The Interest Act, 1978

Summary of the Interest Act, 1978

1. Objective

• To enable courts to award interest on debts or damages for the period before a lawsuit is filed (pre-suit interest), in appropriate cases.

• To ensure fairness by compensating a person who has been deprived of money that was due to them.

2. Scope

• Applies throughout India.

• Covers proceedings before courts and certain tribunals or arbitrators that function like courts.

3. Key Definitions

• Court: Includes tribunals and arbitrators in specified circumstances.

• Current rate of interest: The highest of the maximum lending rates of scheduled banks as notified according to the Act.

4. Power of Courts to Award Interest

A court may award interest if:

• A debt or a specific sum of money was payable at a certain time.

• The payment was wrongfully withheld.

• There is no contractual or statutory provision governing interest.

• Interest is awarded at a rate not exceeding the current rate of interest.

5. Interest Before Institution of Suit

Interest may be awarded:

• From the date the debt became payable until the date the suit is filed.

• If the amount is payable by virtue of a written instrument, from the date specified in the instrument.

• In other cases, from the date a written notice demanding payment is served, provided the notice states that interest will be claimed.

6. Saving of Existing Rights

The Act does not affect:

• Any right to recover interest under a contract.

• Interest payable under any other law.

• The powers of courts under other statutes, such as the Code of Civil Procedure, 1908 (particularly Section 34 regarding interest after the institution of a suit).