Judgment :- John Mathew, J. What is the rate of interest payable when the parties agree to pay bank interest? 2. This question arises in this appeal filed by the plaintiffs in a suit for money where the lower court granted only 5% interest per annum. The 1st defendant is the brother of the 1st plaintiff. The 2nd plaintiff is 1st plaintiff's son. The 2nd defendant is 1st defendant's wife. The plaint schedule property was acquired by the 1st plaintiff and defendants 1 and 2 along with the deceased wife of the 1st plaintiff for establishing an unaided English Medium Residential School. The School was established in the name and style 'St. John's Residential School'. The 1st plaintiff was the Headmaster of the school and the 1st defendant was the manager of the school. 1st plaintiff's wife died. The 2nd plaintiff is their only son. Differences of opinion arose between the 1st plaintiff and the 1st defendant. Those differences were settled through the mediation of some persons as per Ext.A5 settlement dated 14-8-1984. Under the agreement the plaintiff agreed to assign his rights over the plaint schedule items in favour of the defendants for a sum of Rs.5 lakhs, even though the plaintiffs estimated the value of their right at Rs.7.5 lakhs. The defendants agreed to pay Rs.2 lakhs on or before 14-10-1984 and the balance amount of Rs.3 lakhs within a period of 11/2 years together with interest at bank rate. The 1st plaintiff agreed to relinquish his post as Headmaster of the school with effect from Ext.A5 dale, thereby suffering a loss of Rs.800/- per month. It was further agreed that if the defendant committed breach of the agreement, he will pay compensation to the 1st plaintiff at the rate of Rs.800/- per month till the entire Rs.5 lakhs and interest was paid. Time was fixed as essence of the contract. As per Ext.A3 the plaintiff sent a draft of the proposed sale deed to the 1st defendant for approval on 7-10-1984. The defendants wanted to modify the draft by deleting the clause regarding bank interest and salary compensation. Defendants did not care to pay the agreed amount of Rs.2 lakhs and to take the sale deed. Later the plaintiff executed the sale deed in favour of the defendants after accepting Rs.2 lakhs and salary compensation for three months. The defendants wanted to modify the draft by deleting the clause regarding bank interest and salary compensation. Defendants did not care to pay the agreed amount of Rs.2 lakhs and to take the sale deed. Later the plaintiff executed the sale deed in favour of the defendants after accepting Rs.2 lakhs and salary compensation for three months. The balance sale consideration of Rs.3 lakhs was reserved to be paid on or before 14-2-1986. On the date of agreement the rate of interest collected by the commercial banks was at the rate of 18% per annum with quarterly rests. With effect from 1-4-1985 the rate of interest was reduced by 0.5%, that is 17.5% per annum with quarterly rests from 1-4-1984. The other allegations in the plaint are not relevant in this appeal. The suit was filed for recovery of Rs.3 lakhs together with interest at 18% per annum from 14-8-1984 to 30-3-1985 and thereafter at 17.5% per annum till date of plaint. Future interest and compensation for loss of salary, amounting to Rs. 20,000/- less an amount of Rs. 2,400/- paid together with interest at 12% per annum were also claimed. 3. The defendants contended that the value of the plaintiffs share did not come to Rs.5 lakhs but the defendant agreed to purchase plaintiff's rights for Rs.5 lakhs on realising that it was impossible for the defendant to continue the working of the school with the co-operation of the plaintiffs. The rate of interest claimed in the plaint was without any bona fides. The bank rate for bank deposits in all scheduled banks is only 5% interest. For Savings Bank account in Post Office the existing rate of interest is only 5%. The lower court held that only 5% simple interest was payable by the defendants. Accordingly the suit was decreed for an amount of Rs.3 lakhs together with interest at 5% per annum till the date of decree and thereafter at 6% per annum till realisation. 4. In the memorandum of appeal interest claimed is at the rate of 18% per annum up to 30-3-1985 and at the rate of 17.5% per annum from 1-4-1985 till the date of suit. However, learned counsel for the plaintiffs at the time of arguments submitted that he is relinquishing the claim for 18% per annum and restricting his claim for interest at 12% per annum. 5. However, learned counsel for the plaintiffs at the time of arguments submitted that he is relinquishing the claim for 18% per annum and restricting his claim for interest at 12% per annum. 5. It is well recognised that interest is the return or compensation for the use or retention by one person of a sum of money belonging to or owed to another. See Halsbury 's Laws of England - Fourth Edition page 118, para 160. In Bond v. Barrow Hagmalile Steel Co. - (1902) 1 Ch. 353 Farwell, J. held as follows: "Interest is compensation for delay in payment and is not accurately applied to the share of profits of trading, although it may be used as an inaccurate mode of expressing the measure of the share of those profits." Viscount Dunedin in Holder v. Inland Revenue Courts -1932 A.C. 624 observed as follows: "I think that interest payable on an advance from a bank means interest on an advance made to the person paying. It Viscount Simon in Riches v. Westminster Bank Ltd, 1947 A.C. 390 explained the principle under which interest is awarded, as follows: "I see no reason why, when the judge orders payment of interest from a past date on the amount of the main sum awarded (or on a part of it), this supplemental payment, the size of which grows from day to day by taking a fraction of so much per cent per annum of the amount on which interest is ordered, and by the payment of which further growth is stopped, should not be treated as interest attracting income tax. It is not capital. It is rather the accumulated fruit of a tree which the. tree produces regularly until payment." 