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Kalachand Kyal Vs. Shib Chunder Roy - Court Judgment

LegalCrystal Citation
SubjectContract
CourtKolkata
Decided On
Judge
Reported in(1892)ILR19Cal392
AppellantKalachand Kyal
RespondentShib Chunder Roy
Cases ReferredMackintosh v. Crow I.L.R.
Excerpt:
interest - bond--failure to pay on due date--enhanced rate of interest from data of bond till date of realization--penalty--contract act (ix of 1872), section 74. - .....of default on account of interest for the period between the date of the loan and the stipulated date of payment, cannot ordinarily be regarded as anything but a penalty which is intended to secure the punctual repayment of the loan--see thompson v. hudson l.r. 4 e. & i. ap. 1 (15) and it comes clearly within section 74 of the contract act as a sum named, being exactly ascertainable at the time of the contract by arithmetical calculation. it is no doubt easy to conceive cases in which a provision for an increased rate of interest would not be in the nature of a penalty. thus when the agreement is to repay a loan with interest at a certain rate on a certain date, or to repay it on a certain other and later date with interest at a higher rate from the beginning, there are really two.....
Judgment:

Pigot, J.

1. I am of opinion that the judgment in the case of Mackintosh v. Crow I.L.R. 9 Cal. 689 was right in law, and that the case of Baij Nath Singh v. Shah Ali Hosain I.L.R. 14 Cal. 248 was erroneous, so far as it dissented from that judgment.

2. I do not think that the case before the Privy Council of Balkishen Das v. Run Bahadur Singh I.L.R. 10 Cal. 305 at all affects the decision in Mackintosh v. Crow I.L.R. 9 Cal. 689. It is true that in that case enhanced interest was allowed on the first instalment from the date of the solehnama. But the parties had already, as pointed out in the judgment, voluntarily settled upon the basis of that construction of the part of the 3rd Article which related to this part of the claim. As pointed out in Nanjappa v. Nanjappa I.L.R. 12 Mad. 161 (166 ) 'it was the other stipulation, viz., that for payment of enhanced interest on the whole decretal money that was impugned in the argument, and this stipulation was not open to the objection that it made the higher rate of interest payable from the date of the decree.' But further, as pointed out in the decision of the Madras High Court, the case before the Judicial Committee was one in which the execution of a subsisting decree was the subject-matter of the appeal.

3. I think it is enough to express complete concurrence with the opinion expressed by the Courts of Madras and Bombay, that the case of Balkishen Das v. Run Bahadur Singh I.L.R. 10 Cal. 305 did not warrant the dissent from Mackintosh v. Crow I.L.R. 9 Cal., 689 expressed in Baij Nath Singh v. Shah Ali Hosain I.L.R., 14 Cal., 248.

4. I think that the objection made in the judgment in Baij Nath Singh v. Shah Ali Hosain I.L.R., 14 Cal., 248, that cases such as the present do not come within Section 74 of the Contract Act, because no sum is named, is not one to which effect ought to be given. By the fixing of a rate of interest the sum to become payable 'at any rate,' as the Madras High Court says, 'at the time when default is made' I.L.R., 12 Mad., 167 is fixed: and this is what the section contemplates.

5. Upon the second question, I think that when the provision in the contract in question amounts to a provision for a penalty (or, which is the same thing, stipulates for a sum in case of breach within the meaning of Section 74), that that goes to the whole sum which may accrue due under the provision, although it may be that by non-payment for an indefinite time the aggregate amount ultimately payable may greatly exceed the amount--the fixed and ascertainable amount--to be due at time of default. I think they cannot be separated, and that Section 74 applies to all, that is, that it applies to the money claimed at the increased rate of interest from the date of the bond until realization.

6. The result will be that the appeal will be allowed, and the case remitted to the original Court to fix a reasonable compensation (not exceeding the amount provided for by the rate of interest specified) for the breach of contract in the non-payment of the principal money due under the bond. All costs to abide the result.

Wilson, J.

7. I agree.

Petheram, C.J.

8. I agree.

Macpherson, J.

9. I agree. I think I was wrong in considering that the Privy Council case of Balkishen Das v. Run Bahadur Singh I.L.R. 10 Cal. 305 practically overruled Mackintosh v. Crow I.L.R. 9 Cal. 689.

Banerjee, J.

10. I regret very much that I am unable to concur fully with my learned colleagues in this case.

11. It was a suit on a money bond, in which it was stipulated that the money should be repaid with interest at the rate of 1 rupee 8 annas per cent. per mensem in Bysack 1290, and that on failure thereof interest should be paid at the rate of 2 pice per rupee per mensem from the date of the bond up to the date of realization.

12. The Courts below having allowed interest at the increased rate, the defendant has preferred this appeal, and the only question raised on his behalf is whether the increased rate of interest is not a penalty, and, as such, whether it does not come within Section 74 of the Contract Act.

13. According to the principle laid down in Muthura Persad Singh v. Luggun Kooer I.L.R. 9 Cal. 615 and in Mackintosh v. Crow I.L.R. 9 Cal. 689 such increased rate of interest is a penalty and comes within Section 74 of the Contract Act. But in the case of Baij Nath Singh v. Shah Ali Hosain I.L.R. 14 Cal. 248 this view has been dissented from, and the decision of the Privy Council in Balkishen Das v. Run Bahadur Singh I.L.R. 10 Cal. 305 has been referred to as supporting the opposite view that such a provision is not in the nature of a penalty.

