B. P. JEEVAN REDDY, J.

( 1 ) PLAINTIFF is the appellant. He filed a suit for recovery of a sum of Rs. 31,686, being the balance of the principle and interest due on a registered mortgage bond dt. 29-8-1960, executed by the 1st defendant and his wife, in favour of the plaintiff and his father. The Principle amount under the mortgage bond is Rs. 11,000. According to the terms of the mortgage, interest is payable at the rate of 0. 94 paise per cent per mensem, once in six months, and the principle amount has to be discharged in five equal instalments, by 29-8-1965. It was further provided that, in default of payment of any instalment, the amount will carry compound interest at the same rate, with half yearly rests. Suit was filed alleging that the mortgagors-defendants have failed to pay the amount as stipulated.

( 2 ) THE legal representative of the 1st defendant (the 1st defendant died pending the suit) filed a written statement, contending that he is not aware of the suit mortgage bond, and putting the plaintiff to strict proof thereof. He stated that he is not aware of the execution of the suit mortgage bond, and the receipt of consideration thereunder. He submitted further that the compound rate of interest claimed in the mortgage bond, in case of default, is penal and, therefore, unenforceable. He submitted that if simple interest is calculated on the principal amount, the amount due would be far lesser than the amount claimed in the suit.

( 3 ) ON the above pleadings, the learned Principal Subordinate Judge framed three issues, viz. , (1) Whether the plaintiff is entitled to claim at the pencil rate of interest. (2) Whether the mortgage is true and binding on the 4th defendant; and (3) To what relief?" On issue No. 2 he held that the mortgage is true and binding on the 4th defendant (legal representative of the 1st defendant ). On the first issue, the learned Sub-ordinate Judge, held that the charging of compound interest in case of default in paying the instalment on prescribed date, is penal within the meaning of Section 74 of the Contract Act and is, therefore unenforceable. Accordingly, the granted a decree for the principal amount of Rs. 11,000 with simple interest at the rate of 0. 94 paise per cent per mensem, less the part payments already made. This interest was granted from the date of mortgage till the expiry of the period of redemption, and thereafter at the rate of 6% per annum, till the date of payment. The plaintiff has filed this appeal aggrieved by the refusal of the court to award compound interest as stipulated in the mortgage bond. This question has to be decided with reference to S. 74, Contract Act.

( 4 ) THE mortgage bond (Ex. A-1) provides, inter alia, that to be paid once in six months at the rate of 15 annas per cent mensem and, in case of default, the amount of interest accrued shall be included in the principal amount and it shall become the principal amount, and from the date till the date of payment, compound interest at the rate of 15 annas per cent per mensem, with half-yearly rests, on that principal amount has to be paid, relying upon a decision rendered by me in Messrs. P. Sambamurthy v. M. Krishna Rao, (1980) 2 APLJ (HC) 28: (AIR 1981 Andh Pra 77), Mr. M. S. R. Subrahmanyam, the learned counsel for the appellant, contends that charging of compound interest in case of default, at the same rate, cannot beheld to be penal per se and that, therefore the court below was not right in refusing to award interest as claimed.

( 5 ) ON the other hand, the learned counsel for the respondents beings to my notice two decisions of this Court viz. , Ramanna v. Butchamma, (1958) 1 Andh WR 255 at page 261: (AIR 1958 Andh Pra 598 at pp. 603-4) and D. Radhakrishnayya v. T. Satyanandam, (1962) 2 Andh WR 100: (AIR 1963 Andh Pra 117); where it has been held that the charging of compound interest, in case of default, even at the same rate, is penal and must be relieved against under Section 74 of the Contract Ac

Click Here to Read the rest of this document