Holding

An executing court cannot go beyond a decree; it must execute the decree as passed, and the default‑interest clause is not a penal provision under Section 74, so the decree cannot be altered.

Summary

The parties, siblings, entered into a compromise concerning ancestral property, which the court incorporated into a decree ordering the respondents to pay Rs.10 lakh each and, on default, interest at 18% per annum. The respondents failed to pay, and the appellants sought execution. The executing court, and later the High Court on revision, reduced the interest rate to 14% and then to 9% respectively, invoking Section 74 of the Indian Contract Act as a penalty provision. The Supreme Court held that a decree remains valid unless set aside and that an executing court has no jurisdiction to alter its terms; a default‑interest clause in a compromise decree is not a penal clause for purposes of Section 74. Consequently, the High Court’s reduction of the interest rate was beyond its authority. The appeal was allowed and the decree was directed to be executed as originally decreed.

Issues considered

Whether an executing court can modify the terms of a consent decree, particularly the rate of interest on default.
Whether the stipulation of interest at 18% per annum constitutes a penalty and is unreasonable under Section 74 of the Indian Contract Act, 1872.
Whether Section 74 of the Indian Contract Act can be invoked by an executing court or a revisional court to alter a decree.
Whether the High Court had jurisdiction to reduce the interest rate in the decree.

Legislation cited

Code of Civil Procedure, 1908s. 47
Indian Contract Act, 1872s. 74

Subjects

execution of decreeconsent decreedefault interestpenalty clauseSection 74CPC s.47modification of decreecivil procedurecontract law

Judgment

(2008] 17 S.C.R. 636

A DEEPA BHARGAVA & ANR.
II.
MAHESH BHARGAVA & ORS.
(Civil Appeal Nos. 7310-11 of 2008)
DECEMBER 16, 2008
B
[S.B. SINHA AND CYRIAC JOSEPH, JJ.]

Code of Civil Procedure, 190Q: ~

s.47 - Execution of decree - Executing court -
c Jurisdiction of "'.'"" Scope - Held: Executing court has no
jurisdiction to modify a decree - It cannot go behind the
decree and must execute the decree as it is.
Default clause contained in a compromise decree -
Nature of- Held: It is not penal in nature - s. 74 of the Contract
D Act is not attracted - Stipulation to pay interest@ 18% p.a.
for default in payment within agreed period not unreasonable.
In a suit for declaration and permanent injunction ;..-
between brothers and sisters in respect of ancestral
property, compromise petition was filed by the· parties
E which was accepted by the Court. A decree was passed
thereupon. Some of the terms of compromise decree
were that the respondents.:.deferidants would pay Rs.10
lakhs to the appellants-plaintiffs and in case of failure of
payment within stipulated time, appellant would be
entitled to claim interest thereon @ 18% p.a. and that
F
respondents would be at liberty to alienate/sell the suit _, '
property. As payment was not made in terms of the
consent decree, the appellants filed an application for
execution. Respondents filed objection under s.47 CPC
before the executing Court, which was rejected. A
G revision petition was filed thereagainst contending that
the respondents were not liable to pay interest @ 18%
p.a. The High Court rejected the objection holding that the
consent decree was beyond the subject matter of the
suit. Moreover, it opined that the question as to whether ......

H 636
DEEPA BHARGAVA & ANR. V. MAHESH BHARGAVA 637
& ORS.

. the stipulation of payment of interest @ 18% p.a. on the
judgment debtors is in the nature of penalty and is
unreasonable within the purview of s.74 of the Contract
A

Act, 1872 or not, should be considered afresh by the
Executing Court.
The Executing Court directed payment of interest @
14% p.a. Respondents filed writ petition. High Court
a
reduced the rate of interest to 9% p.a. holding that the
litigating parties were real brothers and sisters, the
consent decree was not in respect of any commercial
transaction and in the circumstances, the stipulation of
interest in default of payment within the agreed period
c
'
"I was by way of penalty, and thus the rate of interest of
' · 18% p.a., looking at the nature of decree, was
unreasonable and excessive. Hence the present appeal.
Allowing the appeal, the Court
D
HELD: 1. A decree remains valid unless set aside.
Respondents never challenged the validity or otherwise
~
of the said consent decree. It was acted upon. They
disposed of the suit property pursuant thereto and, thus,
took advantage of a part thereof. It was, therefore,
impermissible for them to resile therefrom. There is no E
doubt_ OJ._dispute as Tegards interpretation or application
of the said consent terms. [Paras 10 and 11] (643-D-E]
2. An executing court 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 F
compromise decree even otherwise would not be
considered to be penal in nature so as to attract the
provisions of Section 74 of the Indian Contract Act. [Para
11) [643-F]
Sova Ray & Anr. v. Gostha Gopal Dey & Ors. AIR (1988) G
SC 981, referred to.

. 3. 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. [Para 14] (645-D] H
638 SUPREME COURT REPORTS (2008] 17 S.C.R.

