Karnataka High Court Modifies Interest Rate on ₹1.39 Crore Damages Award to Former HMT Employees

Karnataka High Court Adjusts Interest Rate on ₹1.39 Crore Damages Award to Former HMT Employees

The Karnataka High Court has modified the interest calculation on a ₹1.39 crore damages award granted to eight former employees of HMT Limited who had turned entrepreneurs. The court reduced the interest rate to 12 percent per annum for the period after the entrepreneurs completed repayment of their Karnataka State Financial Corporation loans, while keeping the 20 percent annual interest rate intact during the active loan repayment phase. This judgment clarifies how courts compute interest in employment law India cases involving both personal damages and financial obligations to third parties.

Justice T.P. Vivekananda delivered the order in appeal matters MFA No. 9565 of 2018 and connected matters MFA Nos. 9564, 9566–9571 of 2018, titled HMT Limited v. C. Rajamma (since deceased) by Legal Representatives and others. The bench disposed of the appeals while confirming the underlying awards and the 2018 judgments, with the modification to the interest structure being the key change to the lower court's decision.

Background of the employment dispute

The eight former employees of HMT had been promised assured workload by the company when they transitioned to become entrepreneurs. The assured workload was a contractual commitment that HMT failed to deliver, causing significant financial loss to the employees. To support their new ventures, these employees had taken loans from the Karnataka State Financial Corporation, relying on HMT's promise of steady work and income. When that promised work did not materialise, the entrepreneurs faced difficulties in servicing their loans and sustaining their businesses.

The employees pursued legal action against HMT for breach of contract and wrongful loss of livelihood. The lower courts had awarded them damages of ₹1.39 crore in recognition of the financial harm caused by the company's failure to honour its commitment. The original judgment had imposed an interest rate of 20 percent per annum on the entire damages amount from the date of the award until full payment.

The court's reasoning on interest rates

HMT challenged the interest rate in the High Court, arguing that 20 percent per annum was excessive for the full duration. The company contended that the interest should be differentiated based on the actual period during which the entrepreneurs were burdened by their KSFC loan obligations.

The Karnataka High Court accepted this argument in part. The bench recognised that while the entrepreneurs were actively repaying their loans to the financial corporation, they faced genuine financial hardship from both the loan obligations and the loss of the assured workload from HMT. During this period, a higher rate of interest was justified to compensate for the compounded financial pressure. However, once the KSFC loans were fully repaid, the court found that the entrepreneurs no longer carried the dual burden of loan repayment and lost income from HMT.

Accordingly, the court modified the interest structure. For the period during which the entrepreneurs were repaying their KSFC loans, HMT would continue to pay interest at 20 percent per annum on the damages. For all periods after the loans were repaid, the interest rate would reduce to 12 percent per annum. This differentiated approach reflects a nuanced understanding of the actual financial circumstances faced by the wronged parties at different stages of their recovery.

Adjustment for amounts already paid

The High Court also directed that any amounts already deposited by HMT and disbursed to the entrepreneurs pursuant to orders from the Supreme Court be taken into account when calculating the balance payable. This instruction ensures that the entrepreneurs do not receive duplicate compensation and that HMT receives credit for all sums it has already transferred in compliance with higher court orders.

Case law on dual employment in India shows that multiple judicial interventions at different levels require careful coordination. The Supreme Court had previously issued orders requiring HMT to deposit or pay certain amounts, and those payments had been distributed to the beneficiaries. The High Court's direction clarifies that these prior payments must be deducted from the total liability that HMT now owes under the modified interest structure. The calculation of the final balance will require careful accounting to ensure that all prior deposits and disbursements are properly credited against the principal damages and the accrued interest at both the 20 percent and 12 percent rates.

Interest awards in employment disputes

This judgment contributes to the developing jurisprudence on how courts handle interest awards in employment disputes. The decision shows that Indian courts are willing to tailor remedies based on the specific factual circumstances of each case rather than applying uniform formulas. The differentiation between interest rates depending on whether the injured party was still servicing related financial obligations demonstrates a sophisticated approach to damages calculation.

The case also illustrates principles relevant to labour law for termination of employment in India, though HMT did not terminate the employees but rather failed to honour its commitment regarding assured workload. The breach of contract regarding employment-related promises can trigger liability for damages, and the quantum of interest reflects the ongoing harm suffered.

The involvement of the KSFC loans in this case adds a practical dimension often seen in disputes involving small entrepreneurs. Many workers who transition to self-employment or entrepreneurship rely on institutional credit. When a promised source of income fails to materialise, the combination of debt service obligations and lost income creates a compounded hardship that courts must carefully assess.