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PETITIONER: SMT. SOVA RAY & ANR.

       Vs.

RESPONDENT: GOSTHA GOPAL DEY & ORS.

DATE OF JUDGMENT18/03/1988

BENCH: SHARMA, L.M. (J) BENCH: SHARMA, L.M. (J) SEN, A.P. (J)

CITATION:  1988 AIR  981            1988 SCR  (3) 287  1988 SCC  (2) 134        JT 1988 (1)   583  1988 SCALE  (1)534

ACT:      Agreement-Whether an order of Court based on consent of parties can  be modified  by Court  at the  instance of  one party without  further consent  of other party-Whether it is open to Court to alter terms of compromise otherwise-Whether a default  clause  in  agreement  is  penal  in  nature  and illegal.

HEADNOTE: %      The appellants  had  filed  a  suit  for  partition  of property claiming  1/3rd share.  A  preliminary  decree  was passed by the trial court. Respondent No. 1 (defendant No. 9 in the  suit) challenged the decree before the High Court in first appeal.  The appeal  was  disposed  of  on  compromise whereby the  appellants plaintiffs’ claim to l/3rd share was accepted, but  it was  agreed that  half of the share of the plaintiffs would go to the defendant No. 9, provided he paid Rs.40,000 to  the plaintiffs  in two  instalments, the first one  of  Rs.10,000  by  31.7.1979  and  the  second  of  the remaining amount, by 28.2.1980, failing which payment within time, the  decree passed  by the  trial  court  would  stand confirmed as  per the  terms of  the compromise.  The  first instalment was  paid within  time, but  the remaining amount was not paid. The defendant No. 9 made an application before the High  Court on  28.8.1981  for  extension  of  time  for payment of  the second  instalment. The  High Court  by  its order  dated   31.8.1981  allowed   the   application.   The appellants moved  this Court  by special  leave, challenging the said order dated 31.8.1981 of the High Court.      The appellants inter alia contended that an order based on the  consent of  the parties  could be modified only with the further  consent of  the parties  and it was not open to the Court  to alter  the terms  otherwise. If the High Court had issued  notice on  the application for extension of time made by  the defendant  No. 9  to the plaintiffs-appellants, they would  have placed  before the  Court the circumstances showing that  it was  against the  cause of justice to allow the prayer  of the  defendant No.  9 and  specially so after such a long delay. There was no justification whatsoever for the High  Court to  condone the  delay and extend the period

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for deposit of the money, they contended. 288      The contesting  respondents argued that the 6th term of the com  promise dealing with the consequence of the default in payment  of the  instalments  was  penal  in  nature  and illegal, and  that the clause being severable from the other terms of  the compromise  should be  ignored. It was further argued that it was not correct to suggest that the Court had no power  to permit the respondent No. I to make the deposit later.      Allowing the appeal, the Court, ^      HELD: There  was no  merit in  the  argument  that  the impugned clause  6 of  the agreement was illegal being penal in nature. It had to be noted that the plaintiffs had in the trial court  obtained a decree for partition for their l/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 of the parties, represented by the heirs of  Brajgopal, and uncle of the plaintiffs-appellants, was satisfied  with the  share  allotted  to  them  and  the interest of defendant No. 9, second uncle of the plaintiffs, 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, fixed at Rs.40,000. The amount was to be paid by way  of price. It had not been suggested by the defendant No. 9  or his  heirs that  the entire  compromise should  be ignored on  account of  the impugned  clause 6 thereof. They had been  relying upon  the compromise  except  the  default clause which  alone was  sought to  be ignored. That part of the compromise was in substance an agreement for transfer by the plaintiffs of half of their share for a sum of Rs.40,000 to be  paid within  stipulated time. The market price of the property was  higher, and a beneficial right was bestowed on the  defendant   No.  9   to  acquire  the  property  for  a considerably  low  amount.  In  this  background,  the  said 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  within the time mentioned in the agreement. On  failure to  pay within  time, he  was  to  be deprived of that special benefit. Such a clause could not be considered a  penalty clause. The expression ’penalty’ is an elastic term  with many different shades of meanings, but it always involves  an idea  of punishment. The impugned clause in this  case did  not involve infliction of any punishment, it  merely  deprived  the  defendant  No.  9  of  a  special advantage in case of default. [293A-H: 294A]      The High  Court assuming it had the power to do so, was not justified  in allowing the prayer of the defendant No. 9 to make  a grossly  belated payment. Even where such a power exists, it is not to be exercised liberally. [294B-C] 289      Justice was  manifestly in favour of the plaintiffs and against the  contesting respondents.  The clause in question was not a forfeiture clause. [294E]      The grievance  of the  plaintiffs that  they  were  not afforded reasonable opportunity to contest the prayer of the defendant was  also well-founded;  notice of the application for extension  of time should have been directly sent to the plaintiffs. The  Court did  not  consider  it  necessary  to remand  the   matter  to   the  High   Court  for   a  fresh consideration, as  it had  come to  a  final  conclusion  on merits in favour of the plaintiffs. [294G; 295B]      The order  dated 31.8.1981  of the  High Court  was set

