Authority: High Court of Gujarat at Ahmedabad

Order Date: 16/09/2026

Case Overview

  • Parties: Plaintiff‑respondent Dwarka Cement Works Ltd. (supplier of cement) vs. State of Gujarat (appellant) represented by the Irrigation Department.
  • Background: Under a tender dated 02‑May‑1988, Dwarka Cement Works supplied 50,000 MT of cement to the State’s Irrigation Department for various construction projects. The contract price was Rs 5,43,96,823/‑; the State paid Rs 5,12,35,855/‑, leaving an alleged outstanding amount of Rs 31,60,966.93/‑.
  • Original Suit: Special Civil Suit No. 163 of 1995 was filed on 12‑Jul‑1991. The Additional Senior Civil Judge, Gandhinagar, decreed that the State must pay the principal amount of Rs 31,60,966.63/‑ with interest:
  • Pre‑suit interest at 15% p.a. for two years (Rs 9,48,000/‑).
  • Pendente‑lite interest at 18% p.a. on principal + pre‑suit interest until Dec 2000.
  • Post‑decree interest at 15% p.a. until realization.
  • Appeal: The State appealed, contending that:
  • No contractual rate of interest existed; therefore pre‑suit, pendente‑lite and post‑decree interest should be limited.
  • The trial court’s calculation of pre‑suit interest (Rs 9,48,000) was arbitrary.
  • Post‑decree interest of 15% exceeded the 6% ceiling for commercial transactions under Section 34 CPC.
  • Counsel Arguments: State counsel Mr. Bhavesh Desai (AGP) argued for reduction of all interest components; respondent counsel Mr. H. J. Karathiya defended the trial court’s discretion, citing commercial nature of the tender and equitable considerations.
  • Legal Framework: The court examined Section 34 of the Code of Civil Procedure, which allows discretionary award of interest but caps post‑decree interest at 6% p.a. unless a contractual rate or bank‑lending rate applies. Recent Supreme Court precedents (e.g., I.K. Merchants Pvt. Ltd. vs. State of Rajasthan 2025; Tomorrowland Ltd. vs. HUDCO 2025) were referenced regarding equitable discretion.

Final Outcome

  • The appellate court partly allowed the appeal and modified the interest component of the decree:

1. Pre‑suit interest of Rs 9,48,000 @15% for two years is set aside.

2. Pendente‑lite interest: Simple interest at 12% per annum on the principal Rs 31,60,966.63/‑ from the date of suit filing (12‑Jul‑1991) to the date of decree (19‑May‑2009).

3. Post‑decree interest: Simple interest at 6% per annum on the same principal from the decree date (19‑May‑2009) until actual recovery.

4. The principal amount of Rs 31,60,966.63/‑ remains unaltered.

  • The decree and judgment are to be re‑drawn to reflect these modifications, and the case is remanded to the trial court for execution.

Topics: Interest Award, Civil Procedure, Construction Contracts