14. As there is thus a clear conflict of decisions in this Court, the following questions have been referred to a Full Bench:

First.--Whether the decision in Mackintosh v. Crow I.L.R. 9 Cal. 689 is still the law, or whether that in Baij Nath Singh v. Shah Ali Hosain I.L.R. 14 Cal. 248 dissenting from it, was rightly decided?

Second.--If the decision in Mackintosh v. Crow I.L.R. 9 Cal. 689 is right, and the provision in the bond in question amounts to a provision for a penalty, then whether Section 74 of the Contract Act applies to the money claimed at the increased rate of interest from the date of the bond until realization, or only to the amount claimed at that rate from the date of the bond until the date of default in payment, that is, until Bysack 1290?

15. Upon the first question I was at first inclined to think that the decision of the Judicial Committee in the case of Balkishen Das v. Run Bahadur Singh I.L.R. 10 Cal. 305 in effect overruled the decisions of this Court in Muthura Persad Singh v. Luggun Kooer I.L.R. 9 Cal., 615 and Mackintosh v. Crow I.L.R., 9 Cal., 689, that a provision like the one under consideration is a provision or payment of a penalty. On further consideration, however, I am of opinion that the decision of the Judicial Committee has not that effect. There are no doubt passages in the judgment of their Lordships which, taken by themselves, may appear to overrule the two last-mentioned cases, but then what their Lordships were dealing with was not a contract, but a decree based upon a compromise; and, as pointed out by West, J., in the case cited in the note to Shirekuli Timapa Hegda v. Mahablya I.L.R. 10 Bom. 435 (438) 'the principles which govern contracts and their modification when justice requires it, do not apply to decrees which, as they are framed, embody and express such justice as the Court is capable of conceiving and administering.' It cannot, therefore, be said that the decision in Balkishen Das v. Run Bahadur Singh I.L.R. 10 Cal. 305 in any way touches the present point.

16. But then there remains the question whether, irrespective of the decision of the Privy Council, the case of Baij Nath Singh v. Shah Ali Hosain I.L.R. 14 Cal. 248 or the earlier case it dissents from, lays down the correct rule of law. Now where, as in the present case, the contract is to repay a loan with interest at a certain rate on a certain day, and there is a further stipulation that in case of default interest is to run at a higher rate from the date of the loan, the additional sum that becomes payable in case of default on account of interest for the period between the date of the loan and the stipulated date of payment, cannot ordinarily be regarded as anything but a penalty which is intended to secure the punctual repayment of the loan--see Thompson v. Hudson L.R. 4 E. & I. Ap. 1 (15) and it comes clearly within Section 74 of the Contract Act as a sum named, being exactly ascertainable at the time of the contract by arithmetical calculation. It is no doubt easy to conceive cases in which a provision for an increased rate of interest would not be in the nature of a penalty. Thus when the agreement is to repay a loan with interest at a certain rate on a certain date, or to repay it on a certain other and later date with interest at a higher rate from the beginning, there are really two alternative contracts, either of which may be fulfilled by the borrower at his option; and the higher rate of interest payable under the latter contract cannot be regarded as a penalty for the non-performance of the former. That, however, is not the nature of the stipulation in the present case. Here there was only one contract to repay the loan on a certain day with interest at a certain rate, and the provision for the payment of an additional sum as interest for the period between the date of the bond and the stipulated date of repayment was in the nature of a penalty and comes within Section 74 of the Contract Act. That being so, the creditor is not entitled to recover such sum as a matter of course; and, in the absence of evidence to the contrary, it must be held that the original rate of interest was a fair rate up to the stipulated date of payment, and so the creditor cannot recover interest for that period at any higher rate merely by reason of the debtor's default in making payment.

17. My answer to the first question would, therefore, be this, that as regards the claim of interest up to the stipulated date of repayment, the decision in Mackintosh v. Crow I.L.R. 9 Cal. 689 which regards the interest at the increased rate as a penalty, is correct, and the later case of Baij Nath Singh v. Shah Ali Hosain I.L.R. 14 Cal. 248 was not correctly decided.

18. On the second question, I am of opinion that the amount claimed as interest at the higher rate from, the stipulated date of repayment to the date of realization cannot be regarded as a penalty, and does not come within Section 74 of the Contract Act. In the first place, there is no contract for the payment of any lesser sum as interest for any period after the due date, for the breach of which the higher rate of interest can be, said to be a penalty. The second rate of interest is no doubt a higher or an increased rate in respect of the time between the date of the contract and the due date, but it is the only rate agreed upon in respect of the time following the due date. Then, again, this part of the claim is wanting in another essential peculiarity of a penalty, namely, that of being a definite sum which becomes due at once as soon as default is committed. The amount of this part of the claim depends upon, and gradually grows with, the time for which the borrower finds it convenient to retain the use of the principal amount after the due date. It cannot in any sense be regarded as a sum named as the amount to be paid in case of breach of contract within the meaning of Section 74 of the Contract Act.

19. This view is, I think, in accordance with the decision in Mackintosh v. Crow I.L.R. 9 Cal. 689.

20. My answer to the second question, therefore, is that Section 74 of the Contract Act applies only to that part of the claim for interest which is in respect of the period from the date of the bond to the due date, and that it has no application to the claim for interest for the period from the due date to the date of realization.


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