Mangal Singh and others vs Bajrang Bali

Mehar Singh, J.—This is an appeal on a certificate by Chopra J. against his judgment, dated 4-6-1951, under S. 52 of Pepsu Ordinance No. X of 2005 bk.

In a money suit by Harkishan Dass, father of Bajrang Bali respondent, against Mangal and others, appellants, the parties entered into a compromise, in consequence of which a decree for Rs. 865/- and costs amounting to Rs. 131/14/-, all totalling to Rs. 996/14/-, was passed in favour of Harkishan Dass and against the present appellants on 22-1-1937. The contract entered into between the parties compromising the suit provided for discharge of the decretal amount by certain instalments, with the condition that in the event of default the entire amount would become payable, with interest at the rate of 12 per cent, per annum from the date of the suit to realisation. The judgment-debtors not having paid any instalment, the decree-holder took out execution of the decree on 6-7-1937, for an amount of Rs. 1,215/14/-, all told.

There was a second compromise between the parties on 17-3-1938, whereby the amount then payable was agreed to between the parties at Rs. 1,192/- and they further agreed to the payment of the amount by the judgment-debtors by six monthly instalments of Rs. 16/- payable on 15th Har and 15th Magh of each year, with a further Stipulation that in the event of default the total remaining amount would become immediately due and would carry interest at the rate of 12 per cent. per annum from the date of the compromise, that is, from 17-3-1938. The judgment-debtors made default in the payment of the instalment due on 15th Har, 2002 bk, but paid two instalments on 15th Magh, 2002 bk.

In the meantime the original decree-holder having died, his son Bajrang Bali respondent again took out execution on 16-2-1946 (15th Phagan 2002 bk), giving credit for the instalments already paid, for Rs. 968/- as principal, Rs. 1,442/13/- as interest calculated at the stipulated rate from the date of the compromise, and Rs. 2/9/6 as costs of the execution application, all coming to Rs. 2,413/6/6. To this execution application of the decree-holder, the objections of the judgment-debtors, appellants, were (a) that no default in the payment of instalments had been made, and (b) that the interest charged was penal and should be relieved against.

The executing Court found against the judgment-debtors on both the grounds and dismissed their objections by its order dated 26th Har 2006 bk. In appeal the learned District Judge by his order, dated 22-8-1949, found that there had been no default on the part of the judgment-debtors and so accepting the appeal dismissed the execution application of the decree-holder. In second appeal by the decree-holder a learned Judge of this High Court accepted the appeal by his order, dated 4-6-1951, finding against the judgment-debtors on both the grounds urged by them, and directed that the execution application of the decree-holder be proceeded with in accordance with law but upon an application of the judgment-debtors granted them a certificate for appeal to a Division Bench of this High Court according to the provisions of S. 52 of Pepsu Ordinance No. X of 2005 bk.

In this appeal the Learned Counsel for the judgment-debtors-appellants has frankly conceded that there was default in the payment of the instalment due on 15th Har, 2002 bk. Upon this, therefore, there is no longer any controversy between the parties and the learned single judge reached the correct conclusion that there had been default in the payment of that instalment and thus the decree-holder-respondent was entitled to apply in execution for realisation of the remaining amount due under the decree subject to the terms of the compromise entered into between the parties on 17-3-1938.

On the second question that the interest charged and claimed by the respondent was penal, the learned single Judge was of the opinion that the decree-holder in spite of default in payment of an instalment under the decree had given concession to the judgment-debtors in agreeing to the instalments again and as the rate of interest was the same as previously and the parties had acted upon, the agreement since 1937, so the interest charged and claimed was not penal. The Learned Counsel for the appellants presses before us that the clause in the compromise, dated 17-3-1938, that in the event of default interest shall be payable at 12 per cent. per annum from the date of the compromise, that is, from 17-3-1938, is a penalty clause in view of the provisions of S. 74 of the Contract Act.

The reply on behalf of the respondent is that the rate of interest had been agreed to between the parties before the decree and was stated in the decree and the same rate of interest was again agreed to between the parties in the subsequent compromise and that the executing Court had no-right to go behind the decree and find that rate penal. It is urged that S. 74 of the Contract Act has no application to the terms of a decree as it only concerns the terms of a contract.

The position taken by the Learned Counsel for the respondent is based upon the dictum in - Raghunandan Prasad Vs. Ghulam Ala-Ud-Din Beg, in which a Division Bench of the Allahabad High Court had held that the Court executing the decree must take the decree as it stands and has no power to go behind it or entertain an objection to the legality of the decree and that the terms of S. 74 of the Contract Act are not applicable to a decree. This case has, however, been dissented from by a Full Bench-case of the same High Court reported as - ''Mohiuddin v. Mt. Kashmiro Bibi, AIR 1833 AIR 252 (B), in which the view that has prevailed is that a compromise decree, following upon a previous compromise between the parties, is still a contracts between the parties and to such a contract S. 74 of the Contract Act applies. In the same case one of the learned Judges, Niamatullah J., was of the opinion that in the case of a compromise decree when the Court applies S. 74 of the Contract Act, there is no question of going behind the decree, and the reason is that

the decree should be deemed to be giving effect to the compromise with the legal incident arising from S. 74, namely, that the party complaining of the breach is not entitled to enforce the penal clause but is entitled only to reasonable compensation not exceeding the penalty stipulated for.

