Lakshmikanta Jha, C.J:— The appeal arises out of a suit for recovery of royalty, income-tax and other public demands in respect of a leasehold. The liability for the payment of the dues claimed in the suit is based upon the terms of a contract embodied in a mining lease. The trial court passed a preliminary decree for a part of the claim and directed the exact amount to be ascertained by a commissioner in the manner indicated in the judgment. Defendants nos. 3 to 8 are members of the family of defendants nos. 1 and 2, and defendants nos. 9 and 10 are the tranferees of the interest of defendant no. 3, but the suit has been contested only by defendants nos. 1 to 8 and they are the appellants here.
Defendants nos. 1 and 2 took a mining lease under a registered patta and kabuliat (Ext. 1), dated the 26th April, 1937, from the plaintiffs for a period of 950 years in respect of a coal mine in village Jairamdih. It is relevant to quote here paragraphs 2, 3, 4 and 6 of the kabuliat:—
“2. That we as well as our heirs and successors-in-interest in succession shall remain bound to pay every one of you separately according to your share every month, commission at the rate of eight annas per ton on all kinds of kucha coal, i.e, steam, nibble, slack and dust, etc., and 12 annas per ton on burnt, i.e, soft coke and Rs. 1 per ton on hard coke, which shall be raised and despatched from the said colliery.
3. That we shall submit to every one of you a copy of account of coal which shall be raised and despatched by Railway wagons from the said colliery in each month according to the English Calendar within 7 days of the month following and the commission on the amount of coal despatched, shall be paid by us and our heirs and successors-in-interest in succession within 7 days of the month following Should we fail to pay within the said 7 days, we as well as our heirs and successors-in-interest in succession shall remain bound to pay the same with interest thereon at the rate of Rs. 2 (rupees two) per cent per month from the beginning of the month.
4. That whether we carry on colliery work or not or raise coal or act, we shall remain bound to pay you separately according to your-shares, Rs. 800 (rupees eight hundred) as minimum royalty every month. We shall remain bound to pay the said monthly minimum royalty to you within 7 days of the next month. Should we fail to pay the same to you within the said 7 days, we as well as our heirs and successors-in-interest in succession shall remain bound to pay interest thereon at the rate of Rs. 2 (rupees two) per cent per month from the beginning of the month till realisation. Should the amount of commission any month be less than Rs. 800 the amount of minimum royalty, we shall remain bound to make it up to Rs. 800 the amount of minimum royalty. Should the amount of commission be more than Rs. 800, the amount of the minimum royalty, in any month, we as well as our heirs and successors-in-interest in succession shall remain bound to pay commission at the aforesaid rate.
6. That over and above the aforesaid commission or minimum royalty, we as well as our heirs and successors-in-interest in succession shall remain bound to pay whatever income-tax, road cess and public cess which are fixed at present, or any new tax which may be assessed in future, and whatever Mines Board of Health and Water Board Cess are payable by you in respect of the said mauza Jairamdih and we shall not be competent to deduct the said amount from the minimum royalty or commission or any other sum payable to you. Should you be put to any loss on account of non-payment of the said cess or income-tax, etc. in time, we as well as our heirs and successors-in-interest in succession shall remain bound to make good the same with interest.”
It is clear from the recital in the deed that the lessees and their heirs and successors-in-interest in succession had to submit accounts of the raisings and despatch of coal of each month according to the English calendar within the first week of the following month and pay the royalty within the first week following the month in which the account was to be submitted, and in case of default of payment in the manner provided they made themselves liable to pay the commission or royalty with interest thereon at the rate of 2 per cent per month from the beginning of the month in which the liability was incurred till realisation. They also made themselves liable to pay interest on public demands if not paid in time. It may be observed that under the lease a charge was created on the leasehold in favour of the plaintiffs for the royalty and public demands which the lessees stipulated to pay under the terms of the lease (vide Ext. 1, paragraph 7).
