the learned counsel, such new allegations are not
maintainable. All the issues between the parties had attained
finality except the issue of interest payable to the appellants,
which has been raised in the present appeals.
8.2 It is also submitted that the High Court vide order dated
28.04.2021 specifically directed that interest will be paid from
08.07.1975 till the date of payment. Therefore, the learned
counsel prayed this court to allow these appeals and grant
appropriate rate of interest to the appellants.
9. We have considered the submissions made by the learned counsel
appearing for the parties and perused the records carefully and
meticulously.
10. The genesis of the case arises from a five-decade long litigation
concerning the valuation of shares of Respondent No. 2 which were
[2025] 4 S.C.R. 2767
I.K. Merchants Pvt. Ltd. & Ors. v. The State of Rajasthan & Ors.
sold by the appellants to Respondent No.1. The issue relating to
valuation of shares has become final in view of dismissal of SLP (C)
Diary Nos. 27115/2022 and 24887/2022 filed by Respondent Nos.
1 and 2 respectively, vide orders dated 05.12.2022 and 12.12.2022
passed by this court.
11. As already stated, the only issue remains to be considered by us in
the present round of litigation is the rate of interest on the enhanced
valuation of shares as determined by the High Court and affirmed
by this court.
12. Taking note of the interest burden on the State for 50 years on the
valuation of shares, the High Court had granted simple interest @
5% per annum, by judgments and orders dated 26.04.2022 and
02.05.2022 which are impugned herein. According to the appellants,
the transactions viz., transfer of shares were commercial in nature.
Whereas, the respondents stated that they were not engaged in any
industry, trade or business for profit purposes and the investment
made was only to keep the loss-making Company unit afloat, and
hence, the transactions cannot be treated as commercial transactions.
Here, it cannot be disputed that there has been a transaction of trade,
viz. sale and purchase of goods, which clearly implies a commercial
transaction between the parties. The term “Public Interest” denotes a
wider concept with its genus rooted to the welfare of the public at large,
with different species attributable to individual and specific impact,
depending upon the concept and the subject under consideration.
It deals with the impact of a policy decision on the society. Generally,
public interest is anathema to commercial transactions. However,
by exception, when the terms are oppressive or one-sided, they
are to be termed as unconscionable, arbitrary and by application of
externalities, public interest will have to lean towards the individual
who has been wronged, as such contracts are deemed to take away
the fairness, affecting the free consent required to culminate into a
valid contract. The constitutional courts, under such circumstances
will be armed with Article 14 to strike down such contracts or to
pass appropriate decrees or orders. It will be useful to refer to the
judgment of this court in Central Inland Water Transport Corporation
Limited and another v. Brojo Nath Ganguly and another7, wherein,
it was held as follows:
7 (1986) 3 SCC 156 : MANU/SC/0439/1986
2768 [2025] 4 S.C.R.
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“82. The position under the American Law is stated in
“Reinstatement of the Law- Second” as adopted and
promulgated by the American Law Institute, Volume II xx
which deals with the law of contracts, in Section 208 at
page 107, as follows:
“Section 208. Unconscionable Contract or Term
If a contract or term thereof is unconscionable at the time
the contract is made a court may refuse to enforce the
contract, or may enforce the remainder of the contract
without the unconscionable term, or may so limit the
application of any unconscionable term as to avoid any
unconscionable result.”
In the Comments given under that section it is stated at
page 107:
“Like the obligation of good faith and fair dealing (S 205), the
policy against unconscionable contracts or terms applies
to a wide variety of types of conduct. The determination
that a contract or term is or is not unconscionable is made
in the light of its setting, purpose and effect. Relevant
factors include weaknesses in the contracting process
like those involved in more specific rules as to contractual
capacity, fraud and other invalidating causes; the policy
also overlaps with rules which render particular bargains or
terms unenforceable on grounds of public policy. Policing
against unconscionable contracts or terms has sometimes
been accomplished by adverse construction of language,
by manipulation of the rules of offer and acceptance or
by determinations that the clause is contrary to public
policy or to the dominant purpose of the contract’. Uniform
Commercial Code $ 2-302 Comment 1.... A bargain is
not unconscionable merely because the parties to it are
unequal in bargaining position, nor even because the
inequality results in an allocation of risks to the weaker
party. But gross inequality of bargaining power, together
with terms unreasonably favourable to the stronger party,
may confirm indications that the transaction involved
elements of deception or compulsion, or may show that
the weaker party had no meaningful choice, no real
[2025] 4 S.C.R. 2769
I.K. Merchants Pvt. Ltd. & Ors. v. The State of Rajasthan & Ors.
alternative, or did not in fact assent or appear to assent
to the unfair terms.”