A _ P. D'Souza v. Shondrilo Naidu (2004) 6 SCC 649,
distinguished
Yogesh Mehta v. Custodian appointed under the Special
Court & Ors. (2007) 2 SCC 624, held inapplicable.
4. The question as to whether the executing court
B 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
C 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. r
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. [Para 17] [646-D-E]
D 5~ No legal principle was 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. In a large number of decisions, interest has
been directed to be paid even at the rate of 18 per cent
E or 21 per cent per annum. The executing court is directed
to proceed to execute the decree as it is. [Paras 18 and
19] [646-F]
Case Law Reference:
AIR (1988) SC 981 referred to Para 12
F (2004) 6 SCC 649 distinguished Para 15
(2007) 2 SCC 624 held inapplicable Para 16 -+
CIVIL APPELLATE JURISDICTION: Civil Appeal Nos.
7310-11 of 2008.
From the Judgment and final Order dated 29.9.2006 of the
G High Court of Madhya Pradesh at Jabalpur in Writ Petition Nos.
4112 of 2006 & 4173 of 2006.
Arvind Kumar Shukla, Alok Shukla, G.P. Mishra, Purcham
Mubarak and trshad Ahmad for the Appellants.
·· · Shiv-Sagar~ Tiwari, Varun Thakur and Rajesh Singh for the
H Respondent.

•
'
--J DEEPA BHARGAVA &ANR. V. MAHESH BHARGAVA 639
& ORS.

The Judgment of the Court was delivered by A
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 B
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. c
In the said suit the parties settled their disputes and
' differences. A compromise petition in terms of Order XX.Ill Rule
-t 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 : D
"(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 E
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. F
t (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 G
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
H
640 SUPRErvi~ COURT REPORTS [2008] 17 S.C.R.
e
r
A 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
B 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
c 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
D 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 ~
r-
forward with this compromise petition regarding
the property in disputes.
E 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
F EXC1 where in his signatures are from B to Band
1
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
G 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." • '
5. The compromise petition was to form part of the decree.
H
DEEPA BHARGAVA & ANR. V. MAHESH BHARGAVA 641
& ORS. [S.B. SINHA, J.]

Payment having not been made in terms of the said consent A
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. B
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 C
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 D
.- that the interest ~t 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 E
the purview of Section 74 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. F
t- 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 G
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 -
, H
~

e
(.=

642 SUPREME COURT REPORTS [2008) 17 S.C.R.
JI

A 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
B 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 -4!
the law within a period of three months."
7. The Executing Court, pursuant thereto and .in furtherance
c 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 :
-- ~

"Now the question arises is, if the intere~t at the· rate of
18% is unreasonable and not in accordance with law, then
D 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
E 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."
F 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 ,..
•·-··
G 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
-
H

(
r'
e
- DEEPA BHARGAVA & ANR. V. MAHESH BHARGAVA
& ORS. [S.B. SINHA, J.]
643

(v)(a) and (b) it is clear that the decree is not in respect of A
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. B
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 be 9% per annum
and not 18% as per the decree or even 14% per annum
as held by the Executing Court."
c
- 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
D
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 E
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 F
t
decree even otherwise would not 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 : G
"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 ign_ored. 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 H

~
644 SUPREME COURT REPORTS [2008] 17 S.C.R.

A and there was presumption in favour of correctness of the
decree. At the appellate stage one of the three branches r
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
B
he wanted to acquire half the share of the plaintiffs on
payment of cons_ideration. 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:
c The sum of Rs. 40,000 agreed to be paid by
~
defendant No. 9 to the plaintiffs as compensation
for the 116th share shall be paid in two
instalments: ....
(Emphasis added)
D The amount was to be paid by way of price was reiterated
by the use of the word "consideration" in Clause 3. It is lo
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
E 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 tq the different
branches should be treated as final and further half of the
F share of the plaintiffs, i.e. 1/6th share in the suit properties
-j
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
G
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;

H
defendant was subjected to the condition that if he had to
take the advantage of the bargain he was under a duty to
-
.....
DEEPA BHARGAVA & ANR. V. MAHESH BHARGAVA 645
& ORS. [S.B. SINHA, J.]

pay the stipulated amount by the time mentioned in the A
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 B
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
c
\.-.;
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.
~
15. Mr. Tiwari, learned counsel appearing on behalf of
D
respondents, has relied upon a decision of this C9urt 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 E
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 F
grant of equitable remedy.
16. Reliance has also been placed on Yogesh Mehta v.
Custodian appointed under the Special Court & Ors. [(2007)
2 sec 624]. In that case, this Court was concerned with the
forfeiture of earnest money where the special court held a G
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 ~egards forfeiture of the earnest money
~

- was not attracted; It wa~herefore, held that the forfeiture of
earnest money in the afor mentioned situation could not have
H
'\

646 SUPREME COURT REPORTS [2008] 17 S.C.R. e
A 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 prior thereto. {See Mau/a Bux
B 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,
c 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
0
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:
· \·E 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
· F· :.to 14 per cent and the High Court in reducing the same further
to 9 per cent. There are a large number 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 impµgned
G 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/-.
D.G. Appeal allowed.
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