Holding

The Supreme Court held that the 7% interest rate in the allotment letter applies only to the tentative sale price, not to the enhanced compensation, and that HUDA may charge simple interest at the prevailing current rate but cannot impose higher or compound rates without agreement.

Summary

The Haryana Urban Development Authority (HUDA) allotted a residential plot to Raj Singh Rana under an allotment letter that stipulated a 7% simple interest rate on instalments of the tentative sale price. After the plot’s acquisition cost was enhanced, HUDA demanded additional payment with interest rates of 10% and 15% (including compound interest) for the delayed amounts. Rana paid the demand under protest and filed a consumer complaint seeking a refund of the excess interest, arguing that the 7% rate applied to all dues. The District Forum, State Commission and National Commission upheld the 7% rate, rejecting the higher rates and compound interest. On appeal, the Supreme Court held that the allotment letter’s 7% rate applied only to the tentative sale price, not to the enhanced compensation, and that HUDA could charge interest at the prevailing current rate, but not arbitrarily or at a compound rate. The Court set aside the lower forums' orders, quashed the additional demand, and directed HUDA to impose simple interest at the current rate and refund any excess.

Issues considered

Whether HUDA could charge interest at rates higher than the 7% stipulated in the allotment letter for delayed payment of enhanced compensation.
Whether compound interest could be levied on the additional amount.
Whether the consumer forums erred in applying the 7% rate without considering the provisions of the Interest Act, 1978 and CPC.
Whether the rate of interest should be linked to the prevailing current rate of interest under Section 3 of the Interest Act.

Legislation cited

Subjects

interestconsumer protectionallotment letterenhanced compensationrate of interestsimple interestcompound intereststatutory interpretationHUDAconsumer dispute redressal

Judgment

[2008] 10 S.C.R. 1034
1-"I
A H.U.D.A. .;
v.
RAJ SINGH RANA
(Civil Appeal No. 4436 of 2008)
JULY 16, 2008
8 1- .... ;
[ALTAMAS KABIR AND MARKANDEY KATJU, JJ]

Consumer Protection Act, 1986 - Housing - Rate of in-
terest - Demand of enhanced compensation on account of
c increase in acquisition cost of land - Default in payment of ,_
additional amount - Charging of simple interest @ 7% and
15% p.a. as a/so compound interest@ 15% p.a. for different
periods - Allottee paid the amount under protest - Complaint
seeking refund of excess amount of interest charged - Fo-
rums below awarding interest @ 7% p.a. holding that the de- f '
D ....,.
mand made by Authority at the higher rate contrary to the
mutual agreement in the allotment letter - Correctness of -
Held: Not correct - Allotment letter stipulated rate of interest
only with regard to payment of total tentative sale price and
not as regard default in payment of enhanced compensation
E - Authority can adopt a policy, for imposing deterrent rate of
interest .on default committed by allottee in payment, such im-
position has to be as per s. 3 of the 1978 Act and in a reason-
able manner - Orders by Forums below set aside - Authority
directed to impose simple interest on basis of the prevailing
F current rate of interest and refund the excess amount - Inter-
r
est Act, 1978- s.3.
B was allotted a residential plot in Urban Estate,
Karnal. The said plot was transferred to the respondent.
The allotment letter contained certain conditions with re-
G
gard to the payment. Respondent paid the tentative sale
price as also the enhanced compensation for the plot.
However, the Estate Officer, HUDA raised an additional
+·-
demand of Rs.71,800/- by imposing simple interest@ 10

H 1034
f,
'
H.U.D.A. v. RAJ SINGH RANA 1035
-- r
per cent per annum up to 31.3.1987, 15 per cent per an- A
num up to 15.1.1988, compound interest@ 15 per cent
up to 31.8.2000 and thereafter again simple interest@ 15%
per annum up to 31.8.2001. The respondent paid the
amount under protest. Respondent then filed a complaint
>· -f before the District Consumer Disputes Redressal Forum B
for refund of Rs.35,200/-, as excess amount of interest
charged over and above the rate of interest at 7 % as stipu-
lated in the allotment letter. It also sought interest @ 12 %
on the refund amount from the date the interest amount
was demanded until repayment. The District Forum al- c
lowed the compliant and held that the appellant could
charge interest @ 7% p.a. It directed the appellant to re-
fund the extra amount charged to the complainant/respon-

