ORDER
Ayling, J.
1. The facts of the case are fully and clearly set forth in the judgment of my learned brother, which I have had the advantage of perusing. The only point with which we are concerned is whether the Subordinate Judge was entitled to reduce the rate of interest specified in the suit bond.
2. As regards the preliminary objection that the matter is covered by the oath taken by the plaintiff and that the defendant is thereby precluded from asking for relief against the high rate of interest, I have no hesitation in agreeing with the learned Judge who disposed of the revision petition. Apart from this, the question whether the decree of the Subordinate Judge, in so far as it modified the terms of the contract as regards interest, should be upheld, is one of some difficulty; and, with all diffidence, I may say that it seems to me of the utmost importance to observe the distinction between what a court may do and what a court should do. The matter is considered from both points of view by the learned Judges in Sankaranarayana Vadhyar v Sankaranarayana Aiyar I.L.R. (1901) M. 343 and while setting forth cogent reasons for refusing to modify the contract terms as to interest merely because of the high rate provided for, they further lay down that section 74 of the Contract Act does not authorize a court to interfere in cases where no interest at all is provided for ' except in case of default of payment. If this latter view is correct, there can be no doubt that the Subordinate Judge in the present case was wrong; the facts of the present case are practically identical with those of the reported cases. But, with all deference, I agree with my learned brother in doubting whether any distinction should be drawn between such cases of enhancement of interest in default. I do not understand their Lordships to mean that a case of the latter description could not come within the purview of Section 74 of the Contract Act, however inexpedient it might be to grant relief; and, looking to the very wide wording of the body of the section, I cannot see why an agreement to pay a high rate of interest in default of payment of a specified sum on a specified date should not be regarded as a stipulation by way of penalty merely because no interest would have been payable except in case of default.
3. In this view, I agree to the reference proposed by my learned brother. Whether relief should have been granted is a very different matter. I am fully alive to the reasoning of the learned Chief Justice and Dairies, J. in the case referred to, and to the dangers of holding a rate of interest to be unreasonable merely because it seems to the court (possibly in ignorance of all the facts of the case) to be unduly high. Very similar views are expressed by two benches of the Calcutta High Court-Satish Chunder Giri v. Hem Chunder Mookhopadhya I.L.R. (1902) C. 823. and Umesh Chandra Khasnavis v. Golap Lal Mustafi I.L.R. (1903) C. 233, though in neither case was the applicability of Section 74 of the Contract Act considered, but only the question of whether relief should be given on general principles of equity. To what extent weight should be given to these views or to the doctrines laid down in English cases referred to by my learned brother is a matter, which must, in my opinion, be decided with primary reference to the facts of each-individual case in order to determine whether the discretion vested in the court by Section 74 (if it be so vested) should be exercised, and, if so, to what extent.
Sadasiva Aiyar, J.
1. The plaintiff sued on an instalment bond dated the 24th April 1907 for Es. 71-0-0 payable at i a rupee per month in 142 monthly instalments. (Even from the monthly instalment of 8 annas, the defendant seems to have been entitled to deduct the profits on the defendant's two shares in the auction chit conducted by the plaintiff and to have been bound to pay only the balance). The defendant paid up 29 instalments of the 142 instalments regularly. He made default in paying the 30th instalment of 8 annas (due on the 5th January 1908) after deducting 1 anna 4 pies due as profits. The instalment bond provides that on such default, the defendant should pay interest at 3 pies per diem on the 8 annas for the 7 days of grace allowed to him to pay up the defaulted instalment. As he did not so pay up the defaulted instalment, the total amount of all the remaining instalments became at once payable according to the terms of the bond with the exorbitant interest of 1 pie per rupee per day which is a little more than 190 per cent, per annum. The plaintiff accordingly sued for recovery of the Rs. 51-8-0 due for the 103 defaulted instalments plus Rs. 153-12-0 as interest for about 19 months.
2. The defendant seems to have raised two defences.
(a) that he had made further payments than were admitted by the plaintiff, and,
(b) that the rate of interest was penal and should be relieved against.
3. The defendant challenged the plaintiff to take oath, evidently on the first head of the defence and the plaintiff took oath accordingly. The Subordinate Judge had therefore to find that the defendant did make default from the 30th instalment of the bond (58th from the beginning of the chit), but on the question of the rate of interest the Subordinate Judge evidently held that the rate of 190 per cent, per annum was a penal provision and reduced it to 24 per cent, and decreed for the amount arrived at on such calculation.
