In M/s.Meenakshi Pharma Distributors V.
State of Karnataka and others (AIR 1999 Karnataka
192), the State of Karnataka purchased medicines from
the plaintiff for the purpose of distribution among
government hospitals. The parties agreed that rate of
interest will be 15% per annum on the amount due. In
the suit filed by the supplier of medicines, the trial court
awarded interest only at the rate of 6% per annum from
the date of suit till the date of realisation. Challenging
the same, the plaintiff (supplier) filed appeal. Dismissing
the appeal, the Karnataka High Court held thus:-
“ the definition of the commercial transaction has to be
taken in conjunction with the person against whom the
liability has arisen. The person who has incurred the
liability is not the person who is the claimant of the money
or interest. It means when we have to judge the
commercial transaction, it has to be looked into whether
the person incurring the liability under the transaction has
incurred the liability in the context of trade or business or
industry. The respondent in this case purchased medicines
from the plaintiff - appellant and incurred the liability for
sums claimed. In ordinary course, Government purchases
medicines for being distributed among the Government
Hospitals. In Government Hospitals, the medicines are
provided to the ordinary people, common people as well as
to those who are down-trodden and for the betterment of
the people. By examining the nature of transaction it
cannot be said to be connected with any industry, trade or
business of the party who has incurred the liability, and
cannot be said to be commercial transaction as the
Government's Health Department purchased the same to
supply the medicines to various Government Hospitals for
the benefit of citizens and to be provided to common
persons subjected to various ailments.
Therefore, in my opinion, this transaction cannot be
termed as a commercial transaction. In this view of the
matter, the proviso of Section 34 will not be applicable to
the present transaction because when the medicines have
been purchased by the Government, it is nobody's case
that they were purchased to sell. It is no doubt that
Government purchases medicines to provide them to the
Government Hospitals for the welfare of the people as it
is the duty and responsibility of the Government to
ensure public health i.e the duty of the State under the
Constitution of India”.
IN THE HIGH COURT OF KERALA AT ERNAKULAM
PRESENT:
THE HONOURABLE MR.JUSTICE K.T.SANKARAN
&
THE HONOURABLE MR. JUSTICE P.D.RAJAN
THURSDAY, THE 16TH DAY OF OCTOBER 2014
AS.No. 533 of 2000 ( )
-----------------------
THE SUPERINTENDING ENGINEER,
Vs
m p varghese
Citation;AIR 2015(NOC)530 kerala
The question which arises for consideration in this
appeal is whether the State of Kerala would be liable to
pay future interest on the decree amount above 6% per
annum in respect of a contract entered into between the
Government and the respondent for the construction
work of main canal of Kallada Irrigation Project.
2. The respondent filed the suit for settlement of
accounts in respect of the amounts claimed as due from
the State. The suit was filed in the year 1982. The trial
court passed a preliminary decree dated 24.9.1984. The
plaintiff was found to be entitled to cost of certain
blasting works at certain rates. It was also found that
the quantity of the rock blasted below certain level as
noted by the expert Commissioner is acceptable. The
cost of the quantity of work was directed to be worked
out in the final decree proceedings. The
As 533/2000 2
respondent/plaintiff was directed to apply for passing of a
final decree and for appointment of an expert
Commissioner to work out and ascertain the actual
amount due to the respondent/plaintiff on settlement of
accounts in respect of the work mentioned in the
preliminary decree. The respondent/plaintiff was held
entitled to proportionate cost on ascertaining the actual
amount found due from the defendants. With respect to
interest, the preliminary decree also provides thus;
“Interest will be provided in the final decree”
3. The respondent/plaintiff applied for final decree. An
expert Commissioner was appointed who filed report and
account. Appellants/defendants did not raise any
objection against the Commissioner's report. The court
below passed a final decree dated 22.7.1999 holding that
the plaintiff is entitled to realise a sum of Rs.4,59,455/-
with interest at 12% per annum thereon from the date of
suit till realisation with costs. The court below noticed
that though the claim of the plaintiff was for granting
interest at 19.4% per annum, there is no provision for
As 533/2000 3
granting such interest in the preliminary decree. The
court below awarded interest at 12% per annum on the
ground that the transaction between the
respondent/plaintiff and the appellants/defendants was
commercial in nature.
4. The only contention raised in the Memorandum of
Appeal is that the transaction between the parties is not a
commercial transaction and therefore the court below was
not justified in granting interest at 12% per annum from
the date of the suit till realisation.
5. The learned Government Pleader submitted that
going by Explanation II to the proviso to section 34(1) of
the Code of Civil Procedure (for short CPC), a transaction
can be termed as a commercial transaction, only if it is
connected with industry, trade or business of the party
incurring the liability. It is submitted that in the present
case, the party incurring the liability being the
appellants/defendants, it must be established that the
contract awarded to the plaintiff was connected with the
industry, trade or business of the appellants/defendants.