There is a statute in the United States called the Universal
Commercial Code which is applicable to contracts relating
to sales of goods. Though this statute is inapplicable
to contracts not involving sales of goods, it has proved
very influential in, what are called in the United States,
“non-sales” cases. It has many times been used either
by analogy or because it was felt to embody a general
accepted social attitude of fairness going beyond its
statutory application to sales of goods. In the Reporter’s
Note to the said Section 208, it is stated at page 112:
“It is to be emphasized that a contract of adhesion is
not unconscionable per se, and that all unconscionable
contracts are not contracts of adhesion. Nonetheless, the
more standardized the agreement and the less a party may
bargain meaningfully, the more susceptible the contract or
a term will be to a claim of unconscionability.”
The position has been thus summed up by John R. Pedan
in “The Law of Unjust Contracts” published by Butterworths
in 1982, at pages 28-29:
“...Unconscionability represents the end of a cycle
commencing with the Aristotelian concept of justice and
the Roman law iaesio enormis, which in turn formed the
basis for the medieval church’s concept of a just price and
condemnation of usury. These philosophies permeated the
exercise, during the seventeenth and eighteenth centuries,
of the Chancery court’s discretionary powers under which
it upset all kinds of unfair transactions. Subsequently
the movement towards economic individualism in the
nineteenth century hardened the exercise of these powers
by emphasizing the freedom of the parties to make their
own contract. While the principle of pacta sunt servanda
held dominance, the consensual theory still recognized
exceptions where one party was overborne by a fiduciary,
or entered a contract under duress or as the result of
fraud. However, these exceptions were limited and had
to be strictly proved. It is suggested that the judicial
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and legislative trend during the last 30 years in both
civil and common law jurisdictions has almost brought
the wheel full circle. Both courts and parliaments have
provided greater protection for weaker parties from harsh
contracts. In several jurisdictions this included a general
power to grant relief from unconscionable contracts,
thereby providing a launching point from which the courts
have the opportunity to develop a modern doctrine of
unconscionability. American decisions on Article 2. 302
of the UCC have already gone some distance into this
new arena. The expression “laesio enormous used in
the above passage refers to “laesio ultra dimidium vel
enormous which in Roman law meant the injury sustained
by one of the parties to an onerous contract when he had
been overreached by the other to the extent of more than
one-half of the value of the subject-matter, as for example,
when a vendor had not received half the value of property
sold, or the purchaser had paid more then double value.
The maxim “pacta sunt servanda” referred to in the above
passage means “contracts are to be kept”.
83. It would appear from certain recent English cases that
the courts in that country have also begun to recognize the
possibility of an unconscionable bargain which could be
brought about by economic duress even between parties
who may not in economic terms be situate differently (see,
for instance, Occidental Worldwide Investment Corpn. v.
Skibs A/S Avanti 1976 (1) L Rep. 293, North Ocean
Shipping Co. Ltd. v. Hyundai Construction Co. Ltd. 1979
Q.B. 705, Pao On v. Lau Yin Long 1980 A.C. 614 and
Universe Tankships of Monrovia v. International Transport
Workers Federation 1981 (1) C.R. 129, reversed in 1981 (2)
W.L.R. 803and the commentary on these cases in Chitty on
Contracts, Twenty-fifth Edition, Volume I, paragraph 486).
84. Another jurisprudential concept of comparatively
modern origin which has affected the law of contracts is
the theory of “distributive justice”. According to this doctrine,
distributive fairness and justice in the possession of wealth
and property can be achieved not only by taxation but also
by regulatory control of private and contractual transactions
[2025] 4 S.C.R. 2771
I.K. Merchants Pvt. Ltd. & Ors. v. The State of Rajasthan & Ors.
even though this might involve some sacrifice of individual
liberty. In Lingappa Pochanna Appelwar v. State of
Maharashtra and Anr. MANU/SC/0236/1984 : [1985]2
SCR 224 this Court, while upholding the constitutionality
of the Maharashtra Restoration of Lands to Scheduled
Tribes Act, 1974, said (at page 493):
“The present legislation is a typical illustration of the concept
of distributive justice, as modern jurisprudence know it.
Legislators, Judges and administrators are now familiar
with the concept of distributive justice. Our Constitution
permits and even directs the State to administer what may
be termed ‘distributive justice’. The concept of distributive
justice in the sphere of law-making connotes, inter alia,
the removal of economic inequalities and rectifying the
injustice resulting from dealings or transactions between
unequals in society. Law should be used as an instrument
of distributive justice to achieve a fair division of wealth
among the members of society based upon the principle:
‘From each according to his capacity, to each according
to his needs’. Distributive justice comprehends more than
achieving lessening of inequalities by differential taxation,
giving debt relief or distribution of property owned by one
to many who have none by imposing ceiling on holdings,
both agricultural and urban, or by direct regulation of
contractual transactions by forbidding certain transactions
and, perhaps, by requiring others. It also means that
those who have been deprived of their properties by
unconscionable bargains should be restored their property.