4. In the revision petition to the High Court by the plaintiff on the question of the reduction of the rate of interest by the Subordinate Judge, the plaintiff raised two contentions viz.,
(a) that, because he had taken oath as to the facts alleged in the plaint, the defendant could not raise the question of law in respect of the penal character of the rate of interest, and
(b) that, even if the legal question could be raised, the Subordinate Judge erred in law in deciding that the provision in the bond for payment of 190 per cent, as interest is penal and could be relieved against.
5. The matter came before a single Judge of the High Court, and the learned Judge held that the question of the rate of interest was not 'a matter of evidence' (covered by the statement of oath of the plaintiff) and that he (the learned Judge) was not 'prepared to interfere' with the decision of the Subordinate Judge that the rate of interest should be reduced to 24 per cent.
6. Against the above decision, the present Letters Patent Appeal has been filed. We agree with the learned Judge of this Court that the plaintiff's first contention (that the defendant is precluded, by his agreement to be bound by the plaintiff's statement on oath as to the facts, from contending that the rate of interest provided in the bond is penal) cannot be supported.
7. The sole remaining question is, whether the court has power to reduce the exorbitant interest provided for in Exhibit A, that is, whether such a provision is in the nature of a penalty. The Indian law on this point is found in Section 74 of the Contract Act, IX of 1872 (as amended by Act VI of 1899), which gives the courts power to relieve against penal provisions and to give only reasonable compensation for the breach of a contract containing 'stipulations by way of penalty.' The new explanation to the section, introduced by Act VI of 1899, says: 'A stipulation for increased interest from the date of default may be a stipulation by way of penalty.' The new illustration (d) is as follows:
A gives B a bond for the payment of Rs. 1,000 with interest at 12 per cent, at the end of six months, with a stipulation that in case of default, interest shall be payable at the rate of 75 per cent, from the date of default. This is a stipulation by way of penalty, and B is only entitled to recover from A such compensation as the court considers reasonable.
It will be seen that while the new explanation says that a stipulation for increased interest from date of default may be a stipulation by way of penalty, the new illustration (d) says that if the increased interest is so high as 75 per cent, the provision 'is a stipulation by way of penalty' and not merely ' may be' such a stipulation.
8. The appellant's vakil, however, relies on the case in Sankaranarayana Vadhyar v. Sankaranarayana Aiyar I.L.R. (1901) M. 343, and I must admit that it does support his contention. He also relied on Chinna Venkatasami v. Pedda Kondiah I.L.R. (1902) M. 445, and Periasami Thalavar v. Subramanian Asari (1902) 14 M.L.J. 136, and several cases decided by other High Courts. I intend to refer only to a few of the decisions on this point. In the case in Chinna Venkatasami v. Pedda Kondiah I.L.R. (1902) M. 445, the learned Judges proceeded mainly on the ground that as the interest on default was only 12 per cent per annum, the rate of interest was not 'unreasonable as the measure of compensation' and ought to be allowed to the plaintiff. The judgment in Periasami Thalavar v. Subramanian Asari I.L.R. (1902) M. 445, is very short and does not carry us further than the case in Sankaranarayana Vadhyar v. Sankaranarayana Aiyar I.L.R. (1901) M. 343.
9. In the case in Sankaranarayana Vadhyar v. Sankaranarayana Aiyar I.L.R. (1901) M. 343, the learned Chief Justice says that, where ' the stipulation was not for increased interest on default but for interest on default' (no interest being provided for in the contract till date of default), 'the new explanation and the new illustration to Section 74 of the Contract Act do not apply and hence the stipulation is not a penal stipulation.' Mr. Justice Davies agreed with the learned Chief Justice and went further in his observations, which almost amount to a criticism of the policy of the Legislature in introducing the new illustration (d). Now the new illustration (d) clearly implies that even though 'persons make an engagement with their eyes open 'to pay 75 per cent, interest per annum as increased interest, the stipulation is one by way of penalty and the courts should hold that the parties are not 'bound by it.' But the learned Judge holds that 'when persons make an engagement with their eyes open, they should be bound by it and that 'when the intention of the parties is plain and unmistakable' that intention must be given effect to.'
