REPORTABLE

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

J U D G M E N T

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

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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