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Pardhan Bhukhan Lal and anr. Vs. Narsing Dyal - Court Judgment

LegalCrystal Citation
SubjectCivil
CourtKolkata
Decided On
Judge
Reported in(1899)ILR26Cal300
AppellantPardhan Bhukhan Lal and anr.
RespondentNarsing Dyal
Cases ReferredSurya Narain Singh v. Jogendra Narain Roy Chowdhry
Excerpt:
interest - penalty--enhanced rate of interest--interest act (xxviii of 1855), section 2--contract act (ix of 1872), section 74--equitable relief. - .....on failure of payment on the due date, the interest should be paid at an increased rate from the date of bond, and it was held by a full bench of this court that this provision was a penalty, and that section 74 of the contract act applied to the money claimed at the enhanced rate of interest.5. but these cases, and other cases which are to the same effect, do not, i think, lay down any rule of law precluding the court from affording relief to a debtor, independently of section 74 of the contract act, even when the bond provides for increased rate of interest prospectively and not retrospectively, where a proper ground for such equitable relief is made out. as explained in the case of ramendra roy chowdhry v. serajuddin ahamed chowdhry (1898) 2 c.w.n., 234, it is open to the court to.....
Judgment:

Ghose, J.

1. This appeal arises out of a suit for the recovery of money due upon a bond. The document stipulates for the payment of interest at the rate of Rs. 2 per cent, per mensem, but provides at the same time that if the money borrowed be not repaid on the due date, interest at the rate of Rs. 6 per cent, per mensem should be paid from that date. And the main question that has been discussed before us is whether the Courts below were right in decreeing to the plaintiffs interest at the rate of Rs. 6 instead of Rs. 2 per cent, per mensem from the date of default, it being contended on behalf of the defendant appellant that the stipulation to pay such increased rate of interest was but a penalty against which a Court of Equity should give relief.

2. Both the Courts below have decreed the claim in full. And the learned Judicial Commissioner has affirmed the decree of the Court of First Instance allowing the plaintiff interest at the increased rate upon the ground that the stipulation to pay such increased rate of interest from a 'definite date' is 'not illegal.'

3. No doubt, according to Section 2, Act XXVIII of 1855, a man is free to contract to pay any rate of interest that he chooses on the money borrowed, and he may do so from any time, either prospective or retrospective. Such a contract may not be 'illegal,' but the question that may arise, and which does arise in this case, is whether the stipulation to pay the increased rate of interest was, in the circumstance, not really a penalty against which a Court of Equity ought to grant relief. The Courts below have not apparently considered the case from this point of view, but have proceeded upon the idea that whenever the increased rate of interest is agreed to be paid from the date of default, and not from the date of the bond, the Court is bound to enforce such Stipulation. The learned Judicial Commissioner does not quote any case in support of his view, but the Deputy Commissioner has referred to the case Mackintosh v. Grow (1882) I.L.R., 9 Cal., 689.

4. In the case of Mackintosh v. Crow (1882) I.L.R., 9 Cal.,.689, it was held that where money is borrowed under a contract for repayment with interest on a certain day, and the contract stipulates that if the money is not paid on the due date it shall thenceforth carry interest at an enhanced rate, such a stipulation is not a penalty, and the enhanced rate can be recovered in its entirety. This case was approved of in Kala Chand Kyal v. Shib Chunder Roy (1892) I.L.R., 19 Cal., 392. The stipulation in the bond in the latter case was that, on failure of payment on the due date, the interest should be paid at an increased rate from the date of bond, and it was held by a Full Bench of this Court that this provision was a penalty, and that Section 74 of the Contract Act applied to the money claimed at the enhanced rate of interest.

5. But these cases, and other cases which are to the same effect, do not, I think, lay down any rule of law precluding the Court from affording relief to a debtor, independently of Section 74 of the Contract Act, even when the bond provides for increased rate of interest prospectively and not retrospectively, where a proper ground for such equitable relief is made out. As explained in the case of Ramendra Roy Chowdhry v. Serajuddin Ahamed Chowdhry (1898) 2 C.W.N., 234, it is open to the Court to decide, notwithstanding the provisions of Section 2 of Act XXVIII of 1855, whether the stipulation as to the enhanced interest was agreed upon between the parties as interest, properly so called, or as a penalty. And as stated by Sargent, C.J., in the case of Umar Khan v. Sale Khan (1893) I.L.R., 17 Bom., 106, 'that a proviso for enhanced interest in the future cannot be considered as a penalty unless the enhanced rate be such as to lead to the conclusion that it could not have been intended to be part of the primary contract between the parties.'

