Rate Of Interest For Pendente Lite And Future Period

This article is primarily in relation to the Original Applications (OAs) filed by banks and Financial Institutions (FIs) in Debt Recovery Tribunals (DRTs) under the provisions of Recovery of Debt and Bankruptcy Act, 1993 (RDB Act, 1993) Pendente Lite period means the period from the date of filing of the suit upto the date of judgment. Future period means the period from the date of judgment upto the date of realisation of the decretal amount. Nowadays banks and FIs are filing OAs in DRTs under the provisions of RDB Act, 1993 for recovery of huge amounts running into thousands of crores of rupees. In view of the same, the element of Rate of Interest has assumed a great importance. Most of the times, OAs filed by the banks and FIs are decreed for the claim amount but the interest for the pendente lite and future rate of interest is awarded at a rate lower than the contractual rate and that too on simple basis instead of on compound basis. RDB Act, 1993 vide Section 19(20) provides about the payment of interest for pendente lite and future rate of interest as below - "(20) The Tribunal may, after giving the applicant and the defendant an opportunity of being heard, pass such interim or final order, including the order for payment of interest from the date on or before which payment of the amount is found due upto the date of realisation or actual payment, on the application as it thinks fit to meet the ends of justice." Before discussing the legal aspects of the above issue, let us understand the significance of the pendente lite and future rate of interest by a few illustrations. Suppose an OA with a claim of Rs. 100 crores is decided by DRT in 6 years. The bank has claimed pendente lite and future period interest at the rate of 16% with quarterly rest and while deciding the above OA, the DRT grants only 12% interest per annum on simple basis. The calculation of interest for the pendente lite period in the above illustration are given in the following table - Principal Amount Rs. 100.00 crores Principal Amount Rs. 100.00 crores Compound Interest @ 16% per annum for 6 years with quarterly rests Rs. 156,33,04,164.89 Simple Interest @ 12% per annum for 6 years Rs. 72,00,00,000.00 Total Amount (A) Rs. 256,33,04,164.89 Total Amount (B) Rs. 172,00,00,000.00 Pecuniary Loss A - B = Rs. 84,33,04,164.89 Apart from the above pecuniary loss which had already occurred due to grant of reduced rate of interest on simple basis, the said loss is of a continuing nature accruing every month so long as the decretal amount is not realised in entirety. The severity of the pendente lite and future interest can be explained by another illustration where the pendency of the OA was for comparatively a longer period. Though RDB Act, 1993 vide section 19(24) stipulates that all possible efforts shall be made for disposal of the OA by DRTs within a period of 6 months, but the same is not happening and there are thousands of cases which are decided after periods of 5, 10, 15, 20 and even more than 20 years. There is one live matter which had been filed in Delhi High Court in 1986 and upon coming into force of RDB Act, 1993, the said matter was transferred to DRT-I, New Delhi. The said matter has already completed 34 years but is still pending for the adjudication. Now suppose, an OA with a claim of Rs. 50 crores is decided after pendency of 15 years and the DRT awards simple interest @10 % instead of the contractual rate of interest i.e., 15% with quarterly rest. The effect of reducing the pendente lite and future rate of interest from 15% with quarterly rest to 10% on simple basis is being explained in the following table Principal Amount Rs. 50.00 crores Principal Amount Rs. 50.00 crores Compound Interest @ 15% per annum for 15 years with quarterly rests Rs. 405,25,66,804.71 Simple Interest @ 10% per annum for 15 years Rs. 75,00,00,000.00 Total Amount (A) Rs. 455,25,66,804.71 Total Amount (B) Rs. 125,00,00,000.00. Pecuniary Loss A - B = Rs. 330,25,66,804.71 Generally speaking, the DRTs do not give any detailed reasoning for reducing the pendente lite and future rate of interest and/or making the same on simple basis as against the compound interest. It appears that the Hon'ble Judges while determining the pendenlite and future rate of interest do not apply their mind to the pros and cons of the same and perhaps are not aware...

Rate Of Interest For Pendente Lite And Future Period

Pragati Aggarwal

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