-
dent with interest@ 7 % from the date of the complaint till
its refund. The State Commission upheld the order. The
~
D
National Commission· also upheld the order as to the rate
of interest and held that the appellant was not entitled to
charge compound interest @ 15 % p.a. from 16.1.1988 to
31.8.2000. Hence the present appeal.
Allowing the appeal, the Court E
HELD: 1.1 The concept of levying or allowing inter-
est is available in almost all statutes involving financial
deals and commercial transactions, but the provision em-
powering Courts to allow interest is contained in the In-
terest Act, 1978. Section 3 of the Act, inter alia, provides F
that in any proceeding for the recovery of any debt or dam-
ages or in any proceeding in which a claim for interest in
respect of debt or damage already paid is made, the Court
may, if it thinks fit, allow interest to the person entitled to
the debt or damages or to the person making such claim, G
as the case may be, at a rate not exceeding the current
. -+ rate of interest, for the whole or part of the periods indi-
\
.cated in the said Section. What is important is the men-
tion of allowing the interest at a rate not exceeding the
current rate of interest. Where there is an agreement be- H
1036 SUPREME COURT REPORTS [2008] 10 S.C.R.
-1 __..
A tween the parties to payment of interest at a certain stipu-
lated rate, the same will have the precedence over the
provision contained in sub-section (1) of s. 3. [Paras 10
and 11] [1045-A,B,C & D]
1.2 Section 34 CPC provides that where and insofar
B as a decree is for the payment of money, the Court may in 't- --"'-.
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, till the date of the decree in addition to
any interest adjudged on such principal sum for any pe-
c riod prior to the institution of the suit, with further interest
at such rate not exceeding 6 % p.a. as the court may deem
reasonable on such principal sum from the date of the
decree till the date of payment or to such earlier date as
the court thinks fit. [Para 12] [1045-F,G,H; 1046-A]
D
1.3 The rates of interest charged by the appellant, pur- ~
portedly in accordance with their policy decisions, appear
to have been influenced by the provisions of the Interest
Act and also CPC on the supposition that the payment of
additional price on account of enhancement of compen-
E sation was not covered by the provisions of the allotment
letter relating to payment of interest. The views expressed
by the District forum have been accepted by the State and
National Commissions. [Para13] [1046-A,B & C]

F 1.4 It was the duty of the Consumer Fora to consider
the circumstances of the case and keep in mind the pro- r
visions of s. 3 of the Interest Act in awarding the high rate
of interest, without linking. the same to the current rate of
interest. The rates of interest fixed· by the Courts must not
be arbitrary and should take into account the current bank
G
rates which in recent years have shown a tendency to
slide downwards. [Paras 15 and 17] [1047-D; 1048-F]
T--~
Ghaziabad Development Authority vs. Balbir Singh 2004
(5)SCC 65; HUOA vs. Prem Kumar Agarwal and another 2008
H (1) SCALE 484; Bihar State Housing Board vs. Arun Dakshy
H.U.D.A. v. RAJ SINGH RANA 1037
l>' ).

2005 (7) SCC 103; Haryana Urban Development Authority A
vs. Mano} Kumar 2005 (9) SCC 541; Krishna Bhagya Jala
Nigam Limited vs. G. Harischandra Reddy and Anr.2007 (2)
sec 720 - relied on.
,,....,. 2.1 In the instant case, the provision of the allotment
letter dated 22.3.1974 appears to have been wrongly in-
8
terpreted by the Consumer Fora since the stipulated rate
of interest only takes into consideration payment of the
total tentative sale price while Condition No.4 of the allot-
ment letter mentions that the total tentative sale price was
subject to variation in certain circumstances and that the c
allottee would have to pay an additional price for the plot
as a consequence thereof. It does not mention that inter-
est at the rate of 7 % p.a. would be payable also in respect
of the additional price required to be paid on account of
' .., increase of the acquisition cost. The said position is fur- D
ther clarified by condition No.8 which also speaks of pay-
ment of the total tentative sale price and the rate of interest
at 7 % p.a. on the instalments to be paid in respect thereof.
There is nothing further in the agreement which provides
for the rate of interest to be levied on the additional price E
on account of the enhancement of the acquisition cost.
[Para 16] [1047-G,H; 1048-A & B]
2.2 It is accepted that the appellant was entitled, even
in terms of the allotment letter to charge interest on bal-
1 ance dues at a rate which was different from that stipu- F
lated in the allotment letter. Further,. for unpaid dues the
appellant is entitled to charge interest, such an exercise
will have to be undertaken within the parameters of cir-
cumstances and reason and the rate of interest should
not be fixed arbitrarily. [Para 17] [1048-C,D & E] ,G
--t" 2.3 In the aforesaid circumstances, even though the
rate of interest indicated in the allotment letter dated
22.3.1974 may not have application as far as payment of
the additional price is concerned, the District Forum has
H
(

.......
1038 SUPREME COURT REPORTS [2008] 10 S.C.R.

