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1957 Supreme(Pat) 94
PATNA HIGH COURT
Sinha and K.Dayal JJ.
Firm Kari Poddar Ramphal Poddar
Versus
Harishankar Mills
Appeal From Original Order No. 84 of 1953 ;
Decided On : APRIL 02, 1957
Time is of the essence of a contract when the concession is purchased by the defendants only for the consideration that the lesser amount is to be paid within a certain time.
Headnote:
COMPROMISE DECREE - PENALTY CLAUSE - TIME OF THE ESSENCE - INTEREST - PENAL INTEREST - RELIEF.
Fact of the Case:
A compromise decree was passed in a money suit, whereby the defendants agreed to pay Rs. 5,000 out of the total claim of Rs. 7,343/1/-, with the condition that if the payment was made by a certain date, the balance would be remitted. The defendants failed to pay the amount within the stipulated time and applied for recording satisfaction of the decree by depositing Rs. 3,090, including interest at 1% per month. The plaintiff objected, claiming the entire amount as per the decree.
Finding of the Court:
The court held that the term for payment of a larger sum of money if the smaller sum was not paid within the time stipulated was not by way of penalty or forfeiture. The stipulation was that, if the defendants failed to pay within the time stipulated the smaller sum, the entire claim would become payable and not any amount more than the claim. The court further held that time was of the essence of the contract, as the concession was purchased by the defendants only for the consideration that the lesser amount was to be paid within a certain time. The court also held that the increased rate of interest of 1% per month amounted to a penalty and granted relief to the defendants by reducing the interest rate to 9% per annum, as mentioned in the plaint.
Issues: 1. Whether the term for payment of a larger sum of money if the smaller sum was not paid within the time stipulated was by way of penalty or forfeiture. 2. Whether time was of the essence of the contract. 3. Whether the increased rate of interest of 1% per month amounted to a penalty.
Ratio Decidendi: 1. The court relied on the principle that if there is an agreement to pay a sum of money by a particular date, with a condition that if the money is not paid on that date a larger sum shall be paid, that condition is in the nature of a penalty against which a Court of equity can grant relief. 2. The court held that time was of the essence of the contract, as the concession was purchased by the defendants only for the consideration that the lesser amount was to be paid within a certain time. 3. The court relied on Section 74 of the Contract Act, which provides that a stipulation for increased interest from the date of default may be a stipulation by way of penalty.
Final Decision: The appeal was dismissed with costs, except in regard to the modification made in the rate of interest, which was reduced to 9% per annum.
Sinha, J.
1. This appeal is directed against the order of the Court below dated 14-2-1953, refusing the application of the appellants under Order XXI, Rule 2, Civil P. C., for recording satisfaction of the decree.
2. The facts, shortly, are that respondent No. 1 had filed a money suit, No. 35/5 of 1949/50 against the defendants, including the appellants to this Court, for the recovery of a sum of Rs. 7,343/1/- as the price of certain goods supplied. It was said that the agreement was for payment of the, price together with interest, and, according to the rate prevailing in the market, 9 p.c. p.a. was chargeable as interest. The suit was eventually compromised on 8-3-1951, and a compromise decree was passed on that date.
According to the terms of the compromise, the amount was settled at Rs. 5,000/-; Rs. 2,000.00 out of it was paid on the date of the compromise, and Rs. 3,000.00 was made payable against receipt either in instalments or in one lump by 7-9-1952. On 8-9-1952, the defendants filed an application for extension of time, but no order was passed on that application as the record was then lying in the Record Room and it was directed to be called for.
The respondent had also filed a petition of rejoinder to the petition of the defendants dated 8-9-1952, and both the petition and the rejoinder were ordered to be put up on 30-10-1952. On 30-10-1952, the defendants again filed a petition for a months more time to arrange for, payment of the money, namely, Rs. 3,000/-, on the ground of illness of their Managing Director, who was seriously ill, and the matter was fixed for 17-11-1952. On that date, again, the defendants pleader applied for one months more time, and the next date fixed was 2-12-1952.
On this date, the defendants filed a petition stating that they had brought the money and that the plaintiff be directed to receive the same, or the defendants be permitted to deposit the same in Court, As the plaintiff had not come to Court, the plaintiffs lawyer prayed for time, and the matter was ordered to be put up on the 3rd December, and on hearing the parties on that date, the Court gave permission to the defendants to deposit the sum of Rs. 3,000.00 together with interest at the rate of 1. p.c. p. m. On 18-12-1952, notice was directed to issue to the plaintiff. Chalan showing deposit of Rs. 3,090.00 was received in Court on 8-1-1953.
When the parties were heard, the plaintiff objected to the deposit of Rs. 3,090.00 only because according to him, after the default made by the defendants, the plaintiff was entitled to the entire amount under the decree. The Court below has now held that the plaintiff had allowed concession to the defendants to satisfy the entire claim namely, Rs. 7343/I/-, by merely paying a sum of Rs. 5,000.00 by the date mentioned in the agreement, namely, 7-9-1952, and, as the concession was dependant upon payment within the time allowed, the defendants were not entitled to that concession after the expiry of the time, as they had failed to pay the amount within the date stipulated. In that view of the matter, the Court below has dismissed the application for recording satisfaction of the decree.
3. Mr. Ghose, learned Counsel appearing on behalf of the appellants, has submitted first, that Clause 4 of the compromise petition amounts to a penalty clause, and, therefore, the Court should relieve the appellants of the penalty by putting the parties on terms; and, secondly, that the time was not of the essence of the contract.
4. The law in regard to penalty and forfeiture is embodied in Section 74, Contract Act, the relevant portion of which runs as follows:
"When a contract has been broken, if a sum is named in the contract as the amount to be paid in case of such breach, or if the contract contains any other stipulation by way of penalty the party complaining of the breach is entitled, whether or not actual damage or loss is proved to have been caused thereby, to receive from the party who has bro
