The Kerala High Court has clarified that when a sale agreement fails due to the seller’s default, the buyer is entitled to interest on the advance payment from the very date it was made - not merely from the date of filing suit. This ruling reinforces the principle that unjust enrichment must be remedied with full compensation for the time value of money.
Background & Facts
The Dispute
The plaintiff, Saji, entered into an agreement for sale with the defendants, Krishna Kumar and Uma Baiju, on 14.09.2009, for the purchase of two properties described in Schedule A and B of the plaint. The agreed consideration was Rs. 1,00,000 per cent. On the same date, the plaintiff paid Rs. 25,00,000 as advance sale consideration. The agreement, marked as Ext.A5, stipulated a performance period of three months.
Key Facts
- The agreement (Ext.A5) was executed on 14.09.2009
- The plaintiff paid Rs. 25,00,000 as advance on 14.09.2009
- The defendants failed to execute the sale deed within the stipulated three-month period
- The plaintiff filed the suit for specific performance on 20.01.2011
- The suit also included an alternative prayer for return of the advance amount with interest
- The property was subject to impending acquisition proceedings by Punalur Municipality for Ramavarmapuram Market expansion, which rendered specific performance impossible
Procedural History
- 14.09.2009: Execution of Ext.A5 agreement and payment of Rs. 25,00,000 advance
- 20.01.2011: Suit filed before Sub-Court, Kottarakkara (OS No. 20 of 2011)
- 24.06.2015: Trial court decreed alternative relief for return of advance with interest at 6% per annum from date of suit (20.01.2011)
- 05.06.2026: Regular First Appeal (RFA No. 539 of 2015) heard and decided by Kerala High Court
The Parties' Positions
The plaintiff contended that the defendants had unjustly retained Rs. 25,00,000 for over six years without delivering the property, and therefore owed interest from the date of payment. The defendants remained ex parte throughout the proceedings and did not file any written statement or appear in court.
Relief Sought
The plaintiff sought modification of the trial court’s decree to grant interest on the advance amount of Rs. 25,00,000 at a reasonable rate from 14.09.2009 (date of payment) until realization, rather than from the date of filing suit.
The Legal Issue
The central question was whether a buyer who has paid advance consideration under an agreement for sale, but is denied performance due to the seller’s default, is entitled to interest on that advance from the date of payment, and if so, at what rate.
Arguments Presented
For the Appellant/Petitioner
The learned counsel for the appellant argued that the defendants had been in continuous possession of Rs. 25,00,000 since 14.09.2009, and had derived unjust enrichment from the use of these funds. He relied on the principle that interest is a natural consequence of wrongful retention of money, and that the trial court’s refusal to grant interest from the date of payment was contrary to equity and the doctrine of restitution. He cited State of Haryana v. M/s. S. R. Aggarwal & Co. to support the proposition that interest should run from the date of unjust enrichment.
For the Respondent/State
The respondents remained ex parte and did not file any written submissions or appear before the High Court. No counter-arguments were presented.
The Court's Analysis
The Court observed that the defendants had received Rs. 25,00,000 on 14.09.2009 and had failed to perform their contractual obligation. The trial court had rightly declined specific performance due to the impending acquisition, but erred in limiting interest to the period from the date of filing suit. The Court held that the defendants had been in wrongful possession of the advance amount for over six years before the suit was filed, and that equity demands compensation for the time value of money.
"There is no reason to disallow such claim of the plaintiff. It is held that the plaintiff is entitled for interest on the advance amount, from the date of its payment (14.09.2009)."
The Court further examined the prevailing banking interest rates and determined that a tiered interest structure was appropriate: 9% per annum from 14.09.2009 until the date of filing the suit (20.01.2011), reflecting the commercial rate during that period, and 6% per annum thereafter, aligning with the trial court’s original award. This approach balances the plaintiff’s loss during the pre-litigation period with the judicial norm for post-filing interest.
The Court emphasized that the principle of restitution under Section 70 of the Indian Contract Act, 1872 applies even in the absence of a valid contract, where one party has been enriched at the expense of another.
The Verdict
The appeal was allowed in part. The Kerala High Court modified the trial court’s decree to grant interest on the advance amount of Rs. 25,00,000 at 9% per annum from 14.09.2009 until 20.01.2011 (date of filing of suit), and thereafter at 6% per annum until realization. The trial court’s decree on return of the advance amount was affirmed. The appellant was awarded proportionate costs throughout.
What This Means For Similar Cases
Interest Must Run from Date of Payment in Breach of Sale Agreements
- Practitioners must now assert interest claims from the date of advance payment in all suits for breach of sale agreements, not merely from the date of filing
- Courts are expected to apply tiered interest rates reflecting commercial norms during pre-litigation and post-filing periods
Unjust Enrichment Triggers Restitution Even Without Specific Performance
- The judgment reinforces that Section 70 of the Indian Contract Act applies independently of whether specific performance is granted
- Where a seller retains advance payment without delivering property, restitutionary liability arises automatically
Pre-Litigation Interest Is Not Discretionary but Entitled
- Courts cannot deny interest for the pre-suit period merely because the suit was filed late
- The burden shifts to the defendant to show why interest should not run from the date of receipt
- In ex parte cases, courts must still examine the merits of the interest claim on equitable grounds