On the 29th of April, 1937, there was a further agreement between the parties (Ext. 2), in view of a slump in the coal market, that for seven years, that is, from May, 1937 to April, 1944, the commission would be payable at the rate of 5 annas per ton instead of 8 annas per ton on all kinds of steam coal, and at the rate of 6 annas per ton instead of 12 annas per ton on soft coke, and it was also agreed that the annual minimum royalty for the said seven years would be Rs. 6,000 in place of Rs. 9,600. It was further stipulated (vide Ext. 2, paragraph 4) that if the amount of the said minimum royalty and commission be not paid from month to month, the lessees shall be bound to pay to the lessor the entire defaulted amount with interest payable till the final date of payment at the rate of 2 per cent per month, and it was also stipulated that, if during this period of seven years the coal of seam no. 9/10 be sold at a particular rate, the lessees shall be bound to pay the royalty and the commission according to the stipulation in the original lease (vide Ext. 2, paragraph 5). Other terms and conditions of the original lease however remained in force.
The plaintiffs instituted the present suit on the 21st of September, 1943, for recovery of a sum of Rs. 1,21,261/9/9 from the defendants, after giving deductions for the payment made, due from 1938 to August, 1943, and prayed for a decree for any higher amount that may be found due to them on taking accounts from the defendants on charging additional court-fee. There was also a prayer for a direction to the defendants to submit accounts of despatches and for the appointment of a commissioner to ascertain the dues of the plaintiffs on account of royalty, A detailed account of the claim under different heads is given at page 12 of the paper book It appears that a sum of Rs. 86,066-8-0 has been claimed as commission and Rs. 55,807-10-9 as interest thereon, and a sum of Rs. 25,391-8-0 as total tax, cess and other public demands and Rs. 15,496-10-0 as interest thereon. The interest under both the heads has been claimed at the rate of 24 per cent per annum. It may be observed that, although there is a stipulation for payment of interest on public demands, there is no mention of the rate of interest chargeable under this head.
The learned Subordinate Judge has passed a decree directing an account to be taken and has appointed a commissioner to ascertain, on taking evidence, the period for which the plaintiffs are entitled to claim royalty at a reduced rate and the period for which they are entitled to it at an increased rate. The commissioner has also been directed to examine the valuation of the various kinds of coal and calculate the liabilities with reference to the rates as agreed upon by the parties.
Mr. B.C De, appearing on behalf of the contesting defendant-appellants, has raised only two points before us. His first contention is that the stipulation for the payment of interest at the rate of 2 per cent per month is in the nature of penalty; and the plaintiffs having failed to show the actual loss suffered on account of non-payment of the dues according to the stipulation in the lease, they are not entitled to claim interest at a rate in excess of 9; per cent per annum because the debt is a charge on the leasehold. His second contention is that the direction of the court below to the commissioner to ascertain whether the lessees are liable to pay under different heads according to the stipulation of the original lease, or at the reduced rates according to the stipulation in the agreement, is wrong in law because it amounts to the delegation of a judicial function. I think both these contentions are well founded and must prevail.
I may at once deal with the second point raised by the appellants' counsel. The plaintiffs are entitled to assess the royalty and other items of demand on the figures to be supplied by the lessees; but as the defendants did not submit their accounts, the plaintiffs have asked for an account to be taken. The learned Subordinate Judge has passed a preliminary decree directing accounts. He has, however, appointed a commissioner, to find out the dues on account of royalties and commission according to the terms of the contract and has directed him to ascertain, on evidence, whether the plaintiffs are entitled to claim royalty at the reduced or the increased rate. The judgment of the learned Subordinate Judge on this point is in these terms:
“The plaintiffs shall get the dues on account of royalties and commission according to the terms. For certain years the rate was reduced and that the rate was to increase if price varied. The Commissioner shall take evidence on that point and see the valuation of the various kinds of coal, and calculate the liabilities with reference to the rates as agreed on by the parties by the lease and the agreement the details of which are noted in the plaint and they are admitted by the defendants' side. So the commissioner will calculate the price and calculate the liabilities with reference to rates prevailing.”