A erred on the site of reason and has allowed interest at the
rate of 7 per cent per annum upon holding that the de-
mand. made by the appellant at the higher rate was con-
trary to the mutual agreement contained in the allotment
letter. Even though a policy may have been adopted by
B the appellant for imposing a deterrent rate of interest on
defaults committed by allottees in payment of their dues,
such imposition has to be in keeping with the provisions
of s. 3 of the Interest Act,· 1978 and not in a unreasonable
manner. It may perhaps· be even more pragmatic if a con-
e dition regarding charging of interest at the prevailing
banking rates were included in the allotment letters, hav-
ing regard to the provisions of sub-section(3) of Section
3 of the said Act.[Para 18] [1048-G & H; 1049-A & B]
2.4 The orders passed by the District i::orum as up-
0 held by the State Commission and the order passed in
Revision by the National Commission is set aside. The
additional demand of Rs.71,800 raised on behalf of the
appelJant is quashed. The appellant is directed to impose
Si!llple ii:iterest on the basis of the prevailing current rate
E of interest for the purpose indicated in para 6 of the com-
plaint filed by. the respondent before the District Forum.
Since, the entire amount by way of additional demand has
been deposited upon protest, any amount which is in
excess of the amount to be computed on the basis of this
F order, would be refunded to the respondent within two
weeks of the computation.[Para 19] [1049-C,D,E & F]
CIVILAPPELLATE JURISDICTION: Civil Appeal No. 4'.436
of 2008
G From the final Order gated 19.11.2004 of the National
Consumer Disputes Redressal Commission, New Delhi in Re-
vision Petition No. 2217 of 2004
Neeraj Kumar Jain, Sanjay Singh, Ugra Shankar Prasad,
Sandeep Chaturevedi and Umang Shankar for the Appellant.
H
H.U.D.A. v. RAJ SINGH RANA 1039
• 'r [ALTAMAS KABIR, J.]
Arvind Chaudhary and Atishi Dipankar for the Respondent. A
The Judgment of the Court was delivered by
ALTAMAS KABIR, J. 1. Leave granted.

; -1 2. One Baldev Singh Nagar was allotted residential plot
· No.718 (later on re-numbered 883) measuring 14 marlas in B
Sector 13 of the Urban Estate at Kamal under the provisions of
the Punjab Urban Estate (Development and Regulation) Act,
1964, which was repealed by the Haryana Urban Development
Authority Act, 1997. The said plot was subsequently transferred
to the respondent herein, Shri Raj Singh Rana, as will be evi- c
dent from the letter dated 22.3.1974 addressed to the respon-
dent by the Estate Officer, Urban Estate, Kamal. In the said let-
ter various conditions have been set out in respect of the said
allotment, of which we are concerned with the condition nos.
• 'i.
1,2,3,4,8 and 15, which are reproduced hereinbelow:
D
"From
The Estate Officer,
Urban Estate,
Kamal.
E
Transferred vide Memo No.E.O.(M)- 76/5235
Dated 01.10.1976 with condition No.16
To
Shri R.S.Rana
--;
S/o Shri A.S.Rana, F
V.P.O. Garhi
Distt. Sonepat.
Memo No.1664/718/14/E.O/K
Dated: 22.3.1974 G

-+-- Subject : Allotment of Residential plot in the Urban Es-
tate, Kamal.
Reference your application dated 25.9.1971 for the
allotment of residential plot in the Urban Estate at Kamal. H
1040 SUPREME COURT REPORTS [2008] 10 S.C.R.
~ ~

