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Kutub-Ud-Din Ahmad And Anr. vs Munshi Bashir-Ud-Din

High Court Of Judicature at Allahabad|25 February, 1910


JUDGMENT Stanley, C.J.
1. The only question pressed before us in this appeal is concerned with the rate of interest chargeable to the defendants-appellants. The suit was one to raise the amount due on foot of a mortgage of the 14th of August 1900 by sale, if necessary, of the mortgaged property. In the mortgage the mortgagor admitted that he had borrowed Rs. 3,000 from the plaintiff with interest at the rate of 2 per cent, per mensem and he (sic) to make payment on demand. Then follows a provision that if the annual interest be paid to the mortgagor at the end of the year, the rate of interest will be reduced to Re. 1-4 per cent, per mensem, but that if the mortgagor fail to pay the interest at the end of the year, interest at the rate of Rs. 2 per cent, per mensem will be added to the principal and compound interest be paid at that rate.
2. The interest not having been punctually paid, the Court below gave a decree for the higher rate of interest.
3. It is contended by the learned Vakil for the appellants that the Court was wrong in awarding the higher rate of interest inasmuch as it was in the nature of a penalty. It appears tome that this contention is not well-founded. According to the English authorities, it is well settled that if a mortgagee stipulate for a higher rate of interest in default of punctual payment, he must reserve the higher rate as the interest payable under the mortgage and provide for its reduction in case of punctual payment and if he do so he will be entitled to remove the higher rate. But he cannot effect his object by reserving the lower rate and then fixing a higher rate in the case of nonpayment of the lower rate at the appointed time, such an agreement being considered in equity as in the nature of a penalty. This rule is not altogether intelligible. Jessel, M.R., said of it I am sorry it was so settled, because anything more irrational than the doctrine, I think, can hardly be stated. It entirely depended on form and not on substance Wallis Smith 21 Ch. D. 243 at p. 261 : 52 L.J. Ch. 145 : 47 L.T. 389 : 31 W.R. 214" Now however this be, it appears to me that an agreement on the part of a mortgagee to accept on punctual payment interest at a lower rate than the rate agreed to be paid is free from objection. It is an encouragement to punctuality in payment which is to be commended. It is a premium for punctuality in the fulfilment of a legal obligation. If a mortgagor fail to take advantage of a term of a contract which is beneficial to him, he has himself to blame. In the document before us the provision for payment of interest is free from ambiguity. This agreement was that, the mortgagor should pay compound interest at the rate of 2 per cent, per mensem but that on punctual payment of interest at the rate of Re. 1-4 per cent per mensem would be accepted. If undue influence or fraud had been proved, other considerations would arise, but the appellants have not endeavoured to support their allegation of undue influence. I, therefore, think that the decision of the Court below is correct and would dismiss the appeal.
Banerji, J
4. I was inclined to hold at the healing of the appeal that the provision in the mortgage-deed as to interest was an attempt to circumvent the rule of law as to penalties but in the, face of English authorities, and in the absence of any authority in this country to the contrary, I do not think I should be justified in so holding, I, therefore, agree in dismissing the appeal.
5. The order of the Court is that the appeal be dismissed with costs.
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Kutub-Ud-Din Ahmad And Anr. vs Munshi Bashir-Ud-Din


High Court Of Judicature at Allahabad

25 February, 1910
  • Stanley
  • Banerji