Patna High Court
Firm Kari Poddar Ramphal Poddar And Anr. vs Harishankar Mills And Ors. on 2 April, 1957
Equivalent citations: AIR1957PAT542, 1957(5)BLJR509, AIR 1957 PATNA 542
JUDGMENT Sinha, J.
1. This appeal is directed against the order of the Court below dated 14-2-1953, refusing the application of the appellants under Order XXI, Rule 2, Civil P. C., for recording satisfaction of the decree.
2. The facts, shortly, are that respondent No. 1 had filed a money suit, No. 35/5 of 1949/50 against the defendants, including the appellants to this Court, for the recovery of a sum of Rs. 7,343/1/- as the price of certain goods supplied. It was said that the agreement was for payment of the, price together with interest, and, according to the rate prevailing in the market, 9 p.c. p.a. was chargeable as interest. The suit was eventually compromised on 8-3-1951, and a compromise decree was passed on that date.
According to the terms of the compromise, the amount was settled at Rs. 5,000/-; Rs. 2,000/- out of it was paid on the date of the compromise, and Rs. 3,000/- was made payable against receipt either in instalments or in one lump by 7-9-1952. On 8-9-1952, the defendants filed an application for extension of time, but no order was passed on that application as the record was then lying in the Record Room and it was directed to be called for.
The respondent had also filed a petition of rejoinder to the petition of the defendants dated 8-9-1952, and both the petition and the rejoinder were ordered to be put up on 30-10-1952. On 30-10-1952, the defendants again filed a petition for a month's more time to arrange for, payment of the money, namely, Rs. 3,000/-, on the ground of illness of their Managing Director, who was seriously ill, and the matter was fixed for 17-11-1952. On that date, again, the defendants' pleader applied for one month's more time, and the next date fixed was 2-12-1952.
On this date, the defendants filed a petition stating that they had brought the money and that the plaintiff be directed to receive the same, or the defendants be permitted to deposit the same in Court, As the plaintiff had not come to Court, the plaintiff's lawyer prayed for time, and the matter was ordered to be put up on the 3rd December, and on hearing the parties on that date, the Court gave permission to the defendants to deposit the sum of Rs. 3,000/- together with interest at the rate of 1. p.c. p. m. On 18-12-1952, notice was directed to issue to the plaintiff. Chalan showing deposit of Rs. 3,090/- was received in Court on 8-1-1953.
When the parties were heard, the plaintiff objected to the deposit of Rs. 3,090/- only because according to him, after the default made by the defendants, the plaintiff was entitled to the entire amount under the decree. The Court below has now held that the plaintiff had allowed concession to the defendants to satisfy the entire claim namely, Rs. 7343/I/-, by merely paying a sum of Rs. 5,000/- by the date mentioned in the agreement, namely, 7-9-1952, and, as the concession was dependant upon payment within the time allowed, the defendants were not entitled to that concession after the expiry of the time, as they had failed to pay the amount within the date stipulated. In that view of the matter, the Court below has dismissed the application for recording satisfaction of the decree.
3. Mr. Ghose, learned Counsel appearing on behalf of the appellants, has submitted first, that Clause 4 of the compromise petition amounts to a penalty clause, and, therefore, the Court should relieve the appellants of the penalty by putting the parties on terms; and, secondly, that the time was not of the essence of the contract.
4. The law in regard to penalty and forfeiture is embodied in Section 74, Contract Act, the relevant portion of which runs as follows:
"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 complaining 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 increased interest from the date of default may be a stipulation by way of penalty."
The principle underlying this action has been laid down in the case of Barjorji Shapurji v. Madhavlal Jesingbhai, AIR 1934 Bom 370 (A), and I would crave leave to quote the following extract from the judgment of Chief Justice Beaumont:
"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."