6. I do not propose to go into all the authorities on the subject, and as to the circumstances under which a Court may or may not afford equitable relief; for the learned Judicial Commissioner has not dealt with the case from the point of view which I have expressed.

7. In this view of the matter, the case should, I think, be sent back for consideration of the question whether, in the circumstances of the case, the defendant is entitled to equitable relief.

8. Another point has been raised before us, which is to the effect that the Courts below have allowed the plaintiff compound interest. The matter is not very clear upon the decree itself; but I think it would be as well to declare that the plaintiff is not entitled to such compound interest.

Rampini, J.

9. This is an appeal against a judgment of the Judicial commissioner of Chota Nagpur.

10. The suit is one based on a mortgage bond in which the amount of the principal lent was Rs. 185. The interest payable on the loan was 24 per cent, per annum, and there was a further stipulation that, if default in payment was made on the due date, interest should run 'from the date of default of promise' at the rate of 72 per cent, per annum.

11. The lower Courts have held that the stipulation for payment of interest at the higher rate is enforceable under the law, and have decreed the plaintiff's claim.

12. The defendants appeal, and on their behalf it has been urged: (1) That the higher rate should not have been decreed up to the date of realization; (2) that compound interest should not have been allowed; and (3) that the stipulation for the payment of the higher rate of interest of 72 per cent, is, in the circumstances of this case, a penalty, and one from which this Court as a Court of Equity should give relief.

13. The first ground of appeal is apparently founded on a misapprehension.' The Subordinate Judge, whose order has been affirmed by the Judicial Commissioner, has allowed the higher rate of interest not up to the date of realization, but only up to three months from the 24th July, 1894.

14. From the decree it is not clear whether compound interest has been decreed or not. If it has, I agree, that, looking at the terms of the bond, it should not be allowed.

15. The principal ground of appeal in the case is, however, the third; and in support of his contention that the higher rate of 72 percent, is a penalty, from the burden of which we should relieve his client, the learned pleader for the appellant relies on the two cases of Ramendra Roy Chowdhry v. Serajuddin Ahamed Chowdhry (1898) 2 C.W.N., 234, and Manoo Bepari v. Durga Churn Saha (1898) 2 C.W.N., 333, recently decided by two Benches of this Court.

16. In the first of these cases it was held on a consideration of the terms of the bond sued on that the higher rate of interest stipulated for in case of default of payment was meant to apply from the date of the loan, and that in that view of the matter it was a penalty, which could not be enforced. So far then the ruling in the case of Ramendra Roy Chowdhry v. Serajuddin Ahamed Chowdhry (1898) 2 C.W.N., 234, is no authority for the argument of the learned pleader for the appellant in the present case, for in the present case it is clear beyond all doubt that the higher rate of 72 per cent, per annum was to run only 'from the date of default of promise,' and not from the date of loan.

17. But the learned Judges who decided the case of Ramendra Roy Chowdhry v. Serajuddin Ahamed Chowdhry (1898) 2 C.W.N., 234, went on to say that even if the stipulation for the higher rate of interest in that case were to be construed as running only from the date when default had been committed, they were not 'prepared to hold that it was a stipulation which, according to the principles of equity, ought to be enforced.' 'No doubt,' it was said, 'according to Section 2 of Act XXVIII of 1855 a man is free to contract to pay any rate of interest that he chooses on the money borrowed, and there is nothing to hinder him from agreeing to pay it from any time either prospective or retrospective. But the question that would arise in a case like the present is whether a Court of Equity is precluded from affording relief independently of Section 74 of the Contract Act. This question seems to have been discussed in the Bombay High Court in two cases, viz., Pava Nagaji v. Govind Ramji (1873) 10 Bom. A.C. 382, and Umar Khan v. Sale Khan (1893) I.L.R., 17 Bom., 106, and also by this Court in Bichook Nath Panday v. Ram Lachun Singh (1873) 11 B.L.R., 135, and it has been held in these cases that notwithstanding Section 2 of the said Act, it is still open to the Court to decide whether the provision as to the enhanced rate of interest was agreed upon by the parties as interest, or whether it was intended to be a penalty We are inclined to adopt this view, and we may in this connection also refer to the case of Magniram Marwari v. Rajpati Koeri,(1893) I.L.R., 20 Cal., 366 note., where this Court, upon a similar question being raised, did not hold that the matter was precluded by the Act of 1855, but rather went into the facts with a view to see whether any case for equitable relief had been established. In the present case there can be little or no doubt, looking at the instrument as a whole, that the provision to pay interest at 75 per cent, per annum in case of breach was not meant to be interest properly so called, but a penalty to ensure due payment in accordance with the instalments mentioned in it. It will be observed that interest upon the sum borrowed was calculated upon the date of the bond at more than 12 per cent, per annum, and added on to the principal, and the whole amount was agreed to be paid in eight years, and the further provision was that in default of payment of the instalments, interest should be paid at the rate of 75 per cent, per annum. We think that this provision was intended to be a penalty, and that the debtor is entitled to be relieved from it in accordance with the principles of equity and good conscience.

