Habibun Nabi and Another vs Baldeo Narayan Singh and Others

Agarwala, J.—The ancestors of the defendants executed in favour of the ancestor of the plaintiffs two kabuliyats in the year 1884. According to the terms of the agreements the lessees took a permanent mukarrari of two annas eight pies share from each of the lessors in mauza Sadikpur and agreed to pay Rs. 30 on account of haqazri money in three kists. It was further stipulated that in the event of three consecutive kists being in arrears the lessees would pay interest at 12 per cent per mensem. In the present suits the plaintiffs claimed rent from the Bhado kist of 1329 to the Sawan kist of 1335 F.S. with interest at the rate stipulated in the agreements. The first Court decreed the claim for rent but held that the stipulation for interest at 12 per cent per mensem was by way of penalty and therefore, declined to award interest at the rate claimed.

The Court held however that the plaintiffs were entitled to reasonable compensation and assessed the compensation at 12 par cent per annum. The plaintiffs appealed to the Subordinate Judge who confirmed the decision of the trial Court and dismissed the appeal. In second appeal it is contended on behalf of the plaintiffs that Section 74, Contract Act, which has been applied by the Courts below, has no application to the facts of the present case. It is conceded that if the agreements had provided for a certain rate of interest in case of a single default and an enhanced rate of interest in the event of consecutive defaults, the provision for enhanced interest in the event of consecutive defaults might have been a stipulation by way of penalty in view of the explanation to Section 74 of the Act. But it is argued that in this case there was no stipulation for enhanced interest, as there was no interest at all payable except in the event of default in three consecutive instalments.

I am afraid I am unable to appreciate the distinction which the learned advocate for the appellants has sought to draw between the two sets of circumstances. If an agreement for enhanced interest in the first set of circumstances may be a stipulation by way of penalty, it seems to me quite clear that a stipulation for the payment of interest on the happening of a certain event may be a penalty although interest was not otherwise provided for.

It was next contended that a stipulation for interest at 144 per cent per annum is not necessarily a stipulation by way of penalty. Whether a certain stipulation is by way of penalty must depend on the circumstances of each case.

If the agreement had been for payment of a reasonable rate of interest such a stipulation would not have been by way of penalty but the rate stipulated for was so entirely out of proportion that it suggests that it was intended to be by way of penalty. I therefore agree with the Courts below that the stipulation in the present case was by way of penalty. It was next contended that in a previous suit by the lessors against the lessees interest had been claimed and awarded at the contractual rate. The appellate Court in its judgment has stated that the judgment in the previous suit merely shows that there was an issue as to whether the plaintiffs in that suit were entitled to the amount of interest claimed in the suit and that there was no issue as to the rate of interest.

The pleadings in the previous suit have not been exhibited and therefore the evidence necessary for determining whether the point argued in the present appeal was in issue in the previous suit is not available and therefore it is not possible to hold that the previous decision operates as res judicata in the present case. The last point argued by the learned advocate for the appellants was that the award of interest at 12 per cent per annum was inadequate. Section 74 empowers the Court to award reasonable compensation and what is reasonable must depend on the circumstances of each case.

It is a question of fact and not of law, and the decision of the Courts of fact with regard to the amount of compensation is not open to challenge in these second appeals. The appeals therefore fail and are dismissed with costs.