J.B. Mehta, J.
1. These two companion matters raise two common questions as to whether the consent decree operates as a lease and whether it contains a penal clause so that the equitable jurisdiction of the Court may be invoked to give relief against forfeiture or the penalty. In both these matters Mr. Mehta had amended the memo of appeal for raising the wider question as to whether the consent decree in these two cases which is passed under Section 12 of the Rent Act and not under Section 13 would be null and void as it is alleged to have been passed solely on the consent terms without the Court applying its mind to the relevant question. This third contention was raised at no stage of the proceeding and in the view which we are taking it would not be necessary to go into the third larger question in both these matters. Besides, the decree-holder would be seriously prejudiced if these contentions would be allowed to be raised at this stage because he would have no opportunity to show the state of the original record by pointing out whether the Court had applied its mind for arriving at the relevant satisfaction as to the applicability of Section 12 before passing the consent decree in question. There is no dispute that in both the cases at the relevant time the Saurashtra Rent Control Act, 1951, was the law applicable.
2. The legal position is well-settled in this case after the two Full Bench decisions that even though ordinarily a consent decree cannot be modified except by consent of the parties, equitable jurisdiction of the Court can be exercised in two well-known recognised exceptions: (1) where the consent decree creates a lease with a forfeiture clause, and (2) where the consent decree embodies a contract involving penal clause, in which case, the very legal incident arising from Section 74 of the Contract Act would imply a provision for relief against such penalty. Therefore, in both the cases, exception from the normal rule is founded on the ground that the consent decree being a contract between the parties with the seal of the Court super added, it would be governed by the ordinary incidents of the contract between the parties. In the first category of cases it being a contract of lease with a forfeiture clause, the normal incident of such a contract would be to imply a provision giving power to the Court to give relief against forfeiture and, in the second category of cases, the parties, contract embodied in the consent terms would carry the legal incidents specified in Section 74 of Contract Act, which would necessarily imply power in the Court to give relief against any penal stipulation between the parties. The first exception has been recognised in Krishnabai v. Hira Govind 8 Bom.L.R. 813 by the Full Bench consisting of Sir Lawrence Jenkins C.J. Aston J. Beamon J. and Heatou J. The second exception was recognised by the decision in Waman v. Jeshwant A.I.R. 1949 Bom. 97 by the Full Bench, consisting of Chagla Ag. C.J., Bavdekar and Gajendragadkar JJ. In the later Full Bench decision the earlier Full Bench decision was not noticed. Their Lordships however held that it was the extreme view that a consent decree could not be modified except by consent and, therefore, equitable jurisdiction could not be invoked by the Court in case of a consent decree. Their Lordships also considered that out of the two rival views, one laid down by the learned Chief Justice Sir John Beaumont and the other by Sir Norman Macleod, the correct view was one laid down by Sir Beaumont C.J. that there was no general power in Courts of equity to disregard agreements which they thought unjust. That principle applies not only to consent decrees but also to decrees passed by the Court in invitum. In the case of a consent decree, it is the question of the sanctity of contract, while in the case of a decree, it is the question of solemn adjudication by the Court of the rights of parties. Their Lordships overruled the other view which was sought to be propounded by Sir Norman Macleod that it was the privilege of the Court to administer equity, and in following the principles of equity, to relieve against forfeiture, if it considered the nature of the case required it. Their Lordships in this later Full Beach decision overruled the other line of approach by pointing out that the Court could relieve both against penalties or against forfeiture, but without going into the question, whether the consent decree contained a clause of a penalty or a mere concession, relief could not be granted so as to relieve from the effect of such a stipulation. In this later decision. Their Lordships approved the settled test for arriving at a concession as distinct from a penalty as under:
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 damage 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.
