Nanalal Gulabchand and Another vs Shiv Singh Makhan Singh

Newaskar, J.—This second appeal arises out of (sic)cution proceeding. The material facts are as follows:

Plaintiffs who are the applicants in this filed a suit against the Defendant for recovery of Rs. 250/-. In this suit the parties had (sic) at a compromise and on the basis of this compromise a decree was passed on 23-9-43. This (sic) provided that the Defendant should pay (sic)-8-0 in all, out of which Rs. 50/- were to be on Chet Badi 13 Samvat 2000 and for the (sic)ning sum of Rs. 237/8/- it was agreed that the Defendant should deliver possession of his field bearing Khasra No. 18 assessed to revenue of Rs. 7/12/- for a period of six years from Samvat 2001 to 2006.

It was further agreed that in case the property is not allowed to be in possession of the Plaintiffs by the Defendant then the Plaintiffs will be entitled to recover from the Defendant Rs. 50/- for each year of default along with an additional sum of Rs. 25/- by way of damages. It was also agreed that in case the agreed instalment is not paid in proper time interest will be charged at annas 8 per cent, per month. The judgment-debtor allowed the land to remain with the decree-holder for some time and then took back possession. The decree-holder thereupon filed execution application alleging that he was allowed to remain in possession for only two years and claimed a sum of Rs. 475/12/6 on the basis of the terms of the compromise decree referred to above.

The judgment-debtor contended that the decree-holder was in fact allowed to remain in possession for three years and not for two years. It was further contended that the decree-holder is not entitled to recover a sum of Rs. 25/- in addition to the amount of Rs. 50/- that being by way of penalty.

The trial Court on these contentions held that the decree-holder was in fact permitted to remain in possession for only two years. Therefore out of the decretal amount, Rs. 100/- at the rate of Rs. 50/- per year should be deducted. It accepted the contention of the judgment-debtor as regards the non-liability for payment of Rs. 25/- per year for the period of four years. The trial Court therefore permitted execution to the extent of Rs. 187/8/- only.

Before the learned District Judge D.H. contended that the Court ought to allow deduction at the rate of Rs. 40/- only instead of Rs. 50/- per year for the period of his possession because the total amount agreed was Rs. 237/8/- and if this is divided into six parts each will be less than Rs. 40/-. He attacked the reasoning of the Courts below that the D.H. should be entitled to the payment of Rs. 50/- per year for the period for which he was deprived of the possession and therefore Rs. 50/- represent the proper basis for deduction. He also contended that there was no justification in disallowing the entire amount of Rs. 25/- per year even assuming it to be by way of penalty. He has contended that the stipulation for payment of Rs. 25/- per year is not by way of penalty and secondly the Court at any rate ought to have awarded any sum up to Rs. 25/- per year which it thought fit. These contentions were overruled by the District Judge. These are repeated again in this Court in second appeal.

Mr. Tayal who appears for the decree-holder concedes that since the decree is on the basis of a compromise Section 74, Contract Act will be applicable but he says that even if Section 74 applies the Plaintiffs are entitled to recover Rs. 25/- per year for deprivation of possession during the period of contract. In order to appreciate both these contentions we have to consider what did the parties mean at the time of entering into the bargain. The Plaintiffs were entitled to certain sum of money and the parties wanted to arrive at a bargain as regards the mode in which the bargain was to be discharged. This mode by mutual agreement was settled to be partly by cash payment and partly by providing for enjoyment of a piece of land by the Plaintiff for a stated period.

The latter provision would enable the Plaintiff to derive profit by sufruct of the land. Parties then contemplated possibilities where this enjoyment of usufruct is not possible on account of act or default of the Defendant. For this the parties provided that in that event the Plaintiff would be entitled to Rs. 50/- per year as the instalment and in addition to that a further sum of Rs. 25/- by way of damages for this breach of compromise resulting in deprivation of the usufruct.

Rs. 50/- obviously appears to be a fair estimate of the amount which on arithmetical calculation would be roughly payable in case there is a term of payment of future interest. So far as Rs. 25/- is concerned this may according to the contemplation of the parties have been intended because if the Plaintiff is permitted to be in occupation he may possibly be in a position to derive benefit to the extent indicated by the total sum of instalment and the damages amounting in all to Rs. 75/-.