10. With the greatest deference to the decision in Sankaranarayana Vadhyar v. Sankaranarayan Ayyar I.L.R. (1901) M. 343, I find myself unable to agree with it, as, in my opinion, it is opposed not only to the policy and intention of the Legislature, but to the plain meaning itself of the words of Section 74 of the Contract Act. Whether it is necessary or advisable to interfere with contracts between private persons as to the rate of interest is a question on which there has been much conflict of opinion among wise men. The wisdom of the ancients (including Manu, Solon and Plato) and of religious law-givers whose knowledge of human nature and human requirements was by no means despicable, supports the opinion that some restrictions should be laid on bargains for interest. I do not, of course, say that it is proper to revive the letter of the old religious and social rules by which a Jew was forbidden to obtain interest on loans advanced to Jews (Exodus Ch. 22, verse 25), or by which a Christian was forbidden to receive interest on loans to Christians, and a Roman citizen on loans to Romans, or a Mussalman to claim interest from anybody. I only wish to point out that all nations at all times (except in quite modern days) did not leave the rate of interest on loans to be determined in the open market according to the law of supply and demand. That interest was ordinarily never to exceed the principal was enacted both by Manu and by Justinian's Code, and the law of Damdupat is still enforced in some classes of cases in the Bombay Presidency. Till 1854, laws to regulate the rate of interest allowable to creditors were in force in England. But the opinions of Bentham (an extreme doctrinaire who carried many doctrines to their logical conclusions without regard to human sentiment of the practical needs and limitations of humanity) had prevailed meanwhile in the community and the more extreme individualists known as the Manchester School of economists had become powerful; John Stuart Mill who was considered almost infallible supported the opinions of that School and all usury laws were wholly repealed in England in 1854, even against the protest of learned Judges like Mr. Justice Byles and notwithstanding the bitter experience of Austria, which repealed such laws in 1787 but on finding the consequences to be disastrous had to re-impose the old restrictions in and from 1803. A similar enactment was passed in 1855 in India.
11. In England, the disastrous consequence of the wholesale repeal of the Usury laws were minimised to some extent by the action of the Courts of Equity, which interfered with the so-called freedom of contracts in the case of expectant heirs and of other young inexperienced men. But the action of the Courts of Equity was found to be insufficient to extenuate or even check sufficiently the gross and serious evils of usurious and extortionate bargains, because even Judges of the Courts of Equity became more and more afraid to go against the fashionable doctrine of the benefits of absolute freedom of contract wholly unfettered by the discretion and common sense of the judges who preside over courts of justice. And the evils, as might be expected, grew more and more rampant, evils, described thus by Mr. Justice Byles in his book on Usury written in 1845. 'In every court of Common Law, the most cruel actions are constantly brought to enforce these extortionate demands, actions in which the law, so far from being, as she ought to be, the handmaid of justice, is in reality prostituted and made an accomplice in the perpetration of the most iniquitous gambling and robbery.' About the end of the 19th century the evil of unrestricted freedom of loan contracts called for serious notice. The common sense view began to gain ground that whatever may be the theory, the two parties to loan transactions are really in many cases not ' on level ground, 'that one of them' has necessarily and usually an unfair advantage over the other.' In 1897 a Select Committee of the House of Commons inquired into the matter and the Committee was of the opinion (among others) that 'the only effective remedy lay in giving to the courts absolute and unfettered discretion in dealing with loan transactions.' They recommended (see their report of 1898) that any Judge or Master of the High Court or Judge or Registrar or any Court can declare 'the rate of interest excessive and substitute a lower rate of interest.' The Courts of Equity had by precedent specified and almost limited ' the circumstances which would justify interference,' with loan contracts. Even equity jurisprudence became ' crystallised' and void of elasticity. The Committee therefore thought 'that it would not be expedient to attempt' in the act of Parliament recommended to be passed by the Committee ' to define the cases which should constitute unfair dealings, and that the High Court and county courts should be given extended powers to deal with all such cases.' The Committee fortified themselves with the