It is clear from the passage quoted above that the judge has delegated a judicial function to the commissioner in that he has left it to the commissioner to determine the prevailing rate and decide whether the plaintiffs are entitled to claim commission at the reduced or increased rate. Such delegation is not permissible in law. Under Order 26, rule 9, or under any other provision of the Code of Civil Procedure, a court cannot appoint a commissioner to discharge, a judicial function. In Uara Narain Choudhary v. Haribans Choudhary Das, J. held that a judge cannot delegate any of his functions to a commissioner. The Judicial Committee also in Sri Thakur Ram Krishna Muraji v. Ratan Chand observed that an order of the High Court appointing a commissioner to examine the books of business and to report whether it was of a gambling nature was not warranted by law and the question was one which could not safely be left to be determined by him. The order of the learned Subordinate Judge is, therefore, wrong. He must determine the liability of the defendants himself such evidence as may be adduced in this connection. He may, however, for the sake of convenience, appoint a commissioner to examine witnesses, hold local investigations or examine accounts and ask him to submit a report, but the decision on the point must be given by him and not by the commissioner. The judgment of the learned Subordinate Judge on this point must, therefore, be set aside and the case must go back to the trial court for a determination of the liability of the defendants in accordance with, law.
With regard to the first point, it is clear, on the construction of the lease, relevant portions of which have already been quoted, that the primary contract between the parties was that the lessees must pay the royalty or commission in the first week of the English calendar month following the month of accounting. In default of such payment it was contracted that the lessees would be liable to pay interest at the rate of 2 per cent per month from the beginning of the month till the date of payment. The liability to pay royalty in the manner provided in the deed is the primary obligation, and failure on the part of the lessees so to pay entails a further contractual obligation to pay interest at the stipulated rate, not from the expiry of the period for payment of royalty, namely, the first week of English calendar month, but from the beginning of the month. The stipulation for payment of interest, in my view, is in terrorem, intended to secure regular payment of the royalty, and is not independent of the primary contract. If rights are created and obligations incurred under a contract to do or forbear from doing an act and a further obligation is incurred under a stipulation for non-performance of the obligation primarily incurred under the contract, the stipulation giving rise to the second obligation is auxiliary or subsidiary to the primary contract and not independent of it. The stipulation to pay interest at 2 per cent per mensem is, in my view, in the nature of a penalty, and relief can, therefore, be given by the court under section 74 of the Contract Act, which provides:—
“When a contract has been broken, if sum is named in the contract as the amount to be paid in case of such breach, or, if the contract contains any other stipulation by way of penalty, the party complaining of the breach is entitled, whether or not actual damage or loss is proved to have been caused thereby, to receive from the party who has broken the contract reasonable compensation not exceeding the amount so named, or, as the case may be, the penalty stipulated for.”
If the royalty and public demands had been paid according to the terms of the contract, the liability to pay interest would not have been incurred by the defendants. The case, therefore, clearly falls within the mischief of the rule laid down in section 74 of the Contract Act, and it is within our power, if we consider that the contractual rate of interest is exorbitant, to reduce it to such rate as we may consider reasonable Section 2 of the Usury Laws Repeal Act, 1855 (Act XXVIII of 1855) provides:—
“In any suit in which interest is recoverable, the amount shall be adjudged or decreed by the Court at the rate (if any) agreed upon by the parties and it no rate shall have been agreed upon, at such rate as the Court shall deem reasonable.”
According to this section, the court must decree the suit for interest at the contractual rate. But the law laid down in section 2 applies only to a primary contract. It does not destroy the equitable jurisdiction of the Court to give relief against, a penal clause far which an express provision is made in section 7 of the Contract Act. It is well settled on principle that no court is to make any contract for a party. Therefore, if a contract has been entered into by the parties with their eyes wide open and is not vitiated by undue influence, fraud or coercion, it must be given effect to even if it operates as a hardship on any of the contracting parties. But if there is a contract to compensate at a stipulated, rate and the liability arises on a breach of another contract, then the second contract, which is really intended to ensure the due performance of the former contract, is a secondary or auxiliary contract, and the court may interfere and relieve the debtor of his contractual obligation if it is satisfied that the bargain is unjust or unreasonable. In A. Muthukrishna Iyer v. Sankaralingam Pillai Sundara Ayyar, J. observed as follows:—
“What then is the real principle underlying the court's interference with the contract between parties as to a payment to be made by way of damages? In my opinion it can be no other than this—the doctrine that the court will carry out all contracts between parties is confined to the carrying out of the primary contract and does not extend to a secondary or subsidiary contract to come into operation if the primary contract is broken. In bonds securing the payment of money, the contract regarded as primary is the promise to pay the amount due to the creditor with the interest, if any, agreed upon. Any further contract, to be binding on the promisor if he breaks this contract, is regarded as a secondary one intended to secure the fulfilment of the primary contract; and the courts both in England and in India do not feel bound to carry out such a secondary contract apart from its justice and reasonableness.”
