Kurella Ramamurti alias Sreeramulu and Another vs Nalam Subbarao

Pandrang Row, J.—The only point that arises in this case is whether the stipulation for payment of compound interest at the rate of 12 per

cent, per annum found in the suit mortgage deed is in the nature of a penalty and ought to be relieved against. The mortgage deed provided that the

sum of Rs. 2,000 which was borrowed thereunder should be repaid in eight annual instalments of Rs. 250 each, such instalments to count both

towards principal as well as interest on the entire sum. The stipulation that is objected to runs as follows:

And that in default of payment of sums due in any instalment, the sum remaining unpaid on that date shall be added to the principal and the entire

amount become payable at once irrespective of future instalments, the entire sum carrying interest at 1 per cent, per mensem compound with yearly

rests.

There was, as it were, a double penalty put upon any default in payment of the annual instalments, namely, the entire sum will become

immediately repayable irrespective of future instalments, and secondly interest had to be paid at one per cent, per mensem compound with yearly

rests. The latter penalty is, in our opinion, a clear penalty which the parties could not have intended to be enforced as damages for breach of the

contract to pay annual instalments. The stipulation in question which requires payment of compound interest at 12 per cent, per annum is therefore

not binding on the defendants, the appellants and we think the proper and reasonable provision to make as regards interest is 12 per cent, simple

interest as is provided earlier in the document.

The decree of the Court below must be varied in accordance with this finding, namely, by allowing the plaintiff only simple interest at 12 per

cent, per annum and not compound interest as claimed in the plaint and allowed by the Court below. In view of the fact that the interest is fairly

high and the security was quite good and also in view of the fact that over Rs. 4,000 has actually been paid by the mortgagees to the mortgagor,

we are not prepared to award any compensation to the mortgagee except not to interfere with the award of costs in the Court below and not to

compel him to pay the costs of the appeal in this Court. Beyond this, we are of opinion the case does not require any award of compensation to

the mortgagee. The appeal is allowed as indicated above and the parties will bear their own costs in this appeal.

C.M.P. No. 5029 of 1938, as application filed by the appellants for scaling down the debt under Sections 8 and 9 of the Madras Act IV of

1938, will be remitted to the Court below for disposal according to law and the decree in this appeal will be subject to the final orders on that

application.