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IN THE SUPREME COURT OF INDIA
CIVIL APPELLATE JURISDICTION
CIVIL APPEAL NOS. 7310-7311 OF 2008
(Arising out of SLP (C) Nos.19271-19272 of 2007)
Deepa Bhargava & Anr. ... Appellants
Versus
Mahesh Bhargava & Ors. ... Respondents
JUDGMENT
S.B. Sinha, J.
1. Leave granted.
2. Whether the terms of a consent decree can be varied by the executing
court is the question involved in this appeal which arises out of a judgment
and order dated 29.9.2006 passed by a learned Single Judge of the Madhya
Pradesh High Court at Jabalpur in Writ Petition No.4141 of 2006.
3. Appellants herein filed a suit in the Court of Additional District
Judge, Jabalpur for declaration and permanent injunction in respect of their
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share in the suit property which they are said to have inherited from their
mother.
In the said suit the parties settled their disputes and differences. A
compromise petition in terms of Order XXIII Rule 3 of the Code of Civil
Procedure, 1908 was filed which was accepted by the Court by an order
dated 12.5.1995, some of the terms whereof are as under :
"(i) & (ii) ...
(iii) That the Plaintiffs have claimed a declaration to the suit
properties which were given to them by dint of Will
executed by the late Smt. Parmeshwari Devi in favour of
the Plaintiffs. It is now agreed between the Plaintiffs and
Defendants 3 to 5 that in respect to the above the
Plaintiffs shall remain entitled to a sum of Rs.10 (Rs.
Ten) Lakhs each only and rest of sale money shall be
exclusive property of the Defendant 3 to 5.
(iv) That the defendant No.3 to 5 shall be at liberty to
alienate the properties in any manner they like.
(v) (a) That the Defendant No.3 to 5 have paid Rs.1 Lakh
(Rs. One Lakh) each to the plaintiffs and the remaining
balance shall be paid within six months from the date the
decree is passed by the Court. In case of failure of
payment within the stipulated time, the Plaintiffs shall be
entitled to claim interest on the above mentioned amount
at the rate of 18% per annum and the total balance
amount along with interest will be first charge on the suit
property.
(b) That if after the expiry of the period
of six months from the date of decree, the
full payment of Rs.Ten Lakhs each could
not be made to the Plaintiffs then the same
made within the extended period of three
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months together with interest,. Till then the
charge on the property will continue.
(vi) That out of the sale proceeds or earnest
money received by the Defendant No.3 to 5
by the sale of the suit/will properties amount
due to the Plaintiffs shall be paid first."
4. A decree was directed to be prepared on the said basis, stating :
"1. The suit is for declaration and possession.
2. The parties have moved compromise petition on the
ground that the Plaintiffs and the Defendant happened to
be real brother and sisters and to maintain the harmony
in the families they come forward with this compromise
petition regarding the property in disputes.
3. Shri O.P. Sahni (PW1) counsel for the Plaintiff had
deposed thereof the parties have come to a compromise
in accordance with EXC1 wherein his signature from 1
to 1 and accordingly the decree be granted also Shri V.R.
Rao (DW1) counsel for the Defendant had deposed that
they agrees to EXC1 where in his signatures are from B
to B and therefore, decree be granted accordingly.
4. On perusal of EXC 1 the compromise petition the
pleading and deposition I am of the view that all the
necessary conditions of the complaint are adjusted in the
compromise petition hence accordingly the decree be
awarded.
I accordingly, order that the decree be
drawn in accordance with EXC 1
compromise petition."
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5. The compromise petition was to form part of the decree. Payment
having not been made in terms of the said consent decree the appellants
filed an application for execution. Respondents deposited a sum of Rs.18
lacs in the year 1998. An objection was also filed by them under Section 47
of the Code before the Executing Court in 2002. The said objection petition
was rejected.
6. A Civil Revision Application was filed thereagainst, inter alia,
contending that the respondents were not liable to pay interest at the rate of
18% per annum.
The High Court, by reason of a judgment and order dated 5.8.2005,
rejected the objection that the consent decree was beyond the subject matter
of the suit. It furthermore rejected the contention that the suit should not
have been decreed as adequate court fee had not been paid. The contention
relying upon Sections 59 to 61 of the Indian Contract Act that the amount
deposited in the court must be first adjusted towards the principal amount
was also dismissed. The contention raised that the interest at the rate of 18
per cent per annum being excessive is hit by the provisions Usurious Loans
Act was also rejected. However, the High Court opined that the question as
to whether the stipulation of payment of interest at the rate of 18 per cent
per annum on the judgment debtors come within the purview of Section 74
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of the Indian Contract Act or not, should be considered afresh by the
Executing Court, directing:
"On a perusal of the impugned order, it is found
that the learned executing Court has not adverted
itself to the applicability of Section 74 of the
Indian Contract Act. Though, the provisions of
Usurious Loans Act, may not be applied so as to
relieve the judgment debtors from the rate of
interest when the same is excessive, Section 74 of
the Contract Act does empower even an executing
Court to consider whether the same is in the nature
of penalty and is unreasonable. In such a
situation, the executing Court has got ample power
to pass suitable order on the parameters of
reasonableness. The executing Court having
failed to take this into consideration has
committed an error and the executing Court is,
therefore, liable to be directed to decide only the
last objection taking into consideration the scope
of Section 74 of the Indian Contract Act.