opinions of 'a large number of Indian Judges and high officials in India 'who had been consulted by the India Government on the subject of usury. A Money-lenders' Act was passed in 1900 imposing some restrictions and giving power to Courts to reduce excessive interest. But some learned Judges showed themselves 'opposed in to the policy' of the Money-lending Act and the said Judges have tried to minimise the beneficial effects of the Act as far as possible, using the old familiar argument, that, 'if persons make bad bargains, they have only themselves to thank and they must put up with the consequences and ought not to expect the courts to remake their agreements for them.' While the Money-lenders' Act allowed courts full discretion to relieve against excessive and extortionate and harsh or unconscionable rates of interest, a learned Judge (Mr. Justice Ridley) deliberately confined the power to cases in which the Courts of Equity would have given relief and thus rendered the Act ' almost wholly nugatory' by his decision in Wilton and Co. v. Osborne (1901) 2 K.B. 110 in which he carried the principle of ejusdem generis to au extraordinary length. Mr. Justice Channel followed this narrow interpretation in 1902 (Barnett v. Corunna-Bellot on Bargains with Money Lenders p. 139). But in In re A Debtor (1903) 1 K.B. 705 the Court of Appeal criticised Mr. Justice Ridley's view as unduly narrowing the scope of the Act. I shall quote two sentences from two of the judgments: 'The words 'harsh' and 'unconscionable' ought not to receive a limited or artificial meaning by reference to the rules of equity before the Act. In my opinion, a transaction may be harsh and unconscionable and relief may be given under the Act even if the transaction is not one in respect of which a Court of Equity would have given relief before the Act.' 'The Court must, in my opinion, be satisfied that the rate of interest charged is excessive and the transaction is harsh and unconscionable. I should be sorry to say that the rate of interest charged might not be so excessive as, for that reason alone, to render the transaction harsh and unconscionable.' But again the effect of the case of 1903 was sought to be counteracted by later decisions (I do not mean to cite them) in which other English Judges in 1903 to 1905 thought that the excessive nature alone of the rate of interest should not be held to be any proof of the harshness or unconscionable nature of the bargain. Again the Court of Appeal had, in 1905, to lay down the correct principles. The matter was at last set at rest by the decision of the House of Lords in 1906 in the case of Samuel v. Newbold (1906) A.C. 461. I shall refer to this case later on.
12. Now the case in Sankaranarayana Vadhyar v. Sankaranarayana Ayyar I.L.R. (1901) M. 343 was decided in 1901, evidently under the influence of the trend of English decisions before 1903. Under the influence of those technical decisions, the Indian High Courts had narrowed the beneficent provision of Section 74 of the Contract Act and instead of giving the ordinary common sense meaning to the word 'penalty' when used in relation to contracts, viz., a liability agreed to by the parties to be imposed as a vindictive punishment on the party committing the breach of contract and not merely as reasonable and even liberal compensation to the other side injured by the breach of contract, the Indian Courts said (following the English cases) that even if a harsh and excessive rate of interest is provided for to be enforced from date of default, it should not be treated as a penalty. Of course, it amounted to an apotheosis of the precedents established by courts foreign to India. The legislature, after long delay, thought fit to intervene and introduced in 1899 the new explanation and the four new illustrations {d) to (g) to indicate that courts should not take a narrow view of the meaning of the word 'penalty' based on English precedents, but might hold provisions for excessive interest to take effect even from date of default only to be a provision by way of penalty. The explanation (d) surely was not intended to, and does not, mean that, unless some interest was provided for till date of default, exorbitant interest after default should not be treated as a penalty but it merely explained and indicated the intention of the legislature that the narrow view till then held as to the construction of the word 'penalty' should not be taken thereafter. Further, by introducing the new illustrations (d) to (g), it showed (especially by illustration g) that every provision in a contract which was intended to impose a harsh punishment on the defaulting party beyond what was needed to give a reasonably liberal compensation to the other party should be treated as a penalty. An explanation and an illustration should not of course be taken as restricting the plain and natural meaning of the body of the section but as indicative of the beneficent principle which the legislature wanted the courts to follow.