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aside  and   the  application   filed  by   respondent  No.1 defendant No. 9 for extension of time was rejected. [295C-D]      Charles Hubert  Kinch v.  Edward Keith  Walcott & Ors., A.I.R. 1929  P.C. 289;  Banku Behari Dhur v. J.C. Galstaun & Anr., A.I.R.  1922 P.C.  339; Jagat  Singh &  Ors. v. Sangat Singh & Ors., A.I.R. 1940 P.C. 70 and Smt. Periyakkal & Ors. v. Smt. Dakshyani, [1983] 2 SCR 467, referred to.

JUDGMENT:      CIVIL APPELLATE  JURISDICTION: Civil Appeal No. 2463 of 1982.      From the  Judgment and  order dated  31. 8. 1981 of the Orissa High Court in First Appeal No. 184 of 1977.      Veenu Bhagat for the Appellants.      A.P. Mohanty and A.K. Mahapatra for the Respondents.      The Judgment of the Court was delivered by      SHARMA, J. The appellants filed a suit for partition of the properties  detailed in the plaint claiming 1/3rd share. A preliminary decree was passed by the trial court which was challenged by the defendant No. 9 (original respondent No. 1 in the present appeal) before the Orissa High Court in First appeal No.  184 of  1972. The  appeal  was  disposed  of  on compromise whereby  the plaintiffs’ claim to 1/3rd share was accepted as correct. The terms of the compromise are set out in paragraph  2 of the order dated 27.3.79. It was, however, further agreed  that half  of the  share of  the plaintiffs, i.e. 1/6th  share, would  go to the defendant No. 9 provided he paid a sum of Rs.40,000 290 to the  plaintiffs by  a particular  date,  failing  payment within time,  the decree  passed by  the trial  court  would stand  confirmed   as  per   term  of  the  compromise.  The compromise was  recorded  on  27.3.1979.  According  to  the compromise the  sum of  Rs.40,000 was  to  be  paid  in  two instalments; the  first instalment of Rs.10,000 by 31-7-1979 and the  remaining amount  of Rs.30,000  by  28.2.1980.  The first instalment  was paid  within time  but  the  remaining amount was not paid. In the meantime, the decree by the High Court was  formally drawn  up on  6.9.1979. In  view of  the default in  payment of the second instalment the plaintiffs- appellants deposited  the sum of Rs. 10,000 received by them as the first instalment to the credit of the defendant No. 9 with the  permission of  the Court.  The  defendant  No.  9, thereafter, made  an application  before the  High Court  on 28.8.1981 for  extension of  the period  for payment  of the second instalment  of Rs.30,000. The application was allowed by the order dated 31.8.1981 which is under challenge in the present appeal.      2. Before  proceeding to  the points  involved  in  the present appeal it will be useful to briefly state the facts. The  parties  are  close  relations,  the  defendant  No.  9 (original  respondent   No.  1)   being  the  uncle  of  the plaintiffs-appellants. He  died during  the pendency  of the appeal here  and his  heirs and  legal representatives  have been  substituted   as  respondents.   The  father   of  the plaintiffs Nityagopal,  defendant No. 9 (original respondent No. 1)  Ghosta Gopal and Brajgopal were brothers. Nityagopal died in  1953 leaving behind the plaintiffs and their mother who also  died in  1962. According  to their case, they thus became entitled  to 1/3rd  share in the properties belonging to the  family. The  appellants were  very young  girls  and lived with  Gostha Gopal  for some  time after  the death of their parents.  But, according  to their  case, they  had to

