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1981 Supreme(AP) 321
Andhra Pradesh High Court
GANGADHARA RAO
N. Kullayyappa - Appellant
Versus
N. Dastagiri Saheb - Respondent
Decided On : 12/22/1981
C. Pattabhi Rama Rao, for Petitioners.
A default clause in a compromise decree is not a penalty if it does not impose a disproportionately large liability on the party who breaches the contract.
Headnote:
CONTRACT ACT, 1872 - SECTION 74 - COMPROMISE DECREE - DEFAULT CLAUSE - PENALTY - RELIEF.
Fact of the Case:
The petitioners and the respondent compromised a suit, and a decree was passed in terms of the compromise. The petitioners failed to pay the amount by the due date, and the respondent levied execution for the entire suit amount with interest and costs. The petitioners filed a petition to set aside the sale, arguing that the default clause was a penalty and they were entitled to relief under Section 74 of the Contract Act.
Finding of the Court:
The court held that the default clause was not a penalty but a concession granted to the petitioners. Therefore, Section 74 of the Contract Act was not attracted, and the petitioners were not entitled to relief.
Issues: Whether the default clause in the compromise decree was a penalty or a concession.
Ratio Decidendi: A penalty is a stipulation in a contract which imposes a disproportionately large liability on a party who breaches the contract. A concession, on the other hand, is a benefit granted to a party who performs the contract. In this case, the default clause did not impose a disproportionately large liability on the petitioners. It merely required them to pay the entire suit amount with interest and costs if they failed to pay the amount by the due date. Therefore, the default clause was not a penalty but a concession.
Final Decision: The court dismissed the petition.
ORDER :- The respondent filed a suit against the petitioners for realisation of Rs. 16,443-50 with costs and future interest. Both the parties compromised the matter and a decree was passed in terms of the compromise on 26th Dec. 1974. According to the decree the petitioners have to pay to the respondent a sum of Rs. 16,000/-towards the suit amount and costs by 28th Mar. 1975 and in default of payment by that date the petitioners have to pay the entire suit amount of Rs. 16,443-50 with future interest at 6% P.A. on Rs. 21,110 from the date of the suit till realisation, and suit costs of Rs. 1251-50.
2. Admittedly, the petitioners did not pay Rs. 16.000/- and costs by 28th Mar. 1975. Therefore, the respondent levied execution for recovering the entire suit amount of Rs. 16.443-50 with costs and future interest. The properties of the petitioners were brought to sale. The petitioners went on making some payments and getting the sale adjourned by filing petitions. Ultimately, the sale was held. The petitioners filed a petition to set aside the sale. That petition was dismissed for default.
3. Thereafter the petitioners have filed the present petition stating that the compromise decree was only for Rs. 16,000/- in full quittance of the suit claim, the balance having been given up by the respondent, that the default clause has not the effect of reviving the right of the respondent to recover the entire suit amount with future interest and costs and that would amount to a penal clause and the petitioners are to get relieved of the penalty by virtue of S.74 of the Contract Act. In this connection reliance was placed on S. Krishnamurthy v. P. Appanna. (1976) 2 Andh WR (HC) 103.
4. The learned Subordinate Judge held that the decision had no application to the facts of the case. In addition, he also hold that the petition was barred by principles of res judicata. Consequently, he dismissed the petition. Questioning his order the petitioners have filed this revision.
5. It is submitted by the learned counsel for the petitioners that the learned Judge was not correct in stating that the decision in S. Krishna Murthy v. P. Appanna, (1976 2 Andh WR (HC) 103) (supra) did not apply to the facts of the case. I have seen that decision. I do not agree with the learned counsel that the decision applies to the facts of the case. It is clearly distinguishable. In that case the compromise decree was as follows :
(1) that the first defendant do pay to the plaintiff within a period of two months from the date of the decree a sum of Rs. 1,800/- in full quits of the suit claim as settled by the mediators giving up the remaining suit claim and costs and the first defendant do bear his own costs of the suit:
(2) that in case the first defendant failed to pay the amount within the stipulated time as per cl. (1) above, the plaintiff do recover from the defendant, i.e., the first and 3 to 5 defendants, as claimed in the suit, a sum of Rs. 2,900/- with interest on Rs. 2,500/- at 5 1/2% P.A. from the date of the suit i.e. 19th January, 1970 till the date of realisation of the said sum and do also recover the sum of Rs. 420/- towards costs of the suit." The first defendant did not pay the amount of Rs. 1800/- stipulated in the compromise decree within the period of two months. Thereupon the decree-holder (the plaintiff) filed an execution petition for realisation of the entire amount claimed in the suit.
6. On a consideration of the case-law on the subject. Venkatrama Sastry, J., held, that where a concession was given to a party it must be performed within the time stipulated and there is no power in the Court to relieve the party against it. On the other hand where stipulation is by way of a penalty, the decree in each case has to be scrutinised and if it is found to be by way of penalty then relief should be given under S.74 of the Contract Act. On the facts of that case the learned Judge held, that the decree stipulated for the payment of Rs. 1,800/- the b