In other words, the legal incident arising from S. 74 is to be read as a term incorporated in the compromise itself by implication. Upon this view, when the Court applies S. 74 of the Contract Act to a compromise decree, it merely enforces the decree, into which, by implication, must; be read the legal incident arising out of that section. This view has found favour in a Division Bench case reported as - ''Jasraj Faoji v. Mt. Sugrabai'', AIR 1943 Sind 242 (C), and also in - Shyam Sundar Padhi and Others Vs. Indramoni Das and Another, We have no doubt that this is the correct view of the law and the argument of the Learned Counsel for the respondent, that in such a case S. 74 of the Contract Act does not apply, is not based on sound reasoning.

It is by now well settled that a stipulation for an enhanced rate of interest operative retrospectively on default is in the nature of a penalty within the scope of S. 74 of the Contract Act; See Pollock and Mulla''s Indian Contract Act, Sixth Edition, page 441. In - AIR 1929 515 (Lahore) Shadi Lal C.J. has observed to the same effect that "it is a well settled rule that a stipulation for increased interest from the date of the bond is always in the nature of a penalty", In AIR 1935 873 (Lahore) a stipulation to pay interest on default, in case of instalments where no interest was to be charged till default, from the date of the bond was held to be a penalty under S. 74 of the Contract Act.

The Learned Counsel for the respondent relied upon - ''Gurmukh Singh v. Dial Singh'', AIR 1934 Lah 321 (2) (G) Burjorji Shapurji Sheth Vs. Madhavlal Jesingbhai, and - ''Frank Monterio v. Mr. A.M. Astridge'', AIR 1943 Sine 247 (I) for the contrary view. But the first of these cases was a case in which on default the stipulation to pay compound interest at the same rate as simple interest had been agreed upon between the parties to the transaction and it was held that that did not amount to a penalty under S. 74 of the Contract Act. That, however, was not a case providing for charge of interest retrospectively upon default and so on facts has no application to the present case.

In the other two cases a larger amount was either admitted or found due, but a concession was allowed, to, the judgment-debtor by the decree-holder agreeing to a decree for a smaller amount in case the payment was made promptly and within certain time and in the event of default the decree, stated that the amount admitted or found due shall become reasonable. It was in these circumstances that the Courts held that the condition appended to the decree in each case was not a penalty within the scope of S. 74 of the Contract Act and for a simple reason as the amount actually admitted or found due was to become payable in the event of default to pay a lesser amount and there was nothing charged extra or excessive simply by reason of the default. Those two cases also have no bearing upon the facts of the present case.

The Learned Counsel for the respondent laid particular stress upon the following observation in Burjorji Shapurji Sheth Vs. Madhavlal Jesingbhai,

The law on the subject is not, I think open to any serious question. If there is an agreement to pay a sum of money by a particular date, with a condition that if the money is not paid on that date a larger sum shall be paid, that condition is in the nature of a penalty against which a Court of equity can grant relief and award to the party seeking payment only such damages as he has suffered by the non-performance of the contract. But, if on the other hand, there is an agreement to pay a particular sum followed by a condition allowing to the debtor a concession, for example the payment of a lesser sum, or payment by instalments, by a particular date or dates, then the party seeking to take advantage of that concession must carry out strictly the conditions on which it was granted and there is no power in the Court to relieve him from the obligation of so doing.

It has already been pointed out that that was a case in which a larger sum was payable and the contract was for the payment of a smaller sum by a particular date with a condition that if not paid (he larger sum was to be payable under the decree. This was obviously not a case of a penalty within the scope of S. 74 of the Contract Act. The acceptance of a smaller sum by a particular date was truly a concession to the debtor. In so far as the observation of the learned Chief Justice of the Bombay High Court in this case with regard to the concession of instalments is concerned, I think the opinion may be accepted in so far as no retrospective interest is claimed upon default, but otherwise it is apparently opposed to the weight of authority already referred to.

So in the present case the clause in the compromise, dated 17-3-1938, that in case of a default in the payment of an instalment interest shall become due from the date of that compromise was in the nature of a penalty as interest was to be charge retrospectively after default and so it cannot be enforced against the appellants in the present case.

The result is that interest that the respondent can claim against the appellants is 12 per cent, per annum from the date of default, that is, from 15th liar, 2002 Bk, on the amount remaining due on that date. That amount has been stated by the respondent to be Rs. 968/-. It is admitted by both the sides that on this amount interest at the said rate from the date of the default to the date of the execution application comes to Rs. 80/12/-. To these two amounts is to be added Rs. 2/9/6 as costs of the execution application. The total comes to Rs. 1,051/5/6. It is this amount that the respondent, decree-holder, is entitled to realise from the judgment-debtors-appellants in the execution of his decree. To this extent we modify the order of the learned single Judge.

The Learned Counsel for the appellants relying upon R. 2 in the Mustanid Judicial Hadayat of the former Kapurthala State - this is a case pending from the days of former Kapurthala State - contends that the rule of ''damdupat'' applies to the case, but it is not necessary to go into this matter because the amount of the original decree was Rs. 996/14/- and double of that has so far not been realised by the decree-holder.

In the view taken above the appeal of the judgment-debtors is partly accepted in that the decree-holder can only realise from them in execution of his decree to the date of the last execution application a sum of Rs. 1,051/5/6. In the circumstances of the case the parties are left to their own costs.

Gurnam Singh J.

I agree.