A 1. Plot No.718 measuring 14 Marlas in Sector 13 of
the Urban Estate at Kamal is hereby allotted to you.
The total tentative sale price of said plot is Rs.12250/-
against which you have already deposited Rs.6, 125/-
of the price mentioned in part 1 above is Rs.Nil.
B 2. The plot is preferential one and an additional price
-~ ....
at the rate of 10 per cent of the price mentioned in
para 1 above is Rs. Nil.
3. The total tentative sale price of this plot (normal plus
preferential cost) is Rs.Nil.
c
4. The above price of the plot is subject to variation
with reference to the actual measurement of the plot
as well as in case of enhancement of compensation
of acquisition cost of land of this sector by the court
or otherwise and you shall have to pay this additional
D
price of the plot, if any, as determined by the )(
Department within 30 days from the date of demand.
5.
6.
E
7.
8. Balance 50 per cent of the total tentative sale price
shall be payable either in lumpsum within 60 days
from the date of issue of allotment letter without
F interest or in 2 equated instalments with interest at )--·
the rate of 7 per cent per annum. The .first and
remaining instalments of the balance amount together
with interest at the rate of 7 per cent per annum on
the unpaid amount of the total tentative sale price
G shall fall due to payment as under and no notice shall
be served upon you to pay the same but in case in
instalment is not paid in time, you will be served with _)

a notice to pay by same within a month together with +-
a sum not exceeding the amount of the instalment as
may be determined by the undersigned, by way of
H
'
('

~ ~ H.U.D.A. v. RAJ SINGH RANA 1041
[ALTAMAS KABIR, J.]
penalty. If the payment is not made within the said A
period of such extended period as may be
determined by the undersigned, not exceeding three
months in all from the date on which the instalment
~ ..,.. was originally due, the same will be recovered as an
arrear or land revenue or action will be taken under
8
Section 10 of the Punjab Urban Estate (Development
and Regulation) Act, 1964 :-
No. of instalment Due date on which the
Payment is to be made
= 3387.68
First 2958.93+28.75 21.3.1975 c
Second 3166.07+221.61 = 3387.68 21.3.1976
Third
i
r(
Fourth
i Fifth D
Sixth:
9.
10.
...... 11 .
E
12.
~
13.
14.

i 15. This allotment is subject to the provisions of the
Punjab Urban Estates (Development and Regulation) F I
Act, 1964 and the rules framed there under as
____,,, amended from time to time and you shall have to
accept and abide by them.
16.
17. G
" -t- Sd/-
Estate Officer
Urban Estate
Kamal" H
1042 SUPREME COURT REPORTS [2008] 10 S.C.R.

A 3. There is no dispute that the entire amount, as initially
computed as tentative sale price, was fully paid by the respon-
dent, together with further amounts on account of enhanced
compensation paid for the plot, on the basis of the demand
notices issued to the respondent from time to time. The prob-
B lem arose when in additio{l to the above, the Estate Officer,
HUDA, Kamal, by his Memo dated 15.6.2001 raised an addi-
tional demand of Rs. 71,800/- by imposing simple interest @
1Oper cent per annum up to 31.3.1987, 15 per cent per annum
up to 15.1.1988, compound interest @ 15 per cent up to •
c 31.8.2000 and thereafter again simple interest @ 15% per (,,
·annum up to 31.8.2001. According to the respondent, the rate
of interest as indicated in the allotment letter being 7 per cent
simple interest per annum, the appellant had acted illegally in
demanding interest at the higher rates, indicated hereinabove
and such demand being arbitrary could not be sustained. ·
0
4. Aggrieved by such demand, the respondent filed com-
plaint case No.591 of 2002 before the District Consumer Dis-
putes Redressal Forum praying for refund of Rs.35,200/-, which
according to the respondent was the excess amount of interest
E charged over and above the rate of interest at 7 per cent indi-
cated in the allotment letter. The respondent also prayed for in-
terest@ 12 per cent on the refund amount from 2.11.2001, when
the interest amount was demanded and paid under protest,
until repayment. The District Forum accepted the submissions
F made on behalf of the respondent herein and held that the ap-
pellants could charge interest only at the stipulated rate men-
tioned in the allotment letter, namely, 7 per cent per annum and
directed the appellant to calculate the interest@ 7 per cent on
the 3rd and 4th enhancements and to refund the extra amount
G charged to the complainant/respondent with interest at the rate
of 7 per cent from the date of the complaint till its refund. The
decision of the District Forum was confirmed by the State Com-
mission, and ultimately, the appellarit herein took the matter in
revision to the National Commission in R.P.No.2217 of 2004.
The National Commission, while confirming the view taken by
H
H.U.D.A. v. RAJ SINGH RANA 1043
[ALTAMAS KABIR, J.]
the District Forum and the State Commission as to the rate of A
interest which could have been charged by the appellant, con-
sidered another aspect relating to charging of compound inter-
est@ 15 per cent per annum from 16.1.1988 to 31.8.2000 and
..--~
held that the appellant was not entitled to charge such com-
pound interest. B
5. It is against the said order of the National Commission
that this appeal has been filed by the Haryana Urban Develop-
ment Authority (hereinafter referred to as "HUDA").

