The main legal point established in the judgment is that recovery beyond the contracted amount and interest on defaulted instalments in pursuance of a compromise decree is unenforceable under Section 74 of the Indian Contract Act, 1872.

M.S. Menon, J.

1. The only question that arises in this appeal is whether the recovery of any sum beyond Rs. 4000/- and interest on the defaulted instalments in pursuance of the compromise decree in O.S.No. 75 of 1125 of the District Court of Trichur is unenforceable by virtue of the provisions of section 74 of the Indian Contract Act, 1872.

Under Section 74:

"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 otter 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 broken the contract reasonable compensation not exceeding the amount so named or, as the case may be, the penalty stipulated for."

2. In other words the section stipulates that "reasonable compensation" shall be the measure of the recovery and that the penalty or liquidated damages indicated in the contract, its outside limit. As pointed out by Pollock and Mulla in their Commentary to the Indian Contract Act, 1872, it is a bold section which "cuts the most troublesome knot in the Common Law doctrine of damages"and carries "the tendency of the English authorities to its full consequences."

3. The English Common Law has never admitted that a greater sum of money can ever be due for the breach of an obligation to pay a smaller one and it can be taken as established that if the obligation of the promisor is to pay a certain sum of money and it is agreed that if he fails to do so, he shall pay a larger sum, that larger sum will not normally be a "reasonable compensation". It follows that what has to be done in cases like this is to find out what is the primary contract between the parties and to enforce that primary contract - and nothing beyond it - subject to any concession granted in the agreement and surviving at the time of enforcement.

4. The fact that the agreement between the parties has been embodied in a compromise decree does not affect the application of section 74 of the Indian Contract Act, 1872, and the right of an executing court to apply the principle of that section and afford relief to one of the parties to a decree has not been rightly questioned before us. A full discussion of the subject is available in A.I.R. 1951 Orissa 45.

5. The suit which ended in the compromise was for a sum of Rs. 10,000 made up as follows: Amount due as per accounts on 32-12-1124: Rs. 9939-12-9

Interest thereon from the said date to date

of suit at 12 per cent per annum. Rs. 330--3-3

Total Rs. 10270-0-0

Amount waived by the plaintiff Rs. 270-0-0

Balance Rs. 10000-0-0

and the relevant portion of the petition as it appears in the razi-decree reads:

6. A number of decisions were cited before us and (1) 21 Cochin 153; (2) 23 Cochin 880; (3) 25 Cochin 552; (4) 33 Cochin 569; (5) 51 Travancore Law Reports 188 are some of the more important of them. We have carefully perused those decisions but have come to the conclusion that it is quite unnecessary to discuss them as the question as to what can or cannot be recovered under an agreement will always be a pure question of construction dependent upon the terms and inherent circumstances of the particular contract that comes up for review.

7. In the present case we are of the opinion that the primary contract was only for the payment of Rs. 4000/- with interest on the defaulted instalments as stipulated therein, that any recovery beyond it will be hit by section 74 of the Indian Contract Act, 1872, and that the payment of the full amount sued for and costs on default of three successive instalments was stipulated as in terrorem of the offending party.

8. In this view the appeal has to be allowed and we do so with costs here and in the court below. Allowed.