All such laws may take the form of forced redistribution of
wealth as a means of achieving a fair division of material
resources among the members of society or there may
be legislative control of unfair agreements.”
85. When our Constitution states that it is being enacted in
order to give to all the citizens of India “JUSTICE, social,
economic and political”, when Clause (1) of Article 38
of the Constitution directs the State to strive to promote
the welfare of the people by securing and protecting as
effectively as it may a social order in which social, economic
and political justice shall inform all the institutions of the
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national life, when Clause (2) of Article 38 directs the
State, in particular, to minimize the inequalities in income,
not only amongst individuals but also amongst groups of
people residing in different areas or engaged in different
vocations, and when Article 39 directs the State that it
shall, in particular, direct its policy towards securing that
the citizens, men and women equally, have the right to an
adequate means of livelihood and that the operation of the
economic system does not result in the concentration of
wealth and means of production to the common detriment
and that there should be equal pay for equal work for both
men and women, it is the doctrine of distributive justice
which is speaking through these words of the Constitution.
86. Yet another theory which has made its emergence
in recent years in the sphere of the law of contracts is
the test of reasonableness or fairness of a clause in a
contract where there is inequality of bargaining power.
Lord Denning, M.R., appears to have been the propounder,
and perhaps the originator - at least in England, of this
theory. In Gillespie Brothers & Co. Ltd. v. Roy Bowles
Transport Ltd. 1973 (1) Q.B. 400 where the question was
whether an indemnity clause in a contract, on its true
construction, relieved the indemnifier from liability arising
to the indemnified from his own negligence, Lord Denning
said (at pages 415-6):
“The time may come when this process of ‘construing’
the contract can be pursued no further. The words are
too clear to permit of it. Are the courts then powerless?
Are they to permit the party to enforce his unreasonable
clause, even when it is so unreasonable, or applied so
unreasonably, as to be unconscionable? When it gets to
this point, I would say, as I said many years ago:
there is the vigilance of the common law which, while
allowing freedom of contract, watches to see that it is
not abused’: John lee & Son (Grantham) Ltd. v. Railway
Executive 1949 (2) All. E.R. 581, 584. It will not allow a
party to exempt himself from his liability at common law
when it would be quite unconscionable for him to do so.”
[2025] 4 S.C.R. 2773
I.K. Merchants Pvt. Ltd. & Ors. v. The State of Rajasthan & Ors.
In the above case the Court of Appeal negatived the
defence of the indemnifier that the indemnity clause
did not cover the negligence of the indemnified. It was
in Lloyds Bank Ltd. v. Bundy 1974 (3) All E.R. 757 that
Lord Denning first clearly enunciated his theory of
“inequality of bargaining power”. He began his discussion
on this part of the case by stating (at page 763):
“There are cases in our books in which the courts will set
aside a contract, or a transfer of property, when the parties
have not met on equal terms, when the one is so strong in
bargaining power and the other so weak that, as a matter
of common fairness, it is not right that the strong should
be allowed to push the weak to the wall. Hitherto those
exceptional cases have been treated each as a separate
category in itself. But I think the time has come when we
should seek to find a principle to unite them. I put on one
side contracts or transactions which are voidable for fraud
or misrepresentation or mistake. All those are governed
by settled principles. I go only to those where there has
been inequality of bargaining power, such as to merit and
intervention of the court.”
He then referred to various categories of cases and
ultimately deduced therefrom a general principle in these
words (at page 765):
“Gathering all together, I would suggest that through all
these instances there runs a single thread. They rest on
‘inequality of bargaining power’. By virtue of it, the English
law gives relief to one who, without independent advice,
enters into a contract on terms which are very unfair or
transfers property for a consideration which is grossly
inadequate, when his bargaining power is grievously
impaired by reason of his own needs or desires, or
by his own ignorance or infirmity, coupled with undue
influences or pressures brought- to bear on him by or
for the benefit of the other. When 1 use the word ‘undue’
1 do not mean to suggest that the principle depends on
proof of any wrongdoing. The one who stipulates for an
unfair advantage may be moved solely by his own self-
2774 [2025] 4 S.C.R.
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interest, unconscious of the distress he is bringing to the
other. I have also avoided any reference to the will of the
one being ‘dominated’ or ‘overcome’ by the other. One
who is in extreme need may knowingly consent to a most
improvident bargain, solely to relieve the straits in which
he finds himself. Again, I do not mean to suggest that
every transaction is saved by independent advice. But
the absence of it may be fatal. With these explanations,
1 hope this principle will be found to reconcile the cases.”
87. Though the House of Lords does not yet appear to
have unanimously accepted this theory, the observations
of Lord Dip lock in A. Schroeder Music Publishing Co.
