1988 (3) TMI 464 - SC - Indian Laws

Summary

Issues Involved:

1. Validity of the compromise agreement.
2. Legality of the penal clause in the compromise.
3. Extension of time for payment of the second installment.
4. Opportunity for the plaintiffs to contest the defendant's prayer.

Issue-wise Detailed Analysis:

1. Validity of the Compromise Agreement:

The appellants filed a suit for partition claiming a 1/3rd share in the properties. A preliminary decree was passed by the trial court, which was challenged by the defendant No. 9. The appeal was disposed of on a compromise, accepting the plaintiffs' claim to a 1/3rd share. The compromise stipulated that half of the plaintiffs' share would go to defendant No. 9 if he paid Rs. 40,000 by a specified date, failing which the trial court's decree would stand confirmed. The first installment was paid, but the second was not, leading to the plaintiffs depositing the first installment back to the court. Defendant No. 9 sought an extension for the second installment, which was allowed by the High Court but challenged in this appeal.

2. Legality of the Penal Clause in the Compromise:

The defendant No. 9's counsel argued that the clause dealing with the consequence of default in payment was penal and should be held illegal under Section 74 of the Indian Contract Act. The court rejected this argument, stating that the clause did not involve punishment but merely deprived the defendant of a special advantage due to default. The court emphasized that the compromise was essentially an agreement for the transfer of property at a specified price, and failure to pay within the stipulated time deprived the defendant of this benefit, not as a penalty but as a condition of the agreement.

3. Extension of Time for Payment of the Second Installment:

The High Court extended the period for payment of the second installment, which was challenged by the plaintiffs. The Supreme Court held that even if the court had the power to extend the time, it was not justified in this case due to the gross delay and the defendant's conduct. The court noted that such power should be exercised only in rare cases to prevent manifest injustice and not liberally. The court found that justice was in favor of the plaintiffs and against the contesting respondents, and the clause in question was not a forfeiture clause.

4. Opportunity for the Plaintiffs to Contest the Defendant's Prayer:

The plaintiffs argued that they were not given a reasonable opportunity to contest the defendant's application for an extension. The High Court had previously considered the plaintiffs' circumstances and allowed them to refund the first installment, effectively closing the matter. The Supreme Court agreed that the plaintiffs were not afforded a reasonable opportunity and that the counsel who represented them earlier did not continue to hold authority. However, the court decided not to remand the matter to the High Court, as it had considered all relevant materials and concluded in favor of the plaintiffs on merits.

Conclusion:

The Supreme Court set aside the High Court's order dated 31.8.1981, rejecting the application for an extension of time filed by defendant No. 9. The appeal was allowed with costs payable to the appellants by the contesting respondents.