18. The facts of the second case, relied on, that of Manoo Bepari v. Durga Churn Saha (1898) 2 C.W.N., 333, are similar. In that case the higher rate of interest was also 75 per cent, per annum, but Ghose, J., who delivered the judgment of the Bench, held that on the terms of the bond it was not clear whether the higher rate was to run from the date of the bond, or from the date of default, but considered that it was safer to hold that the former was the case, and consequently that the stipulation to pay this higher rate of interest was a penalty. Ghose, J., went on to say: 'We think we are not precluded from relieving the defendant from the penalty of paying that interest, if we are convinced that the stipulation was intended to be really a penalty for ensuring the payment of the instalments on the dates agreed upon, and not for the payment of a higher interest. He then referred to the cases of Ramendra Roy Chowdhry v. Serajuddin Ahamed Chowdhry (1898) 2 C.W.N., 234, and of Umar Khan v. Sale Khan (1893) I.L.R., 17 Bom:, 106, and observed that the Bench was prepared to adhere to the view expressed in these cases. Ameer Ali, J., concurred.

19. Now, with regard to those cases, I would say, firstly, that seeing that in both of them it was held on a consideration of the bonds sued on that the higher rate of interest was to run from the date of the bond, they are not on all fours with the present case in which no such contention has been or could be raised; secondly, the learned Judges who decided those cases, merely laid down that the Courts of this country are not restricted by the terms of Section 2 of Act XXVIII of 1855, from giving equitable relief against stipulations to pay increased rates of interest, which appear to be penalties and not interest, but they did not lay down any hard and fast rule as to when such stipulations are to be regarded as penalties which should be relieved against.

20. The leading case on the subject of when such stipulations are penalties is the case of Mackintosh v. Crow (1882) I.L.R., 9 Cal., 689. In that case it was ruled, that 'where money is borrowed under a contract for repayment with interest on a certain day, and the contract stipulates that, if the money is not paid at the due date, it shall thenceforth carry interest at an enhanced rate, such a stipulation is not a penalty, and the enhanced rate may be recovered in its entirety.' In that ease, Wilson, J., who delivered the judgment of the Court, laid down that it was a rule of law established by the Legislature of this country that a man is free to contract to pay any rate of interest that he chooses upon money borrowed; and the Courts must enforce it against him (Act XXVIII of 1855, Section 2), and there is nothing to hinder his agreeing with regard to the future as well as the present. He may contract to pay no Interest at present, but interest hereafter: or to pay one rate of interest now, and a higher or lower rate hereafter.

21. Other cases to the same effect are Mackintosh v. Hunt (1877) I.L.R. 2 Cal. 202; Bhola Nath v. Fateh Singh (1884), I.L.R., 6 All., 63; Kunj Behari Lal v. Ilahi Baksh (1884) I.L.R., 6 All, 64; Jaganadham v. Ragunandha (1886) I.L.R., 9 Mad., 276; and Dullabh Das Dev Chand Shet v. Lakshman Das Swarupchand (1890) I.L.R., 14 Bom., 200. In the full Bench case of Kala Chand Kyal v. Shib Chunder Roy (1892) I.L.R., 19 Cal., 392, it was unanimously held that when it was stipulated in the bond that the increased rate of interest should in the case of default run from the date of the bond, this is a penalty, and the provisions of Section 74 of the Contract Act become applicable, but no dissent from or doubt of the correctness of the rule laid down in Mackintosh v. Grow (1882) I.L.R., 9 Cal., 689, and other cases, that where the higher rate of interest is to run only from the date of default this is not a penalty, was expressed.

