Azerbaijan top court bans ‘interest on interest’ in debt disputes

BAKU, Azerbaijan (MNTV) — Azerbaijan’s Supreme Court has ruled that late payment interest on debt may be calculated solely on the unpaid principal amount, rejecting attempts to impose additional charges on previously accrued interest.

In a decision aimed at establishing a uniform judicial practice, the Civil Chamber of the Supreme Court said recalculating default interest on a combined sum of principal and court-awarded interest amounts to charging “interest on interest,” which is prohibited under Azerbaijani law.

The case arose from a dispute in which a plaintiff sought additional late payment interest after a debtor failed to repay on time. The plaintiff argued that the principal debt and interest awarded in earlier court rulings should be combined and treated as a single amount for calculating further default interest.

A first-instance court rejected the claim, and the appellate court upheld that decision.

Both parties subsequently filed cassation appeals with the Supreme Court.

Citing Articles 445.7 and 449 of the Civil Code, the Supreme Court ruled that default interest applies only to the unpaid principal and only until the debt is repaid.

The court stressed that interest confirmed by a judicial decision does not change its legal nature or become principal debt.

Charging additional interest on such amounts, the court said, would unfairly worsen the debtor’s position and violate the principle of justice.

The Supreme Court also emphasized that cassation proceedings are limited to reviewing whether lower courts correctly applied substantive and procedural law, not re-examining the facts of the case. It found the appellate court’s legal reasoning sound.

As a result, the Supreme Court dismissed the cassation appeals and upheld the appellate court’s ruling in full.