Ltd. v. Macaulay (Formerly Instone) 1974 (1) W.L.R. 1308
are a clear pointer towards this direction. In that case a
song writer had entered into an agreement with a music
publisher in the standard form whereby the publishers
engaged the song writer’s exclusive services during the
term of the agreement, which was five years. Under the
said agreement, the song writer assigned to the publisher
the full copyright for the whole world in his musical
compositions during the said term. By another term of the
said agreement, if the total royalties during the term of the
agreement exceeded 5,000 the agreement was to stand
automatically extended by a further period of five years.
Under the said agreement, the publisher could determine
the agreement at any time by one month’s written notice but
no corresponding right was given to the song writer. Further,
while the publisher had the right to assign the agreement,
the song writer agreed not to assign his rights without the
publisher’s prior written consent. The song writer brought an
action claiming, inter alia, a declaration that the agreement
was contrary to public policy and void. Plowman, J., who
heard the action granted the declaration which was sought
and the Court of Appeal affirmed his judgment. An appeal
filed by the publishers against the judgment of the Court
of Appeal was dismissed by the House of Lords. The Law
Lords held that the said agreement was void as it was
in restraint of trade and thus contrary to public policy. In
his speech Lord Diplock however, outlined the theory of
[2025] 4 S.C.R. 2775
I.K. Merchants Pvt. Ltd. & Ors. v. The State of Rajasthan & Ors.
reasonableness or fairness of a bargain. The following
observations of his on this part of the case require to be
reproduced in extenso (at pages 1315-16):
“My Lords, the contract under consideration in this appeal
is one whereby the respondent accepted restrictions upon
the way in which he would exploit his earning power as
a song writer for the next ten years. Because this can be
classified as a contract in restraint of trade the restrictions
that the respondent accepted fell within one of those limited
categories of contractual promises in respect of which the
courts still retain the power to relieve the promisor of his
legal duty to fulfil them. In order to determine whether this
case is one in which that power ought to be exercised,
what your Lordships have in fact been doing has been to
assess the relative bargaining power of the publisher and
the song writer at the time the contract was made and
to decide whether the publisher had used his superior
bargaining power to exact from the song writer promises
that were unfairly onerous to him. Your Lordships have
not been concerned to inquire whether the public have in
fact been deprived of the fruit of the song writer’s talents
by reason of the restrictions, nor to assess the likelihood
that they would be so deprived in the future if the contract
were permitted to run its full course.
It is, in my view, salutary to acknowledge that in refusing
to enforce provisions of a contract whereby one party
agrees for the benefit of the other party to exploit or
to refrain from exploiting his own earning power, the
public policy which the court is implementing is not some
19th-century economic theory about the benefit to the
general public of freedom of trade, but the protection of
those whose bargaining power is weak against being
forced by those whose bargaining power is stronger to
enter into bargains that are unconscionable. Under the
influence of Bentham and of laissez-faire the courts in
the 19th century abandoned the practice of applying the
public policy against unconscionable bargains to contracts
generally, as they had Formerly done to any contract
considered to be usurious; but the policy survived in its
2776 [2025] 4 S.C.R.
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application to penalty clauses and to relief against forfeiture
and also to the special category of contracts in restraint
of trade. If one looks at the reasoning of 19th-century
judges in cases about contracts in restraint of trade one
finds lip service paid to current economic theories, but if
one looks at what they said in the light of what they did,
one finds that they struck down a bargain if they thought
it was unconscionable as between the parties to it and
upheld it if they thought that it was not.
So I would hold that the question to be answered as
respects a contract in restraint of trade of the kind with
which this appeal is concerned is: “Was the bargain fair?”
The test of fairness is, no doubt, whether the restrictions
are both reasonably necessary for the protection of the
legitimate interests of the promisee and commensurate with
the benefits secured to the promisor under the contract. For
the purpose of this test all the provisions of the contract
must be taken into consideration.”
Lord Diplock then proceeded to point out that there are
two kinds of standard forms of contracts. The first is of
contracts which contain standard clauses which “have been
settled over the years by negotiation by representatives
of the commercial interests involved and have been
widely adopted because experience has shown that
they facilitate the conduct of trade”. He then proceeded
to state, “If fairness or reasonableness were relevant to
their enforceability the fact that they are widely used by
parties whose bargaining power is fairly matched would
raise a strong presumption that their terms are fair and
reasonable.” Referring to the other kind of standard form
of contract Lord Diplock said (at page 1316):
“The same presumption, however, does not apply to
the other kind of standard form of contract. This is
of comparatively modern origin. It is the result of the
concentration of particular kinds of business in relatively
few hands. The ticket cases in the 19th century provide
what are probably the first examples. The terms of this kind
of standard form of contract have not been the subject of
[2025] 4 S.C.R. 2777
I.K. Merchants Pvt. Ltd. & Ors. v. The State of Rajasthan & Ors.
negotiation between the parties to it, or approved by any
organisation representing the interests of the weaker party.
