The Supreme Court of Azerbaijan has ruled that charging interest on previously accrued interest on a borrower’s debt violates the law.
According to Report, the ruling establishes a unified judicial approach to the calculation of penalty interest for overdue debt repayments.
The case stemmed from a dispute in which the claimant sought to recover additional interest by calculating it on the total amount of the principal debt plus interest that had already been awarded by a court. Courts of first instance and appeal rejected the claim, after which the case was reviewed by the Supreme Court.
In its decision, the Supreme Court stated that under the Civil Code, penalty interest may be charged only on the outstanding principal amount and only until the date the debt is repaid. Charging new interest on interest already accrued effectively constitutes “interest on interest,” which is explicitly prohibited by law.
The court further emphasized that even when interest is awarded by a court decision, it does not become part of the principal debt. Demanding interest on interest unjustifiably worsens the borrower’s position and contradicts the principle of fairness.
As a result, the Supreme Court upheld the ruling of the appellate court and dismissed the claimant’s cassation appeal.