To the like effect is the statement of the law to be found in Halsbury's Laws of England, third Edition, volume 14, page 621, Article 1149, and it is in the following words :
"Where money is actually payable, or to become payable, a provision may validly be made for diminishing the amount, or making it payable by instalments, or allowing other concessions to the debtor upon stipulated terms; and if the debtor complies with the terms he is entitled to the benefit of the provision. He must purchase the benefit by strict compliance with the terms; and, if he is in default, the full debt is payable and he cannot claim relief as against a penalty. Upon this principle, when one rate of interest has been stipulated for in a mortgage, interest at a lower rate may be substituted on condition of punctual payment; and where a debt is made payable by instalments, a stipulation that on non-payment of any instalment the entire debt shall become due is not in the nature of a penalty."
In my opinion, therefore, there is no doubt about the principle to be applied in such cases, and this principle has been followed in our Court as well, e.g., Khetro Swain v. Sri Sri Padmanabha Singh Deo, AIR 1943 Pat 403 (B), and Kissen Gopal v. Madan Lal, ILR 16 Pat 395: (AIR 1937 Pat 542) (C).
5. We have, therefore, to find out whether the term for payment of a larger sum of money if the smaller sum was not paid within the time stipulated in the present case was by way of penalty of forfeiture. To arrive at a decision on this point, we have to construe the petition of compromise and to find out what was the amount agreed upon as being due from the defendants to the plaintiff and whether the terms of acceptance of a smaller sum was for the consideration that the smaller sum was to be paid within a stipulated time. The relevant portions of the compromise petition dated 8-3-1951, to be found at page 20 of the paper book, are as. follows :
"1. That inasmuch as it Is beneficial to the defendants to compromise the suit, they have without regard to the statements contained in the pleadings compromised the suit on the following terms and conditions.
2. That the claim in suit, has been settled at Rs. 5,000/- only out of which the defendants have this day paid Rs. 2,000/- only to the plaintiffs and do hereby agree and undertake to pay up the remaining sum of Rs. 3,000/- only to the plaintiffs against receipt either in instalments or in one lump sum by 7-9-1952.
3. That if the payment of the entire sum of Rs. 3,000/- above mentioned is made by 7-9-1952 as stated above 'the amount of claim which is in excess of the agreed sum of Rs. 5,000/- as well as costs of this suit and interest pendente lite shall stand remitted.'
4. That in case the defendants fail to pay up the agreed sum of Rs. 3,000/- or any portion thereof by 7-9-1952 the plaintiffs shall become entitled to recover the entire amount claimed in the suit after deducting therefrom the amount paid by defendants together with the full costs of the suit and interest pendente lite and future till the day of realisation at 1 % p. m. from the person and properties of the defendants which includes one kita pokhta Gola standing over 3 katha and 4 dhurs of land mokari instamrari with sahan appertaining to Gola T. No. 2572 Thana No. 389 Khewat No. 1 bearing R. S. Khata No. 1501 khasra No. 2547 situate in village Phulwaria pergana Malki P. S. Teghra district Monghyr and bounded as follows .
North--House of Lachmi Rai, South -- Road sarkari, East -- Sewana Sograhan, West -- House of Mt. Sobarani Kandu".
(The important words have been underlined(here in " ') by me).
Paragraph 2 states that Rs. 5,000/- was the amount settled to be paid in a certain manner, namely, Rs. 2,000/- immediately on the date of the petition and Rs. 3,000/- later by 7-9-1952. Paragraph 3 states that, on payment of the balance sum of Rs. 3,000/-, the amount of claim which was in excess of the agreed sum, namely, Rs. 5,000/, as well as costs of the suit and interest shall stand remitted.
In my opinion, the expression "the amount of claim which is in excess of the agreed sum......shall stand remitted" is the key to the understanding of the agreement between the parties. This expression shows that the entire amount claimed was, in effect, agreed upon as the amount payable by the defendants to the plaintiff namely, Rs. 7,343/-, but, as per agreement of compromise, if only a sum of Rs. 5,000/- was paid out of it, the balance wag to be remitted. In other words, the liability fixed upon the defendants to pay was to the extent of Rs. 7,343/1/-.