They have been dictated by that party whose bargaining
power, either exercised alone or in conjunction with others
providing similar goods or services, enables him to say: ‘If
you want these goods or services at all, these are the only
terms on which they are obtainable. Take it or leave it’.
To be in a position to adopt this attitude towards a party
desirous of entering into a contract to obtain goods of
services provides a classic instance of superior bargaining
power.”
88. The observations of Lord Denning, M.R., in Levison and
Anr. v. Patent Steam Carpet Co. Ltd. 1978 (1) Q.B. 69 are
also useful and require to be quoted. These observations
are as follows (at page 79):
“In such circumstances as here the Law Commission
in 1975 recommended that a term which exempts the
stronger party from his ordinary common law liability should
not be given effect except when it is reasonable: see
The Law Commission and the Scottish Law Commission
Report, Exemption Clauses, Second Report (1975)
(August 5, 1975), Law Com. No. 69 (H.C. 605), pp. 62,
174; and there is a bill now before Parliament which gives
effect to the test of reasonableness. This is a gratifying
piece of law reform: but 1 do not think we need wait for
that bill to be passed into law. You never know what may
happen to a bill. Meanwhile the common law has its own
principles ready to hand. In Gillespie Bros. & Co. Ltd. v.
Roy Bowles Transport Ltd. 1973 Q.B. 400, I suggested
that an exemption or limitation clause should not be given
effect if it was unreasonable, or if it would be unreasonable
to apply it in the circumstances of the case. I see no
reason why this should not be applied today, at any rate
in contracts in standard forms where there is inequality
of bargaining power.”
89. The Bill referred to by Lord Denning in the above
passage, when enacted, became the Unfair Contract Terms
Act, 1977. This statute does not apply to all contracts but
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only to certain classes of them. It also does not apply to
contracts entered into before the date on which it came
into force, namely, February 1, 1978; but subject to this it
applies to liability for any loss or damage which is suffered
on or after that date. It strikes at clauses excluding or
restricting liability in certain classes of contracts and
torts and introduces in respect of clauses of this type the
test of reasonableness and prescribes the guidelines for
determining their reasonableness. The detailed provisions
of this statute do not concern us but they are worth a study.
90. In Photo Production Ltd. v. Securicor Transport Ltd.
1980 A.C. 827 a case before the Unfair Contract Terms
Act, 1977, was enacted, the House of Lords upheld
an exemption clause in a contract on the defendants’
printed form containing standard conditions. The decision
appears to proceed on the ground that the parties were
businessmen and did not possess unequal bargaining
power. The House of Lords did not in that case reject
the test of reasonableness or fairness of a clause in a
contract where the parties are not equal in bargaining
position. On the contrary, the speeches of Lord Wilberforce,
Lord Diplock and Lord Scarman would seem to show that
the House of Lords in a fit case would accept that test.
Lord Wilberforce in his speech, after referring to the Unfair
Contract Terms Act, 1977, said (at page 843):
“This Act applies to consumer contracts and those based
on standard terms and enables exception clauses to be
applied with regard to what is just and reasonable. It is
significant that Parliament refrained from legislating over
the whole field of contract. After this Act, in commercial
matters generally, when the parties are not of unequal
bargaining power, and when risks are normally borne by
insurance, not only is the case for judicial intervention
undemonstrated, but there is everything to be said, and
this seems to have been Parliament’s intention, for leaving
the parties free to apportion the risks as they think fit and
for respecting their decisions.”
Lord Diplock said (at page 850-51):
[2025] 4 S.C.R. 2779
I.K. Merchants Pvt. Ltd. & Ors. v. The State of Rajasthan & Ors.
“Since the obligations implied by law in a commercial
contract are those which, by judicial consensus over the
years or by Parliament in passing a statute, have been
regarded as obligations which a reasonable businessman
would realise that he was accepting when he entered
into a contract of a particular kind, the court’s view of
the reasonableness of any departure from the implied
obligations which would be involved in construing the
express words of an exclusion clause in one sense that they
are capable of bearing rather than another, is a relevant
consideration in deciding what meaning the words were
intended by the parties to bear.”
Lord Scarman, while agreeing with Lord Wilberforce,
described (at page 853) the action out of which the appeal
before the House had arisen as “a commercial dispute
between parties well able to look after themselves” and
then added, “In such a situation what the parties agreed
(expressly or impliedly) is what matters; and the duty of the
courts is to construe their contract according to its tenor.
