THE INTEREST ACT, 1978 Act : An Act to consolidate and amend the law relating to the allowance of interest

in certain cases. BE it enacted by Parliament in the Twenty-ninth year of the Republic of India as follows -

!."hort title# e$tent and commencement.- %!& This Act may be called the Interest Act# !'(). %*& It e$tends to the whole of India e$cept the "tate of +ammu and ,ashmir. %-& It shall come into force on such date as the .entral /o0ernment may# by notification in the 1fficial /a2ette# appoint.

*.3efinitions.- In this Act# unless the conte$t otherwise re4uires %a& court includes a tribunal and an arbitrator %b& current rate of interest means the highest of the ma$imum# rates at which interest may be paid on different classes of deposits %other than those maintained in sa0ings account or those maintained by charitable or religious institutions& by different classes of "cheduled ban5s in accordance with the directions gi0en or issued to ban5ing companies generally by the Reser0e Ban5 of India under the Ban5ing Regulation Act# !'6' %!7 of !'6'&. E$planation - In this clause# scheduled Ban5 means a ban5 # not being a .o-operati0e ban5 # transacting any business authorised by the Ban5ing Regulation Act# !'6' %!7 of !'6'& %c& debt means any liability for an ascertained sum of money and includes a debt payable in 5ind # but does not include a 8udgment debt %d& personal in8uries includes any diseases and any impairment of a person physical or mental condition %e& all other words and e$pression used herein but not defined and defined in the Reser0e Ban5 of India Act# !'-6 %* of !'-6& shall ha0e the meanings respecti0ely assigned to them in the Act.

-.Power of court to allow Interest.- %!& In any proceeding for the reco0ery of any debt or damage or in any proceedings in which a claim for interest in respect of any debt or damages already paid is made# the court may# if it thin5s fit # allow interest to the person entitled to the debt or damages or to the person ma5ing such claim# as the case may be# at a rate not e$ceeding the current rate of interest# for the whole or part of the following period# that is to say %a& If the proceedings relate to a debt payable by 0irtue of a written instrument at a certain time #then from the date when the debt is payable to the date of institution of the proceedings %b& if the proceedings do not relate to any such debt# then # from the date mentioned in this regard in a written notice gi0en by the person entitled or the person ma5ing the claim to the person liable that interest will be claimed to the date of institution of the proceedings: Pro0ided that where the amount of the debt or damages has been repaid before the institution of the proceedings# interest shall not be allowed under this section for the period after such repayment.

%*& 9here in any such proceedings as are mentioned in sub-section %!& :%a& 8udgment# order or award is gi0en for a sum which # apart from interest on damages# e$ceeds four thousand rupees# and %b& the sum represents or includes damages in respect of personal in8uries to the plaintiff or any other person or in respect of a person:s death. then # the power conferred by that sub-section shall be e$ercised so as to include in that sum interest on those damages or on such part of them as the court considers appropriate for the whole or part of the period from the date mentioned in the notice to the date of institution of the proceedings# unless the court is satisfied that there are special reasons why no interest should be gi0en in respect of those damages. %-&;othing in this "ection %a& shall apply in relation to:%i& any debt or damages upon which interest is payable as of right# by 0irtue of any agreement or %ii& any debt or damages upon which payment of interest is barred # by 0irtue of an e$press agreement %b& shall affect:%i& the compensation reco0erable for the dishonour of a bill of e$change# promissory note or che4ue# as defined in the ;egotiable instrument Act# !))!: or %ii& the pro0isions of rule * of 1rder II of the <irst "chedule to the .ode of .i0il Procedure# !'7) %c& shall empower to court to award interest upon interest. .omment: =nder certain circumstances e0en compound interest may be allowed by .ourts# especially when dealing with commercial or ban5 contracts. "ee Renusagar Power .o. >td. 0. /eneral Electric .o AIR !''6 "=PRE?E .1=RT )@7 6.Interest payable under certain enactments.- %!& ;otwithstanding anything contained in section -# interest shall be payable in all cases in which it is payable by 0irtue of any enactment or other rule of law or usage ha0ing the force of law. %*& ;otwithstanding as aforesaid# and without pre8udice to the generality of the pro0isions of sub-section %!&# the court shall# in each of the following cases# allow interest from the date specified below to the date of institution of the proceedings at such rate as the court may consider reasonable# unless the .ourt is satisfied that there are special reasons why interest should not be allowed# namely %a& where money or other property has been deposited as security for the performance of any obligation imposed by law or contract from the date of the deposit %b& where the obligation to pay money or restore any property arises by 0irtue of a fiduciary relationship from the date of the cause of action %c& where money or other property is obtained or retained by fraud# from the date of the cause of action %d& where the claim is of dower of maintenance# from the date of the cause of action. A."election -6 of the .ode of .i0il Procedure# !'7) to apply.- ;othing in this Act shall affect the pro0isions of section -6 of the .ode of .i0il Procedure# !'7) %A of !'7)&.

@.Repeal and sa0ing.- %!& As from the commencement of this act# the Interest Act# !)-' %-* of !)-'& and any other law corresponding thereto in force in any "tate immediately before such commencement shall stand repealed. %*& The pro0isions of this act# not apply to any suit or other legal proceeding pending at the commencement of this Act and the pro0isions of the corresponding law applicable immediately before such commencement shall# notwithstanding the repeal of such law by sub-section %!&# continue to apply to such suit or other legal proceeding. %-&The mention of particular matters in sub-section %*& shall not be held to pre8udice or affect the general application of section @ of the /eneral .lauses Act# !)'( %!7 of !)'(&# with regard to the effect of repeal.