Smt. Laxmi Bhargwa and Another vs Dr. Mahesh Bhargwa and Others

Shantanu Kemkar, J.—Both these petitions have been filed against the order dated 23-12-2005, passed by the IX Additional District Judge, Jabalpur in Execution Case No. 1-A/95.

The petitioners of W.P. No. 4112/2006, Smt. Deepa Bhargava and Smt. Laxmi Bhargava (hereinafter referred to as "pLalntiffs") had filed a Civil Suit No. l-A/1995 against the respondents (hereinafter referred to as "defendants") seeking declaration and permanent injunction in respect of the property given to them by their late mother Smt. Parmeshwari Devi by Will dated 26-8-1989.

During the pendency of the aforesaid suit, compromise was arrived at between the parties on 5-5-1995. The Trial Court passed a decree in terms of the said compromise and the compromise petition itself was made a part of the decree.

According to the pLalntiff, the defendants did not comply with the terms and conditions of the compromise decree, therefore, the pLalntiffs initiated execution proceedings against the defendants. During the pendency of the execution proceedings, the defendants made only part payment of the decretal amount. In the execution proceedings various objections were raised by the defendants which were decided by the Executing Court vide order dated 13-11-2003. Dissatisfied with the said order dated 13-11-2003, the defendants filed Civil Revision No. 1291/2003 before this Court. The said Civil Revision No. 1291/2003 was partly allowed vide order dated 5-8-2005 by the learned Single Judge of this Court. The learned Single Judge remitted the matter to the Executing Court to decide whether the stipulation about the interest @ 18% per annum incorporated in the compromise decree is in the nature of penalty and whether it is unreasonable within the meaning of Section 74 of the Indian Contract Act (for short the ''Act'').

Pursuant to the said order, the Executing Court after giving opportunity of hearing to the parties vide order dated 23-12-2005 decided the said objection and held that the said clause in the consent decree for payment of interest @ 18% per annum, in default of making payment within time, is unreasonable. Accordingly, the Executing Court reduced the rate of interest from 18% per annum to 14% per annum. Feeling aggrieved, both the parties have filed these writ petitions.

The contentions of the pLalntiffs is that the Executing Court has no jurisdiction to go behind the decree passed in the suit. They contend that the Executing Court committed error in holding that the consent decree passed in the Civil Suit is hit by Section 74 of the Act. According to the pLalntiffs, the Executing Court has not assigned any cogent reason for reducing the rate of interest from 18% per annum to 14% per annum.

The defendants contend that the Executing Court has rightly held that in view of Section 74 of the Act the stipulation of the rate of interest of 18% per annum in case of failure to make the payment in time, is unreasonable. The defendants contend that the Executing Court ought to have reduced the rate of interest to 6% per annum or atleast to 9% per annum instead of reducing it to 14% per annum.

In order to appreciate the controversy involved in these writ petitions, it would be necessary to reproduce the terms of the consent decree and the compromise entered into between the parties:

(i) That it be declared that the pLalntiffs and defendants Nos. 1 and 2 do not Claim any right in the properties mentioned in the Will of Smt. Parmeshwari Devi dated 26-8-1989 or any other Wills made by Late Smt. Parmeshwari Devi.

(ii) That the properties mentioned in the Will dated 26-8-1989 be declared the properties of defendant Nos. 3 to 5 that is (Vijay Kumar, Mahesh Kumar, Dr. Ashok Kumar).

(iii) That the pLalntiffs have Claimed a declaration to the suit properties which were given to them by dint of Will executed by the late Smt. Parmeshwari Devi in favour of the pLalntiff. It is now agreed between the pLalntiffs and defendant Nos. 3 to 5 that in respect to the above the pLalntiffs shall remain entitled to a sum of Rs. 10 (Rupees Ten) lakhs each, only and rest of sale money shall be exclusive property of the defendant Nos. 3 to 5.

(iv) That the defendant Nos. 3 to 5 shall be at liberty to alienate the properties in any manner they like.

