2008 (12) TMI 813 - SC - Indian Laws

Summary

Issues Involved:
1. Whether the terms of a consent decree can be varied by the executing court.
2. Applicability of Section 74 of the Indian Contract Act to the consent decree.
3. Reasonableness of the interest rate stipulated in the consent decree.

Summary:

Issue 1: Variation of Consent Decree by Executing Court
The Supreme Court addressed whether the terms of a consent decree can be varied by the executing court. The appellants had filed a suit for declaration and permanent injunction regarding their share in the suit property, which was settled through a compromise petition u/s Order XXIII Rule 3 of the Code of Civil Procedure, 1908. The compromise included terms for payment and interest in case of default. The respondents failed to make the payment as stipulated, leading to an execution application by the appellants. The High Court had directed the executing court to reconsider the interest rate under Section 74 of the Indian Contract Act, which the executing court reduced to 14% and the High Court further reduced to 9%. The Supreme Court held that an executing court cannot go behind the decree and has no jurisdiction to modify it, emphasizing that the decree must be executed as it is.

Issue 2: Applicability of Section 74 of the Indian Contract Act
The High Court had remitted the matter to the executing court to decide whether the interest rate of 18% per annum was penal and unreasonable under Section 74 of the Indian Contract Act. The Supreme Court, however, found that the executing court and the High Court had no jurisdiction to invoke Section 74 to modify a valid decree passed by a competent court. The Court cited precedents, including Sova Ray and Anr. v. Gostha Gopal Dey and Ors., to assert that a default clause in a compromise decree is not necessarily penal and does not attract Section 74.

Issue 3: Reasonableness of the Interest Rate
The Supreme Court noted that interest becomes leviable either under a statute or a contract and that the stipulated interest rate of 18% per annum was not inherently unreasonable. The Court rejected the High Court's reduction of the interest rate to 9% per annum, stating that there are precedents where interest rates of 18% or even 21% per annum have been upheld. The Court concluded that the executing court and the High Court had erred in reducing the interest rate without any legal basis.

Conclusion:
The Supreme Court set aside the impugned judgment and directed the executing court to proceed with the execution of the decree as it stands. The appeals were allowed with costs, and counsel's fee was assessed at Rs. 25,000/-.