gave effect to that view of the law.
 In Seton v. Slade (6), Lord Eldon, L. C., in 1802, said by way
of illustration of the fact; that in equity time was not regarded as of the
essence of a contract : " So in the instance of a mortgage with interest at
o per cent, and a condition to take 4, if regularly paid, or at 4 per cent, with
a condition for 5, if not regularly paid. At law you might in that case
recover the 5 per cent., for it is the legal interest. But this Court regards
the 5 per cent, as a penalty for securing the 4 ; and time is no farther the
essence, than that if it is not paid at the time, the party may be relieved
(1) 2 Veroon, 289. (2) 2 Vernon, 315.
(8J 1 P. Williams 652, (4) Barnardiston's Reports, 478.
(5) 3 Atkyns, 519, (6) 7 Yes. Junior, 273.
BANKE BEHARI V. SUNDAB LAL
15 All. 249
from paying the 5 per cent, by paying the 4 per cent, and putting the other
party in the same condition as if the 4 per cent, had been paid : that is,
by paying him interest upon the 4 percent, as if it had been received at the
time." If Lord Eldon is correctly reported, he at any rate was prepared to
apply a consistent rule, but that is not the rule in England as to contracts
to pay or accept alternative rates of interest.
We shall next refer to two of the judgments in Wallis v. Smith (1)
although that was not a case as to interest. It was a case in which, if it
had arisen in India, and had to be decided here, it would probably have
been held that section 74 of the Indian Contract Act, 1872, applied. The
principal importance of that case, so far as the present case is concerned,
consists in the criticism, by Sir George Jessel, M.K., in his judgment, of
the judgments of Lord Eldon and Mr. Justice Heath in Astley v. Weldon (2),
and of the fact that we can ascertain what the views of two eminent
equity lawyers and Judges of modern times were as to the unreasonable-
ness of construing a document otherwise than according to the intention
of the parties plainly expressed in it, and of holding that when parties said in
plain and unambiguous language in their deed that in the event of interest
at a lower rate not being paid, interest at a higher rate should be paid they
did not mean it as a contract, but merely as a stipulation nomine pcen&,
from the performance of which the defaulter was to be relieved. Sir
George Jessel at pp. 260 and 261 of the report in 21 Gh. Div., 
quotes the following passage from the judgment of Mr. Justice Heath
in Astley v. Weldon (2): "It is a well-known rule in equity that if a
mortgage covenant be to pay 5 per cent, and if the interest be paid on
certain days, then to be reduced to 4 per cent., the Court of Chancery
will not relieve if the early day be suffered to pass without payment; but
if the covenant be to pay 4 per cent., and if the party do not pay at a
certain time, it shall be raised to 5 per cent, then the Court of Chancery
will relieve," and said as to it : " It was settled so early as that ; 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." At page 266 Sir George Jessel said : " I think it necessary
to say so much because I have always thought, and still think, that it is
of the utmost importance as regards contracts between adults persons
not under disability, and at arm's length that the Courts of law should
maintain the performance of the contracts according to the intention of
the parties ; that they should not overrule any clearly expressed intention
on the ground that Judges know the business of the people better than
the people know it themselves. I am perfectly well aware that there are
exceptions, but they are exceptions of a legislative character. One notable
exception in old times was the usury law, now repealed, to prevent people
bargaining as to the rate of interest they would pay for the loan of money.
There have been many other laws in modern times, such as the Factory
Acts and the Mines Eegulation Acts, and so on, but they are all statutes ;
Judges have no right to say the people shall not perform their contracts
which they have entered into deliberately, and put a different meaning
on the contracts from that which the parties intend."
This is what Lindley, L.J., said at pp. 274 and 275 of 21 Ch. Div.
" The case is now reduced to this, that there is a stipulation as to pay-
ment by Smith to Wallis of the sum of 5,000 by way of liquidated
damages, upon any substantial breach by Smith of that agreement, and
15 A. 232
(1) 31 Ob, Div, 343.
(2) 2 Bos, & P. 346.
