Judicial Analysis of Interest Payment in Public Contract Dispute

Explore a judicial analysis of interest payment in a public contract dispute as the court navigates through complex legal principles to ensure fair treatment for all parties involved. This examination sheds light on the importance of legal clarity and non-arbitrariness in the conduct of public bodies, setting a precedent for future cases. Stay informed with this detailed overview of the court’s legal analysis and its implications on public contract law.


  • Asiatic Steel sought refund and filed a writ petition due to the Board’s failure to provide promised infrastructure and remove rocks hindering access to the plot.
  • The High Court directed the Board to refund the entire amount with 12% interest after Asiatic Steel abandoned the contract.
  • Asiatic Steel raised objections and requested rock removal multiple times before rescinding the contract.
  • The High Court granted Asiatic Steel 10% interest from 19.05.1998 to 15.04.2002, which the Board deposited as directed.
  • Asiatic Steel argued for interest from 22.03.1995 to 19.05.1998, amounting to ₹1,32,44,729/- at 10% interest p.a.
  • Similar bidders for other plots were refunded with interest, leading to discontent among bidders dissatisfied with the Board.
  • Asiatic Steel filed RTI queries to gather information on interest payments to other bidders who settled with the Board.
  • The High Court allowed the writ petition and directed the Board to pay interest for the period from 08.11.1994 to 19.05.1998.
  • The Board issued a tender notice on 02.08.1994 for allotment of plots at Sosiya for ship-breaking of VLCC/ULCC.
  • Asiatic Steel made the highest bid which was accepted and confirmed by the Board on 08.11.1994.
  • The High Court held that the Board was liable to pay reasonable interest for the period during which the money was retained.
  • The rate of interest was altered to 6% p.a. and the Board was directed to refund the earnest money and pay interest on the Principal from 08.11.1994 to 19.05.1998.
  • The interest amount was calculated to be ₹ 76,47,544/-.
  • The Board contended that the contract should be breached to pay compensation for any benefit received.
  • Sections 64 and 65 of the Indian Contract Act were referred to regarding return of benefit for void/voidable contracts.
  • The High Court examined the issue of quantification of interest and upheld the decision.
  • Asiatic Steel had claimed an interest of 10% initially and the Board had already refunded the entire amount to Asiatic Steel.

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  • The Law Commission recommended the omission of Section 80 due to hardships faced in obtaining immediate relief through injunctions.
  • The court questioned whether interest was payable from 24.03.1995 or 19.05.1998, highlighting the dispute’s crystallized issue.
  • Asiatic Steel’s awareness of the plot’s condition was a factor in judging its conduct with the Board’s inaction.
  • The Board’s response, or lack thereof, to Asiatic Steel’s refund demand was deemed arbitrary and unacceptable by the court.
  • The importance of fairness and non-arbitrariness in the conduct of public bodies like the Board was emphasized.
  • Asiatic Steel’s claim for interest was to be evaluated based on both parties’ conduct and the expectations of the Board as a state entity.
  • The unamended Section 80 was mandatory and explicit before the 1976 amendment, leading to the insertion of sub-sections (2) and (3).
  • Asiatic Steel approached the court for a refund and interest, filing a suit in 2001 due to lack of response from the Board.
  • The conduct of all successful bidders implied an expectation of receiving plots in usable conditions within a reasonable timeframe.
  • Asiatic Steel, along with other plot lessees, demanded refund of their amounts through a suit in 2001.
  • The behavior of deliberate inaction by the Board to force citizens or commercial concerns to approach the court rather than making a decision indicated discriminatory conduct.
  • The court referred to a decision of the Kerala High Court emphasizing that the State should meet honest claims, vindicate a substantial defense, and avoid unfair advantages or technical points in litigation.
  • The Court highlighted that the State, as a litigant, should prioritize settling disputes regardless of prestige or other motivations that drive private parties to engage in court battles.
  • Section 80 of the Code of Civil Procedure stipulates that suits cannot be filed against the Government or a public officer without prior notice, aiming to reduce unnecessary litigation.
  • Efforts were suggested to cut back on litigation volume by encouraging settlements and extinguishing pending proceedings on just terms.
  • The judicial system’s burden due to the rise in litigation cases, especially for trivial matters, was acknowledged, urging for a give-and-take attitude to prevent unnecessary cases from burdening the courts.
  • Mediation centers were mentioned as a means to alleviate court burdens, but the need for further efforts to reduce unnecessary litigation was underscored for the promotion of public good and the advancement of justice.
  • In cases where urgent and immediate relief is sought against the Government or a public officer, a suit can be instituted without serving notice.
  • The court cannot grant relief without giving the Government or public officer a reasonable opportunity to show cause.
  • If the court decides that no urgent relief should be granted, the plaint must be returned for compliance with notice requirements.
  • Sub-section (3) allows for substantial compliance with the notice requirement.
  • High Court directed payment of interest for the entire period from 08.11.1994 to 19.05.1998
  • Asiatic Steel did not pay the entire amount on 08.11.1994; the principal sum of $1,153,000/- was deposited on 24.03.1995

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  • The impugned judgment erred in directing payment of interest on the entire amount from 08.11.1994
  • The direction to pay interest on ₹3,61,20,000/- shall operate from 22.03.1995 to 19.05.1998
  • The appeal is dismissed with the modification indicated above

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Case Number: C.A. No.-003807-003807 / 2020

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