6. Thus interest is the compensation for the use or delay in the payment of money belonging to another person. Interest may be awarded when there is an agreement for the payment of interest or when interest is payable by the usage of trade or under the provisions of any substantive law, as for instance under S.80 of the Negotiable Instruments Act. See Mahabir Pros-ad v. Durga Datta - AIR 1961 5C 990 & Union of India v. Watklns Mayor and Co. - AIR 1966 5C 275. The Karnataka High Court, interpreted the words "current rate of interest" in B.S. Rajput v. M/s. The Cellar and another - AIR 1993 Kart. See Mahabir Pros-ad v. Durga Datta - AIR 1961 5C 990 & Union of India v. Watklns Mayor and Co. - AIR 1966 5C 275. The Karnataka High Court, interpreted the words "current rate of interest" in B.S. Rajput v. M/s. The Cellar and another - AIR 1993 Kart. 9, as follows: "8. The next question for consideration is whether the plaintiff is entitled to interest at 18% per annum as claimed in Ext.P4. Under the Interest Act, the party is entitled to Interest at the ^ current rate of interest' which expression is defined in clause (b) of S.2 of the Interest Act, as meaning, the highest of the maximum rates at which interest may be paid on different classes of deposits by different classes of scheduled banks in accordance with the direction given or issued to the banking companies generally by the Reserve Bank of India under the Banking Regulation Act, 1949. Therefore, taking into consideration the definition of the expression "current rate of interest' as contained in clause (b) of S.2 of the Interest Act, we are of the view that the interest at the rate of 15% p.a. would be just and appropriate as that was the maximum rate of interest that was being paid on different classes of deposits during the period from 28-10-1984 to 8-10-1985. Accordingly we answer the point raised for determination as follows: The trial Court is not justified in refusing to award interest on the suit claim for the period from 28-10-1984 to 8-10-1.985. It ought to have awarded interest on the suit claim for the aforesaid period at 15% per annum." In this connection it may be observed that under S.80 of the Negotiable Instruments Act, 1881 when no rate of interest is specified in an instrument, interest shall be calculated at the rate of 18% per annum, notwithstanding any agreement relating to interest between the parties to the instruments. 7. The pointed question that arises is the interpretation of the words 'bank interest'. The most important method by which a banker deploys his fund is by the grant of loans and overdrafts and purchase and discounting of commercial bills. The lending function of banks is very important function of commercial banks. 7. The pointed question that arises is the interpretation of the words 'bank interest'. The most important method by which a banker deploys his fund is by the grant of loans and overdrafts and purchase and discounting of commercial bills. The lending function of banks is very important function of commercial banks. An important factor that will 'determine the decision of a bank whether or not to grant a loan will be whether he will get a fair return on his investment. The difference between the banks borrowing and lending rates constitutes the gross profit of the bank. No bank will ordinarily think of an advance without a satisfactory margin of profit. Generally 2 to 21/2% margin is considered reasonable. The Reserve Bank exercises strict control over the banks in ensuring that they do not fritter away funds in improper investments and injudicious' advances. There are provisions in the Banking Regulation Act, which lay restrictions on banks in regard to certain types of transactions. See for example, Ss.8,9 and 20 of the Act. Under S.21 the Reserve Bank is charged with the responsibility of determining the policy in relation to advances to be followed by banks and of giving directions to them in this regard. One of these powers exercised by the Reserve Bank is by laying down rates of interest chargeable on advances. (Section 21(2)(e) of the Banking Regulation act ). 8. The contention of the plaintiff is that the rate of bank interest collected by the commercial banks as per the direction of the Reserve Bank was 18% per annum with quarterly rests. This rate was reduced by 0.5% with effect from 1-4-1984. According to the plaintiff who was examined as P.W.3, bank interest mentioned in Ext.AZ is the rate of interest charged by commercial banks on their loans. The dispute is not in respect of the rate of interest that was being charged by commercial banks on advances made by the banks. The contention of the defendants was only that the interest that is chargeable is only al the rate given by bank to its customers for their Savings Bank deposits. The plaint amount was an amount due to the plaintiff on the date of-Ext. A3 itself. That amount was being enjoyed by the defendants on the specific agreement that they will pay back the amount with bank interest. The plaint amount was an amount due to the plaintiff on the date of-Ext. A3 itself. That amount was being enjoyed by the defendants on the specific agreement that they will pay back the amount with bank interest. The oral evidence adduced by either side about the rate of interest cannot be given any weight under the peculiar circumstances of this case. Admittedly the plaintiff did not entrust the money with the defendants for the safe deposit. So much so, the rate of interest payable by banks for Savings Bank deposits will not apply in this case. Therefore, it has to be held that the rate of interest applicable is the rate which was being charged by commercial banks for advances made to its customers which in this case was 18% for some lime and thereafter 17.5%. Since the defendants were retaining or using money belonging to or owed to the plaintiff, the defendants were liable to pay compensation for such retention or user at the rate agreed in Ext.A3. However, since the plaintiff has restricted his claim to 12% per annum„ we are awarding only interest at the rate of 12% per annum, 9. Accordingly the judgment and decree of the lower court are modified. The plaintiff is given a decree to realise the amount of Rs.3 lakhs together with interest at the rate of 12% per annum from Ext.A3 date viz. 14-8-1984 till the dale of decree of the lower court viz. 19-1-1988 and thereafter at the rate of 6% per annum. Plaintiff-appellant will also be entitled to 75% of the costs in this appeal. The costs awarded by the trial court are confirmed. Appeal allowed as above.