(v) (a) That the defendant Nos. 3 to 5 have paid Rs. 1 lakh (Rs. One lakh) each to the pLalntiffs and the remaining balance shall be paid within six months from the date the decree is passed by the Court. In case of failure of payment within the stipulated time, the pLalntiffs shall be entitled to Claim interest on the above mentioned amount at the rate of 18% per annum and the total balance amount alongwith interest will be first charge on the suit property.

(b) That if after the expiry of the period of six months from the date of decree, the full payment of Rs. Ten lakhs each could not be made to the pLalntiffs then the same should be made within the extended period of three months together with interest. Till then the charge on the property will continue.

(vi) That out of the sale proceeds or earnest money received by the defendant Nos. 3 to 5 by the sale of the suit/Will properties amount due to the pLalntiffs shall be paid first.

(vii) That any transfer or transaction made by the pLalntiffs on behalf of Smt. Parmeshwari Devi will be declared null and void.

(viii) That the Will of Smt. Parmeshwari Devi dated 26-8-1989 or any subsequent Will shall remain ineffective and any clause mentioned in the Will or Wills shall not be operative.

(ix) That the parties shall bear their own costs.

In the present writ petitions the controversy is only in relation to the aforesaid Clause V (a) and (b) of the compromise/consent decree.

It is also appropriate to quote Section 74 of the Act:

Compensation for breach of contract where penalty stipulated for. - When a contract has been broken, if a sum is named in the contract as the amount to be paid in case of such breach, or if the contract contains any other stipulation by way of penalty, the party compLalning of the breach is entitled, whether or not actual damage or loss is proved to have been caused thereby, to receive from the party who has broken the contract reasonable compensation not exceeding the amount so named or, as the case may be, the penalty stipulated for.

Explanation - A stipulation for interest from the date of default may be a stipulation by way of penalty.

... ...

In the case of Parvati Bai and Anr. v. Ayodhya Prasad Jain 1985 MPLJ 703, this Court interpreting Section 74 of the Act, has held that the principles underlying Section 74 of the Act are applicable to a consent decree. Merely because, the contract between the parties is embodied in a decree, it will not lose its efficacy as a contract and shall be subject to all incidents as any other contract. The clause in the nature of penalty would not render a contract unlawful. At the time such contract is being enforced, the Court will have all power to grant relief against such penalty. The Executing Court shall always have power to comply equitable principles embodied u/s 74 of the Act and relieve one of the parties to the contract against any term which operates as a penalty even if such a contract is embodied in the decree of a Court. In such circumstances, it would not be correct to contend that while granting such relief against such a penal clause in the contract, the Executing Court shall go behind the decree.

In view of the aforesaid clear legal position the contention of the pLalntiffs that the Executing Court has no power to invoke the principles of Section 74 of the Act and grant relief, in the case of consent decree cannot be accepted. In the case where the stipulation is by way of penalty and it is unreasonable the Executing Court can invoke Section 74 of the Act and grant appropriate relief even in cases of consent decree. In the circumstances, it has to be seen as to whether the stipulation about the interest @ 18% per annum in default of payment within the time fixed, is in the nature of penalty and whether it is unreasonable within the meaning of Section 74 of the Act. The litigating parties are real brothers and sisters. Having regard to the nature of the suit and the terms of the compromise enumerated in Clause (v)(a) and (b) it is clear that the decree is not in respect of any commercial transaction. In the circumstances, in my view, the stipulation of interest @ 18% per annum in default of payment within the agree period is by way of penalty, the rate of interest of 18% per annum looking to the nature of the decree is unreasonable and excessive. Considering the entire facts and circumstances of the case, the compromise decree passed, I am of the view that the reasonable rate of interest would be 9% per annum and not 18% as per the decree or even 14% per annum as held by the Executing Court.

In this view of the matter, the Writ Petition No. 4112/2006 is dismissed. The Writ Petition No. 4173/2006 is partly allowed. The impugned order of the Executing Court is modified to the extent that pLalntiffs shall be entitled for interest @ 9% per annum instead of 18% per annum in terms of the compromise decree. Parties to bear their own cost.