1. This was a suit for sale to recover the balance of about Rs. 924 due on a mortgage. The mortgage was dated the 12th June, 1915, and was for a sum of Rs. 600 at 2 per cent p.m. simple interest. A total amount of Rs. 1368 had been realised by the mortgagee up to 1924, the last payment being an item of Rs. 500 made by the defendant mortgagor on 28th May 1924. On that date some further amount was due on the mortgage, an amount which has not been so far ascertained. An agreement was arrived at between the mortgagee and the mortgagor which is set out at the bottom of p. 8 of the paper-book. No question has been argued before us that the terms embodied on the particular slip of paper did not constitute a binding agreement. It is translated in the paper-book as follows:
Only Rs. 300 remains to be paid out of the amount settled. You agree to pay it within 5 months, i.e., on or before Miti Katik Sudi Puranmashi Sambat 1981 (11th November 1924), If it is not paid as agreed, then we shall realise whatever has been remitted.
2. Both the lower Courts have held that the provision that the mortgagor might revert to a claim for the amount which prior to the agreement he had been claiming as due on account on the mortgage was a penal provision and therefore, subject to revision by the Court. In determining whether the stipulation in this agreement amounted to the naming of a penalty or not the question should in my view be looked at broadly: 'What was the situation at the time between the parties?' It would appear that both the mortgagor and the mortgagee were in agreement that there was some amount due and legally recoverable upon the mortgage. It may have been and no doubt was in dispute as to what that exact sum was but again manifestly it was a sum that both parties felt confident was more than Rs. 300, for otherwise the mortgagor would have had nothing to gain from the agreement. In order to avoid litigation on the point the mortgagor was prepared to pay Rs. 300 within five months if the mortgagee was prepared to waive the balance, and the mortgagee was prepared to waive that unascertained balance if the mortgagor paid Rs. 300 within five months. They naturally had to contemplate what was to happen if the Rs. 300 was not paid within the stipulated period. They then provided that on default in payment the agreement should be wiped out and the status quo restored. This appears to us a fair representation of the situation. The mortgagee said:
If you will agree to pay ma so much I will accept it; if you do not so pay I must stand upon my legal rights.
3. It does not appear to us that such a stipulation can be regarded as a penalty. There was no exacting from the mortgagor anything more than was due to the mortgagee at the time the agreement was entered into. There is a verbal but no essential difference between the case where the mortgagee says:
If you pay within a certain time I will upon receipt of the payment remit the rest
and the case where he says:
I remit the rest provided that you pay me so much within a certain time; and provided that if you do not so pay, I will revert to the old situation.
4. It is merely a different manner of expressing exactly the same thing.
5. We do not overlook the contention of the respondent based upon the opening words of Section 74:
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... the party complaining.
6. But the words:
If a sum is named in the contract as the amount to be paid in case of such breach
must be read in the light of the words which follow i.e. 'any other stipulation by way of penalty.' This shows that there must be something in the nature of a penalty governing the earlier proposition also. Now if we consider the illustrations in which it is declared that the stipulation amounts to a penalty, we find that in every case some further sum is to be paid by the person giving the undertaking larger than the amount that was due from him independently of the agreement. It seems to us therefore that the term 'penalty' cannot be properly applied where all that is agreed between the parties is that they shall revert to the situation existing immediately prior to the new agreement, even though that may involve liability on the part of one of them for a sum greater than if he had carried out the agreement. We would therefore allow the appeal with costs hitherto in all Courts and remand the case to the lower appellate Court for disposal according to law.