6. On behalf of the HUDA it was strenuously urged that the c
rate of interest @ 7 per cent per annum, as indicated in the
allotment letter, was only with regard to default in payment of
instalments for the tentative sale price and not as regards the
additional amounts required to be paid in case of enhance-
ment of compensation for acquisition cost of the land, for which
" D
no rate of interest had been stipulated. It was submitted that on
account of default in payment of the instalments of the enhanced
compensation, on account of the low interest which was being
cha.rged, a decision was taken by HUDA on 15.1.1987 to in-
crease the normal rate of interest to 10 per cent per annum and
interest for the delayed payment of instalments to 18 per cent E
per annum, which would also include the normal interest of 10
per cent. It was submitted that it was on account of such re-
vised policy that HUDA had charged interest at the rates indi-
cated herein before to ensure that instalments were paid in time.
~
Apart from his aforesaid submissions, learned counsel for the F
appellant could not justify charging of compound interest as
was done in the instant case.
7. It was urged that enhancement of rate of interest being
a matter of policy to prevent default in payment of instalments G
the Fora below had erred in co-relating the rate of interest men-
,. tioned in the allotment letter, which was only applicable in re-
·spect of default payment of instalments for the tentative price
I:
'•
initially fixed, to the defaults committed in respect of the pay-
ment of the enhanced compensation on account of increase in
H
1044 . SUPREME COURT REPORTS [2008] 10 S.C.R.

A the acquisition costs. It was also submitted that since the rate
of interests stipulated at 7 per cent per annum has no applica-
tion to default in payment of enhanced compensation, the Fora
below had erred in directing that interest on the latter default
be also charged at the stipulated rate of 7 per cent per annum.
B It is submitted that the understanding of the terms and condi-
tions of the allotment letter and the decision rendered by the
consumer forums on the basis thereof, was wholly erroneous .
and was liable to be set aside ..
8. On behalf of the respondent it was contended that apart
C from the fact that the rate of interest demanded was arbitrary, it
was also extremely high and ought not to have been levied from
the date of allotment inasmuch as, the tentative sale price had
been fully paid and such demand could not operate retrospec~
lively, interest on the unpaid amount could, if at all, have been
D raised for periods only after the payment was made. In addition
it was submitted that it is well settled that when a contractual
rate of interest has been agreed upon by the parties, no amount
by way of interest in excess thereof could be raised. It was sub-
mitted that following the said principle, first the District Forum,
E and, thereafter, the State and National Commissions had
awarded interests on. the delayed instalments at the rate of 7
per cent per annum as mentioned in the allotment letter referred
to above. It was contended that condition No.8 enumerated in
the letter dated 22.3.1974 written to the respondent by the Es-
F late Officer, Kamal, would have to be considered and under-
stood in such light. It is submitted that the orders of the con-
sumer Fora was in consonance with the provisions of the allot-
ment letter and did not, therefore, warrant any interference by
this Court and the appeal was liable to be dismissed.
G 9. Having heard learned counsel for the parties and hav-
ing perused the documents relied upon by them, we are of the
view that the width. of the dispute is rather narrow, being con-
fined only to the question as to whether it was within the compe-
tence of the appellant to charge interest on delayed payments
H at the rate at which it has been charged and whether compound
H.U.D.A. v. RAJ SINGH RANA 1045
[ALTAMAS KABIR, J.]
"r
interest could have been charged without there being any mu- A
tual agreement between the parties to that effect.
10. The concept of levying or allowing interest is available
in almost all statutes involving financial deals and commercial
transactions, but the provision empowering Courts to allow in-
terest is contained in the Interest Act, 1978, which succeeded B
and repealed the Interest Act, 1839. Section 3 of the said Act,
inter alia, provides that in any proceeding for the recovery of
any debt or damages or in any proceeding in which a claim for
interest in respect of debt or damage already paid is made, the
Court may, if it thinks fit, allow interest to the person entitled to c
the debt or damages or to the person making such claim, as
the case may be, at a rate not exceeding the current rate of
interest, for the whole or part of the periods indicated. in the
said Section.
D
11. What is important is the mention of allowing the inter-
est at a rate not exceeding the current rate of interest. Such a
provision is, however, excluded in respect of the interest payc
able as of right by virtue of any agreement as indicated in sub-
section(3) of Section 3. In other words, where there is an agree-
ment between the parties to payment of interest at a certain E
stipulated rate, the same will have the precedence over the pro-
vision contained in sub-section(1) which provides for the Court
to allow interest at a rate not exceeding the current rate of inter-
- .est.
1 F
12. Yet another provision which is basic in its operation is
contained in Section 34 of the Code of Civil Procedure which
also, inter alia, provides that 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
G
on the principal sum adjudged, from the date of the suit, till the
date of the decree in addition to any interest adjudged on such
-7' principal sum for any period prior to the institution of the suit,
with further interest at such rate not exceeding 6 per cent per
annum as the court may deem reasonable on such principal
H
1046 SUPREME COURT REPORTS [2008] 10 S.C.R.
1 . ....
t
I
A sum from the date of the decree till the date of payment or to I