13. The Contract Act does not make any distinction between money-lenders and other obligees but has enacted a comprehensive provision to apply to all contracts containing harsh and unconscionable provisions in the nature of penalties. The High Courts in India were inclined sometimes to follow the English cases decided before 1903, that is, the principles of the extreme Manchester School of Economists and at other times to take a more extended view of their powers under section74 of the Contract Act. In Bansidhar v. Bu Ali Khan I.L.R. (1880) A. 260, a Full Bench of four Judges unanimously held that a provision for exorbitant interest at Re. 1 per diem on Rs. 50 on default from date of default, there being no interest payable till the due date if the principal is repaid on the due date, is a provision by way of penalty. In the language used by ordinary men, the provision is clearly ' of a highly penal character ' and ' a penalty of a very outrageous kind,' the condition as to interest ' by its very enormity writes itself down not only as a penalty but as a penalty of the most impudent and shameless character.' (I have taken the strong expressions under question from the Judgment of Stuart C.J.) Straight J., said in that case (for himself and two of his colleagues) that if courts are always bound by the agreement between parties as to interest ' it would be impossible to say to what extravagant and extortionate extent the most usurious claims under the name of interest might not be carried. In a country like this where there is so much borrowing by the ignorant lower classes, who as much require to be protected against themselves as against the money-lenders, a too literal application of the above provision could only be productive of oppression and injustice of the most grievous kind.' The learned Judge proceeded to say that no ' court of Equity would allow itself to be made the medium to enforce terms so monstrous,' and that the provision must be treated as a penalty, as the rate provided for as interest is 'as interest, an extortionate amount for which no adequate consideration is shown and which no man would contract absolutely to pay.' I think that the view taken in this Full Bench case in Bansidhar v. Bu Ali Khan I.L.R. (1880) A. 260, is clearly more in consonance with the intention of the legislature than the contrary view taken in other courts. Instead of putting to themselves the simple question whether, in the view of ordinary reasonable men of the world, a high rate of interest provided for in a particular contract as payable on breach of that contract must be taken as intended to secure prompt payment on the due date (or, it may be, was inserted through grasping greed on one side and careless improvidence on the other) and not, as the measure of reasonable compensation for such breach, several cases were decided in India (following the English cases) in which fine distinctions were drawn between stipulations for high interest from date of bond and from date of default, and hence the amending Act VI of 1899, introduced a new explanation and as many as four new illustrations (d) to (g) to indicate the view of the legislature as to the courts having unnecessarily narrowed their own powers to give relief. The new illustration (/) says that where money was payable in instalments (without any provision for interest) but on default the whole is made payable at once (without again any provision for interest), the provision for prompt payment is not in the nature of a penalty. This is quite reasonable as the creditor's mercifulness in allowing the debt to be paid by instalments may be properly withdrawn when default is made. But the other three new illustrations all indicate that the courts should be liberal in construing the word 'penalty' so as to include all bargains which are clearly and on a prima facie view harsh to the debtor.
The Indian Legislature came in, in 1899 (after the report of the House of Commons Commission), with these amending provisions to the Contract Act, adding the explanation and four new illustrations clearly showing that they adopted the principle of the Allahabad decisions in preference to the views of the other High Courts
14. But even if the English decisions have taken a narrow view of the powers of Judges to interfere with harsh contracts (I hope to show that the most authoritative English decision of 1906 has overruled the earlier decisions taking such narrow views), are we in India bound to follow the conservative tendencies of English Judges in these matters and to counteract and try to whittle away the beneficial provisions enacted by the legislature, which with practical commom sense had come to the opinion that where the increased rate of interest is on its face exorbitant (like a rate of 75 per cent.) it should be treated as a penalty and the courts should be given discretion to reduce that rate to a reasonable one? If the English think that in England, where the percentage of literacy among the population is very high, contracts should be enforced according to their terms, though the rate of interest is harshly excessive, should their views be followed in India where about 94 per cent, of the population is illiterate? It seems to me to be a cruel joke to talk of ordinary borrowing public or the public making investments on a small scale in chits in India as able to deal at arm's length with the sharp wits of company promoters, chit-proprietors and money-lenders. In this connection, the conviction of several company promoters who have been gulling the illiterate and improvident public may be recalled to our minds. Even in England the Legislature has felt itself compelled to pass Factory Acts, Workmen's Compensation Acts, Acts against the sweating of labourers and even a Minimum Wage Act. In India, the Deccan Agriculturists' Relief Act, the Punjab Land Alienation Act and the several Tenancy Acts protect the ordinary population against their own illiteracy and improvidence. A large percentage of the illiterate population is almost in the position of children who should be protected in some matters against themselves by the State and by the legislature. ' The exploitation of the necessitous, the careless and the inexperienced is a trade to be extirpated in the interest of the whole community as contrary to individual morality as well as to public policy.'
