VENNA TATAYYA Vs. KAKARLA GANGAYYA

JUDGEMENT

(1.) This is an appeal against the order of the Subordinate Judge of Masulipatam dismissing the defendant's petition to accord satisfaction pro tan to of the first instalment of a razinamah decree passed in O.S. No. 24 of 1924 on the file of the Subordinate Judge of Masulipatam. The decree was made, we are told, in a mortgage suit and incorporated a razinamah by the parties, and the essential parts of it are as follows : "The Court doth hereby order and decree that defendants do pay to the plaintiff according to the following instalments as between themselves fixed, the amount of Rs. 30,447-6-0, together with interest thereon at Re. 0-10-0 per cent. per month from this date, being the balance remaining after deducting the Rs. 2,500 which defendants obtained as remission from the entire amount of this suit and costs together with subsequent interest up to this date." Then the decree proceeds to details of instalments. Rs. 4,000 was payable on or before the 23 August, 1925; Rs. 6,600 and odd was payable on or before the 23 August, 1926; and there are three other instalments payable up to the 23rd August, 1929. The decree further proceeds that "in default of payment of any one of the said instalments, the plaintiff do recover, irrespective of the future instalments, the entire amount of principal and interest that remains outstanding by that date, together with interest at Re. 0- 10-0 per cent. per month from that date, and together with the costs of warrant, etc."

(2.) In the Lower Court the appellant here took various points. He alleged a tender of Rs. 4,000 on the 23 August, 1925, which he says he could not pay to the decree-holder owing to his absence from his house, that he went next morning with P. Ws. 3 and 4, whereupon the decree-holder observed that-default had been made and demanded the payment of the whole amount. After some discussion he agreed to waive the default on condition that the first and second instalments were both paid within 6 months from that date. Now the only point on this that has been argued before us is that of waiver by the decree-holder on the 24 August, 1925. We have been taken through the evidence of P. Ws. 3 and 4 who assisted in bringing about the original razinamah and we see no reason to disturb the finding of the learned Subordinate Judge that their evidence cannot be accepted. That then is the question of fact.

(3.) A question of law has been fully argued before us and that is this; that the transaction must be viewed in the nature of a penalty under Section 74 of the Contract Act, because the contract as contained in the razinamah is to pay Rs. 4,000 on the 23 of August, 1925, and in default of so doing the whole Rs. 30,000 odd becomes due and payable and that this is a penalty and falls within Illustration (g) to Section 74. Now I am quite content not to go beyond the terms of the decree and my construction of the decree is that it is an acknowledgment to begin with, that Rs. 30,000 odd is due and payable by the judgment-debtor to the decree- holder and that the agreement to pay by instalments is for the benefit of the judgment-debtor and is really a concession by the decree-holder. If that is so, that is to say, if the sum payable in praesenti is Rs. 30,000, that is the liability, and, if the instalments scheme is merely a mode of payment, then, as Mr. Patanjali Sastri frankly admits, the foundation of his case as to the Rs. 30,000 being a penalty is gone. He wishes us to assume that this is wrong and that the liability originates with the payment of each of these various instalments. His contention is that in that case the payment of Rs. 30,000 in default of payment of a sum of Rs. 4,000 is clearly a penalty. Now it is to be observed, distinguishing this case from that in Ramalinga Adaviar V/s. Meenakshisundaram Pillai before Srinivasa Aiyangar, J., that in that case the money had not yet become due, that is to say, the instalments of the chit fund amounts were payable in future in respect of a future liability. The learned Judge points out that on his construction of the document in that case there was no present debt created for the whole amount and that the parties agreed that it was only on the due dates that the amounts of the instalments should become due and payable. The learned Judge also says that "the question whether the parties to the contract treated the amounts for which the bond was given as debita in praesenti although solvenda in futuro was a question of intention to be gathered from the document itself". The learned judge comes to the conclusion that in order to constitute a penalty it must be burdensome or oppressive and must operate in terrorum over the promisor so as to drive him to fulfil the contract. The learned Judge examined at some length the Illustrations (f) and (g) to Section 74, Contract Act, and pointed out that the principle underlying Illustration (f) is that the whole of the debt being payable immediately, the creditor agrees with the debtor to allow him to pay the amount by instalments so long as he pays them regularly. Now, with great deference, nothing is said in Illustration (f) as to the whole of the debt being immediately payable and the learned vakil for the appellant seeks to differentiate the, two illustrations by the fact that in this case interest is payable and therefore it falls under Illustration (g). But it is to be observed in the present case that the interest is part of the sum payable itself; that is to say, that the Rs. 30,000 carries interest at 7 1/2 per cent. which is exactly the same interest : as is charged on each of the instalments; so that it seems to me that the fact that no interest is mentioned in Illustration (f)--and it may be somewhat unnatural to suppose that the loan mentioned therein would be one without interest--does not seem to me to make any difference, especially as in (g) we have an illustration of what is obviously an unfair bargain which might amount to paying 100 per cent. for the accommodation. So the question resolves itself into this : Does the stipulation that on non-payment of an instalment of the debt due the whole amount is to become payable, constitute a penalty under the section? It seems to me that the authorities are in favour of regarding this as outside the provisions of the section. For instance, in Walling ford V/s. Mutual Society (1880) 5 AC 685, it is said by the Lord Chancellor that acceleration of payments is not a penalty. He held that the contract was for certain debts which were owed immediately, though payable in future, and "being such, it is consistent both with principle and with authority to hold, that if the party who ought to have paid them or any of them at the proper time failed to do so, the default was his own and the time might lawfully be accelerated for the other payments which were originally deferred". Thai is a perfectly general proposition and seems to me to cover the present case. It is also to be remarked that in the case of a contract to pay a given sum of money, the sum named as payable on breach must be a sum in addition to the principal sum due under the contract, whereas in this case the sum payable is only the original amount of the debt as agreed to be due between the parties. And in Ex parte Burden. In re Neil (1881) 16 Ch. D. 675, a case of a payment of a less amount by instalments provided they were punctually paid, and on a default in payment of the last instalment it was held that the creditor might sue for the balance of the original full amount due. "The debtor must pay that which he would have had to pay if the agreement had never been made," says James, L. J.; and Cotton, L. J., said : "I know of no case in which the equitable doctrine about penalties has been applied to a case in which a creditor agrees to reduce the amount of his claim on certain conditions, but that on the failure of the debtor to fulfil any one of those conditions the original rights of the creditor shall revive, and in my opinion the doctrine ought not to be applied to such a case." We have further a case of the Allahabad High Court in Kishen Prasad V/s. Kunj Behari (1925) 91 IC 790 which seems to me to support the view put forward by the learned vakil for the respondents. As pointed out by one of the Judges, "According to the terms of the compromise, therefore, if there was to be a default the plaintiffs were to get nothing more than what was declared to be due to them". It seems to me to be precisely the case here. There is also an observation in a recent Letters Patent Appeal, Nos. 101 and 102 of 1924, which lends support to the same view.