While explaining these two Full bench decisions, the Division Bench consisting of Gajendragadkar and Dixit JJ. in Gajanan v. Pandurang : AIR1951Bom290 pointed out that both the aforesaid decisions do not cover same or similar grounds and were in fact dealing with two entirely different situations with two well-known classes of exceptions to the aforesaid general rule. Krishnabai's case in 8 Bom. L.R. 813 was a case of a lease with a forfeiture clause where relief against forfeiture was granted by invoking the equitable jurisdiction of the Court, while in Woman's case A.I.R. 1949 Bom. 97, the question was of relief against penalty by relying on Section 74 of the Contract Act. In the case before the Division Bench the compromise decree allowed the defendant to remain in possession of the premises as a tenant of the plaintiff. The consent decree further provided that in a case of default made by the defendant in paying the decretal amount as agreed therein, the plaintiff should recover possession of the property through the Court. The judgment debtor did not pay the amount on or before September 30, 1947, but paid the amount in question on the next day on October 1, 1947. The question had arisen whether the defendant should be relieved from the consequence of that technical default. The Division Beach held that was the case which fell within the first exception in Krishnabai's case. The compromise terms did create or continue relationship of landlord and tenant between the parties and the forfeiture which the decree-holder sought to enforce had resulted only from the failure of the judgment-debtor to pay the amount in question within the stipulated period. Therefore, following Krishnabai's case, the judgment debtor was held to be entitled to the relief claimed by him for being relieved from this forfeiture. Therefore, in case of such consent decrees, these two questions have always to be considered which entitle the Court even in a consent decree to give relief against forfeiture of the lease or against the penal stipulation in the compromise terms. That is why these two questions have arisen in these two appeals as to whether the consent terms created a lease and whether this particular stipulation, which entitled the decree-holder to recover possession by execution of this decree on default in payment as agreed, could attract the relief on the ground that such a stipulation was a penal stipulation.
3. Even the tests in this connection are well-settled. In Rammurti v. Gopinath : 2SCR559 their Lordships laid down the test which is decisive when the Court has to consider the question whether a compromise decree created a lease or not. The compromise in question before their Lordships in terms provided for an eviction decree by stipulating that the defendant shall vacate the said house on the expiry of five years term, failing which the decree-holder would be entitled to execute the decree and recover possession through the Court. There was a default clause that if the rent for three consecutive months was not paid, there was liberty reserved to the plaintiff not only to adjust the advance towards arrears but evict the defendant from the suit house without waiting till the expiry of the aforesaid five years' term. In the context of such consent decree, their Lordships held that what was a decisive consideration was the intention of the parties which had to be ascertained on a consideration of all the relevant provisions in the agreement. Mere delivery of exclusive possession or the use of the term 'rent' or even the fact that five years' period was granted to the judgment-debtor for continuation of the possession would not militate against the construction that the compromise only created a licence. In order that a lease may be created exclusive possession must be coupled with interest in the property. Their Lordships further pointed out that a golden rule which should be applied was that the law did not impute intention to enter into legal relationship where the circumstances and the conduct of the parties negative any intention of the kind, In the case before their Lordships the decree-holder had brought a suit for ejectment and, therefore, it was difficult to impute to him intention to create a fresh tenancy. That fact showed that his intention was to eject the judgment-debtor after having purported to terminate the tenancy, and the eviction decree which was passed in that case was with a default clause which enabled the decree-holder to execute the decree even earlier If the judgment debtor failed to pay rent for any three consecutive months. Their Lordships held that circumstance was conclusive to show intention of the parties not to enter into any relationship of a landlord and tenant. Their Lordships also considered the definition of the term 'tenant' in Section 2(5) of that Act which included a person continued in possession after termination of the tenancy and even against whom suit was pending but not a person against whom decree for eviction had been passed. Where such a categorical decree of possession had Been passed against the judgment debtor giving concession or accommodating him fat a term of five years, With a default clause which Would deprive the judgment-debtor of the concession at an earlier date if he failed to avail of it, it was, held in these circumstances not to create any fresh lease. The conduct of the parties negatived any such intention.
4. As regards the other question as to the distinction between the penal stipulation and a concession, the legal position is well-settled after the decision in Simralhmull v. Nanjalingiah : AIR1963SC1182 their Lordships pointed out that it was a settled principle that equity relieves against penalties when- the intention of the penalty is to secure payment of a sum of money or attainment of some other object and when the event upon which the penalty is made payable can be adequately compensated by payment of interest or otherwise. Thus relief is granted in equity against the penalty in a money bond, and also against penal sums made payable on breach of bonds, covenants and agreements for payment of money by instalments or for doing or omitting to do a particular act. But there is a self-recognised exception to this rule.