15. Such remedial enactments, passed in order to promote individual morality and public policy, should be liberally construed in order to promote such public policy (see the well-known cases of enactments giving powers to Municipalities and public bodies in the interests of public health and welfare). I hold ' strongly the view that the usurer is a social and economic pest, serving no useful purpose whatever, that he should be discouraged and not allowed to take advantage of obtaining higher rates of interest even from willing borrowers of full age and understanding. It is contrary to the public weal 'that persons should be encouraged to agree to pay extortionate rates of interest. Under German law such a contract would be declared void as an exploitation of the careless improvidence of the borrower and in addition, the lender would have been sentenced to six month's imprisonment and to a fine of . 150. Such stringent measures may be unnecessary' but the amended Section 74 of the Contract Act 'should at least be administered according to the intention of the Legislature' especially in India. (See Bellot on Bargains with Money-lenders page 101). The Hindu Shastras have generally prohibited excessive interset running beyond the principal; the Mohamadan Lawgivers have prohibited the taking of interest altogether and the British Indian Government has been trying to enact numerous provisions to protect ignorant and improvident people against the consequences of their own ignorance and improvidence. Of course, if we are inclined to hold with Bentham and Turgot, that all religions and all rules whose origin might be traced to Hindu, Christian or Muhamadan religious literature are so much superstitious trash which cannot contain an iota of wisdom and should be thrown to the scrap heap, and that men of all classes and in any part of the world must be presumed to be ' equal' and equally provident and clever, and that a person's agreeing to pay an absurdly high interest on default of fulfilling an ordinary contract should not be treated as presumptive evidence of his improvidence and that all historical continuity in the evolution of human law and human society is useless and must be superseded by doctrinaire utilitarian logic, I have nothing more to say. But I venture to hold that that is not the opinion of the Indian legislature and that it is not the trend of modern enlightened opinion.
16. I shall now turn to the most authoritative English ruling on the provisions in the Money-lenders' Act of 1900, which provisions are much less favourable to the debtor. I refer to the case in Samuel v. Newbold (1906) A.C. 461, already referred to. The judgments of the Lords were pronounced after full consideration (of about a month's duration) of the elaborate arguments of able counsel. I shall quote pretty largely from the Judgments as I feel that my own language can never be as clear and terse as that of those eminent Judges. Lord Loreburn (Chancellor) says:
In my opinion this contention cannot be maintained, nor ought a Court of Law to be alert in placing a restricted construction upon the language of a remedial Act. The section means exactly what it says, namely, that if there is evidence which satisfies the court that the transaction is harsh and unconscionable, using those words in a plain and not in any way technical sense, the court may reopen it, provided, of course, that the case meets the other condition required. A transaction may fall within this description in many ways. It may do so because of the borrower's extreme necessity and helplessness, or because of the relation in which he stands to the lender, or because of his situation in other ways. These are only illustrations and, as in the case of fraud, it is neither practicable nor expedient to attempt any exhaustive definition. What the court has to do in such circumstances, is, if satisfied that the interest or charges are excessive, to see whether in truth and fact and according to its sense of justice, the transaction was harsh and unconscionable. We are asked to say that an excessive rate of interest could not be of itself evidence that it was so. I do not accept that view. Excess of interest or charges may of itself be such evidence, and particularly if it be unexplained. If no justification be established, the presumption hardens into a certainty. It seems to me that the policy of this Act was to enable the court to prevent oppression, leaving it in the discretion of the court to weigh each case upon its own merits and to look behind a class of contracts which peculiarly lend themselves to an abuse of power.
Lord Macnaghten said that the Money-lender's Act 'involves a new departure in principle' and that the limitations and restrictions which the Courts of Chancery imposed on themselves in relieving against harsh bargains were no longer applicable. ' The question which it is said this appeal was brought to determine is whether the view of Ridley, J. or the view of the Court of Appeal was right. Ridley, J., with whom Channel, J. seems to have agreed, thought that the relief which the Act extends to a borrower must be limited to those cases in which, before the Act, the Court of Chancery would have given relief, and that the only standard to be applied under Section 1 is that adopted by the Courts of Equity before the Act. Speaking for myself, I must say that, while listening with great interest to the exhaustive exposition addressed to the House by the learned Counsel for the appellants, I could not help thinking what a mockery it would be if that were all the Act has done, what an intolerable strain would be thrown upon inferior courts unfamiliar with the doctrines and practice of Courts of Equity, if they were privileged or condemned to listen to lengthy arguments and venerable precedents before deciding a question that any man of common sense is just as capable of deciding as the most learned judge in the land, provided he is not hampered by authorities, which require no little training to discriminate and appreciate at their true value.' Then they noble Lord proceeds to say in effect that if the judge of an inferior court as a man of common sense thinks a bargain to be harsh, he can give relief under the Act. I am again tempted to quote a few more sentences from that Judgment.' The court must be satisfied that the transaction is harsh and unconscionable, that is,...unreasonable and not in accordance with the ordinary rules of fair dealing. The rate of interest may be so monstrous as to show that by itself. There may be, as Lord Thurlow said in one case, 'an inequality so strong, gross, and manifest that it must be impossible to state it to a man of common sense without producing an exclamation at the inequality of it.'