15 All. 250
INDIAN DECISIONS, NEW SERIES
15 A. 232
we have to consider whether this stipulation is to be treated as meaning
what it says, or as meaning nobbing ab all or nexb  bo nothing. In
order to determine that wo must look a little into the authorities. Now
the aubhorities have been carefully examined by the Master of the Rolls,
and there are only one or two to which I. will advert, bub they all seem
to proceed on the principle that the object is to ascertain the intention of
the parties. You are to ascertain the intention of the parties by what they
said that is plain enough but you are to ascertain the intention of the
parties nob only by what they said, but by what the Court sees to be the
consequenee, and by what the Court may or may not consider to be
absurd or oppressive, or thought to be so in former times. Take tha
common cape of a money bond. It meant what it said. Take the ordi-
nary case of a covenant to pay 5,000 if 500 was not paid by the day
named, the parties meanb whab they said ; bub effect has long caasad to be
given to what was intended. Whether relief was given on the theory of
oppression, or on the theory bhat the parbies could not have meant what
they said that it was too absurd or whether relief was given by reason
of the usury laws, I do not know it is an antiquarian research which I
have not prosecuted. But it has long been settled thai, where a person
agrees to pay a larger sum, if he does not pay a small one, he does not
mean what he says, and the contract is nob to have the effect that one
would suppose it was intended to have." It may be doubted whether if
Dean Swift had been a lawyer he could have penned any more sarcastic
condemnation of the English doctrine of penalties.
la our opinion the judgment of Frere and Holloway, JJ., in 1865
in Adanky Ramachandra How v. Indukuri Appalaraju Garu (1) was and is
deserving of greater attention than it has apparently received. Referring
to the Courts in England they said, at page 458 : " We may safely say
that the tendency of Courts of Equity, as well as Courts of Law at the
present day, is to interfere as libtle as possible with the expressed inten-
tion of the contracting parties." And ab page 462 : ' We have suffi-
ciently indicated our opinion as to the policy of relieving parties from the
effects of their own stipulations. That policy has been condemned by
nearly every eminent  Judge who has had occasion to consider the
subject, and arose at a period at which the views of the legislature were
very different to what they now are."
Such, so far as we have been able to ascertain, is the English
doctrine of penalties as applied to contracts relating to the payment
of enhanced interest.
It will have been observed that in the two earliesb English cases to
which we have access in which the doctrine of a penalty was applied to
contracts to pay a higher rate of interest on default of paying a lower rate,
namely those of Domina Holies v. Wyse (2) and Strode v. Parker (3) the
principle was applied simply on the ground that the stipulation was one
nomine p&nce. In Brown v. Barkham (4) Lord Parker, L. C., put the
application of the principle on the ground that such a stipulation was
generally looked upon as a penalty and in terrorem, but he apparently
thought that the principle should not be applied when there was a long
arrear of interest. He may have thought that in such a case the debbor
would have become reconciled to the situation, or that his case was
hopeless, and such relief as equity could give would not save him. Lord
<1) ? M.H.C.B. 451.
(8) 2 Vernon, 815.
(2) 2 Vernon, 289,
(4) 1 P. Williams, 652.
YII] BANKE BEHARI V. SUNDAR LAL 15 All. 253
Hardwick, L. 0., in Walmesley v. Booth (1) seems to have thought that 1893
between a mortgagor and a mortgagee in the inception and formation JUNE 28,
of a contract of mortgage, a fiduciary relationship, analogous to that
between an attorney and his client, existed, and apparently considered FULL
that contracts between a borrower and a lender were to some extent BENCH.
similar to " marriage brokage bonds," and that it was in the interests
of the public that a debtor should not be compelled to perform his con- 19 A - 232
tract to pay a higher rate of interest on default of paying a lower rate. (F.B.) =
Lord Elden, L. C., in Seton v. Slade 2) justified and explained the princi- 13A,W.N,
pie on the ground that equity did not regard time as of the essence of the (1893) 130.
contract. Sir George Jessel, M. E., and Lindley, L. J., obviously regarded
the principle as irrational and rediculous, and as one the application of
which in England could only be justified on the ground of its antiquity.