The same view has been taken in Malayalam Plantations, Ltd. v. Nagasuri Veeraraghaviah, John Pierpont Morqan v. Babu Ramjee Ram and Khagaram Das v. Ramsankar Das Pramanik.
The learned Advocate-General, appearing for the respondents, has drawn our attention to the case of Ramalingam Chettiar v. A.I.S.P.P L, Subra mania Chettiar and has contended on the authority of that case, that the stipulation to pay interest at the rate of 24 per cent per annum in the present case is not by way of penalty and must be given effect to. The case was decided on its own facts, namely, that the defendant expecting to make large profits with the money borrowed agreed of his own accord to pay a high rate of interest on the loan. This agreement, as Krishnan, J. pointed out, “was also a part of the bargain that is to say it was part of the primary contract. Hence, the application of section 74 of the Contract Act was not attracted. Reference was also made by the learned Advocate-General to the case of Aziz Khan v. Duni Chand in which their Lordships of the Judicial Committee held that it is difficult for a Court of Justice to give relief on grounds of simple hardship in the absence of any evidence to show that the money-lender had unduly taken advantage of his position even when the transaction appeared to be undoubtedly improvident. In that case the attack was on the ground of undue influence and not on the ground of a breach of duty arising on default, and the provisions of section 74 of the Contract Act did not come up for consideration before their Lordships. In Bhai Panna Singh v. Bhai Arjun Singh, the Judicial Committee of the Privy Council held that the effect of section 74 of the Contract Act is to disentitle the plaintiff to recover simpliciter the sum fixed in the contract, whether penalty or liquidated damages. I may also refer to the case of Rani Sundar Koer v. Rai Sham Krishen in which their Lordships of the Judicial Committee observed:—
“The Indian Courts have invariably held that where (as in the present case) the stipulation is retrospective, and the increased interest runs from the date of the bond and not merely from the date of default, it is always to be considered a penalty, because an additional money payment in that case becomes immediately payable by the mortgagor. Their Lordships accept that view of the statute.”
In the case before us the stipulation for payment of interest arises on default and is retrospective therefore, the contract for payment of interest must be held to be penal. The principle laid down in the cases referred to by the learned Advocate-General cannot, therefore, govern the case before us.
Under the Bihar Money-lenders Act, 12 per cent is considered a reasonable rate of interest in case of unsecured loans and 9 per cent in case of secured loans. No money lender is entitled to claim interest at a rate higher than 12 per cent. Here there is a charge on the leasehold. Therefore, we consider 9 per cent per annum to be a reasonable fate of interest in this case in the absence of proof of the damage actually suffered by the plaintiffs. In Butto Kristo Roy v. Gobindram Marwari, where the stipulation was to pay interest in default of the performance of the primary contract at the rate of Rs. 37-8-0 per cent per annum, this Court reduced the interest to 6 per cent per annum. In the present case, however, we do not feel justified in making so drastic a reduction. It may be observed that there is a stipulation for payment of interest for non-payment of public demands, but there is no rate of interest fixed under the contract. But as public demands have been paid by the plaintiffs, and the defendants have not paid such demands to the plaintiffs according to the stipulation, we consider the same rate of interest will meet the ends of justice. The plaintiffs will, therefore be entitled to claim interest on the royalty that may be determined by the court, and also on the public demands to which the plaintiffs may be held entitled on calculation by the court, at 9 per cent per annum from the date of default up to the date of the institution of the suit. Pendente lite and future interest will be at 6 per cent simple per annum as decreed, by the Subordinate Judge.
The decree of the Subordinate Judge is set aside and the suit is remanded to him for disposal according to, law in the light of the directions contained in my judgment. As the success of the appellants is partial, they will get two thirds of their cost in this appeal.
Reuben, J.:— I agree.
Appeal partly allowed.
K.D