Right to Interest as Compensation for Money Deprivation Under Doctrine of Restitution : Supreme Court
The Hon'ble Supreme Court of India, in the case of Dr. Poornima Advani & Anr. v. Government of NCT & Anr., reaffirmed that a person who is deprived of the use of money to which they are legitimately entitled has the right to be compensated in the form of interest.
Judicial Interpretation of Interest as Compensation
The Court emphasized that interest serves as compensation for the unjust enrichment of one party at the expense of another without legal justification. The judgment highlighted:
"Thus, when a person is deprived of the use of his money to which he is legitimately entitled, he has a right to be compensated for the deprivation which may be called interest or compensation. Interest is paid for the deprivation of the use of money in general terms which has returned or compensation for the use or retention by a person of a sum of money belonging to another."
The Court further stated that money received and retained without legal right carries with it an obligation to pay interest. Citing Union of India through Director of Income Tax v. Tata Chemicals Ltd. (2014) 6 SCC 335, the Court held:
"There being no express statutory provision for payment of interest on the refund of excess amount/tax collected by the Revenue, the Government cannot shirk its obligation to reimburse the deductors' lawful monies with accrued interest for the period of undue retention."
Case Background
A bench comprising Justices JB Pardiwala and R Mahadevan heard the case, which revolved around the wrongful deprivation of an e-stamp paper amounting to ₹28,10,000, purchased by the appellant for acquiring a property. Due to the broker misplacing the e-stamp paper, the appellant had to purchase another, resulting in a delay in the property transaction.
Following the loss, the appellant lodged a police complaint and published a newspaper notice regarding the missing e-stamp paper. Subsequently, an application was filed before the Collector seeking a refund of the lost e-stamp amount. However, the Collector of Stamps rejected the refund request, prompting the appellant to approach the High Court.
While the High Court directed a refund of the e-stamp amount, it denied the appellant’s request for interest on the delayed refund. Aggrieved by this decision, the appellant appealed to the Supreme Court, asserting that the doctrine of restitution entitled them to compensation in the form of interest.
Supreme Court’s Decision
The Supreme Court found merit in the appellant’s argument and held that interest should be awarded as part of the doctrine of restitution, which mandates restoring to a party what has been lost due to wrongful retention of money.
Defining the concept of restitution, the Court observed:
"If on facts of a case, the doctrine of restitution is attracted, interest should follow. Restitution in its etymological sense means restoring to a party on the modification, variation, or reversal of a decree or order what has been lost to him in execution of decree or order of the Court or in direct consequence of a decree or order."
The Court noted that interest is a natural accretion on capital and a necessary compensation for the deprivation of funds. Citing precedents such as Authorised Officer Karnataka Bank v. M/s R.M.S. Granites Pvt. Ltd. and Secretary, Irrigation Department, Government of Orissa v. G.C. Roy (1992) 1 SCC 508, the Court upheld the appellant’s right to interest on the refunded amount.
Directions to the Respondents
The Supreme Court directed the respondents to pay an amount of ₹4,35,968 towards interest within two months. This ruling reaffirms the principle that wrongful retention of money warrants compensation, ensuring financial justice to the rightful claimant.