This is also made apparently clear from paragraph 4 of the compromise petition, which says that, in case of default of payment by the date fixed, the entire amount claimed, (namely, Rs. 7,34371/-) would become payable along with full costs and interest pendente lite and future till the date of realisation, and for which a decree will be passed by the Court; that it to say, if the defendants were Unable to avail themselves of the concession made in paragraph 2. the plaintiff was entitled to the entire claim with costs and interest In that view of the matter, in my opinion, it cannot be said that there was any penalty clause or clause for forfeiture. There was no agreement to pay more than the amount due in case of default by way of penalty. The stipulation was that, if the defendants failed to pay within the time stipulated the smaller sum, the entire' claim would' become payable and not any amount more than the claim, It was at one stage submitted by Mr. Ghose that the claim had not been adjudicated by the Court, and, therefore, it cannot be held that the plaintiff was entitled to the full amount claimed in the plaint.
This argument of Mr. Ghose takes no notice of the fact that a decree may be passed on claim proved by. the plaintiff as also on admissions made by the defendant. The latter is the position in the present case. Upon the terms of the compromise petition it must be held that the claim as laid in the plaint was admitted by the defendants, and, therefore that amount was payable to the plaintiff. But if payment was made of the smaller sum by a certain date fixed, as agreed upon, that payment was to be deemed to be a payment in full.
The acceptance of payment of a smaller sum was by way of concession and this concession was secured on the basis of payment within a particular time. If payment was not made within that time, according to the terms of the agreement, the concession is withdrawn, and the defendants are not entitled to invoke the aid of the Court. In that view of the matter, in my opinion, there is no question of penalty or forfeiture in the present case.
5. In the view which I have taken -- and there being no doubt about the principle of law applicable in such a case -- it was not necessary to consider the several cases cited at the bar, but I will consider these cases passingly. Mt. Nand Rani Kuer v. Durga Dass Narain, ILR 2 Pat 906: (AIR 1924 Pat 387) (D), was a case of forfeiture. In that case, it was observed as follows :
"......where the agreement is for the payment of money on a prescribed date and that upon default of payment on that date money or land is to be forfeited, time is not of the essence of the contract."
In that case, the facts were that out of Rs. 20,989/9/-the full claim of the plaintiff, as per compromise decree, Rs. 1,000/- was paid immediately, and Rs. 12,600/- was to be paid on or before the 31st March, 1923, and after that money was paid, the whole claim of the plaintiff was deemed to be discharged. Rs. 1,000/- was paid on the dale of the compromise, and on the 31st May, 1923, Rs. 6,000/, was brought into Court by the defendants, which the plaintiff received under protest; and as regards the balance of Rs. 6,600/-, the defendants asked for extension of time for one month.
On the 4th June, 1923, time was allowed by the subordinate Judge, and it was ordered that payment would be accepted on or before the 30th June, 1923, on condition that the defendants paid a sum of Rs. 164/- on account of intermediate interest to the plaintiff. Against that order, the plaintiff had moved this Court. In dealing with the order of the Court below, it was held :
"I have no doubt that in the present case the Subordinate Judge had jurisdiction to determine whether time was of the essence of the contract. He has decided that it was not and, therefore, it docs not seem to me that Section 115 can be invoked....."
The facts of that case disclose that, in case of nonpayment of the instalment due, the payment already made would not be taken into account, and the entire claim was made payable on failure to pay the instalment. That, in essence, was a clause of forfeiture. Kandarpa Nag v Banwari Lal Nag, 60 Ind Cas 864: (AIR 1921 Cal 356 (2) (E), was also a case of forfeiture, and their Lordships observed as follows :
"We hold accordingly, first, that in the case before us the jurisdiction of the Trial Court to grant relief against forfeiture was not ousted by the circumstance that the agreement had been followed by a consent decree and, secondly, that the nature of the agreement was such as entitled the Court to grant relief against forfeiture on equitable grounds."
The case of Narsinha Gopal v. Balwant Madhav, 64 Ind Cas 570: (AIR 1922 Bom 170) (F), does not appear to have decided any question of principle. It was observed that the defendants could not "escape the consequences of their default except by appealing to our sense of equity", and then it was said --"....we cannot agree with the argument of the plaintiff that in cases of default, we have no power whatever to relieve a party from the consequences of his default." No authorities were cited In that case.