Where under a contract, conveyance, or will a beneficial right is to arise upon the performance by the beneficiary of some act in a stated manner, or at a stated time, the act must be performed accordingly in order to obtain the enjoyment of the right, and in the absence of fraud accident or surprise, equity will not relieve against a breach of the terms.
Applying these principles to the facts of that case their Lordships pointed out that the case was one of a single transaction of a sale deed, the deed, of reconveyance and the rent note and not one of mortgage by conditional sale. In such a case the original vendor in whose favour option was reserved for repurchasing the property sold by him, had only the benefit in the nature of concession or privilege. Such concession or privilege must always be exercised by fulfilment of the agreed conditions. If the original vendor failed to act punctually according to the terms of the conduct, the right to repurchase would be lost and could not be specifically enforced. Refusal to enforce the terms specifically for failure to abide by the conditions did not amount to enforcement of a penalty and the Court had no power to afford relief against the forfeiture arising as a result of breach of such a condition. Therefore, even if the vendor lost the right of repurchase, because of the default he committed in not performing the second condition that the rent shall be payable should not be in arrears for more than six months, there was no question of relief against any penal stipulation.
5. Therefore, as per these two settled tests we must examine the question from the point of view of the intention of the parties to find out whether the consent terms created a lease. We could never lose sight of the main fact that the consent terms were arrived at in the ejectment suit where the landlord's intention was to eject the judgment-debtor. If in such a consent decree a decree of eviction was passed whereby any accommodation is given to the tenant by way of a concession to continue in possession for this stipulated period, with the default clause which would deprive the tenant of the benefit of the concession if he failed to avail of the same by fulfilling strictly the terms of that concession, such a decree of eviction would neither amount to a lease nor can it be said to be a penal decree. That was what happened actually in the decision before the Supreme Court in Rammurthy's case where the decree of eviction was passed which merely gave concession of five years to the tenant with a default clause that the concession may come to an end even earlier. If the tenant did not avail of the same by strictly fulfilling its terms in such a case, there can be no relief against forfeiture of the tenant's right to continue in possession because there was neither the fresh lease nor any penal stipulation. If, however, the decree created a lease right of the tenant to continue in possession subject to a forfeiture clause, it would carry the implied term giving power to the Court to relieve against that forfeiture. The same would be the position when even though the consent terms did not create a fresh lease, it allowed the tenant to continue to remain in possession indefinitely as a statutory tenant so long as he paid rent. In such a case if there is a further stipulation in the consent terms that the right of the tenant to continue in possession shall be forfeited on his committing default at any time in payment of rent, the landlord would be clearly getting a larger relief of possession when that default would be committed. What was originally a money decree, with a stipulation that the tenant shall continue to remain in possession and which merely provided the consequence of default if the rent was not regularly paid, would ripen into a decree for possession. Therefore, the smaller money decree gets enlarged into a larger decree of possession on the default of the tenant. Such a clause would be clearly a penal clause. There would be no question of any privilege or concession here, as that would be the case where what is agreed between the parties is the possession decree straight away giving some time-limit to the tenant by way of concession or as a privilege so that he may accommodate himself. The material distinction between the two cases is that in the first case the compromise terms clearly involve from the outset a decree for possession, and the further stipulation only carves out a concession from this decree by giving some relief to the concerned tenant. That is why a person who is given such a concession must perform the condition strictly and there would be no question of any penalty in such, a case. In the other case, however, the decree in its essence is not at, decree for possession. It is only at the outset a money decree. The intention of the parties in case of such a money decree or when the tenant is allowed to continue indefinitely on his paying due rent would be clearly to secure payment of that sum of money. When therefore a default is committed by a tenant by not paying that amount at the prescribed time or at the prescribed intervals as per the intention of the parties, relief would have to be given against such a penalty which only ensures payment of the sum of money, which damage even can be adequately compensated by payment of interest or otherwise. As per the settled principles pointed out by their Lordships in Simruthmll's case relief would always be granted in equity against such a penalty in money bond. The penal stipulation did not consist of payment of only a larger sum of money. It consists of such a much larger relief when possession is so vitally needed in these days of acute shortage of housing, or business accomodation. In this context it may also be important to consider whether the landlord was entitled to obtain an immediate decree of possession and he was only making a concession or whether he was continuing only a statutory tenant and getting the penal stipulation from him of a decree of possession in the event the tenant committed default. In that context the relevant provisions of the Rent Act may have a proper bearing for arriving at the true intention of the parties.