such earlier date as the court thinks fit.
13. The rates of interest charged by the appellant, pur-
portedly in accordance with their policy decisions, appear to
have been influenced by the provisions of the Interest Act and ~-
+ )
I
B also the Code of Civil Procedure on the supposition that the
payment of additional price on account of enhancement of com-
pensation was not covered by the provisions of the allotment
letter relating to payment of interest. The view expressed by the
District forum have been accepted by the State and National
c Commissions.
14. It is no doubt true that the law relating to allowing inter-
est and the rates thereof has been considered and settled in
the case of Ghaziabad Development Authority vs. Balbir Singh }
(2004 (5) sec 65), which has since been followed in various
D -¥
subsequent decisions. The said decision was also one rendered
under the provisions of the Consumer Protection Act, 1986,
though in the said case it was a reverse situation in which the
authorities were held to be liable to compensate for misfea-
sance in public office. In the said case interest was allowed @
E 18% per annum which was unacceptable to this Court which
observed that the power to award compensation does not mean
that irrespective of the facts of the case compensation can be
awarded in all matters at a uniform rate of 18 per cent per an-
num. This Court noticed that the National Forum had been ~
~

F awarding interest at a flat rate of 18 per cent per annum irre-
spective of the facts of each case. The same was held to be
unsustainable. In the said state of facts this Court observed in
para 8, as follows:
"However, the power and duty to award compensation
G
does not mean that irrespective of facts of the case
compensation can be awarded in all matters at a uniform _,... .r"
rate of 18% per annum. As seen above, what is being
awarded is compensation i.e. a recompense for the loss
'
r
~

or injury. It therefore necessarily has to be based on a
H
H.U.D.A. v. RAJ SINGH RANA 1047
~ r [ALTAMAS KABIR, J.] ·

finding of loss or injury. No hard-and-fast rule can be laid A
down, however, a few examples would be where an
allotment is made, price is received/paid but possession
is not given within the period set out in the brochure. The
Commission/Forum would then need to determine the
.. -; loss. Loss could be determined on basis of loss of rent B i

which could have been earned if possession was given
and the premises let out or if the consumer has had to stay
in rented premises then on basis of rent actually paid by
him. Along with recompensing the loss the Commission/
. Forum may also compensate for harassment/injury, both c
mental and physical. Similarly, compensation can be given
if after allotment is made there has been cancellation of
scheme without any justifiable cause."
1S. Applying the aforesaid principle laid down in the afore-
said case, it was the duty of the Consumer Fora to consider the D
1
circumstances of the case and keep in mind the provisions of
Section 3 of the Interest Act in awarding the high rate of inter-
est, without linking the same to the current rate of interest. As
was mentioned in Balbir Singh's case, and, thereafter, in HUDA
vs. Prem Kumar Agarwal and another (2008(1) SCALE 484); E
Bihar State Housing Board vs. Arun Dakshy (2005 (7) SCC
103); Haryana Urban Development Authority vs. Manoj Kumar
(2005 (9) SCC 541) and Krishna Bhagya Jala Nigam Limited
vs. G.Harischandra Reddy and another (2007 (2) SCC 720) the
rate of interest is to be fixed in the circumstances of each case F
~
and it should not be imposed at a uniform rate without looking
into the circumstances leading to a situation where compensa-
tion was required to be paid.
16. In the instant case, the provision of the allotment letter
dated 22.3.1974 appears to have been wrongly interpreted by G
the Consumer Fora since the stipulated rate of interest only takes
,. ..,. into consideration payment of the total tentative sale price while
- Condition No.4 of the allotment letter mentions that the total ten-
tative sale price was subject to variation in certain circumstances
and that the allottee would have to pay an additional price for H
1048 SUPREME COURT REPORTS [2008] 10 S.C.R.

