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Duddu Gopaludu Vs. Gudata Venkataratnam - Court Judgment

LegalCrystal Citation
SubjectContract
CourtChennai
Decided On
Reported in(1894)4MLJ257
AppellantDuddu Gopaludu
RespondentGudata Venkataratnam
Cases ReferredNanjappa v. Nanjappa
Excerpt:
- .....paying both instalments and claimed rupees 699-1-0 as interest due at the enhanced rate from the date of default.3. relying on the case reported at i. l. r 12 m 161 the district munsif decreed the interest claimed. but on appeal, the judge was of opinion that there was no provision in the bond for interest from the due date to date of payment and that the agreement to pay enhanced interest extended only to the due date. upon this construction of the document, the judge decreed interest at the enhanced rate as provided in. the bond up to due date, refused interest from the due date to that of the plaint and awarded interest at 6 per cent per annum from date of plaint to date of realization. to this decision the plaintiff (appellant) objects on throe grounds viz., (i) that the judge has.....
Judgment:

Muthusami Aiyar, J.

1. This was a suit on a hypothecation bond, dated the 19th April 1882. As regards the principal amount Rupees 200 both the Courts below decreed the claim. As regards interest, the bond provides that the principal shall be paid back, in two instalments with interest at 21 per cent per annum, Rupees 100 with interest on the 8th May 1883 and the remainder with interest on the 27th April 1884. The bond then proceeds to stipulate that if each instalment is not paid on the due date, then interest shall be paid at 36 per cent per annum from the date of the bond.

2. The plaint stated that there was default in paying both instalments and claimed Rupees 699-1-0 as interest due at the enhanced rate from the date of default.

3. Relying on the case reported at I. L. R 12 M 161 the District Munsif decreed the interest claimed. But on appeal, the judge was of opinion that there was no provision in the bond for interest from the due date to date of payment and that the agreement to pay enhanced interest extended only to the due date. Upon this construction of the document, the judge decreed interest at the enhanced rate as provided in. the bond up to due date, refused interest from the due date to that of the plaint and awarded interest at 6 per cent per annum from date of plaint to date of realization. To this decision the Plaintiff (Appellant) objects on throe grounds viz., (I) that the judge has misconstrued the document (II) that he ought not to have refused interest from date of default to date of payment and (III) that the interest as provided in the bond is payable till date of payment.

4. I am of opinion that the judge is in error in holding that the bond contains no provision for payment of interest after the due date. 'The words from the date of the bond are used in contradistinction to the words, from the date of default which is premised, and they are not designed to limit the time up to which interest is payable. The natural construction is that in case there is no default, interest shall be paid at 21 per cent per annum and that in case there is default, interest shall be paid at 36 per cent per annum and that the payment at such higher rate shall be not only prospective from date of default but shall also be retrospective from the date of the bond. This being so, the next question is whether the agreement to pay interest at 36 per cent. in case of default is in the nature of a penalty and as such governed by Section 74 of the Contract Act. That section pre-supposes a case in which a contract is broken and a sum is named as the amount to be paid on such breach, the party complaining of the breach is entitled to receive reasonable compensation not exceeding the amount so named. The general rule is that effect is to be given to the intention of the parties as expressed by the contract in the absence of any rule of law to the contrary. When the contract is to pay a higher rate of interest from the date of breach its operation is prospective, and the proper construction is that the debtor who commits default intends to pay the alternative rate and to return the money lent. On this point all. the High Courts are agreed. When the agreement is to pay the higher rate on default from the date of the contract, the question arises whether it falls under Section 74, and as to this there is a conflict of opinion. The Full Benches of the High Courts at Calcutta and Bombay have held that Section 74 is applicable and that the agreement is penal and ought to be relieved against Kalachand Kyal v. Shib Chunder Roy, I. L. R 19 C 392 and Umar Khan, Muhamad Khan, Deshmukh v. Sale Khan, I. L. R 17 B 106 But the Full Bench of the High Court at Allahabad has held that Section 74 does not apply to agreements to pay alternative rates of interest. In Nunjappa v. Nunjappa I. L. R 12 M 161 a Divisional Bench of the High Court at Madras held that such agreement falls under Section 74 and that though no sum is named in Rupees, the extra sum payable is fixed and ascertainable beforehand or, at any rate, at the time when the default is made. In Basavayya v. Subbarazu I. L. R 11 M. 294 another Divisional Bench held that when a mortgage bond provided for repayment of the debt in four instalments with interest at 6 per cent. and in default of payment on the due date provided for interest at 12 per cent from the date of the bond it was held that the stipulation being reasonable, the higher rate of interest was payable from date of the bond. This may be reconciled with Nanjappa v. Nanjappa, I. L. R 12 M 161 by the fact that the alternative rate provided by the contract was one which might be adopted as the measure of reasonable compensation. In Narayana v. Narayana Rao I. L. R 17 M 65 in which I took pare, I followed Basavayya v. Subbarazu, I. L. R 11 M 294 In the present case, the contract was to pay interest at 36 pee cent. from the date of the bond and it is therefore governed by Section 74, according to Nanjappa v. Nanjappa, I. L. R 12 M 161 and the High Courts at Calcutta and Bombay. I would therefore award interest at 21 per cent. per annum from date of bond to due date, 12 per cent. from these dates to date of plaint and 6 per cent. to date of realization. Costs will be assessed proportinately.

Shephard, J

5. The question is to what sum the plaintiff is entitled on account of interest payable in respect of the sum of

6. Rupees 260 due under the bond executed by the defendant. The District Judge has held that there is no stipulation in the bond for payment of interest after the dates when the two instalments become due. The words used are 'If the amount of each instalment be not paid on the date of such instalment we shall make payment with interest at three Rupees per mensem per hundred Rupees from the date of the bond. 'There is a terminus a quo given but no express terminus ad quern and the judge has accordingly held that the interest was to run only up to the dates fixed for the payment of the instalments.

7. In this construction it appears td me that the judge is wrong. The provision for enhanced interest pre-supposes a case of default. The date at which the instalment with interest at 21 per cent. is payable having passed, it is reasonable to suppose that it was intended that the substituted interest should run until the date of payment, and there are certainly no words indicating the contrary intention.

8. The question then is whether the provision for enhanced interest is of such a character as to make Section 74 of the Contract Act applicable.

9. According to the view expressed in Nanjappa v Nanjappa I. L. R 12 M 161 and adopted, elsewhere a stipulation for retrospective enhancement of interest is generally a penalty which has to be dealt with by the Court under the provisions of Section 74. The Court has to give; a reasonable compensation not exceeding the amount named. In addition to the interest at 21 per cent. on the two instalments up to the dates when they respectively fell due, I would allow interest from those dates at the rate of twelve per cent. up to the date of the institution of the suit and subsequent interest at six percent.


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