In the result, the civil revision is partly allowed
and the case is remitted back to the executing
court to decide whether the stipulation about the
interest @ 18% per annum is in the nature of
penalty and further whether it is unreasonable
within the meaning of Section 74 of the Indian
Contract Act. The executing Court shall pass an
order in accordance with the law within a period
of three months."
7. The Executing Court, pursuant thereto and in furtherance thereof, by
an order dated 23.12.2005 directed that the amount of interest payable
should be calculated at the rate of 14 per cent per annum, opining :
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"Now the question arises is, if the interest at the
rate of 18% is unreasonable and not in accordance
with law, then what rate of interest would be
reasonable and in accordance with law? In this
context, after perusing all the contentions as long
pendency of the matter, the grant of amount of
Rs.1 lakh to the plaintiffs, the benefits of the
property to the parties, and stage of the objection,
the interest at the rate of 14% may be said to be
reasonable and in accordance with law. Therefore,
it is appropriate and hereby decided to charge
interest at the rate of 14% per annum instead of
interest at the rate of 18% per annum on the
remaining principal amount."
8. A writ petition was filed thereagainst by the respondents. By reason
of the impugned judgment, the High Court reduced the rate of interest
payable to the decree holder to 9% per annum, stating :
"... In the circumstances, it has to be seen as to
whether the stipulating about the interest @ 18%
per annum in default of payment within the time
fixed, is in the nature of penalty and whether it is
unreasonable within the meaning of section 74 of
the Act. The litigating parties are real brothers
and sisters. Having regard to the nature of the suit
and the terms of the compromise enumerated in
clause (v)(a) and (b) it is clear that the decree is
not in respect of any commercial transaction. In
the circumstances, in my view, the stipulation of
interest @ 18% per annum in defaults of payment
within the agreed period is by way of penalty, the
rate of interest of 18% per annum looking to the
nature of the decree is unreasonable and excessive.
Considering the entire facts and circumstances of
the case, the compromise decree passed, I am of
the view that the reasonable rate of interest would
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be 9% per annum and not 18% as per the decree or
even 14% per annum as held by the Executing
Court."
9. Appellant is, thus, before us.
10. The parties had claimed their interest in the lands in suit from a
common ancestor.
They entered into a compromise. A decree was passed thereupon. A
decree, as is well known, remains valid unless set aside. Respondents never
challenged the validity or otherwise of the said consent decree. It was acted
upon. They had disposed of a property pursuant thereto and, thus, took
advantage of a part thereof. It was, therefore, impermissible for them to
resile therefrom.
11. There is no doubt or dispute as regards interpretation or application of
the said consent terms. It is also not in dispute that respondents-judgment
debtors did not act in terms thereof.
An executing court, it is well known, cannot go behind the decree. It
has no jurisdiction to modify a decree. It must execute the decree as it is. A
default clause contained in a compromise decree even otherwise would not
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be considered to be penal in nature so as to attract the provisions of Section
74 of the Indian Contract Act.
12. In Sova Ray & Anr. v. Gostha Gopal Dey & Ors. [AIR 1988 SC 981],
this Court held :
"We do not find any merit in the argument that the
impugned Clause 6 of the agreement is illegal
being penal in nature and has, therefore, to be
ignored. It has to be noted that the plaintiffs had in
the trial court obtained a decree for partition for
1/3rd share in the suit properties and there was
presumption in favour of correctness of the decree.
At the appellate stage one of the three branches
represented by the heirs of Brajgopal was satisfied
with the share allotted to them and the interest of
Gostha Gopal (defendant No. 9) was identical to
their interest. The situation was acceptable to the
defendant No. 9 also but he wanted to acquire half
the share of the plaintiffs on payment of
consideration. The plaintiffs agreed and the sum of
Rs. 40,000 was fixed as the price. In Clause 2 of
the agreement, as mentioned below, it was
expressly stated thus:
The sum of Rs. 40,000 agreed to be paid by
defendant No. 9 to the plaintiffs as
compensation for the 1/6th share shall be
paid in two instalments:....
