Venna Tatayya vs Kakarla Gangayya

Odgers, J.—This is an appeal against the order of the Subordinate Judge of Masulipatam dismissing the defendant''s petition to accord

satisfaction pro tan to of the first instalment of a razinamah decree passed in O.S. No. 24 of 1924 on the file of the Subordinate Judge of

Masulipatam. The decree was made, we are told, in a mortgage suit and incorporated a razinamah by the parties, and the essential parts of it are

as follows : ""The Court doth hereby order and decree that defendants do pay to the plaintiff according to the following instalments as between

themselves fixed, the amount of Rs. 30,447-6-0, together with interest thereon at Re. 0-10-0 per cent. per month from this date, being the balance

remaining after deducting the Rs. 2,500 which defendants obtained as remission from the entire amount of this suit and costs together with

subsequent interest up to this date."" Then the decree proceeds to details of instalments. Rs. 4,000 was payable on or before the 23rd August,

1925; Rs. 6,600 and odd was payable on or before the 23rd August, 1926; and there are three other instalments payable up to the 23rd August,

1929. The decree further proceeds that ""in default of payment of any one of the said instalments, the plaintiff do recover, irrespective of the future

instalments, the entire amount of principal and interest that remains outstanding by that date, together with interest at Re. 0-10-0 per cent. per

month from that date, and together with the costs of warrant, etc.

In the Lower Court the appellant here took various points. He alleged a tender of Rs. 4,000 on the 23rd August, 1925, which he says he could

not pay to the decree-holder owing to his absence from his house, that he went next morning with P. Ws. 3 and 4, whereupon the decree-holder

observed that-default had been made and demanded the payment of the whole amount. After some discussion he agreed to waive the default on

condition that the first and second instalments were both paid within 6 months from that date. Now the only point on this that has been argued

before us is that of waiver by the decree-holder on the 24th August, 1925. We have been taken through the evidence of P. Ws. 3 and 4 who

assisted in bringing about the original razinamah and we see no reason to disturb the finding of the learned Subordinate Judge that their evidence

cannot be accepted. That then is the question of fact.

A question of law has been fully argued before us and that is this; that the transaction must be viewed in the nature of a penalty u/s 74 of the

Contract Act, because the contract as contained in the razinamah is to pay Rs. 4,000 on the 23rd of August, 1925, and in default of so doing the

whole Rs. 30,000 odd becomes due and payable and that this is a penalty and falls within Illustration (g) to Section 74. Now I am quite content

not to go beyond the terms of the decree and my construction of the decree is that it is an acknowledgment to begin with, that Rs. 30,000 odd is

due and payable by the judgment-debtor to the decree-holder and that the agreement to pay by instalments is for the benefit of the judgment-

debtor and is really a concession by the decree-holder. If that is so, that is to say, if the sum payable in praesenti is Rs. 30,000, that is the liability,

and, if the instalments scheme is merely a mode of payment, then, as Mr. Patanjali Sastri frankly admits, the foundation of his case as to the Rs.

30,000 being a penalty is gone. He wishes us to assume that this is wrong and that the liability originates with the payment of each of these various

instalments. His contention is that in that case the payment of Rs. 30,000 in default of payment of a sum of Rs. 4,000 is clearly a penalty. Now it is

to be observed, distinguishing this case from that in Ramalinga Adaviar and Another Vs. Meenakshisundaram Pillai and Others, before Srinivasa

Aiyangar, J., that in that case the money had not yet become due, that is to say, the instalments of the chit fund amounts were payable in future in

respect of a future liability. The learned Judge points out that on his construction of the document in that case there was no present debt created for

the whole amount and that the parties agreed that it was only on the due dates that the amounts of the instalments should become due and payable.

The learned Judge also says that ""the question whether the parties to the contract treated the amounts for which the bond was given as debita in

praesenti although solvenda in futuro was a question of intention to be gathered from the document itself"". The learned judge comes to the

conclusion that in order to constitute a penalty it must be burdensome or oppressive and must operate in terrorum over the promisor so as to drive

him to fulfil the contract. The learned Judge examined at some length the Illustrations (f) and (g) to Section 74, Contract Act, and pointed out that

the principle underlying Illustration (f) is that the whole of the debt being payable immediately, the creditor agrees with the debtor to allow him to

pay the amount by instalments so long as he pays them regularly. Now, with great deference, nothing is said in Illustration (f) as to the whole of the

debt being immediately payable and the learned vakil for the appellant seeks to differentiate the, two illustrations by the fact that in this case interest

is payable and therefore it falls under Illustration (g). But it is to be observed in the present case that the interest is part of the sum payable itself;

that is to say, that the Rs. 30,000 carries interest at 7 1/2 per cent. which is exactly the same interest : as is charged on each of the instalments; so

that it seems to me that the fact that no interest is mentioned in Illustration (f)--and it may be somewhat unnatural to suppose that the loan

mentioned therein would be one without interest--does not seem to me to make any difference, especially as in (g) we have an illustration of what

is obviously an unfair bargain which might amount to paying 100 per cent. for the accommodation. So the question resolves itself into this : Does

the stipulation that on non-payment of an instalment of the debt due the whole amount is to become payable, constitute a penalty under the section?

