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TMI Blog1931 (7) TMI 23X X X X Extracts X X X X X X X X Extracts X X X X ..... nth, that is 75 per cent per annum. There were various defences on the merits but we are concerned with one which relates to a question of law, that the plaintiff is not entitled to claim interest at the bond rate or even at the rate claimed in the suit, under Section 74, Contract Act. The Subordinate Judge in the trial Court hold that the stipulation was not by way of penalty and decreed the suit in full. The learned District Judge on appeal held that it was doubtful if the stipulation about interest could be brought within the strict wording of Section 74, Contract Act, but as the rate of interest was certainly extortionate he in the exercise of his equitable discretion, reduced it to 25 per cent per annum. 2. The bond shows that the mortgagors borrowed 50 maunds of paddy worth Rs. 200 at Rs. 4 a maund. One of the defences was that the paddy at the date of the bond was selling at the rate of Rs. 2 or Rs. 2-4-0 a maund and the price on the data on which the bond was executed was fixed at Rs. 4 in consideration of future interest and profit to the mortgagee. The trial Court upon the evidence on the record found that the defendant had failed to prove that the price of paddy was a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... case of this nature, for it clearly says that a stipulation for increased interest from the date of default may be a stipulation by way of penalty. In a case like the one before us the interest charged is not increased interest but it is charged for the first time from the date of default and there is only one rate of interest whereas the explanation contemplates two rates, one lower and the other higher. In the case of Najaf Ali Khan v. Muhammad Fazal Ali Khan A.I.R. 1828 All. 255 I find that one of the learned Judges of the Allahabad High Court took the view that the explanation covered a case like the present. But when the law speaks of a particular kind of contract it is not permissible to say that it includes other contrasts also but not of the same nature, on the principle of expressio unius est exclusio alterius. 4. The question of no interest and of subsequent interest from data of default was, so far as the reports go, was raised as early as 1869 before the Bombay High Court. In the case of Motaji v. Husen [1860] 6 Bom. H.C.R.A.C. 8 the facts were that the promissory note after stipulating for payment by monthly instalments without interest provided for interest at 1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . That decision however is not of much assistance to us in this case because there the interest payable on default was made to run from the data of the bond. 6. Before the decision by their Lordships of the Judicial Committee of the Privy Council in Rani Sundar Koer v. Rai Sham Kishen [1907] 34 Cal. 150 it was firmly established that where interest was charged originally at one rate and at an increased rate on default to run from the data of the bond it was in the nature of penalty. But where the interest was made to run from the date of default it was not a penalty. In the case of Rani Sundar Koer the bond stipulated that additional interest would be paid by the mortgager from the date of the execution both by increase of the general rate and by increased rate of compound interest and their Lordships dealing with the question as to whether the stipulation was by way of penalty observed: The Indian Courts have invariably held that where as in the present case the stipulation is retrospective and the increased rent runs from the date of the bond and not merely from the , date of default, it is always to be considered a penalty, because an additional money payment in that case ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... llai [1913] 36 Mad. 229 the plaintiff sued on an instalment bond for Rs. 71 payable at half a rupee per month in 142 monthly instalments. In default the bond provided that the defendant should pay interest at 3 pies per diem on the 8 annas and the total amount of all the remaining instalments due would become at once payable with interest at 190 per cent per annum. The principal judgment of the Full Bench was delivered by Wallis, J., who after discussing the previous authorities observed: There appears to me to be no substantial difference where, as in the case referred to us, no interest at all is payable until default. In either case there is a stipulation, on default in Payment of the sum of money...originally stipulated for, that the debtor should be liable to pay a further sum by way of interest at an exorbitant rate from the date of default and that appears to me to be sufficient to make the stipulation penal in a very wide sense in which 1 think the word is used in the section. 9. The gist of that decision is that either in the case of two rates of interest or in the case of no interest for some time and interest from the date of default the stipulation is only penal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd and that in which it is chargeable on a subsequent date. In the first case the stipulation is enforceable unless it comes under Section 16, Contract Act. In the latter case, however generously the lender may have acted towards the borrower or even if the debtor may have of free will agreed to pay at that rate, the stipulation is to be considered penal. But such is the policy of law. 12. The following propositions are fairly deducible from the wording of Section 74, Contract Act, as it now stands and the authorities upon it where the bond stipulates that the loan will carry no interest for a period but in default of payment during that period interest is to be charged from the date of default: ( 1) Where interest is to be charged from the date of the bond, whatever the rate may be, the stipulation is in the nature of penalty: (2) Where interest is to be charged from the date of default at the usual, ordinary, contract rate the stipulation is not in the nature of penalty. (This is not of much importance as if interest is charged at the ordinary rate the Court will not interfere with the contract even if the stipulation is held to be penal). (3) Where the loan inclu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the bond was 150 par cent. 17. Defendants 7 and 8, described as subsequent purchasers of some of the mortgaged properties, contested the suit, and in addition to the issues on the merits referred to above, pleaded that the stipulation in the bond was by way of penalty and was not enforceable. The trial Court found upon this issue in favour of the plaintiff and gave a decree for the full amount claimed with costs and interest on the principal amount at the bond rate. 18. On appeal by the defendants that decision was modified by the learned District Judge of Noakhali who while expressing doubt as to whether the stipulation about interest could be brought within the strict wording of Section 74, Contract Act, as only one rate of interest was mentioned in the bond, held that the rate of interest was extortionate and reduced it to 25 per cent per annum. 19. It is argued on behalf of the appellant that the learned District Judge erred in law in not decreeing the interest as stipulated in the mortgage bond. The question is whether such a stipulation comes within the terms of Section 74, Contract Act. The first explanation in that section says that: A stipulation for increase ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nterest at all ? 22. The same contention that the Court is fettered by Act 28 of 1855 was put for ward in a number of cases referred to by Mookerjee, J., in Khagaram Das v. Ram Sankar Das Paramanik [1915] 42 cal. 652 and was overruled one of the grounds given being that, if any other view were taken, there would be no limit to the extravagant and extortionate extant to which the most usurious claims might not be carried in the name of interest. Other cases were also referred to in which the opposite view was taken but Mookerjee, J., observed as follows: Notwithstanding the small group of cases to which we have referred, where a restricted view was taken of the authority of the Court to relieve against a penalty, the tide has turned back, and the more modern cases repudiate the doctrine that any rate of interest however exorbitant, cannot be deemed to be penal. 23. He then went on to refer to the case of Miajan Patari v. Abdul Jubbar MANU/WB/0170/1906 : 10 C.W.N 1020 where there was a stipulation for payment of interest at the rate of 75 per cent from the date of the bond on failure to pay the principal sum in two instalments on specified dates, it being held in that case ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nal, a substitution of an exorbitant rate of interest in place of no interest must also be penal. 26. For the reasons given I am of opinion that the rate of interest sued for in this case comes within Section 74, Contract Act, and must be held to be penal notwithstanding the fact that only one rate of interest is mentioned in the bond. An ingenious argument was advanced on behalf of the appellant with the object of showing that in the particular circumstances of this case that rate ought not to be doomed to be penal. It is true, it is said, that 150 per cent, or even 75 per cent per annum may at first sight appear to be exorbitant and therefore penal, but, if the circumstances are taken into consideration, it will be apparent that in reality it was not so. The terms of the loan were generous providing for repayment of the principal in equal instalments extending over a period of no less than six years' without any interest if payment was made on the due dates. Interest was only to be paid in the event of default and then too not from the date of the bond but from the date of default. Therefore it is argued, if the defendants failed to take 'advantage of these liberal ter ..... X X X X Extracts X X X X X X X X Extracts X X X X
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