MOHIUDDIN Vs. MTKASHMIRO BIBI

JUDGEMENT

(1.) Two questions have been referred to the Full Bench and they have been formulated as follows: (1) Does Section 74, Contract Act, apply to a compromise decree and whether it is open to a Court executing such decree to go behind it so as to interfere, with a stipulation by way of penalty contained in the compromise? (2) If Section 74, Contract Act, does not apply, can the principle underlying that section be extended to a decree passed on a compromise containing a stipulation by way of penalty?

(2.) The facts of the case as stated in the order of reference are as follows. There was a suit on a mortgage bond for Rs. 7,000, carrying interest at 1 percent per mensem compoundable every six months. In a suit being instituted on the bond, a sum of Rs. 22,170-9-6 was claimed. The defendant contested the suit but ultimately the parties entered into a compromise by which a decree was made for Rupees 11,500, payable by yearly instalments of Rs. 1,100. These instalments were :to be paid on the 30 June of each succeeding year commencing with 30th June 1920. It was provided that in. case of default in payment of any one instalment the entire decretal amount remaining unpaid would become immediately payable and the decree-holder would be entitled to interest at the rate of 2 per cent per mensem, from the date of the decree. A decree followed in terms of the compromise. The-judgment-debtor paid certain instalments and a sum of Rs. 3,800, remained unpaid. This, the decree-holder sought to recover with interest at 2 per cent per mensem from the date of the decree as stipulated in the compromise.

(3.) The judgment-debtor objected to the execution on the ground that the stipulation as to payment of interest at 2 per cent per mensem was in the nature of a penalty and it could not be enforced against him. The first point that we have to decide is whether Section 74 applies to the circumstances like the present. Section 74 in terms applies to the case of a contract and begins by saying, "when a contract has been broken" Two views have been urged before us. One view is that a decree based on a compromise, in spite of the fact that it is a decree, is in substance, a contract and therefore Section 74 should be applied to a consent decree. The other view that has been urged before us is that, whether it is based on a contract or not, a decree is a decree after all and no Court executing a decree can go behind it. There seems to be an apparent conflict between these two views and we have to find out which view we have to accept. If we consider the nature of a compromise decree we shall be able to arrive at a satisfactory conclusion. Order 23, Rule 3 deals with a compromise decree. It says: where it is proved to the satisfaction of the Court that a suit has been adjusted wholly or in part by any lawful agreement or compromise...the Court shall record such agreement, compromise...and shall pass a decree in accordance therewith so for as it relates to the suit.