It seems to me that the authorities are in favour of regarding this as outside the provisions of the section. For instance, in Walling ford v. Mutual

Society (1880) 5 AC 685, it is said by the Lord Chancellor that acceleration of payments is not a penalty. He held that the contract was for certain

debts which were owed immediately, though payable in future, and ""being such, it is consistent both with principle and with authority to hold, that if

the party who ought to have paid them or any of them at the proper time failed to do so, the default was his own and the time might lawfully be

accelerated for the other payments which were originally deferred"". Thai is a perfectly general proposition and seems to me to cover the present

case. It is also to be remarked that in the case of a contract to pay a given sum of money, the sum named as payable on breach must be a sum in

addition to the principal sum due under the contract, whereas in this case the sum payable is only the original amount of the debt as agreed to be

due between the parties. And in Ex parte Burden. In re Neil (1881) 16 Ch. D. 675, a case of a payment of a less amount by instalments provided

they were punctually paid, and on a default in payment of the last instalment it was held that the creditor might sue for the balance of the original full

amount due. ""The debtor must pay that which he would have had to pay if the agreement had never been made,"" says James, L. J.; and Cotton, L.

J., said : ""I know of no case in which the equitable doctrine about penalties has been applied to a case in which a creditor agrees to reduce the

amount of his claim on certain conditions, but that on the failure of the debtor to fulfil any one of those conditions the original rights of the creditor

shall revive, and in my opinion the doctrine ought not to be applied to such a case."" We have further a case of the Allahabad High Court in Kishen

Prasad v. Kunj Behari (1925) 91 IndCas 790 which seems to me to support the view put forward by the learned vakil for the respondents. As

pointed out by one of the Judges, ""According to the terms of the compromise, therefore, if there was to be a default the plaintiffs were to get

nothing more than what was declared to be due to them"". It seems to me to be precisely the case here. There is also an observation in a recent

Letters Patent Appeal, Nos. 101 and 102 of 1924, which lends support to the same view.

On the best consideration I can give to the matter, I think the balance of authority is distinctly in favour of holding that a stipulation that the whole

amount due should be paid on default of a payment of any instalment cannot be held to be in the nature of a penalty within Section 74 of the

Contract Act in a case like the present. I therefore would dismiss the appeal with costs.

C.M.A. No. 107 of 1927 is also dismissed with costs.

Curgenven, J.

I agree with my learned brother upon a construction of the decree, that it finds a sum of Rs. 30,447-6-0 payable by the defendants to the

plaintiff on the date on which it was passed and that it further provides for the payment of this sum according to certain instalments and for the

alternative that the whole amount still due should be payable upon default. I am unable to accept Mr. Patanjali Sastri''s argument that these terms

amount to no more than the sums payable as instalments come into existence as debts only at the times when they are payable and not before. One

clear argument against that position is that these sums are to bear interest from the date on which the decree itself was passed. In fact, I think that

the decree is nothing other than for a sum, present and for provision for a certain method of payment by instalments and provision further for

default on failure to pay. The question accordingly is whether the acceleration of payment which is to happen upon default is in the nature of a

penalty within the terms of Section 74 of the Indian Contract Act. I am prepared to concede that under the express terms of that section it is not

very easy to, say that a condition of this kind is excluded from its scope, because, in addition to laying down that the penalty may be a sum named

in the contract as the amount to be paid in case of breach, it includes also the clause that the contract may contain ''any other stipulation by way of

penalty'' which is a very wide method of expression. Turning, however, to the illustrations, we are given a contrast in the last two which 1 think is

perhaps intended to set the matter at rest. It is quite clear that the case in illustration (f) relates to a mere acceleration and not to the exaction of any

extra amount by way of penalty, whereas in Illustration (g) the borrower not only has the payment accelerated but he is to pay upon it the interest

which was properly due only upon the loan if it had run for its full course. That is the principle upon which these two illustrations have been

distinguished by the learned authors Pollock and Mulla in their Commentary on the Indian Contract Act, and it appears to me that that is the clear

distinction between them. It is no doubt founded upon English case-law and especially upon the case Walling ford v. Mutual Society (1880) 5 AC

Mr. Patanjali Sastri has endeavoured to distinguish that case on the ground that the debt there was existing throughout and that the grant of

instalments for the payment of it was a mere concession which the creditor was entitled to withdraw. Whether or not the similar term in the decree

here regarding instalments can be regarded as a concession, I have already expressed my view that the debt must be regarded as existing from the

first, and upon this ground 1 would distinguish this case from that dealt with by Srinivasa Aiyangar, J., in Ramalinga Adaviar and Another Vs.

Meenakshisundaram Pillai and Others, where he draws a distinction from the English case on the ground that the debt he was dealing with came

into existence piecemeal as the instalments fell due. Again in Ex parte Burden. In re Neil (1881) 16 Ch. D 675 the principle has been enunciated in

the judgment of Lush, L. J., that a penalty must be something which a debtor has to pay over and above his original liability as a punishment. The

same principle, I think, is apparent as underlying the decision of Kishen Prasad v. Kunj Behari Lal 91 IndCas 790, where it was held that if the

agreement provided that, if the payment were not made according to date the plaintiff would be entitled to recover the whole amount claimed by

him from the defendant, it cannot be said to contain a penal clause inasmuch as it merely amounts to the withdrawal of a concession; and that in

such a case time must be regarded as of the essence of the contract. I would add that in my experience it is no uncommon thing for a decree to be

drafted in accordance with the provisions of Rule 11 of O.20, C. P. Code and providing for the payment of the sum due by instalments, with the

alternative that upon default the whole amount may be executed for, and I have never heard it said that in such a case this alternative direction can

be relieved against as a penalty.

I agree therefore that the appeals must be dismissed with costs.