 If a contract, the object of which is to ensure by a provision
as to alternative rates of interest, the due and prompt payment of the
principal and a lower rate of interest, is to be regarded as a penalty and
relieved against, we may ask why do net the Courts in this country apply
the same principle to money bonds or mortgages, in which it is agreed
that the principle shall be repaid by periodic instalments, and that should
default be made in paying an instalment, the balance of the principal shall
at once become due and repayable ? Is not time as much the essence of
the contract; in one case as in the other ? Is not the provision to ensure
prompt payment as much a stipulation in terrorem in one case as ic the
other ? Is the hardship, if ifc be one, of a borrower being compelled to
perform bis contract any less a hardship in the one case than in the
other ? The hardship which may result by the non-payment of principal
or interest on the agreed and specified date to a man who lends his capital
or part of it, was apparently overlooked by those who were responsible
for the evolution of this doctrine of a penalty. The borrower might not
have bad notice when the contract was made of the loss or damage which
might result to the lender by reason of the non-performance of the con-
tract to pay at the due date, and consequently the damages for the breach
of contract which could in such a case be legally awarded might prove to
be an utterly inadequate compensation. A money-lender cannot now-a-
days be regarded in the eye of the law, as formerly he may have been, as
hostis humani generis, and as long as his contract is not unconscionable
or tainted with fraud, we fail to gee why the other contracting party
should not be bound by it.
It is not necessary in this case to consider that other branch of the
English doctrine cf penalties upon the application of which such cases as
that of Kemble v. Farren (3), Dimech v. Corlett (4) and Madhub Chunder
Boy v. Lukhee Jellance (5), were decided. Section 74 of the Indian
Contract Act, 1872, prohably provides the rule to be applied in that class
of cases in India. The English doctrine,  so far as it applies to cases
of alternative rates of interest, which we are considering, appears to us to
be a doctrine which is irrational and which was bequeathed to people in
England by a school of English Judge", eminent, no doubt, in the law,
butoverprone to making agreements for parties which the parties had
not made and did not intend to make for themselves.
In this country the usuary laws were repealed by Act No. XXVIII of
1855, and we cannot but regard the English doctrine to which we are
(1) Barnardiston's Reports, 478. (2) 7 Ves. Junior. 273.
(3) 6 Bing. 141. (4) 12 M.P.C. 199. (5) 9 W.R.C.R. 212.
15 All. 254
INDIAN DECISIONS, NEW SERIES
15 A. 232
13 A.W N.
referring, and every modification of it so far as agreements to pay interest
are concerned, as entirely at variance with section 2 of Act No. XXVIII
of 1855. Holding this view it may be suggested that we are inconsistent
in expressing the opinion, that when an agreement to pay a particular rate
of interest is shown by evidence to be unconscionable, the Courts in India
can and should grant relief. We see no such inconsistency. An agree-
ment may, by way of example, be proved to be unconscionable by showing
a gross inadequacy in the consideration, and that; the party sought to be
charged with the burden of the contract, was not fully aware of the conse-
quence which might result from his executing it. Such an agreement
and such facts would in our opinion raise a violent presumption that a
fraud had been perpetrated on the borrower. We entirely agree with the
view of the law expressed by Sir A. Collins, C. J., and Parker, J., in Appa
Ran v. Suryanarayana (1), in which they said " We think the true princi-
ple of decision is that a Court should not interfere to protect persons who,
with their eyes open, choose knowingly to enter into even somewhat extor-
tionate bargains, but that it is only when a person has entered into such
a bargain in ignorance of the unfair nature of the transaction, advantage
having been taken of youth, ignorance, or credulity, that a Court of Equity
is justified in interfering."
It would in most cases be impossible for a Court upon a mere
examination of a mortgage-deed and without any evidence as to the
value of the security, the nature of the title of the mortgagor, &o.,
to predicate that at the date of the contract an agreement to
 pay alternative rates of interest, or interest which might appear
at first sight to a Judge, who had r^ever had any occasion to borrow
money, or who had always had good security to offer, to be excessively
high, was even unreasonable. It might be that no sane man, knowing
the uncertainty of the title and the value of the security, would risk
lending his money on terms more favourable to the borrower. In our
opinion in such cases it is for the person who seeks to be relieved from the
performance of his contract to establish by clear evidence his right to
such relief. In Darjan Singh v. Muhammad Abdul Ali Khan (2), it was
held, in reference to an agreement for a higher rate of interest to be paid
on default in payment of a lower rate " a Court would only be justified in
interfering with contracts of this kind, if, under all the circumstances of
the case, the relief should as a matter of equity, be granted ; in other
words, if the bargain were an unconscionable one."