As 533/2000 4
The irrigation project is not a commercial venture of the
Government and therefore it cannot be termed as a
commercial transaction. The learned Government Pleader
relied on the decisions in M/s.Meenakshi Pharma
Distributors V. State of Karnataka and others (AIR
1999 Karnataka 192), Dena Bank, Ahmednagar V.
Prakash Birbhan Kataria and others (AIR 1994
Bombay 343) and Andra Pradesh State Trading
Corporation Ltd V. G.V.Mallareddi and company
(2010 AIR SCW 6337).
6. To comprehend the contentions put forward, it
would be appropriate to extract Section 34 of CPC. It
reads as under:-
“Interest - (1) Where and in so far as 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:
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
As 533/2000 5
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.
Explanation I - In this sub-section, “nationalised bank”
means a corresponding new bank as defined in the
Banking Companies (Acquisition and Transfer of
Undertakings) Act, 1970 (5 of 1970).
Explanation II - For the purposes of this section, a
transaction is a commercial transaction, if it is connected
with the industry, trade or business of the party incurring
the liability.
(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”.
7. In the case of a decree for payment of money, in
the absence of a contract between the parties with
respect to rate of interest, the court has jurisdiction to be
order interest at such rate as the court deems reasonable
to be paid from the date of the suit to the date of the
decree. For the period prior to the suit to the date of
institution of the suit, interest can be adjudged on the
principal sum at such rate as may be agreed upon
between the parties. Further interest can be awarded
from the date of decree to the date of payment under
Section 34 of CPC at such rate not exceeding 6% per
annum as the court deems reasonable. The proviso to
As 533/2000 6
sub-section (1) of Section 34 of CPC states that where
the liability has arisen out of a commercial transaction,
the rate of further interest may exceed 6%, 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. What is commercial transaction is explained
in explanation II to the proviso.
8. The question which arises for consideration is
whether the transaction in question is a commercial
transaction as mentioned in the proviso to sub-section (1)
of Section 34 read with explanation II thereof. While
explaining what is commercial transaction, it is confined
to industry, trade or business and not to profession or
service or constitutional or legal duty of the party
incurring the liability. Whether a transaction is a
commercial transaction or otherwise is determined with
reference to the person incurring the liability. In other
words, the question is whether the person incurring the
liability is involved in industry, trade or business in
As 533/2000 7
respect of the transaction in question. It is not sufficient
if the person who claims for passing a money decree in
his favour is engaged in any industry, trade of business,
in order to attract the proviso to sub-section (1) of
Section 34 of CPC. Whether or not the person claiming
money is involved in any industry, trade or business, but
the person incurring the liability is engaged in any
industry, trade or business, it can be treated as a
commercial transaction within the meaning of the proviso
to sub-section (1) of Section 34 of CPC. The activity of
the Government in respect of the contract in question was
construction of a canal for Kallada Irrigation Project. The
Government was not engaged in any industry, trade or
business while establishing the project. There is no case
that the Government indulged in the activity in question
to make profit. It was part of the duty of a welfare State
to provide irrigation facilities to the general public. In
implementing such duty, the Government entered into a
contract with the respondent/plaintiff for construction of
the canal. It may be true that the respondent/plaintiff is
As 533/2000 8
involved in industry, trade or business in the matter of
execution of the contract. It may also be true that the
respondent/plaintiff would be expecting a profit in
executing the work. But that is not the test to be applied
to ascertain whether the transaction is a commercial
transaction within the meaning of the proviso to subsection
(1) of Section 34 of CPC. The question to be
answered is whether in the implementation of the project,
the party incurring the liability, namely, the Government
was involved in any industry, trade or business in respect
of the transaction in question. Evidently, the Government
was not indulging in any profit making venture in
commissioning the project or construction of the canal
thereof. Therefore, we are of the view that the
transaction in question is not a commercial transaction
within the meaning of the proviso to sub-section (1) of
Section 34 of CPC giving jurisdiction to the court to award
interest in excess of 6% per annum from the date of the
decree to the date of the payment.
9. In Dena Bank, Ahmednagar V.Prakash
As 533/2000 9
Birbhan Kataria and others (AIR 1994 Bombay
343), Dena Bank granted loan to the respondent for the
purpose of constructing a hospital and for purchasing
machinery and equipments for the hospital. The bank
filed suit for realisation of amounts due as per the loan
account. The suit was decreed. However, interest was
granted at the rate of 6% per annum from the date of the
suit till realisation. Dena Bank filed appeal and contended
that the transaction was a commercial transaction and
therefore the proviso to section 34(1) of CPC would apply.