The case of Chhunna Mal v. Hanuman Bakhsh, AIR 1927 Lah 659 (G), a decision of a Single Judge of the Lahore High Court, has reiterated the principles to which I have already made a reference. But, on the facts of that particular case, the case was remanded to the Court below for finding cut as to what was actually due to the decree-holder from the judgment-debtors. This case, however, is useful inasmuch as it has referred to several cases of other Courts on the subject.
It referred to the cases of Kishan Prasad v. Kunj Behari Lal, AIR 1926 All 278 (H), and Jamir Pakir v. Ram Lal Ghose, 32 Ind Cas 697: (AIR 1916 Cal 391 (2) (I). Both these cases were cases where a larger sum was due and there was stipulation that if a smaller sum was paid within a certarin time, the balance would be remitted like the case in hand, and both these cases had held that the Court was entitled to interfere, and that, on failure to abide by the stipulation, the larger sum was payable to the plaintiff. No other cases were mentioned by Mr. Ghose.
6. Mr. Untawalia relied upon, apart from the cases of AIR 1934 Bom 370 (A) and AIR 1943 Pat 403 (B), the case of ILR 1C Pat 395: (AIR 1937 Pat 542) (C) and Gobardhan Das v. Lachhmi Bam, AIR 1954 SC 689 (J). I do not suppose any useful purpose will be served by considering the Supreme Court case because the facts there were entirely different. I have already made a passing reference to the case reported in ILR 16 Pat 395: (AIR 1937 Pat 542) (C). In the latter case, it was held that where during the pendency of execution proceedings the decree-holder agreed to accept a smaller sum in full satisfaction of the decree if payment was made within a certain time and in case of default he was to proceed with the execution without the judgment-debtor being competent to raise any objection, the time was of the essence of the contract, and that it was in a case of forfeiture of the kind where equity would relieve the judgment-debtor. There is, threfore, no substance in the first submission of Mr. Ghose. I propose to deal with the question of increased interest later.
7. Now coming to the second contention as to whether time was of the essence of the contract or not, in my view, it was, because the concession was purchased by the defendants only for the consideration that the lesser amount was to be paid within a certain time; and if the concession failed by non-payment of the money in time, the defendants were not entitled to any extension of time, nor was the Court competent to intervene to relieve the defendants of the consequences of their own default.
In Bhagwat Narain Singh v. Srinivas, 17 Pat LT 940: (AIR 1937 Pat 113) (PB) (K), it was held that, in order to decide whether in a particular case time was of the essence of the contract, the contract itself must be looked into. In that case, the sale had taken place, and, thereafter, it was agreed that, if certain money was paid within a time fixed, the tale would be set aside; if not, the sale would be confirmed. The money was not paid within time and the sale was confirmed, and their Lordships observed in regard to that contract as follows:
"The wording of the contract, in our opinion, clearly shows that the parties meant that the benefit which was to accrue to the judgment-debtors would be lost to them if the payment was not made within the specified time; or, in other words, time was of the essence of the contract."
8. It is true that in the claim the rate of interest mentioned was 9 p. c. p. a.; in the contract, however, in case of default, the interest was increased to 1 p. c. p. m. The question is whether the defendants are entitled to any relief on that ground. Mr. Untawalia contended that, as the application was merely an application under Order XXI, Rule 2. of the Code of Civil Procedure, this question ought not to be answered by this Court and the matter should be left to the Court below to decide about the penal nature or otherwise of this agreement for interest.
In my opinion, however, now that the matter has been argued before us, it will serve no useful purpose to leave this matter to the Court below. I have, therefore, decided to consider it. In my view, this increased rate of interest amounts to a penalty, and the Court is entitled to give relief to the defendants so far as the payment of the penal interest is concerned. It was so done in the case of AIR 1927 Lah 659 (G), already referred to. I would, therefore, hold that the plaintiff would not be entitled to interest at 1 p. c. p. m. but would be entitled to interest only at the rate mentioned in the plaint, namely 9 p. c. p. a.
9. In the circumstances mentioned, the appeal fails, and it is dismissed with costs, except in regard to the modification made in the rate of interest, as mentioned above.
Dayal, J.
10. I agree.