We shall now briefly refer to those cases in India in which it has
been held without reference to section 74 of the Indian Contract Act,
1872, or to anything outside the written contract showing that it was
reasonable or unreasonable, that a contract to pay a higher rate of in-
terest on default being made to pay the principal moneys with certain
interest, or a lower rate of interest, cannot, or should not be, enforced.
Kuar Lachman Singh v. Pirbhu Lai (3), Bihari Lai v. Musammxt Juni (4),
Ehurram Singh v, Bhawani Bakhsh (5), Khars.g Singh v. Bhola
Nath (6), Narain Das v. Chait Ram (7), (per Stuart, C. J., contra Tyrrell,
J.), Bichook Nath Pandey v. Ram Lochun Singh (8), and Rasajibin
Davlaji v. Sayana bin Sagdu (9), were all cases in which the English
(1) 10 M. 203.
(3) N.W.P.H.C.E. 1874, 358.
(5) 3 A. 440. (6)
(8) 11 B.L.B. 135. (9)
4 A. 9.
6 B.H.C.R.A.C. 7.
(2) 6 A. W. N. (1886) 81.
(4) N.W.P.II.C.R. 1875, 108.
(7) 6 A. 179.
BANKE BEHARI V. SUNDAE LAD
15 All. 256
doctrine of a penalty was applied to contracts to pay a higher rate of in-
terest, from the date of the contract upon default being made in payment
of a lower rate.
Puva Nagaji v. Govind Eamji (1) was a oase in which the doctrine of a
penalty was applied to a contract by which  apparently a higher rate of
interest was to ruu from the date of default Motoji bin R'ltnaji v. Shekh
Husen (2), Chuhar Mai v. Mir (3), and Bansidar v. Bu Alt Khan (4), were
cases in which the principal was payable without interest if paid on the
due date, but if default were ma ie it was agreed that interest should be
paid. In these three cases the doctrine of a penalty wa* aoplied. It is
to be observed that in the case of Mot.oji bin Ratnaji v. Shekh Husen (2),
the Court appears to have incorrectly assumed tnat the contract provided
.for alternative rates of interest.
Sham Lai v. Banni Begam (5), Darjan Singh v. Muhammid Abdul
All Khan (6), and 'Appi Rau v. Suryanarayana (7>, were cases in which
a higher aud alternative rate of inoerest was held not to be nenal.
We shall now refer to the decision of their Lnrds lips of the Privy
Council in Rai Balkishen D is v. Raja Run Bahudur Singh (8), and
endaavour tr> ascertain whether it can bo regarded as an autnority O-Q the
question, as to whether an argument that a higher rate of interest" shall be
pavanle as from the date of the contract upon default in payment of a
lower rate is to be regarded as a stipulation for a penalty against which
relief is to be given, or as a contract to he performed. It is obvious on even
a cursory consideration of their L >Hships' judgment in that case that they
did not act on the view as to the difference between an agreement
between parties and a decree drawn up and made in accordance with an
agreement of compromise made by parties expressed in the judgment ot
West and Nanabbai, JJ., in Bulprasad v. Dharmdhar Sakharam (9).
Their Lordships did not base their observations as to whether stipula-
tions in the decree before them were penalties or not, upon the fact that
the alternative rates of interest were in fact decreed, but baspd their
observations upon the construction of the  contract which was
embodied in the decree. Those observations constituted in part the
reasons for the decree which their Lordships passed, and wa are bound
to consider that they were, in the opinion of their Lirdship^, pertinent.
The Exporter at page 162 of L R., 10 I A., states tnat " The question
upon which the Courts balow differed was as to the rates at wniob and
the dates from which interest was to be allowed to the aopelUnt under
the terms of the decree. It related to the construction of the terms of
compromise embodied in that decree." At page 163 their Lordships
said : Toe determination of the questions which arise in the aoreal
depends? upon what is the prouer construction to bd put upon the 3rd
clause of a decree of the Subordinate Judge of Gva, dated 29 h March 1873,
in a suit in which Rii Nar f iin DdS was plaintiff, and respondent, Raja
Run B ihadur Singh, was one of the defendants. That decree was obtained
by R.i Narain Das in pursuance of a sulehnamah or compromise between
the parties to the suit."
By the second clause the plaintiff was to get interest on the decretal
money at the rate of eight annas per cont per mensem from the defend-
ants, and the defendants were to pay annually Rs 30,000 of pr ncioal and
(1) 10 B.H G.E. 382.
