Authored By : James Quain Pigot, Arthur Wilson, WilliamComer Petheram, Macpherson, Banerjee

James Quain Pigot, J.

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

2. I do not think that the case before the Privy Council ofBalkishen Das v. Run Bahadur Singh I.L.R. 10 Cal. 305 at all affects thedecision in Mackintosh v. Crow I.L.R. 9 Cal. 689. It is true that in that caseenhanced interest was allowed on the first instalment from the date of thesolehnama. But the parties had already, as pointed out in the judgment,voluntarily settled upon the basis of that construction of the part of the 3rdArticle 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 wasimpugned in the argument, and this stipulation was not open to the objectionthat 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 casebefore the Judicial Committee was one in which the execution of a subsistingdecree was the subject-matter of the appeal.

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

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

5. Upon the second question, I think that when the provisionin the contract in question amounts to a provision for a penalty (or, which isthe same thing, stipulates for a sum in case of breach within the meaning ofSection 74), that that goes to the whole sum which may accrue due under theprovision, although it may be that by non-payment for an indefinite time theaggregate amount ultimately payable may greatly exceed the amount--the fixedand 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 moneyclaimed at the increased rate of interest from the date of the bond untilrealization.

6. The result will be that the appeal will be allowed, andthe case remitted to the original Court to fix a reasonable compensation (notexceeding the amount provided for by the rate of interest specified) for thebreach of contract in the non-payment of the principal money due under thebond. All costs to abide the result.

Arthur Wilson, J.

7. I agree.

William Comer Petheram, C.J.

8. I agree.

Macpherson, J.

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

Banerjee, J.

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

11. It was a suit on a money bond, in which it wasstipulated that the money should be repaid with interest at the rate of 1 rupee8 annas per cent per mensem in Bysack 1290, and that on failure thereofinterest should be paid at the rate of 2 pice per rupee per mensem from thedate of the bond up to the date of realization.

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

13. According to the principle laid down in Muthura PersadSingh 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 ofthe 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 PrivyCouncil in Balkishen Das v. Run Bahadur Singh I.L.R. 10 Cal. 305 has beenreferred to as supporting the opposite view that such a provision is not in thenature of a penalty.

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

First.--Whether the decision in Mackintosh v. Crow I.L.R. 9Cal. 689 is still the law, or whether that in Baij Nath Singh v. Shah AliHosain 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 provisionfor a penalty, then whether Section 74 of the Contract Act applies to the moneyclaimed at the increased rate of interest from the date of the bond untilrealization, or only to the amount claimed at that rate from the date of thebond until the date of default in payment, that is, until Bysack 1290

15. Upon the first question I was at first inclined to thinkthat the decision of the Judicial Committee in the case of Balkishen Das v. RunBahadur Singh I.L.R. 10 Cal. 305 in effect overruled the decisions of thisCourt in Muthura Persad Singh v. Luggun Kooer I.L.R. 9 Cal. 615 and Mackintoshv. Crow I.L.R 9 Cal. 689, that a provision like the one under consideration isa provision or payment of a penalty. On further consideration, however, I am ofopinion that the decision of the Judicial Committee has not that effect. Thereare no doubt passages in the judgment of their Lordships which, taken bythemselves, may appear to overrule the two last-mentioned cases, but then whattheir Lordships were dealing with was not a contract, but a decree based upon acompromise; and, as pointed out by West, J., in the case cited in the note toShirekuli Timapa Hegda v. Mahablya I.L.R. 10 Bom. 435 (438) "theprinciples which govern contracts and their modification when justice requiresit, do not apply to decrees which, as they are framed, embody and express suchjustice as the Court is capable of conceiving and administering." Itcannot, therefore, be said that the decision in Balkishen Das v. Run BahadurSingh 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 Singhv. 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, thecontract 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 runat a higher rate from the date of the loan, the additional sum that becomespayable in case of default on account of interest for the period between thedate of the loan and the stipulated date of payment, cannot ordinarily beregarded as anything but a penalty which is intended to secure the punctualrepayment of the loan--see Thompson v. Hudson L.R. 4 E. & I. Ap. 1 (15) andit comes clearly within Section 74 of the Contract Act as a sum named, beingexactly ascertainable at the time of the contract by arithmetical calculation.It is no doubt easy to conceive cases in which a provision for an increasedrate of interest would not be in the nature of a penalty. Thus when theagreement 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 ratefrom the beginning, there are really two alternative contracts, either of whichmay be fulfilled by the borrower at his option; and the higher rate of interestpayable under the latter contract cannot be regarded as a penalty for the non-performanceof the former. That, however, is not the nature of the stipulation in thepresent case. Here there was only one contract to repay the loan on a certainday with interest at a certain rate, and the provision for the payment of anadditional sum as interest for the period between the date of the bond and thestipulated date of repayment was in the nature of a penalty and comes withinSection 74 of the Contract Act. That being so, the creditor is not entitled torecover such sum as a matter of course; and, in the absence of evidence to thecontrary, it must be held that the original rate of interest was a fair rate upto the stipulated date of payment, and so the creditor cannot recover interestfor that period at any higher rate merely by reason of the debtors default inmaking payment.

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

18. On the second question, I am of opinion that the amountclaimed as interest at the higher rate from, the stipulated date of repaymentto the date of realization cannot be regarded as a penalty, and does not comewithin Section 74 of the Contract Act. In the first place, there is no contractfor the payment of any lesser sum as interest for any period after the duedate, for the breach of which the higher rate of interest can be, said to be apenalty. The second rate of interest is no doubt a higher or an increased ratein respect of the time between the date of the contract and the due date, butit 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 peculiarityof a penalty, namely, that of being a definite sum which becomes due at once assoon as default is committed. The amount of this part of the claim dependsupon, and gradually grows with, the time for which the borrower finds itconvenient to retain the use of the principal amount after the due date. Itcannot in any sense be regarded as a sum named as the amount to be paid in caseof breach of contract within the meaning of Section 74 of the Contract Act.

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

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

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Kalachand Kyal vs.Shib Chunder Roy (23.03.1892 - CALHC)