Case Name: The Kerala Water Authority & Ors. v. T.I. Raju & Ors. (2026)
The Hon’ble Supreme Court underscored a critical question of Law, i.e., whether, under the Interest Act, 1978, a claim for interest on delayed payments can be sustained when a specific clause in a preliminary agreement expressly prohibits such claims, and whether Section 34 of the Civil Procedure Code (CPC) can override such contractual prohibitions or the exceptions contained in Section 3(3) of the Interest Act.
The facts of the case were that the respondent, T.I. Raju, a Government Contractor, entered into a preliminary agreement dated 30.04.2013 with the Kerala Water Authority for the construction of a Sewage Treatment Plant. Although the work was completed on 07.07.2014, the principal sum due was only released by 02.03.2016 following a Writ Petition before the Hon’ble High Court. Subsequently, the respondent filed a suit for recovery of interest at 14% per annum for this period of delayed payment. The trial court decreed the suit, and the Hon’ble High Court, while partly allowing an appeal, modified the decree to an interest rate of 9% per annum.
The Hon’ble Supreme Court held that since Clause (5) of the preliminary agreement specifically stated that “No claims or interest for damages whatsoever shall be made for the belated settlement of claims of bill,” the parties were bound by these settled terms. The Court observed that the Hon’ble High Court failed to consider the exception under Section 3(3) of the Interest Act, 1978, which respects contractual agreements regarding interest. Furthermore, the Hon’ble Supreme Court clarified that Section 34 of the CPC merely speaks to the rate of interest and cannot be interpreted to have an overriding effect on the specific exceptions provided in the Interest Act.
The significance of this case lies in its interpretation of procedural law and its impact on judicial efficiency. The Hon’ble Supreme Court’s decision underscores the principle that when parties have voluntarily agreed to contractual terms—particularly in public projects where fund availability may be contingent on budget provisions—they must abide by those terms. By affirming that contractual prohibitions on interest are binding, the Court reinforces the sanctity of contracts and ensures that procedural mechanisms under the Interest Act or CPC do not bypass the expressed intent of the contracting parties.