Fine Spineers Pvt. Ltd. and Another vs Grindlays Bank Ltd.

H.S. Bedi, J.

By this petition the order of the executing Court dated August 6,1991 dismissing the objection petition filed by the petitioners u/s 47 read with Section 151 C.P.C. has been impugned. The facts of the case insofar as they are relevant for the disposal of this case are as under:-

The respondent-decree holders filed civil suit No. 214 on October 6, 1977 against the petitioners for the recovery of certain amounts due from them. On 30.9.1981 a compromise was entered into between the parties and the following con- sent decree was passed in favour of the decree holders;

" A consent decree for Rs. 2,45,390.28 paise with future interest 18% per annum from date of suit till realisation was passed in the favour of decree holders and against the judgment debtors. The decretal amount was ordered to be recovered be sale of mortgage property entered in column No. 10. It was further ordered that if the defendant paid Rs. 2,23,000/- plus future interest @ 8 per cent per annum from date of suit till realisation of decretal amount in instalments mentioned hereunder the decree shall be deemed as fully satisfied. First instalment of Rs. 35,000/- payable on 15.12.1981. The balance amount of Rs. 1,88,000 with future interest @ 8 per cent was to be paid in eight equal quarterly instalments commencing from 15.3.1982. The above decree provided that in the event of default in payment of any two instalments by JD within specified time the DH was to be within his right to seek execution for recovery of entire decretal amount of Rs. 2,45,390.28 plus future interest at the rate of 10 per cent per annum."

It appears that as the judgment debtors had paid only one instalment of Rs. 35,000/- on December 12,1981 the respondent, in consequence of the default clause, filed an application for execution of the decree claiming that they were entitled to recover the entire amount that is Rs. 2,45,390.28 paise and not the lesser amount which was determined in consequence of the consent decree, that is Rs. 2,23,000/-. The exscuting court, however, dismissed the objection petition as already indicated, (sic) judgment of this court report in Punjab woollen Textiles Firm Amritsar and Ors. v. Bank of India (1991) 99 P.L.R. 626 holding that the default clause was not penal in nature on the facts as made out. Aggrieved thereby the present petition has been filed.

The primary argument of Mr. Chhibbar, learned Senior Advocate for the petitioners, is based on the interpretation of Section 74 of the Indian Contract Act (hereinafter called the ''Act''). He has placed primary argument on illustration (a) to the said section to contend that in case a larger amount was to be paid on a default committed by the judgment debtor, that itself amounted to a penalty and the court taking cognizance thereof was required to make a determination in terms of Section 74 of the Act and award only such reasonable compensation not exceeding the amount so claimed and, in the absence of any such finding by any Court, the order of the executing court dismissing the objection petition could not be maintained. In support of this plea, Mr. Chhibbar has relied upon a number of decisions of various courts in Gabriel India Lts. Bombay v. Arun and Rajive Pvt. Ltd. Chandigarh 1987 Tax L.R. 46 Chattar Singh and Anr. v. Khetu 1966 C.L.J. 665 Mohiuddin Vs. Mt. Kashmiro Bibi ; Deepchand Mini Vs. Ticamchand Mini, S.S. Nirmalchand and Another Vs. Smt. Parmeshwari Devi and Others, . State of Punjab and Ors. v. Mehra Harbans Singh (1972) 74 P.L.R. 303 As against this Mr. D.R. Mahajan, learned counsel appearing for the respondent-decree holders has urged that once a compromise had been arrived at and the amount claimed in default did not exceed the claim of the decree holder in the suit, the question of penalty would not arise and Section 74 of the Act would not be applicable in this situation. In support of this plea, Mr. Mahajan has relied on Jawala Ram and Anr. v. Mathra Dass AIR 1931 Lah 696 Jhanda Singh v. Piara Singh AIR 1933 Lah 23 Mitha and Ors. v. Bemal Dass AIR 1937 Lah 828 , Firm Kari Poddar Ramphal Poddar and Another Vs. Harishankar Mills and Others, and Punjab Woollen Textiles Firm v. Bank of India. (1991)99 P.L.R. 626, that is, the judgment of Justice I.S. Tiwana in Khetu v. Jugti (1963) 65 P.L.R. 78.