The Bombay High Court held thus:-
“ In view of this, “profession” will have to be
treated as different from “industry”, “trade”, and
“business”. There is a clear distinction between
the profession on one hand, and industry, trade
and business on the other. While dealing with
the 'commercial transactions' for the purpose of
Section 34, C.P.C, the Legislature has not used
the word “ profession” along with the words,
“industry”, trade, or “business”. The
commercial transactions which are strictly
connected with the industry, trade or business
alone are included for the purposes of Section
34, C.P.C as provided in Explanation II. Though
the “commercial transaction” is inclusive of
“industry, trade and business”, but it is exclusive
of “profession”. The fact that the Legislature has
not included the word “profession” along with
the words, “industry, trade and business” to
specify the “commercial transaction” cannot be
ignored. The proviso to Section 34, C.P.C, will,
As 533/2000 10
therefore, not govern the cases where the loan
is advanced for the “profession” or for
“professionsal transactions”.
10. In M/s.Meenakshi Pharma Distributors V.
State of Karnataka and others (AIR 1999 Karnataka
192), the State of Karnataka purchased medicines from
the plaintiff for the purpose of distribution among
government hospitals. The parties agreed that rate of
interest will be 15% per annum on the amount due. In
the suit filed by the supplier of medicines, the trial court
awarded interest only at the rate of 6% per annum from
the date of suit till the date of realisation. Challenging
the same, the plaintiff (supplier) filed appeal. Dismissing
the appeal, the Karnataka High Court held thus:-
“ the definition of the commercial transaction has to be
taken in conjunction with the person against whom the
liability has arisen. The person who has incurred the
liability is not the person who is the claimant of the money
or interest. It means when we have to judge the
commercial transaction, it has to be looked into whether
the person incurring the liability under the transaction has
incurred the liability in the context of trade or business or
industry. The respondent in this case purchased medicines
from the plaintiff - appellant and incurred the liability for
sums claimed. In ordinary course, Government purchases
medicines for being distributed among the Government
Hospitals. In Government Hospitals, the medicines are
As 533/2000 11
provided to the ordinary people, common people as well as
to those who are down-trodden and for the betterment of
the people. By examining the nature of transaction it
cannot be said to be connected with any industry, trade or
business of the party who has incurred the liability, and
cannot be said to be commercial transaction as the
Government's Health Department purchased the same to
supply the medicines to various Government Hospitals for
the benefit of citizens and to be provided to common
persons subjected to various ailments.
Therefore, in my opinion, this transaction cannot be
termed as a commercial transaction. In this view of the
matter, the proviso of Section 34 will not be applicable to
the present transaction because when the medicines have
been purchased by the Government, it is nobody's case
that they were purchased to sell. It is no doubt that
Government purchases medicines to provide them to the
Government Hospitals for the welfare of the people as it
is the duty and responsibility of the Government to
ensure public health i.e the duty of the State under the
Constitution of India”.
11. In A.P State Trading Corporation Ltd V. G.V.
Malla Reddy & Co. (2010 AIR SCW 6337), the Supreme
Court held thus:-
“ The award of the Arbitrator is governed by the Arbitration
Act, 1940. This court has been consistently taking a view
that in the absence of any specific contract in regard to
rate of interest, pendente lite and future interest should
not normally exceed 9% per annum. (See State of
Rajasthan & Another V. Ferro Concrete Construction Pvt.
Ltd (2009 (12) SCC)”.
12. In Hubli Dharwad Municipal Corporation
V.Ravi P Tiwari ( Laws(KAR)-1998-6-62, KantLJ-1998-
5-560), the Municipal Corporation entered into a contract
with a private party for construction of residential house
As 533/2000 12
for persons belonging to economically weaker section.
The Municipal Corporation had to supply cement to the
Contractor for execution of the work. The Municipal
Corporation failed to supply the same and the Contractor
procured the cement from private party. The question
whether the Contractor was entitled to interest above 6%
from the date of decree was considered by the Karnataka
High Court and it was held that the Contract does not
relate to trade or business. It was held:-
“ It is the duty of the state authorities,
including the state to see that people may get
the shelter or roof to save their self from hot
sun, from the rains and the vagaries of nature
as well. But it cannot be said to be business of
the corporation. Their duty is to provide cheap
cost house. So this is a welfare activity, it
cannot be said to be trade or industry or
business”.
The aforesaid decisions would support the view which we
have taken in paragraph 8 of this judgment.
13. We are of the view that interest at 9% per annum
could be awarded against the appellants/defendants from
As 533/2000 13
the date of the suit till the date of the decree, and at 6%
per annum from the date of decree till realisation, on the
principal amount of Rs.4,59,455/- . Accordingly, the
appeal is allowed in part and the final decree passed by
the court below is modified as follows.
The respondent/plaintiff is granted a decree for
realisation of Rs.4,59,455/- together with interest
thereon at 9% per annum from the date of the suit till
the date of decree and at the rate of 6% per annum from
the date of decree till realisation. No order as to costs.
K.T.SANKARAN, JUDGE
P.D.RAJAN, JUDGE
lgk
As 533/2000 14
K.T.SANKARAN &
P.D.RAJAN, JJ
A.S.No.533 of 2000
JUDGMENT
16th October, 2014
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