(4) 3 A. '261.
(g) 6 A.W.N. (18*6! 39.
(8) L.R. 10 I. A. 162 = 10 C, 305.
A VII 111
(2i 6 B H.G.R.A.C. 8.
(5 2 A.W.N. (1882) 95.
(7) 10 M. 203.
(9) 10 B. 437 (note).
2 A. 715.
13 A. 232,
13 A W.N.
15 All. 257
INDIAN DECISIONS, NEW SERIES
15 A. 232
interest to the plaintiff, and out of such instalments the plaintiff was to
deduct what might; be due for interest and credit the balance to principal.
The third clause as quoted by their Lordships in their judgment was as
follows: " If the first instalment be not paid on the 30sh Bhadon, 1281
fasli, and two consecutive instalments be not paid, then the plaintiff shall
have the power to take out execution of the decree, and realize his entire
decretal money, with interest at the rate of Be. 1 per cent, per mensem,
from defendants and their properties. In caae of default the decree-holder
shall be entitled to take out execution, aud realize interest on the entire de-
cretal money from the date of such default to that of realization, at the rate
of Re. 1 per cent. If the first instalment he not paid on the 30bh Bhadon,
1281 fasli, then the decree-holder shall have the power to realize the
principal with interest at the rate of Re. 1 per  cent, per mensem
from the date of this sulehnamah, to which your petitioners, defendants,
shall have no objection. If at any time within the term defendants desire
to pay any sum over and above Rs. 30,000, the plaintiff shall have no
objection to receive the same." The first instalment, which fell due on
the 25th September 1874, was not paid on that date. ID was paid on the
31st August; 1875, before the second instalment had become due, and the
decree-holder appropriated Rs. 8,720 of that instalment; to the payment
of interest at the rate of Re. 1 instead of eight annas per month. Subse-
quently an application for execution of the decree was made to the Subor-
dinate Judge of Gya, and from his order on that application there was an
appeal to the High Court at Calcutta. On the 29 h July 1878, the High Court
in appeal affirmed the decision of the Subordina'e Judge. According to the
judgment of their Lordships at page 165, the Judges of the H gh Court
stated that, in their opinion, the view taken by the Si/bordinate Judge of the
arrangement between the parties was correct, and that the intention evident-
ly was that no two instalments should be outstanding at the same time, and
that;, provided the debtor pay up the first instalment after due date, but in
sufficient time to guard against a second instalment becoming overdue whilst
the first remained unpaid, he was to be allowed to do so on payment of a
double rate of interest as a penalty, but that, if he went furhher, and allowed
two instalments to be actually due and unpaid at one and the same time, the
arrangement would fall to the ground, and the whole amount of the decree
would be realizable in a lump sum." That judgment dealt with the first
of the three contingencies which their Lordships held to have been pro-
vided for in the third clause of the decree. The decree of the High Court
was not appealed to Her Majesty in Council. Their Lordships at page 165
referring to that judgment of the Hiph Court said : Independently of the
fact that no appeal was preferred against that decision, their Lordships
are of opinion that the construction of the decree was substan-
tially correct, though they do not concur with the High Court
that the payment of a double rate of interest was in tbe nature
of a nenahy. The sulehnamah was an agreement fixing the rate
 of interest, which was to be at the rate of 6 per cent, under certain
circumstances, and 12 per cenc. under others." Their-Lordships obviously
did not consider themselves debarred from expressing ther opinion
that the stipulation to which they were referring as contained in the suleh-
namah was to be regarded as a contract to be performed, and not as a
stipulation for a penalty by the fact that the sulehnamah had merged in
tha decree, or by the fact that the decree upon which they were commenting
had become final. At page 168 their Lordships say that, " According to
article 3 of the decree of 1873, three contingencies were in the contemplation
BANKB BEHABI V. SDNDAR LAL
15 All. 259
of the parties." The first of those contingencies their Lordships had already
dealt with in their judgment, holding that it was the non-payment of
the first instalment on the due date, and the allowing of two instalments
to be in arrear at the same time. As to the third contingency, which
was that relating to default being made in the payment of the first
instalment on the 25bh September 1875, their Lordships said at paga 168:
" Upon the third tbe parties have put their own construction, and
have voluntarily settle'! upon the basis of that construction, which their
Lordahios cannot say was wrong. The decree-holder is bound by it,