91. As seen above, apart from judicial decisions, the
United States and the United Kingdom have statutorily
recognized, at least in certain areas of the law of contracts,
that there can be unreasonableness (or lack of fairness,
if one prefers that phrase) in a contract or a clause in a
contract where there is inequality of bargaining power
between the parties although arising out of circumstances
not within their control or as a result of situations not of
their creation. Other legal systems also permit judicial
review of a contractual transaction entered into in similar
circumstances. For example, Section 138(2) of the German
Civil Code provides that a transaction is void “when a
person” exploits “the distressed situation, inexperience, lack
of judgmental ability, or grave weakness of will of another
to obtain the grant or promise of pecuniary advantages ...
which are obviously disproportionate to the performance
given in return.” The position according to the French law
is very much the same.
92. Should then our courts not advance with the times?
Should they still continue to cling to outmoded concepts and
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outworn ideologies? Should we not adjust our thinking caps
to match the fashion of the day? Should all jurisprudential
development pass us by, leaving us floundering in the
sloughs of nineteenth-century theories? Should the strong
be permitted to push the weak to the wall? Should they
be allowed to ride roughshod over the weak? Should the
courts sit back and watch supinely while the strong trample
under foot the rights of the weak? We have a Constitution
for our country. Our judges are bound by their oath to
“uphold the Constitution and the laws”. The Constitution
was enacted to secure to all the citizens of this country
social and economic justice. Article 14 of the Constitution
guarantees to all persons equality before the law and
the equal protection of the laws. The principle deducible
from the above discussions on this part of the case is in
consonance with right and reason, intended to secure social
and economic justice and conforms to the mandate of the
great equality clause in Article 14. This principle is that the
courts will not enforce and will, when called upon to do
so, strike down an unfair and unreasonable contract, or an
unfair and unreasonable clause in a contract, entered into
between parties who are not equal in bargaining power.
It is difficult to give an exhaustive list of all bargains of this
type. No court can visualize the different situations which
can arise in the affairs of men. One can only attempt to
give some illustrations. For instance, the above principle
will apply where the inequality of bargaining power is the
result of the great disparity in the economic strength of
the contracting parties. It will apply where the inequality
is the result of circumstances, whether of the creation
of the parties or not. It will apply to situations in which
the weaker party is in a position in which he can obtain
goods or services or means of livelihood only upon the
terms imposed by the stronger party or go without them.
It will also apply where a man has no choice, or rather
no meaningful choice, but to give his assent to a contract
or to sign on the dotted line in a prescribed or standard
form or to accept a set of rules as part of the contract,
however unfair, unreasonable and unconscionable a clause
in that contract or form or rules may be. This principle,
[2025] 4 S.C.R. 2781
I.K. Merchants Pvt. Ltd. & Ors. v. The State of Rajasthan & Ors.
however, will not apply where the bargaining power of the
contracting parties is equal or almost equal. This principle
may not apply where both parties are businessmen
and the contract is a commercial transaction. In today’s
complex world of giant corporations with their vast infra-
structural organizations and with the State through its
instrumentalities and agencies entering into almost every
branch of industry and commerce, there can be myriad
situations which result in unfair and unreasonable bargains
between parties possessing wholly disproportionate and
unequal bargaining power. These cases can neither be
enumerated nor fully illustrated. The court must judge each
case on its own facts and circumstances.”
In the present case, the transaction, though commercial, is not
between two businessmen or entities; the State and its instrumentality
are parties to the contract with better bargaining or imposing
authority; and from the records, we find that there was no public
interest in offering a lesser sum. Further, with the price fixed found
to be unconscionable, this Court affirmed the enhanced price fixed
by the High Court.
13. Pertinently, it is to be pointed out at this juncture that there was no
agreement between the parties relating to grant of interest for the
delayed payment. Even the exchange of communications between
the parties remains silent on this aspect. In the absence of any
agreement or contract, the provisions of Section 34 of the Code of
Civil Procedure dealing with ‘interest’ would come into play, and the
same is extracted below, for ready reference:
“34. Interest.—(1) Where and insofar 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.
2782 [2025] 4 S.C.R.
Supreme Court Reports
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.
(2) Where such a decree is silent with respect to the
payment of further interest 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.”
13.1 The above provision empowers the court to grant interest at
three different stages of a money decree viz., (i) the court may
award interest on the principal sum claimed at a rate it deems
reasonable, for the period before the suit was filed. Such interest
is generally governed by agreements between the parties;
(ii) The court may award interest on the principal amount from
the date of filing the suit until the date of the decree, at a
reasonable rate. Here, the court has full discretion to determine
the interest rate based on fairness, commercial usage and
equity; and (iii) the court may grant interest on the total decretal
amount (principal + interest before decree) from the date of
the decree until payment, at a rate not exceeding 6% per
annum unless otherwise specified in contractual agreements
or statutory provisions. However, if the claim arises from a
commercial transaction, courts may allow interest at a higher
rate based on agreements between the parties.