6. Mr. Shelat, however, vehemently argued that a Court may pass a conditional decree of eviction and in such a case whatever concession has been given for the time being by allowing the tenant to continue in possession could never be treated as a penal stipulation. Mr. Shelat had in this connection vehemently relied upon the decision of Gokhale J. in Datta.raya Vishnu v. Padmakar 63 Bom.L.R. 148 and the decision on, Kapur J. In Hiralal v. Gyansing and Co. A.I.R. 1951 Punjab 441. These two decisions do not propound a different principle. We are not concerned with the other question whether the terms were rightly construed as a concession in these cases or not, as it was assumed that a tenant who was in. arrears at the date of the suit and even at date of the decree was liable for an immediate decree of possession. That fact might have been responsible for the assumption made in those cases that what was done by the parties was to grant only a concession to the tenant. There would be no room even for such an assumption in the present case where there was dispute for standard rent which was sought to be resolved only in the compromise terms. After the decision in Vora Abbasalal's case V G.L.R. 55 and a series of decisions of this Court, it is now well-settled that where there is a dispute of standard rent, until that dispute is first resolved by the Court, the tenant would not be able to comply with the provisions of making a deposit of the arrears of rent due from him so as to avail himself of the benefit which is given by the relevant statutory provision. Therefore, in such cases at least there could never been any such assumption that the landlord was entitled to immediate decree of possession and, therefore, what the parties had agreed was to give only a concession to the tenant. If the money decree is passed and there is no decree of eviction at a fixed date with mere concession to continue for some time as explained by us it is obvious that the person is continued as a statutory tenant. In the context of such a case if his right and protection under the Rent Act are sought to be done away with by such a penal clause which immediately results in a decree of possession on his default in paying the rent due, the said clause would be prima facie one by way of a penal stipulation. The entire right to continue in possession which is first granted and which carried the status of a statutory tenant would stand forfeited when the default would take place. The intention of the parties in providing such penalty was obviously to secure the payment of rent in accordance with the agreed terms and in that event, if any default was made, the landlord would be properly compensated by a relief of interest or otherwise. That is why in such a context if the stipulation is that the consequence of default in making payment as per such a decree would be the order of eviction, it is obvious that the stipulation of this nature would be penal in the circumstances, especially as it would take away the protection under the Act by mere consent.
7. Mr. Shelat next argued that it is well-settled that the principles of relief against forfeiture which are embodied under Section 114 of the Transfer of Property Act would never apply in such cases where the Rent Restriction Act gives statutory protection only if the case falls within its four corners. There can be no dispute about this proposition of law. If the decree of the Court was in invitum after proper adjudication, there would be no question of giving relief against forfeiture. The present decree is a consent decree including the penal clause and therefore the provision of Section 74 is attracted to this case. It is this implied term by way of an incident of this contract to which the command of the Court is super added which carries this equitable jurisdiction to give relief against a penal stipulation. By consent the Court under the Rent Act could not pass such a decree whereby a statutory tenant renounced his protection under the Act. Therefore, we must examine these two matters in the light of this settled legal position.
