Ramendra Roy Chowdhury and another vs Serajuddin Ahamed Chowdhury and another

This was a suit to recover certain money on a mortgage bond, by which the amount covered by it was agreed to be paid according to certain instalments. The money borrowed was Rs. 500 and the bond provided as follows: "Fixing the future interest on the said sum at the lump sum of Rs. 500, that is, fixing our total liability at Rs. 1,000, we stipulate that we shall pay you the said amount in accordance with the instalments given in the schedule, and get the said payments noted on the back of this bond, otherwise no plea of payment shall be entertained without a registered receipt. If we make default in payment of instalments, we shall pay interest on the defaulted instalments (kisthi khelapi sood) at the rate of one anna per rupee per mensem until the date of realization, whether amicably or by suit" and so on. The instalments extended over a period of eight years, that is, from the year 1298 to 1305 B. S. The Plaintiff seeks in this case to recover the instalments due up to the year 1302, with interest at the rate of one anna per rupee per mensem, or 75 per cent, per annum. This interest is, however, claimed not from the date of the loan but from the dates of the several instalments as they fell due.

The defence to this action was that at the time of the execution of the bond, it was expressly understood that no interest would be charged on the defaulted instalments, and that the condition as to payment of interest at the rate of one anna per rupee per mensem was inserted merely as a penalty for the purpose of insuring the realization of the instalments as they fell due. Some evidence was given by the Defendants as to what was understood between the parties at the time of the execution of the bond. The evidence was not, however, accepted as true by the District Judge, He, however, held, referring to two cases decided by this Court the case of Baid Bath Das v. Shamanand Das I. L. R. 22 Cal. 143 and that of Kalachand Kyal v. Shib Chunder Roy I. L. R. 19 Cal. 392 the provision as to interest at 75 per cent on the defaulted instalments was in the nature of a penalty, and as such could not be enforced; but he awarded to the Plaintiff interest at the rate at which it had been calculated at the time of the loan on Rs 500, the amount borrowed.

The appeal before us is by the Plaintiff; and it has been contended on his behalf that the District Judge has misapplied the rulings that he has quoted; that the provision as to the increased rate of interest is prospective, and not retrospective; and that according to the authorities it may well be enforced.

The decision of the learned Judge of the Court below is so meagre as to the true question raised before him that it is very difficult to say how he applied the rulings that he quoted to the provisions of the bond in this case. In the case of H. Mackintosh v. C. Crow I. L. R. 9 Cal. 689, it was held that where money is borrowed Under a contract for repayment of interest on a certain day, and the contract stipulates that if the money is not paid at the due date, it shall there forth carry interest at an enhanced rate, such a stipulation is not a penalty, and the enhanced rate can be recovered in its entirety. In Kalachand Kyal v. Shib Chunder Roy I. L. R. 19 Cal. 392, the ruling in the case of H. Mackintosh v. C. Crow I. L. R. 9 Cal. 689 was approved. In that case, the provision in the bond was that the principal amount borrowed should be repaid with the interest at the due date, and that on failure thereof, the interest should be paid at an increased rate from the date of the bond up to the date of realization; and it was held by a Full Bench of this Court that the prevision as to increased interest was a penalty, and that sec. 74 of the Contract Act applied to the money claimed at the enhanced rate of interest. To the same effect is the case of Baid Nath Das v. Shamanand Das I. L. R. 22 Cal. 143.

The principle underlying these cases is this, that where the additional sum which becomes payable in case of default on the part of the obligor is ascertainable at the time of the contract, or as the Madras High Court said in the case of Nanjappa v. Nanjappa I. L. R. 12 Mad. 161" at any rate of the time when default is made," it is a penalty, and falls within sec. 74 of the Contract Act, as a sum "named in the contract;" but where the contract stipulates that in the event of the money being not paid at the due date, it shall thenceforth carry interest at an enhanced rate, such a stipulation is not a penalty, because as expressed by Willson, J., in the case of H. Mackintosh v. C. Crow I. L. R. 9 Cal. 689 "no one can say at the time of the breach what the sum will be; it depends entirely on the time for which the borrower finds it convenient to retain the use of the money.

The District Judge has not addressed himself to the question whether the provision in the bond in this case to pay interest at the rate of one anna per rupee per mensem on the defaulted instalments was meant to apply from the date of the loan, or from the dates when default is committed. In the former case it would clearly be a penalty, and fall within sec. 74 of the Contract Act, in the latter case it would not he so.

We must confess that the stipulation, as contained in the bond, is not very clear; and in the circumstances of the case, we think it is safer to construe it in favour of the debtor than in favour of the creditor; and in that view of the matter it is clearly a penalty falling under sec. 74 of the Contract Act, which cannot be enforced.

Even if we were to construe it in favour of the creditor, we should not be prepared to hold that it was a stipulation which, according to the principles of equity, ought to be enforced. No doubt, according to sec. 2 of Act XXVIII of 1855, a man is free to contract to pay any rate of interest that he chooses on the money borrowed, and there is nothing to hinder him from agreeing to pay it from anytime either prospective or retrospective. But the question that would arise in a case like the present, is whether a Court of Equity is precluded by that from affording relief independently of sec. 74 of the Contract Act. This question seems to have been discussed in the Bombay High Court in two cases, vis., in Pava Nagaji v. Govind Ramji 10 Bom, H. C. R. 382 and in Umar Khan v. Sale Khan I. L. R. 17 Bom. 106 and also by the Court in Bichook Nath Panday v. Ram Lochun Singh 11 B. L. R. 135, and it has been held in these cases that notwithstanding sec. 2 of the said Act it is still open to the Court to decide whether the provision as to the enhanced interest was agreed upon by the parties as interest, or whether it was intended to be a penalty, We are inclined to adopt the same view. And we may in this connection also refer to the case of Mangniram Marwari v. Rajpati Koeri I. L. R. 20 Cal. 366, where this Court upon a similar question being raised did not hold that the matter was precluded by the Act of 1855, but rather went into the facts with a view to see whether any case for equitable relief had been established.

In the present case there can be very little or no doubt, looking at the instrument as a whole, that the provision to pay interest at 75 per cent, per annum in case of breach was not meant to be interest, properly so called, but a penalty with a view to insure due payment in accordance with the instalments mentioned in it. It will be observed that interest upon the sum borrowed was calculated upon the dote of the bond at more than 12 per cent per annum, and added on to the principal, and the whole amount, principal and interest, was agreed to be paid in 8 years; and the further provision was that in default of payment of the instalments, interest should be paid at the rate of 75 per cent, per annum. We think that this provision was intended to be a penalty, and that the debtor is entitled to be relieved from it in accordance with the principles of equity and good conscience. The District Judge has allowed the Plaintiff interest upon the amounts of instalments, in respect of which default has been made, at the rate at which interest upon the principal sum borrowed was calculated at the date of the bond; and we think that is a reasonable compensation to the Plaintiff on account of the breach committed by the Defendant. In the result, we come to the same conclusion at which the District Judge has arrived, and we accordingly dismiss this appeal with costs--five gold mohurs.