Lord James of Hereford first deprecated the view of the Common Law Judges which 'went far to render the Act nugatory.' Then, His Lordship showed the evils which arose on account of the fact that 'no usury law remained to restrain money-lenders 'and owing to the old Chancery Jurisdiction having been 'too narrow to meet' the evils, and how, therefore, the legislation of 1900 had to be passed. Then, His Lordship said, ' excessive interest of itself is sufficient to render a contract, harsh and unconscionable. Proof of excessive interest may of itself, therefore, be sufficient to entitle the debtor to relief...When excessive interest is apparently established, any facts that tend to show that such excess does not render the contract harsh and unconscionable should be proved in evidence by the lender. The burden is on him.' (I have quoted this sentence as the Judgment of Davies, J., in Sankaranarayana Vadhyar v. Sankaranarayana Aiyar I.L.R. (1901) M. 343 throws all the burden on the debtor and makes all presumptions in favour of the creditor in a case of excessive interest.)
Lord Atkinson said 'the relief given (by the Act of 1900) is not that theretofore administered by Courts of Equity but differs from it in character, nature and extent. The relief being thus different, it would appear prima facie to be an unsound mode of construction of the statute which would confine the grounds for giving that enlarged relief to those heretofore recognized as sufficient in Courts of Equity,' (These words apply with much more force to the amended Contract Act and to the Indian High Courts who cannot be bound by all the technical niceties and refinements which had been established by the earlier English precedents, the weight of which pressed so heavily on the minds of learned Judges like Ridley and Channel, JJ. that they thought themselves obliged to restrict even the amending, amplifying and remedial provisions of the statute of 1900 to the confined area of the old precedents). I think that in view of the opinions expressed in this House of Lords case of 1906, the weight of the Judgments of the Indian High Courts (including that in, Sankaranarayana Vadhyar v. Sankaranarayana Ayyar I.L.R. (1901) M. 343, which followed the English precedents and the old Benthamite notions as to the untouchable and sacrosanct character of contracts, however harsh and unconscionable they might prima facie appear, cannot be such as to preclude, their reconsideration, if necessary, by a Full Bench.
17. Lastly, let me assume for the sake of argument, that the amended Section 74 of the Contract Act should be construed with the utmost and most literal stringency. Even then, I fail to find any warrant for the view that, though an increase of the rate of interest from 12 per cent to 75 per cent, should be considered as a penalty, as is clearly shown by the new illustration (d), an increase from zero per cent, (or even a minus rate) to plus 190 per cent, should not be so construed. Mathematically and literally there is an increase of rate in both cases and hence, even under the strictest construction of the section, the court is bound to treat an unconscionably high rate of interest after default, whether the interest before default is zero or any other arithmetical notation, as a penalty. In this connection, illustration (g) to Section 74 is instructive. There is no provision for interest in the bond referred to in the illustration, there is no new explanation added, to the section which covers that case and yet, the Legislature has indicated that because the bond provided for payment of a larger sum than was lent, though the payment was to be made by instalments, the provision as to the whole sum being payable on default of one instalment is a penal provision and can be relieved against. The Legislature has thus clearly shown that the word 'penalty' should not at all be construed narrowly or technically. I might again repeat that the new illustration (d) clearly treats the rate of interest of 75 per cent, as a penalty solely on account of its excessive character and does not say that the court is merely at liberty under certain circumstances or if certain facts as to the relative positions of the debtor and creditor are proved to treat the provisions as a penalty to be relieved against. I would therefore, dismiss the Letters Patent Appeal with costs, but as there is the reported Division Bench ruling in Sankaranarayana Vadhyar v. Sankaranarayana Aiyar I.L.R. (1901) M. 343, against my view, I would refer the following question to a Full Bench:
Whether, when no interest would have been payable under a contract except in case of default, but an excessive rate of interest is provided for on default, whether under such circumstances the court is empowered to treat the stipulation for such excessive rate of interest as a penal provision and whether the court is at liberty to award reasonable compensation in lieu of such excessive interest.