8. In L.P.A. No. 35 of 1969 a suit for eviction was filed on the ground of arrears of rent on April 18, 1960. Within 10 days on April 28, 1960, this consent decree was passed. It was provided in the consent terms that the amount of Rs. 525/- was payable by the defendant to the plaintiff towards the claim in the suit and for costs. Towards the said amount as Rs. 260/ had been paid, the balance amount of Rs. 265/- was to be paid on or before St. 2017 Magsar Sud 2, corresponding to November 30, 1960. Thereafter the consent terms provide that if the defendant failed to pay Rs. 265/- on the said date, the plaintiff would be entitled to recover the sum together with running interest thereof at the rate of 9% from the person and property of the defendant. Thereafter the material clause runs as under:
The defendant shall pay to the plaintiff, rent at the rate of Rs. 9-11-4 per month, as it may accrue due on the date eighteenth of every English month from the date 18-4-60, that is to say, from the date 18-5-60. If the defendant fails to pay the tent as it may accrue due or fails to pay the amount as per the above instalments, She plaintiff shall be entitled lo get the shop in question vacated. Defendant No. 2 and the minors are exempted from the liabilities arising out of this suit. They are not in occupation of the shop in question. The standard rent for the suit shop is fixed at Rs. 9-11-4 and shall be calculated accordingly....
Even before the aforesaid term of November 30, 1960, as the defendant did not pay the rent from month to month as agreed, the present execution application was filed on October 10, 1960. When the warrant was issued even without executing the same the judgment-debtor paid up all the dues and, therefore, the decree holder did not press for execution of this warrant. It is on these facts that the aforesaid two questions have to be answered. Our learned Brother was right in holding that these consent terms could not create a lease in view of the aforesaid settled legal position. The landlord had filed an ejectment suit and got this consent decree. Looking to the conduct of the parties, it is obvious that he never intended to create a fresh lease. That, however, does not dispose of the entire question in controversy. Our learned brother's attention was not drawn to the other aspect as to whether this being a penal clause the relief against penalty could be given or not. This is a pure question of law which is sought to be argued on the record itself. It goes to the root of the matter. Therefore, even in the Letters Patent Appeal it would be proper to permit Mr. Mehta to raise that question. All along the question was argued on the footing that the tenant should be given relief. Only this particular facet was not referred to in the arguments. When such point is raised which goes to the root and which is sought to be argued on the record as it is, even at the Letters Patent Stage it could be permitted. From the aforesaid recital of the consent terms, it is clear that this is not a decree for eviction straightaway giving any concession for any limited period to the tenant to continue in possession. Even though it may not be a lease, equally it is not a possession decree straightaway. At the outset the decree which is passed is only a money decree which provides the date of payment of the arrears and the date for payment of the future rent from April 18, 1960, from month to month beginning from May 18, 1960. It is this default which is relied upon by the decree holder for seeking execution of this decree, because for the arrears, the stipulated time till November 30, 1960, had not even expired on the date when the execution application was filed on October 10, 1960. Thus, this is a mere covenant that the tenant shall continue in possession indefinitely till he regularly paid rent which accrued due. It is sought to be enforced as the decree for possession on the default being committed by the tenant. Such a stipulation in these consent terms which did not create at the outset any decree for eviction would clearly create the relationship of a statutory tenant. The statutory tenancy was intended to be continued by the parties indefinitely till the tenant paid rent, This is the position of any statutory tenant who is holding over under the consent terms or otherwise. The statutory tenant's protection under the Rent Act is sought to be done away with by this penal stipulation that even when any default is committed in paying rent from month to month as agreed, the landlord shall be entitled by execution to recover possession of the suit shop. Such a stipulation would be clearly a penal stipulation. There is no question of any concession here. 'The landlord who had no initial right to get recovery of possession from the tenant and who had agreed to continue as tenant on the payment of the standard rent as agreed was to become entitled on the default of the tenant to this larger decree of eviction on the future date. This was against the plain mandate of the Legislature as embodied in Section 12. All the statutory safeguards were to be of no avail to this tenant. Therefore, even though the lease may not be established, protection of this statutory tenant could not be nullified by such penal stipulation that whenever any default whatever was committed in paying rent month to month as it accrued due on 18th of every month, he would be evicted. Mr. D.U. Shah vehemently argued that under the Saurashtra Rent Act whenever the tenant was in arrears and had not paid rent even when the decree was passed, he was liable to an immediate decree of eviction. In such