14. Furthermore, it is noteworthy to refer to the following case laws and
the observations made therein concerning the issue involved herein:
(i) Clariant International Limited and another v. Securities &
Exchange Board of India8
“Interest can be awarded in terms of an agreement
or statutory provisions. It can also be awarded by
reason of usage or trade having the force of law or on
8 (2004) 8 SCC 524
[2025] 4 S.C.R. 2783
I.K. Merchants Pvt. Ltd. & Ors. v. The State of Rajasthan & Ors.
equitable considerations. Interest cannot be awarded
by way of damages except in cases where money due
is wrongfully withheld and there are equitable grounds
therefor, for which a written demand is mandatory.
In absence of any agreement or statutory provision
or a merchantile usage, interest payable can be only
at the market rate. Such interest is payable upon
establishment of totality of circumstances justifying
exercise of such equitable jurisdiction.”
(ii) Alok Shanker Pandey (supra)
“We are of the opinion that there is no hard-and-fast
rule about how much interest should be granted
and it all depends on the facts and circumstances
of each case. We are of the opinion that the grant
of interest of 12% per annum is appropriate in the
facts of this particular case. However, we are also
of the opinion that since interest was not granted to
the appellant along with the principal amount, the
respondent should then in addition to the interest at
the rate of 12% per annum also pay to the appellant
interest at the same rate on the aforesaid interest
from the date of payment of instalments by the
appellant to the respondent till the date of refund
of this amount, and the entire amount mentioned
above must be paid to the appellant within two
months from the date of this judgment.’
(iii) Thazhathe Thazhathe Purayil Sarabi v. Union of India9
“25. It is, therefore, clear that the court, while
making a decree for payment of money is entitled
to grant interest at the current rate of interest or
contractual rate as it deems reasonable to be paid
on the principal sum adjudged to be payable and/or
awarded, from the date of claim or from the date of
the order or decree for recovery of the outstanding
dues. There is also hardly any room for doubt that
9 (2009) 7 SCC 372
2784 [2025] 4 S.C.R.
Supreme Court Reports
interest may be claimed on any amount decreed
or awarded for the period during which the money
was due and yet remained unpaid to the claimants.
26. The courts are consistent in their view that
normally when a money decree is passed, it is most
essential that interest be granted for the period
during which the money was due, but could not be
utilised by the person in whose favour an order of
recovery of money was passed.
…
30. As we have indicated hereinbefore, when there
is no specific provision for grant of interest on any
amount due, the court and even tribunals have
been held to be entitled to award interest in their
discretion, under the provisions of Section 3 of the
Interest Act and Section 34 of the Civil Procedure
Code.”
(iv) Rampur Fertiliser Limited v. Vigyan Chemicals Industries10
“19. It was further held in Clariant International
case [(2004) 8 SCC 524] that in the absence of any
agreement or statutory provision or a mercantile
usage, interest payable can be only at the market
rate and such interest is payable upon establishment
of totality of circumstances justifying exercise of
such equitable jurisdiction. It was also held that in
ascertaining the rate of interest the courts of law
can take judicial notice of both inflation as also fall
in bank rate of interest. The bank rate of interest
both for commercial purposes and other purposes
has been the subject-matter of statutory provisions
as also the judge-made laws. In the said case
reference was made to the decisions in Kaushnuma
Begum v. New India Assurance Co. Ltd. [(2001)
2 SCC 9 : 2001 SCC (Cri) 268] , H.S. Ahammed
Hussain v. Irfan Ahammed [(2002) 6 SCC 52 : 2002
10 (2009) 12 SCC 324
[2025] 4 S.C.R. 2785
I.K. Merchants Pvt. Ltd. & Ors. v. The State of Rajasthan & Ors.
SCC (Cri) 1263] and United India Insurance Co.
Ltd. v. PatriciaJean Mahajan [(2002) 6 SCC 281 :
2002 SCC (Cri) 1294] and it was observed that:
(Clariant International case [(2004) 8 SCC 524] ,
SCC p. 541, para 36)
“36. … Even in cases of victims of motor vehicle
accidents, the courts have upon taking note of the
fall in the rate of interest held 9% interest to be
reasonable.”
20. In Assam Small Scale Industries Development
Corpn. Ltd. [(2005) 13 SCC 19] also in terms of
Section 34 of the Code, in relation to the transactions
made prior to coming into force of the Act, simple
interest at the rate of 9% per annum was granted
taking the same to be bank rate at the relevant time.
21. Therefore, in view of the foregoing legal
proposition, we hold that the High Court was not
justified in granting interest at the rate of 18% per
annum with monthly rests. Considering the facts
and circumstances of the present case we direct
that pendente lite and future interest at the rate of
9% shall be paid.”
