Section 3 of The Interest Act, 1978 : Section 3: Power Of Court To Allow Interest

Explanation using Example

Imagine that Mr. Sharma lent Rs. 50,000 to Mr. Gupta on January 1, 2020, according to a written agreement which stated that the amount was to be repaid by January 1, 2021. Mr. Gupta failed to repay the debt on the due date, and Mr. Sharma sent a written notice on February 1, 2021, informing Mr. Gupta that he would be claiming interest on the overdue debt starting from the due date. Mr. Sharma then decides to file a lawsuit to recover his debt on July 1, 2021.

In this case, under Section 3(1)(a) of The Interest Act, 1978, the court has the discretion to allow Mr. Sharma interest on the Rs. 50,000 from January 1, 2021 (the date the debt was due) to July 1, 2021 (the date of institution of the proceedings) if it sees fit. However, if Mr. Gupta had repaid the principal amount before Mr. Sharma filed the lawsuit, then under the proviso to Section 3(1), Mr. Sharma would not be entitled to interest for the period after the repayment.