(Emphasis added)
The amount was to be paid by way of price was
reiterated by the use of the word "consideration" in
Clause 3. It is significant to note that the defendant
No. 9 in the court below or his heirs (after his
death) before us have not suggested that the entire
compromise should be ignored on account of the
impugned Clause 6. They have been relying upon
the compromise except the default clause which
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alone is sought to be ignored. They insist that
under the compromise the shares allotted to the
different branches should be treated as final and
further half of the share of the plaintiffs, i.e. 1/6th
share in the suit properties should have gone to the
defendant No. 9 (and after him, to them, i.e. his
heirs) for Rs. 40,000. This part of the compromise
is in substance an agreement for transfer by the
plaintiffs of half their share for a sum of Rs.
40,000 to be paid within the time indicated. It is
true that the market price of the property was
higher, and a beneficial right was bestowed on the
defendant No. 9 to acquire the same for an amount
considerably low. In this background the
defendant was subjected to the condition that if he
had to take the advantage of the bargain he was
under a duty to pay the stipulated amount by the
time mentioned in the agreement. On failure to do
so within time, he was to be deprived of this
special benefit. Such a clause cannot be
considered to be a penalty clause. The expression
'penalty' is an elastic term with many different
shades of meaning but it always involves an idea
of punishment. The impugned clause in the present
case does not involve infliction of any
punishment; it merely deprives the defendant No.
9 of a special advantage in case of default."
13. Even assuming that the term stipulating payment of interest in the
event the entire amount was not paid within a period of six months is penal
in nature, the Executing Court was bound by the terms of the decree.
14. Interest becomes leviable either under a statute or under a contract.
The stipulation to pay interest at the rate of 18% per annum cannot, by
itself, be said to be unreasonable.
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15. Mr. Tiwari, learned counsel appering on behalf of respondents, has
relied upon a decision of this Court in P. D'Souza v. Shondrilo Naidu
[(2004) 6 SCC 649] to contend that even in a case of this nature, Section 74
of the contract Act would be applicable. In P. D'Souza, this Court was
concerned with a suit for specific performance of contract. It was in the
facts and circumstances of that case held that the time was not the essence
of contract in that case. There existed a mortgage which was required to be
redeemed. The question as to whether Section 74 of the Indian Contract Act
was attracted in that case was considered from the point of view of grant of
equitable remedy.
16. Reliance has also been placed on Yogesh Mehta v. Custodian
appointed under the Special Court & Ors. [(2007) 2 SCC 624]. In that case,
this Court was concerned with the forfeiture of earnest money where the
special court held a bidding, as therein one of the conditions, namely, grant
of sanction of Special Court was not complied with, it was opined that the
penal clause as regards forfeiture of the earnest money was not attracted. It
was, therefore, held that the forfeiture of earnest money in the
aforementioned situation could not have been directed, stating :
"While directing forfeiture of the `earnest money'
the provisions of the Contract Act, 1872 are to be
kept in mind. Forfeiture is permissible only when
a concluded contract has come into being and not
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prior thereto. {See Maula Bux v. Union of India
[(1969( 2 SCC 554] and Saurabh Prakash v. DLF
Universal Ltd. [(2007) 1 SCC 228]."
The said decision has also no application.
17. Mr. Tiwari submitted that the appellant having not challenged the
correctness of the order dated 12.5.1997 and, thus, the same having attained
finality, the question of applicability of Section 74 of the Contract cannot be
revisited. We are not able to persuade ourselves to accept the said view.
The question as to whether the executing court had any jurisdiction to travel
beyond the decree was not raised. The executing court had no such
jurisdiction. The High Court while exercising the revisional jurisdiction
also had no jurisdiction to invoke the provisions of Section 74 of the
Contract Act which for all intent and purport amounts to modification of a
valid decree passed by a competent court of law. The decision of the High
Court, therefore, was wholly without jurisdiction. Furthermore, the High
Court did not hold that Section 74 of the Contract Act will have application.
It only remitted the matter to the executing court.
18. We do not find that any legal principle has been adverted to by the
executing court in reducing the rate of interest to 14 per cent and the High
Court in reducing the same further to 9 per cent. There are a large number
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of decisions where interest has been directed to be paid even at the rate of
18 per cent or 21 per cent per annum.
19. For the reasons aforementioned, the impugned judgment cannot be
sustained. It is set aside accordingly. The executing court is directed to
proceed to execute the decree as it is. The appeals are allowed with costs.
Counsel's fee assessed at Rs.25,000/-.
.............................J.
[S.B. Sinha]
.............................J.
[Cyriac Joseph]
New Delhi;December 16, 2008
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