22. There are numerous other cases to the same effect. Reference to them in detail appears to be unnecessary.

23. I would now advert to the cases referred to by the learned Judges who decided the cases of Ramendra Roy Chowdhry v. Serajuddin Ahamed Chowdhry (1898) 2 C.W.N., 234, and Manoo Bepari v. Durga Churn Shaha (1898) 2 C.W.N., 333. These are the cases of Bichook Nath Panday v. Ram Lochun Singh (1873) 11 B.L.R., 135, and Magniram Marwari v. Rajpati Koeri (1893) I.L.R., 20 Cal., 366 note, decided by this Court, and those of Pava Nagaji v. Govind Ramji (1873) 10 Bom. A.C. 362, and Umar Khan v. Sale Khan (1893) I.L.R., 17 Bom., 106, decided by the Bombay High Court.

24. The case of Bichook Nath Panday v. Ram Lochun Singh (1873) 11 B.L.R., 135, is an old case, in which the increased rate of interest was to run from the date of the bond. This is undoubtedly a penalty. The learned Judges who decided the cast) of Ramendra Roy Chowdhry (1898) 2 C.W.N., 234. no doubt only referred to Bichook Nath Panday's case as an authority for the proposition that the provisions of Section 2 of. Act XX VIII of 1855 do not preclude a Court from giving equitable relief, where there is reason to believe that the stipulation for the increased rate of interest is a penalty. It would, however, seem to me to be no authority for holding that a stipulation for the payment of increased interest from the date of default is necessarily and in all cases a penalty.

25. The case of Magniram Marwari v. Bajpati Koeri (1893) I.L.R., 20 Cal., 366 note, similarly appears to me to afford no authority for the proposition that the enhanced rate of interest in this case is necessarily of the nature] of a penalty. On the contrary, it appears to me to be an authority for the proposition that equitable relief against a stipulated rate of interest can only

26. The case of Pava Nagaji v. Govind Ramji (1873) 10 Bom. A.C., 135 would only seem to lay down that the provisions of Act XXVIII of 1855 do not destroy the equitable jurisdiction of the Courts to relieve again a penalty.

27. There remains the case of Umar Khan v. Sale Khan (1893) I.L.R.1855 Bom., 106. In this case it was said by Sargent, C.J., and Jardine, J., that 'upon a review of the authorities we think the safer conclusion is that a Proviso for retrospective enhancement of interest in default of Payment of Interest at the due date is generally a penalty which should be relieved against, but that a proviso for enhanced interest in the future cannot be considered as a penalty, unless the enhanced rate be such as to lead to the conclusion that it could not have been intended to be part of the primary contract between the parties, as may well be deemed to have been the case in Bichook Nath Panday v. Ram Lochun Singh (1873) 11 B.L.R., 135, and Pava Nagaji v. Govind Ramji (1873) 10 Bom. A.C. 382.

27. It appears then that a stipulation for an enhanced rate of interest running from the date of default is not to be considered as a penalty except in exceptional circumstances.

28. The law on this subject has been summed up in Cunningham and Shephard's Contract Act (8 Edit., p. 229) as follows: 'The equitable jurisdiction which the Courts possessed to relieve against penalties is not restricted by Act XXVIII of 1855 or by this Act. The tendency, however, of Courts of Equity as well as of Courts of Law at the present day is to interfere as little as possible with the expressed intention of the contracting parties, and the mere fact that the terms are exorbitant is by itself no reason for not enforcing an agreement. It is only when to this fact is added the circumstances that the parties were not on an equal footing, or that the party seeking relief did not fully understand the transaction that the Court will give relief.'

29. The judgment of Pigot, J., in Surya Narain Singh v. Jogendra Narain Roy Chowdhry (1893) I.L.R. 20 Cal., 360, may also be cited. In this judgment it is said: 'Such a contract as to interest must, we think, be held valid, where there is no question of fraud or oppression, improper dealing, exorbitant amount, dealing with an ignorant person, or the like considerations, but there is nothing of the sort in this case.'

30. Now, applying these principles to the present case it would seem to me that the stipulation for increased rate of interest contained in the bond now sued on may be a penalty, but is not necessarily so merely because the increased rate is an exorbitant one. Whether it is a penalty or not is rather a question of fact than one of law, and as the lower Courts seem to have been under the impression, when deciding the case, that they must decree the increased rate in favour of the plaintiff, and could, in no circumstances, grant the defendants equitable relief, I think it advisable to remand this case to the Lower Appellate Court to re-consider the case, and to enable the defendants to show, if they can, that in the circumstances they are entitled to equitable relief. If they do not make out such a case, the plaintiff will be entitled to a decree for the full amount of the interest claimed by him.

31. I would accordingly remand the suit and would order costs to abide the result.


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