(v) M/s. Tomorrowland Limited v. Housing and Urban Development
Corporation Limited and another11
“48. “The Appellant, of course, can seek award of
interest under Section 34 of the CPC, which inter
alia provides that “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.”
49. “It is trite law that under Section 34 of the CPC,
the award of interest is a discretionary exercise
steeped in equitable considerations. The law in
this regard has been succinctly discussed in the
11 2025 LiveLaw (SC) 205
2786 [2025] 4 S.C.R.
Supreme Court Reports
Constitution Bench judgment of this Court in Central
Bank of India v. Ravindra & Ors.; (2002) 1 SCC
367, which states:
“Award of interest pendente lite or post-decree
is discretionary with the Court as it is essentially
governed by Section 34 of the CPC de hors the
contract between the parties. In a given case if the
Court finds that in the principal sum adjudged on
the date of the suit, the component of interest is
disproportionate with the component of the principal
sum actually advanced, the Court may exercise its
discretion in awarding interest pendente lite and
post-decree interest at a lower rate or may even
decline to award such interest. The discretion shall
be exercised fairly, judiciously, and for not arbitrary
or fanciful reasons.”
58. “We are conscious of the fact that as a general
principle, in commercial disputes, the award of
interest pendente lite or post-decree is typically
granted as a matter of course. This is because
such interest serves to compensate the aggrieved
party for the time value of money that was due but
withheld during the legal process.”
Thus, it is abundantly clear that the Courts have the authority to
determine the appropriate interest rate, considering the totality of
the facts and circumstances in accordance with law. That apart,
the Courts have the discretion to decide whether the interest is
payable from the date of institution of the suit, a period prior to
that, or from the date of the decree, depending on the specific
facts of each case.
15. Admittedly, the shares belonging to the appellants were transferred
to the State Government in 1973. In 1978, the appellants instituted
the suit claiming a valuation of Rs.70.50 per share. Thereafter,
they sought an amendment increasing the valuation to Rs.874/-
per share, based on the report of a private valuer M/s. Naresh
Lakhotia & Co. The amendment sought was allowed on 12.09.2001.
Subsequently, the appellants accepted the valuation of Rs.640/- per
share as determined by M/s Ray & Ray, which was also ordered
[2025] 4 S.C.R. 2787
I.K. Merchants Pvt. Ltd. & Ors. v. The State of Rajasthan & Ors.
by the High Court and affirmed by this Court. It is also an admitted
fact that the Respondent No. 1 agreed to pay a fair valuation for
the shares to the appellants, but is yet to make the payment.
Such being the scenario, wherein, the appellants having suffered
a delay of five decades in receiving the payment, are entitled to
be reasonably compensated by way of interest. However, their
claim of interest at 18% with quarterly rest or 15% with monthly
rest, in the opinion of this court, is unreasonable and cannot be
accepted as such quarterly or monthly rest is beyond the scope
of Section 34.
16. Be it noted, while the discretion to award interest, whether pendente
lite or post-decree, is well recognized, its exercise must be guided
by equitable considerations. The rate and period of interest cannot
be applied mechanically or at an unreasonably high rate without
any rationale. Though it is not possible to arrive at the actual value
of improvement or the inflation on the fair consideration, if paid at
the relevant point of time, it is just and necessary that the rate of
interest must be a reparation for the appellant. The Court must ensure
that while the claimant is fairly compensated, the award does not
become punitive or unduly burdensome on the Judgement Debtor.
Therefore, the rate of interest should be determined in a manner
that balances both fairness and financial impact, taking into account
the “loss of use” principle and economic prudence, in the specific
facts of each case.
17. Considering the prolonged pendency of the dispute regarding the
valuation of shares, which has only been determined recently, and
the substantial share amount involved, and also keeping in mind that
this is a commercial transaction, and the entire burden of interest
along with principal value falls upon the Government, it is necessary
in the present case to award reasonable interest, in order to strike
a balance between the parties. Thus, in these peculiar facts and
circumstances, we deem it fit, just and appropriate to award simple
interest at the rate of 6% per annum from 8th July 1975, on the
enhanced valuation of shares till the date of decree and interest at
the rate of 9% per annum from the date of decree till the date of
realisation. The interest shall be paid along with the amount due
towards the enhanced value of the shares, after adjusting the amount
already paid, to the appellants, within a period of two months from
today.
2788 [2025] 4 S.C.R.
Supreme Court Reports
18. Accordingly, all the appeals stand disposed of. The impugned
judgments and orders passed by the High Court are modified to
the extent indicated above. No costs. Connected Miscellaneous
Application(s), if any, shall stand disposed of.
Result of the case: Appeals disposed of.
†
Headnotes prepared by: Divya Pandey
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