4/7/25, 8:15 PM THE INTEREST ACT 1978 AN OVERVIEW

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The Interest Act, 1978 (‘Act’ for short) was enacted by the Central Government during the year 1978.
GST - States Must Meet Stric
This act was enacted to consolidate and amend the law relating to the allowance of interest in certain
cases. The Act was extended to the whole of India except the State of Jammu and Kashmir. Vide H: SEBI Manda
Customs Standardized S
Notification No. SO 3912 (E), dated 30.10.2019 this Act is applicable all over India including Jammu
Foreign Trade Policy and Kashmir. H: Polyethylene
Special Economic Zone Clarified: No SC
Interest
H: RBI Sets For
Foreign Exchange Management If any agreement the repayment of the money is delayed interest is payable by the party to the other Investment Lim
party who has given the money as loan. In respect of tax matters if the tax is not paid within the due T: Taxpayers M
Company Laws
date interest is automatic. The interest is treated as the compensation payable to the tax department Unexplained Inv
for belated payment.
Securities and Exchange Board of F: Legal Option
India Power of Court Investing in US

Insolvency & Bankruptcy Code F: Manufacturin

Section 2(a) of the Act defines the term ‘Court’ as including a Tribunal and an arbitrator. Section 3 of Navigating SKD
LLP/ Trusts/ Societies
the Act provides that in any proceedings for the recovery of any debt or damages 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 F: Hospital See
GST Registratio
Indian Laws thinks fit, allow interest to the person entitled to the debt or damages or to the person making such
claim at a rate not exceeding the current rate of interest, for the whole or part of the following period, - F: Export Progr
Wealth Tax Services: GST
In case of a debt by written instrument, then interest is payable is from the date when the debt is C: Interactive F
payable to the date of institution of the suit; Displays Face N
Service Tax

Central Excise In case of other than debt the interest is payable from the date mentioned in the written notice N: Government
given by the person entitled or the person making the claim to the person liable to the date of Duty Rates for S
institution of the proceedings. A: Cheque Disc
Delhi VAT
Dispute: Minor
Central Sales Tax If the amount or damages have been paid before the institution of the proceedings, then no interest ↑
A: Tax-Exempt
shall be payable. Top
Simplified: 80G
Where, in any such proceedings-

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4/7/25, 8:15 PM THE INTEREST ACT 1978 AN OVERVIEW

judgment, order or award is given for a sum which, apart from interest on damages, exceeds four A: Government
Official Swachh
thousand rupees; and
A: Importers Fa
the sum represents or includes damages in respect of personal injuries-
Penalties for De

A: Green Urban
to the plaintiff or any other person, or
Revolutionizes
in respect of a person’s death,
A: Digital Trade
Systems Revolu
then, the power conferred by that sub-section shall be exercised 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 A: Global Autom
Revolutionize In
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 given in respect of those A: Modernizing
damages. Decriminalizing

A: Trade Policy
Interest on interest
Strategic Expor

The Court is empowered to award the interest on interest. A: Worker Safe

Mandate Comp
Debt
H: Transfer Pric
The term ‘debt’ is defined under section 2(c) of the Act as any liability ascertained sum of money and ITAT Validates C
includes a debt payable in kind but does not include a judgment debt. H: Legal Appea
Signature Valida
Current rate of interest
H: Taxpayers C
The expression ‘current rate of interest’ is defined under section 2(b) of the Act as the highest of the Technical Errors
maximum rates at which interest may be paid on different classes of deposits (other than those
maintained in savings account or those maintained by charitable or religious institutions) by different
classes of scheduled banks in accordance with the directions given or issued to banking companies
generally by the Reserve Bank of India under the Banking Regulation Act, 1949.

Interest payable under certain circumstances

The interest shall be payable in all cases in which it is payable by virtue of any enactment or other rule
of law or usage having the force of law. 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 court is satisfied that there are special reasons why interest should not
be allowed-

where money or other property has been deposited as security for the performance of an
obligation imposed by law or contract, from the date of the deposit;

where the obligation to pay money or restore any property arises by virtue of a fiduciary
relationship, from the date of the cause of action;

where money or other property is obtained or retained by fraud, from the date of the cause of
action;

where the claim is for dower or maintenance, from the date of the cause of action.

Non applicability of section 3

The provisions of Section 3 of the Act shall not apply to-

any debt or damages upon which interest is payable as of right, by virtue of any agreement; or

any debt or damages upon which payment of interest is barred, by virtue of an express
agreement.

The provisions of Section 3 shall not have effect-

the compensation recoverable for the dishonor of a bill of exchange, promissory note or cheque,
as defined in the Negotiable Instruments Act, 1881;

the provisions of rule 2 of Order II of the First Schedule to the Code of Civil Procedure, 1908.

Non applicable to Section 34 of CPC

↑
The provisions of this Act shall not be applicable to Section 34 of Civil Procedure Code. Section 34 of Top
CPC provides for the decree for execution of document or endorsement of negotiable instrument.

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4/7/25, 8:15 PM THE INTEREST ACT 1978 AN OVERVIEW
Section 34 provides that where a decree is for the execution of a document or for the endorsement of a
negotiable instrument and the judgment-debtor neglects or refuses to obey the decree, the decree-
holder may prepare a draft of the document or endorsement in accordance with the terms of the
decree and deliver the same to the Court. Then the Court shall there upon cause the draft to be served
on the judgment-debtor together with a notice requiring his objections, if any, to be made within such
time as the Court fixes in this behalf.

Where the judgment-debtor objects to the draft, his objections shall be stated in writing within such
time, and the Court shall make such order approving or altering the draft, as it thinks fit. The decree-
holder shall deliver to the Court a copy of the draft with such alterations, if any, as the Court may have
directed upon the proper stamp-paper if a stamp is required by the law for the time being in force. The
Judge or such officer as may be appointed in this behalf shall execute the document so delivered. The
execution of a document or the endorsement of a negotiable instrument under this rule may be in the
following form, namely:—

“C. D., Judge of the Court of, (or as the case may be),

for A. B., in a suit by E. F against A. B.”,

and shall have the same effect as the execution of the document or the endorsement of the negotiable
instrument by the party ordered to execute or endorse the same.

Where the registration of the document is required under any law for the time being in force, the Court,
or such officer of the Court as may be authorized in this behalf by the Court, shall cause the document
to be registered in accordance with such law. Where the registration of the document is not so
required, but the decree-holder desires it to be registered, the Court may make such order as it thinks
fit. Where the Court makes any order for the registration of any document, it may make such order as it
thinks fit as to the expenses of registration.

Repeal

From the commencement of this Act, the Interest Act, 1839 and any other law corresponding thereto in
force in any State immediately before such commencement shall stand repealed.

By: DR.MARIAPPAN GOVINDARAJAN - October 10, 2024

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