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leave for  their maternal grandmother’s place in 1964 due to the ill-treatment  by their uncle. In 1965, a collusive suit for partition  was commenced by both the uncles Gostha Gopal and  Brajgopal,   in  which  although  the  plaintiffs  were impleaded as parties, their address was wrongly mentioned in the plaint.  Consequently no summons could be served on them nor did  they have  any information  about the  suit and the decree  passed   therein.  No  share  was  allotted  to  the appellants at  all. After  they learnt  about the  collusive suit and  the decree, they filed the present suit being T.S. 32 of  1967, for  setting aside  the earlier  decree and for partition. The trial court accepted the plaintiffs case that the earlier  decree was  obtained by  fraud. The  plaintiffs were awarded  1/3rd share  as  claimed  by  them.  Brajgopal became  reconciled   to  the   situation  but  Gostha  Gopal challenged the  decision in  the aforementioned First Appeal No. 184 of 1972. 291      3. The  parties reached  an amicable settlement and the appeal was  disposed of  on 27.3.1979. Accordingly the heirs of Brajgopal (who was dead by then) got their 1/3rd share in accordance with  the trial  court’s decision and the suit so far as  the other  two branches, that is, the plaintiffs and Gostha Gopal were concerned, was disposed of on the terms as mentioned in paragraph 1 above. According to the case of the plaintiffs-appellants  they   had  no   information  of  the application dated  28.8.1981, filed  by the  defendant No. 9 for extension  of the  period  for  payment  of  the  second instalment of  Rs.30,000 and  when a copy of the application was offered  to their  advocate he  did not  accept the same making an  endorsement thereon  that notice should be served directly on  the plaintiffs  as he  did not continue to hold any authority  on their  behalf. Despite this stand of their learned counsel in the High Court, no notice was sent to the plaintiffs and  the case  was listed  only after two days on 31.8.1981. The  plaintiffs’  advocate-although  he  did  not represent them  on that  date-was present  in Court when the case was  called out,  and pointed  out that  there  was  no justification for excusing the long delay. Earlier the court by  its   order   dated   17.8.1981,   after   taking   into consideration the  conduct of  the defendant  No. 9  in  not complying with  the terms  of the  compromise, had permitted the plaintiffs  to refund  the sum of Rs.10,000 paid to them as the first instalment. The plaintiffs’ counsel pointed out that the  aforesaid order had finally closed the matter. The court, however,  allowed the  prayer of  the  defendant  and permitted him  to pay  the remaining  money  along  with  an additional sum of Rs.6,000 by way of compliance of the terms of the  compromise. The  counsel who  was  representing  the plaintiffs  earlier,   refused  to  accept  the  money  when offered, and  the court  permitted the  defendant to deposit the amount  with the  Registrar of  the court observing that the  same   would  be  available  to  be  withdrawn  by  the plaintiffs. When the petitioners learnt about the order they took a  copy of  the same  and approached  this Court  under Article 136 of the Constitution.      4. While  hearing the Special Leave Petition this Court directed the  Subordinate Judge,  Baripada to  ascertain the market value of the 1/6th share of the property in question. The Subordinate  Judge in  his report  to this  Court stated that  the   value  of   the  entire   properties  would   be Rs.13,90,000 and  the value of 1/6th share would accordingly be  Rs.2,31,716.   After  the  parties  filed  a  number  of affidavits, special leave was granted on 30.7.1982.      5. Mr.  Bhagat, appearing  in support  of  the  appeal,