A the plot as a consequence thereof. It does not mention that in-
terest at the rate of 7 per cent per annum would be payable also
in respect of the additional price required to be paid on ac-
count of increase of the acquisition cost. The said position is
further clarified by condition No.8 which also speaks of pay- ~ :..
B ment of the total tentative sale price and the rate of interest at 7
per cent per annum on the instalments to be paid in respect
thereof. There is nothing further in the agreement which pro-
vides for the rate of interest to be levied on the additional price
on account of the enhancement of the acquisition cost.

C 17. On such score we are inclined to agree with the learned
counsel for the appellant that the appellant was entitled, even in
terms of the allotment letter to charge interest on balance dues
at a rate which was different from that stipulated in the allot-
ment letter.At the same time, we are in agreement with the views
D expressed in Balbir Singh's case (supra) which gives an indi-
cation of the matters which are required to be considered by
the Courts while granting interest where there is no mutual un-
derstanding or agreement with regard to the rate of interest that
could be charged. While we also agree that for unpaid dues the
E appellant is entitled to charge interest, such an exercise will have
to be undertaken within the parameters of circumstances and
reason and the rate of interest should not be fixed arbitrarily. In
the decisions referred to hereinabove, this Court has sounded
a note of caution that rates of interest fixed by the Courts must
F not be arbitrary and should take into account the current bank
rates which in recent years have shown a tendency to slide down-
wards. In fact, in many of the aforesaid cases, the rate of inter-
est has been reduced substantially.
18. In the aforesaid circumstances, even though the rate
G of interest indicated in the allotment !etter dated 22.3.1974 may
not have application as far as payment of the additional price is
concerned, the District Forum has erred on the site of reason
and has allowed interest at the rate of 7 per cent per annum
upon holding that the demand made by the appellant at the higher
H rate was contrary to the mutual agreement contained in the al-
H.U.D.A. v. RAJ SINGH RANA 1049
j t [ALTAMAS KABIR, J.]
lotment letter. In our view, even though a policy may have been A
adopted by the appellant for imposing a deterrent rate of inter-
est on defaults committed by allottees in payment of their dues,
such imposition has to be in keeping with the provisions of
Section 3 of the Interest Act, 1978 and not in a unreasonable
manner. It may perhaps be even more pragmatic if a condition B
regarding charging of interest at the prevailing banking rates
were included in the allotment letters, having regard to the pro-
visions of sub-section(3) of Section 3 of the said Act.

19. We, therefore, allow this appeal, set aside the orders
dated 10.3.04 passed by the District Forum, Chandigarh in C
Complaint Case no.591 of 2002, as affirmed by the State Com-
mission, Chandigarh, on 9.7.2004 and the order passed in
Revision by the National Commission on 19.11.2004, which is
the subject matter of this appeal, and quash the additional de-
mand of Rs.71 ,800 raised on behalf of the appellant vide Memo D
No. EO 8682 dated 15.6.2001 and direct that the appellant will
be entitled to impose simple interest on the basis of the prevail-
ing current rate of interest for the purpose indicated in para 6 of
the complaint filed by the respondent (Complaint Case No.591
of 2002) before the District Forum, Chandigarh. Such a com- E
putation is to be completed within a month from the date of re-
ceipt of this order. Since, we have been informed at the Bar that
the entire amount by way of additional demand has been de-
posited upon protest, any amount which is in excess of the
amount to be computed on the basis of this order, shall be re- F
funded to the respondent within two weeks of such computa-
tion.

20. In the facts and circumstances of the case, the parties
will bear their own costs.
N.J. Appeal allowed.