V VENKATARAMIAH PILLAI Vs. PVSUBRAMANIA PILLAI

JUDGEMENT

(1.) In this appeal the only question is whether compound interest should not have been allowed on the debts due on the two promissory notes dated 1st October 1904. These two notes were executed for Rs. 14,500 and Rs. 15,000 respectively, payable with interest at 18 per cent., and on the dates of their execution two memoranda were drawn up by which it was stipulated, among other things, that in default of payment of interest each month, compound interest would be payable with monthly rests. The promissory notes themselves do not expressly provide that interest was payable every month. Exhibits H and J also contain other stipulations, among which is the stipulation that there will be an equitabe mortgage on certain properties of the executants of the promissory notes.

(2.) Mr. Justice Kumaraswami Sastri who tried the suit has disallowed compound interest, holding that the contract in this respect was brought about by undue influence. As I am clearly of opinion that the stipulation contained in the agreement Exhibits H and J as to the payment of compound interest is by way of penalty, I shall deal with it first, as it might become unnecessary that the question of undue influence should be gone into by us. The interest provided is at the rate of 18 per cent, per annum and as I have already mentioned, the money was also secured by equitable mortgage of immoveable property. It appears that about Rs. 20,000 has already been paid by the defendant and the decree given by the learned Judge is for Rs. 64,000, that is to say, the plaintiffs receive altogether Rs. 84,000 for Rs. 30,000 advanced by them. If compound interest at 18 per cent, be allowed as claimed by the appellants, that would increase the amount by another Rs. 62,000. Of course if they are entitled to receive compound interest according to the strict terms of the agreement, the mere fact that they have already received a large return for the money lent by them and their claim is for another very large sum, can make no difference.

(3.) The question is governed by Section 74 of the Contract Act. That Section has been considered in a number of cases and very fully by a recent Full Bench of this Court in Avathani Muthukrishnier v. Sankaralingam Pillai 18 Ind. Cas. 417 : 36 M. 229 : 13 M.L.T. 20 : 24 M. L.J. 135. and also by Mr. Justice Mooker.iee, the learned Judge of the Calcutta High Court, in Khagaram Das v. Bam Sankar Das Pramanik 27 Ind. Cas. 815 : 42 C. 652 : 21 C. L.J. 79 : 19 C.W.N. 775. The addition of the words or if the contract contains any other stipulation by way of penalty" to Section 74 by the Indian Contract (Amendment) Act of 1899 has, undoubtedly, considerably enlarged the scope of that Section and it has the effect, as has been pointed out by more than one learned Judge, o? getting rid of all subtle technicalities in the application of the equitable principle regulating the duty of the Court to relieve against penalties. It is stated by Mr. Justice Sundara Aiyar in the Full Bench case in Avathani Muthukrishnier v. Sankaralingam Pillai 18 Ind. Cas. 417 : 36 M. 229 : 13 M.L.T. 20 : 24 M. L.J. 135. that in cases of this character there are generally two contracts, one primary and the other subsidiary, and wherever the intention of the parties appears to be that the object of the subsidiary stipulation was to enforce or secure the performance of the primary contract, that subsidiary stipulation will be regarded as a penalty.