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contended that  an order based on the consent of the parties can be modified only 292 with further  consent and  it is  not open  to the  court to alter the  terms  otherwise.  It  was  further  argued  that assuming the  court to be so empowered, the jurisdiction has to be exercised in exceptional circumstances and only in the ends of justice. If the High Court had directed notice to be issued to  the plaintiffs, they would have placed before the court the  circumstances showing  that it  was  against  the cause of  justice to allow the prayer of defendant No. 9 and specially so  after such  a long  delay. The plaintiffs were shabbily treated  by their  uncle after  the death  of their father when  they were  very young and had to take refuge at their deceased  mother’s  parental  home.  Out  of  the  two sisters only one could be married, and the younger one could not be  married as  the sum  of Rs.30,000  promised  by  the respondent No.  1 to  be paid  by 28.2.1980 was not actually paid. According  to the affidavit filed before this Court by way of rejoinder to the respondents’ supplementary affidavit she  was   not  married  till  then.  The  learned  counsel, therefore, argued that there was no justification whatsoever for the  High Court  to condone  the delay  and  extend  the period for deposit of the money by the respondent after more than 1 1/2 years of default.      6. Mr.  Mohanty, the  learned counsel  representing the contesting respondents,  who have  been substituted in place of the  original respondent  No. 1  Gostha Gopal,  contended that the  6th  term  of  the  compromise  dealing  with  the consequence of  default in  payment of  the  instalments  is penal in  nature and  must, therefore,  be held  illegal. He urged that  the clause  being severable from the other terms of the  compromise should  be ignored and the other terms of the compromise  ought to be given effect to. As a result the clause that  on the nonpayment of the agreed sum by the time indicated therein the decree of the trial court would become final, must  be rejected  as illegal. Reliance was placed on Section 74 of the Indian Contract Act. It was further argued that the position with respect to an order of a court of law made on the basis of consent of parties is also the same and it is  not correct  to suggest  that in the circumstances of the present  case the  court had  no  power  to  permit  the respondent No.  1 to  make the  deposit later.  The  learned counsel relied  on the  observations made  in Charles Hubert Kinch v.  Edward Keith  Walcott &  Ors., AIR  1929 P.C. 289, Banku Behari Dhur v. J.C. Galstaun & Anr., AIR 1922 P.C. 339 and Jagat Singh & Ors. v. Sangat Singh & Ors., AIR 1940 P.C. 70 and  the decision of this Court in Smt. Periyakkal & Ors. v. Smt.  Dakshyani, [1983]  2 SCR 467. It was argued that it is not  right to  assume that  the decree of the trial court was unassailable  in appeal.  The respondent  No.  1  had  a substantial defence which he could have suc- 293 cessfully pressed  if the  dispute  had  not  been  amicably settled.      7. 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

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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 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 294 punishment. The impugned clause in the present case does not involve A  infliction of  any punishment; it merely deprives the defendant  No. 9  of a  special  advantage  in  case  of default.      8. Coming  to the  next question as to whether the High Court acted  rightly in  extending the period for payment of the second  instalment, the  learned counsel for the parties have placed  all the  facts and circumstances of the case in detail in support of their respective arguments, and we have considered them  closely and  do not  have any hesitation in holding that  the High Court, assuming that it had the power to do  so, was  not justified  in allowing the prayer of the defendant No.  9 permitting  him to  make a  grossly belated payment. Even  where such  a power  exists it  is not  to be exercised liberally.  In Smt.  Periyakkal and  Ors. v.  Smt. Dakshyani, [1983] 2 SCR 467, relied upon by the respondents, this Court thus observed:           "Of course, time would not be extended ordinarily,           nor for  the mere  asking. It  would be granted in           rare cases to prevent manifest injustice. True the           court would  not rewrite  a contract  between  the           parties but  the court  would  relieve  against  a           forfeiture clause ...." In the  present case, justice is manifestly in favour of the plaintiffs  and   against  the  contesting  respondents  and further the  clause in question was not a forfeiture clause. Even the High Court had to observe as follows:

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         "The conduct  of the appellant (i.e. the defendant           No.  9)   is  indeed  very  reprehensible.  Though           extensions were  obtain ed  from us,  he  did  not           comply with  the directions and suffered order No.           72 dated  17.8.1981 to  be passed.  Only when  his           rights were  taken away  did he  realise the  real           effect of what he had lost." In view  of our conclusion it is not necessary to decide the abstract question  of the general power of the court in this regard.      9. The  grievance of  the plaintiffs that they were not afforded reasonable  opportunity to  contest the defendants’ prayer is  also well  founded. The  appeal in the High Court had been  disposed of  earlier. After the default in payment of the  second instalment  occurred the  present  appellants placed the  circumstances before  the court  and prayed  for permission to refund the first instalment of Rs.10,000, 295 received by  them so  that they could take full advantage of the compromise  decree. The  matter was fully considered and decided by  the order  dated 17.8.1981  as mentioned  by the High Court in the above quoted passage. In the situation the counsel who  represented the  plaintiffs in the appeal could not have  been held  to have  continued  to  represent  them specially when  they informed  the  court  that  he  had  no further authority and that notice should be directly sent to the plaintiffs.  However, we do not consider it necessary to remand the  matter to the High Court for fresh consideration as we  have considered  all the  relevant materials and have come to  a final  conclusion on  merits  in  favour  of  the plaintiffs.      10. For  the reasons  mentioned above,  the order dated 31.8.1981 passed  by the  Orissa High  Court in First Appeal No. 184  of 1972  is set  aside and the application filed by Gostha Gopal  Dey for  extension of  time is  rejected.  The appeal is  accordingly allowed  with costs  payable  to  the appellants by the contesting respondents. S.L.                                         Appeal allowed. 296