The court established the principle that in cases involving penal interest provisions, the court may decide on reasonable compensation and may justify the allowance of compound interest at the original rate, considering the debtor's remedy to clear the amount claimed.

Findlay, J C—I am only concerned with the question of allowance or disallowance of interest in the present case. 1 he mortgage-deed in suit for Rs. 3,500 was executed on 30th November 1911. The consideration was wanted for the following purposes: The mortgagors had to pay a decree for Rs. 3,014 odd outstanding favour of another creditor; to the mortgagee also a decree for Rs. 333 odd was due, and the small balance of consideration was apparently taken in cash. The first instalment was to be paid on a fixed date about 13 months later and thereafter the remaining six instalments were to be paid year by year at the same tune. With each instalment the interest then due at 1 per cent, per mensem was also to be paid. If each of the said instalments and interest were not paid, an enhanced rate of Re. 1-4-0 compound interest was to be chargeable The mortgage-bond in suit also contained the following two clauses:

(a) If owing to our not having paid the kist of Government demand, you are required to pay that amount, this (sic) may be treated as forclosed before the stipulated period, and you may take possession.

(b)If two of the instalments agreed by us by us for satisfaction of the said amount are defaulted by us, we will pay the entire amount together with interest in a lump.

2. Such are the essential terms of the mortgage-deed, p. 1.

3. The following payments have admittedly been made: Rs. 1,600 on 2nd April 1915. '' 1,850 on 29th June 1917.

4. In other words, within less than six years of the date of execution of the mortgage, an amount equivalent to practically the whole principal, except Rs. 50, had been paid In spite of this, the present suit was brought for an amount of Rs. 5,784-4-0 on the basis of compound interest at 1 per cent, per mensem being claimed instead of the enhanced rate of Re. 1-4-0 per cent per mensem.

5. The Subordinate Judge held that the conditions referred to above of the mortgage were not penal, particularly having regard to the fact that the plaintiff had charged only compound interest at 1 per cent, per mensem. He, however, held that the case was one which was covered by the Usurious Loans Act, 1918, and he accordingly rseopened the transaction and allowed simple interest at Re. 1-4 per cent, per mensem. On this basis, the lower Court awarded the plaintiff-appellant a decree for Rs. 3,851-6-0.

6. The plaintiff has now come up on appeal claiming that interest should have been allowed at the compound rate of 1 per cent, per mensem, and a total of Rs. 5,784-4-0 is accordingly claimed as having been due on the date of the suit.

7. The pleaders for the respondents have admitted that the Usurious Loans Act as such could have no application to the present mortgage which was executed in 1911 and it is difficult to understand how an experienced Judge like the Judge of the lower Court held that it could apply. It has, however, been urged on behalf of the respondents that, in any event, the provisions of the mortgage as to payment of compound interest at an enhanced rate were penal and that it was open to this Court to allow a reasonable compensation under Section 74, Contract Act, entirely irrespective of the fact that the plaintiff has only claimed compound interest at the original rate, of 1 per cent, per mensem.

8. On behalf of the appellants it has been urged that the provision as to interest was not penal and I have been referred in this connexion to the old decision of this Court in Jagmohan v. Tikaitrai,1893 6 CPLR 11, wherein Neill, J. C, held that a stipulation that compound interest shall be paid on interest not paid up is not a penalty. The same view was taken in Bhagwant Atmaram v. Ganpati Chowdhari Kunbi,1905 1 NagLR 9 by Ismay, J.C. It has been suggested that it is erroneous to look at the present mortgage-deed as one which initially provided for simple interest and it has been pointed out that the question of compound interest did not arise unless and until the first or any other instalment was default