a context the person must be treated as giving only a concession to the tenant. There is no substance in this contention when we look to the glaring facts of this case that the standard rent dispute was resolved by the very terms of the consent decree. It is only on the resolution of the dispute about the standard rent that in order to enable the tenant to avail of the benefit of the statutory protection under Section 12(3) that the Court would have to give him some time. Therefore, this is not a case where the landlord was entitled to an eviction decree straightaway so that any such assumption can be made that he was giving concession. In fact by the consent terms the landlord himself waived previous default by being satisfied by creating a decretal debt instead of the rent in arrears with a further stipulation that the tenant shall continue to pay rent regularly on eighteenth as it accrued due so long as he continued the possession. Therefore, the money decree was sought to be enlarged into a decree of eviction on the default of the tenant. The penalty was clearly intended in this case for securing due payment of rent as it accrued due. That event can be properly safeguarded even in case of a breach by tenant by the other clause which provided 9% interest and recovery of the amount by execution. Therefore, it is obvious that in the present case this was a penal stipulation which enlarged the rights of the decree-holder merely because the tenant committed a default in payment of the amount of rent. As per the settled principles such a penal clause could not be enforced and the equitable jurisdiction of this Court could always be invoked to give relief against such penalty. In that view of the matter, this Letters Patent Appeal must be allowed by setting aside the order in appeal and by dismissing the original execution application of the decree-holder so far as it relates to the delivery of vacant possession of the said tenant.
8.(A) As regards the second appeal, the material facts are as under : The suit as filed on November 29, 1961, on the ground of arrears of rent and the notice expenses was arrived at Rs. 111.50 which was made payable along with the costs. It was further agreed that if the defendant failed to pay the whole amount due by the date April 30, 1962, the plaintiff would be entitled to execute the decree and realise that amount from the person and property of the defendant. Thereafter the relevant Clause 4 provided that if the defendant paid the dues mentioned in para 3 before April 30, 1962, the defendant would be allowed to retain possession of the suit premises as a tenant as before. If, however, the defendant failed to pay the said amount along with the costs by April 30, 1962, the plaintiff would be entitled to evict the defendant. In that event, the defendant would have to vacate the suit house and deliver vacant possession and the plaintiff would be entitled to get vacant possession by execution of this decree. Under Clause (5) the defendant gave up all contentions about standard rent. As the defendant did not pay up the amount as agreed execution application in this case was filed on May 2, 1962. On May 3,1962, the defendant paid up all the amount and there is no dispute in this connection. Even when such a technical default has taken place the defendant is not relieved and therefore the said two questions have been urged in this appeal. As regards the first question, for the very same reasons the defendant could not be said to be having a lease under the consent terms. The whole import of the consent terms negatives the lease in present. It was only after the defendant paid up the decretal amount on April 30, 1962 that it was stipulated that he would be allowed to continue as before as a tenant. Until that date the landlord never intended to create any lease. The defendant must, however, succeed on his other contention that this was also a case of penal stipulation. In the present case, the intention of continuing the statutory tenancy is apparent on the very face of these consent terms. It is only by way of securing the payment that the penalty is provided by providing for the eviction decree. Here also, the money decree at a later date becomes an eviction decree. Mr. Shelat had also argued that the landlord was entitled to an immediate decree of eviction even in this case as the tenant was a tenant in arrears not only at the date of the suit but even till the decree. Here also the dispute of standard rent was first resolved by the consent terms. Therefore, even on that ground there can be no assumption made that because the landlord was entitled to an immediate decree he was only giving concession to a tenant. The whole import of the decree is that it does not provide for an immediate decree for eviction with any concession clause. It enables the tenant to continue possession of the premises in question as a statutory tenant. In fact he was to be continued if he paid up this agreed amount on or before April 30, 1962. Therefore, the whole penal provision was made to ensure this payment. Therefore, in the present case also the stipulation must be held to be a penal stipulation and not by way of a concession at all. Such a penal stipulation could not, therefore, be enforced. Therefore, even this second appeal must be allowed for the same reasons by setting aside the order under appeal and by dismissing the execution application so far as the possession pf the suit house is concerned.
Both Letters Patent Appeal and the Second Appeal are accordingly allowed with no order as to costs all throughout in the circumstances of the case.