In this connection it is useful to refer to the principles summarized by Lord Dunedin in ''Dunlop Pneumatic Tyre Co., Ltd. v. New Garage and Motor Co., Ltd. 1915 AC 79 (A) at p. 86 which are as follows:

Though the parties to a contract who use the words "penalty" or "liquidated damages" may prima facie be supposed to mean what they say, yet the expression used is not conclusive. The Court must find out whether the payment stipulated is in truth a penalty or liquidated damages. This doctrine may be said to be found ''passim'' in nearly every case.

The essence of a penalty is a payment of money stipulated as in terrorem of the offending party; the essence of liquidated damages is a genuine covenanted pre-estimate of damage Clydebank Engineering and Shipbuilding Co. v. Don Jose Ramos Yzquirrdo Y. Castaneda 1905 AC 6(B).

The question whether a sum stipulated is penalty or liquidated damages is a question of construction to be decided upon the terms and inherent circumstances of each particular contract, judged of as at the time of the making of the contract, not as at the time of the breach Public Works Commissioner v. Hills 1906 AC 368(C) and Webster v. Bosanquet 1912 AC 394(D).

To assist this task of construction various tests have been suggested, which if applicable to the case under consideration may prove helpful or even conclusive. Such are:

(a) It will be held to be penalty if the sum stipulated for is extravagant and unconscionable in amount in comparison with the greatest loss that could conceivably be proved to have followed from the breach. Illustration given by Lord Halsbury in ''Clydebank case (B)''.

(b) It will be held to be a penalty if the breach consists only in not paying a sum of money, and the sum stipulated is a sum greater than the sum which ought to have been paid Kemble v. Farren (1829) 6 Bing 141 (E). This though one of the most ancient instances is truely a corollary to the last test. Whether it had its historical origin in the doctrine of the common law'' that when A promised to pay B a sum of money on a certain day and did not do so, B could only recover further damages for non-timeous payment, or whether it was a survival of the time when equity reformed unconscionable bargains merely because they were unconscionable, a subject which much exercised Jessel M.R. inWallis v. Smith (1882) 21 Ch D 243 (F) is proba(sic) more interesting than material.

(c) There is a presumption (but no more), it is penalty when "a single lump sum is (sic)payable by way of compensation, on the (sic)rence of one or mora of all of several events.(sic) of which may occasion serious and others trifling damage" Lord Watson in (sic)Elphinstone v. Monkland Iron and Coal Co. (1886) 11 AC 332 (G). On the other hand:

(d) It is no obstacle to the sum stipulated(sic) a genuine pre-estimate of damage, that sequences of the breach are such as to make (sic)cise pre-estimation almost an impossibility.(sic) the contrary, that is just the situation when (sic) probable that pre-estimated damage was the bargain between the parties ''Clydebank (sic)Lord Halsbury (B)'': Webster v. Bosanquet Mersey (D)''.

By reference to sub-clauses 2, 3 and 4(a), and (d) it is clear that having regard to the circumstances of this case sum of Rs. 25/- can be said to be a pre-estimate of damages. The named is not extravagant or unconscionable, breach does not consist merely in non-payment certain sum but it consists in preventing joyment of certain sum of the usufruct of (sic)land and the consequences of breach are such to make compromise pre-estimation almost impossibility. Therefore the decision of the (sic) Court holding that the stipulation for the (sic)ment of Rs. 25/- is a penalty and therefore not be enforced in execution is not correct.

So far as the other contention is concerned. I am inclined to agree with the lower Court Rs. 50/- per year ought to be deducted for period during which the Plaintiff was in oc (sic)tion of the land. Mr. Tyal''s contention that should be Rs. 40/- per year by the processes arithmetical calculation by which the sum of Rs. 237/- payable if divided into six parts is not (sic) logical because if the Plaintiff does occupy land the possession does not remain as it when the bargain was made. The deduction fore on the basis of this sort of arithmetic is just.

The result is that the appeal is partly allowed and it is held that instead of Rs. 187/8/- Plaintiff decree-holder will be entitled to recover Rs. 287/8/- along with interest as per terms of the decree (compromise decree). In other (sic) pects the appeal is dismissed.

The parties to pay and receive costs, according to their failure and success.