I have heard the learned counsel for the parties and find that the arguments of Mr. Chhibbar do not really appeal to me. The string of authorities cited by the learned counsel for the respondents squarely cover the facts of this case and out of them I deem it necessary to discuss only the judgment of the Division Bench of the Lahore High Court in Jawala Ram''s case (supra). In this case (as in the case in hand) the precise point that came up for decision was as to whether in a consent decree in which the amount made payable in case of default was not more than the amount claimed in the suit was hit by Section 74 of the Act as being in the nature of a penalty. On a difference of opinion between the two Judges, the matter was referred to a third Judge who opined as under:

"Where a decree holder remits a portion of his claim against a judgment debtor in consideration of his paying a smaller sum in certain instalments on specified dates, time is the essence and the sole consideration for the contract and in such case on default having taken place, the decree holder only withdraws a concession given by himself and seeks to enforce payment of the amount due to him, the amount thus sought to be recovered cannot be held to be a penalty within the meaning of Section 74 of Contract Act."

This judgment of the Division Bench was subsequently followed in Jhanda Singh'', Mithia''s and Punjab Woollen Textiles Firm''s cases (supra). Mr. Chhibbar has, however, pointed out that Khetu''s case (supra) was overruled by a DB of this Court reported in Chattar Singh and Anr. v. Khetu and Anr. 1966 C.R.J. 665 and, as such, the judgment of the D.B. would have precedence in the matter. I have gone through the judgments cited by Mr. Chhibbar and, as a matter of fact, the judgments of the Lahore High Court, referred to above, were specifically affirmed even by the Division Bench dealing in Khetu''s case (supra), but on a question of fact the court found that the clause in question in the consent decree was penal in nature and, therefore, not enforceable. As a matter of fact, the learned judges of the D.B. specifically accepted the interpretation put on Section 74 of the Act by the earlier benches of the Lahore High Court. The other judgments cited by Mr, Chhibbar do not apply to the facts of this case, and even presuming they do, cannot be accepted in the light of the binding precedents of the judgments of the Lahore High Court and this Court.

Mr. Chhibbar then sought to distinguish the judgments cited by Mr. Mahajan by asserting that as a matter of fact the civil court had not applied its own independent mind while drawing up the consent decree and the compromise was, therefore, in the nature of a penalty. This argument to my mind, is without any force. A reading of clause (2) of Section 2 C.P.C. makes out that no distinction is to be draw between a consent decree arising out of a compromise or one determined by adjudication by a court after contest. This argument finds full support from Punjab Woollen Textiles Firm''s case (supra). It is also significant that in Firm Kari Poddar''s case (supra) a distinction as Mr. Chhibbar has sought to make out was attempted by the counsel but repelled by a Division Bench by observing that a decree may be passed on claims proved by the plaintiff as also on admissions made by the defendant and in case the claim was admitted by the defendant the amount was payable to the plaintiff.

Mr. Chhibbar then urged that as per the details that he had given in the present proceedings, the petitioners had already paid a sum of Rs. 2,77,406 on account of the loan that had been taken and, as such, the decree in full was deemed to be satisfied. Mr. Mahajan, learned counsel for the respondents pointed out that he would have no objection if the executing court was directed to go into the account so that actual amount due from the petitioners could be accurately ascertained. It is also the case of the petitioners that some amounts had been paid by the petitioners after the dismissal of the objection petition by the executing court. The petitioner is undoubtedly entitled to take advantage of these payments as well.

The present petition is accordingly, dismissed with a direction that the petitioners will give full details to the executing court regarding all the amounts that are alleged to have been deposited and the executing court after hearing both the parties will give a decision thereon. The petitioners will make an application within six weeks from now and in case no application is filed within that period, the same will not be entertained thereafter. A copy of this order be given dasti on payment of copying charges.