Question

Solve :
X borrows Rs. 1,00,000 from Y @ 12% p.a. interest payable by five half-yearly instalments of Rs. 20,000 each. State the legal position in each of the following alternative stipulations:
Case (a) : In case of default in payment of any instalment, interest rate shall be raised to 15% p.a.
Case (b) : In case of default in payment of any instalment, interest rate shall be raised to 75% from the date of default.
Case (c) : In case of default in payment of any instalment, the interest shall be calculated @ 12% p.a. on monthly compounding basis.
Case (d) : In case of default in payment of any instalment, the interest shall be calculated @ 15% p.a. on monthly compounding basis.
Case (e) : In case of no default, the interest rate shall be 9% p.a.
Case (f) : In case of default in payment of any instalment, the whole sum shalt become due.

Answer 1

Solution: Section to which the given problem relates: Section 74.
Decision and Reason: Cases (a), (b) and (d) Y is entitled to recover from X such compensation as the court considers reasonable because the stipulation is in the nature of a penalty. Cases (c) and (e) Y is entitled to recover from X as per stipulation because the stipulation is not in the nature of a penalty.
Case (f) The contract may be enforced according to its terms because the stipulation is not in the nature of a penalty.