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Velchand Chhaganlal Vs. Lieut. A. Flagg - Court Judgment

LegalCrystal Citation
SubjectContract
CourtMumbai
Decided On
Case Number First Appeal No. 187 of 1910
Judge
Reported in(1912)14BOMLR18; 17Ind.Cas.13
AppellantVelchand Chhaganlal
RespondentLieut. A. Flagg
DispositionAppeal dismissed
Excerpt:
.....39 months at the rate of in per cent, per mensem added in advance. the sum was made repayable in monthly instalments of rs. 50 for the first 12 months, and after that, of rs. 100 for another 26 months and the balance at the end of the 39th month. on failure to pay any one instalment the whole amount became due at once; bat if the creditor waited longer the defendant agreed to pay interest at 5 per cent, per mouth till payment in full. there was default in payment, and the plaintiff sued to recover the amount of the bond together with interest at 5 per cent, per month. the subordinate judge regarded the stipulation for addition of interest in anticipation in the bond as also the stipulation of enhanced interest at the rate of 5 per cent per month on default, as unenforceable at law, and..........agreed to repay in ahmedabad or at the option of the appellants in nasirabad or elsewhere in monthly instalments of rs. 50 for the first twelve months and after that of rs. 100 for another twenty-six months and the balance at the end of the thirty-ninth month, the instalments to begin from 5th november 1908. and it was stipulated in two subsequent clauses as follows:-' if we fail to pay any instalment on due date as agreed above we jointly or severally promise to pay the who,se amount of the bond at once on demand. but if the firm waits longer we agree to pay interest at 5 per cent, per month till payment in full'.2. the second respondent signed the agreement as surety on the 14th of october 1908, the date upon which the payment of rs. 2440 was made.3. it is noted by the learned.....
Judgment:

Basil Scott, Kt., C.J.

1. The appellants are a firm of money-lenders who through the agency of a firm of commission agents in Bombay advanced to the first respondent a sum of Rs. 2440 on or about the 14th of October 1908. Prior to that payment an agreement upon a stamped paper of Rs. 30 was signed by the first respondent for whose benefit the payment was made. By that agreement he stated that he had received from the appellants Rs. 5500 which he and the second defendant, who was then intended to sign as a surety, agreed to repay in Ahmedabad or at the option of the appellants in Nasirabad or elsewhere in monthly instalments of Rs. 50 for the first twelve months and after that of Rs. 100 for another twenty-six months and the balance at the end of the thirty-ninth month, the instalments to begin from 5th November 1908. And it was stipulated in two subsequent clauses as follows:-' If we fail to pay any instalment on due date as agreed above we jointly or severally promise to pay the who,se amount of the bond at once on demand. But if the firm waits longer we agree to pay interest at 5 per cent, per month till payment in full'.

2. The second respondent signed the agreement as surety on the 14th of October 1908, the date upon which the payment of Rs. 2440 was made.

3. It is noted by the learned Subordinate Judge that the balance of the Rs. 5500 is made up of interest calculated upon the sum of Rs. 6000 for 39 months at rate of in per mensem added in advance. That would make a rate of interest exceeding three per cent, per mensem upon the original advance. At the time of the suit the 39 months' period had not expired, for the suit was filed upon the 13th of April 1910. But the plaintiffs alleged a cause of action by reason of the failure of the respondents to pay due instalments after demand made. That cause of action arises under the first stipulation which we have referred to. The plaintiffs base a claim for interest at 5 per cent, per month upon the second of the stipulations referred to.

4. The learned Subordinate Judge has come to the conclusion that both these stipulations upon which the claim in the suit is based are penal and therefore not enforceable in full by reason of the provisions of Section 74 of the Indian Contract Act, and he refers to ill. (g) to that section as showing that this is a case to which Section 74 is directly applicable. That illustration runs as follows: 'A borrows Rs. 100 from B, and gives him a bond for Rs. 200 payable by five yearly instalments of Rs. 40, with a stipulation that, in delimit of payment of any instalment, the whole shall become due : This is a stipulation by way of penalty.' Again, the stipulation whereby interest at 5 per cent, per month is payable upon the sum due is a stipulation for increased interest from the date of default which, as the explanation of the section shows, may be a stipulation by way of penalty. In the present case it is a stipulation to pay 60 per cent, interest upon a sum which is originally made up very largely of interest at an exorbitant rate. We have, therefore, no hesitation in holding that the second stipulation also is one by way of penalty.

5. Various money-lenders' cases have been cited to us decided by the Indian Courts and one decided by Mr. Justice Darling in the King's Bench Division in England. The English case appears of considerable similarity to the present one and the plaintiffs were the same in both cases suing upon agreements in very much the same form. It is to be observed, however, that the provisions of Section 74 and its ill. (g) were not brought to the notice of the learned Judge. Similarly in the Indian cases, Section 74, as amended by Act VI of 1899, does not seem to have been brought to the notice of the Courts in argument.

6. We are of opinion that the learned Subordinate Judge has rightly decided this case. He has allowed one and a half per cent, per mensem, that is, interest at 18 per cent, upon the amount actually due in respect of sums advanced. This we have no doubt is reasonable compensation.

7. We affirm the decree and dismiss the appeal.


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