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"Duty not to enforce the penalty clause but only to award reasonable compensation is statutorily imposed upon Courts by Section 74. In all cases, therefore, where there is a stipulation in the nature of penalty for forefeiture of an amount deposited pursuant to the terms of contract which expressly provides for forefeiture, the Court has jurisdiction to award such sum only as it considers reasonable, but not exceeding the amount specified in the contract as liable to forfeiture."

In the decision in Shree Hanuman Cotton Mill's case, the Supreme Court observed as follows:-