JUDGMENT : ( 1. ) IN a suit for specific performance of contract to sell certain land for a consideration of Rs. 2,000 a compromise decree was passed. The terms of the compromise decree were that the defendant Kishorilal (whose legal representatives are the appellants in this appeal) shall pay Rs. 2,000 and cost of the suit to the respondent/plaintiff Ayodhia Prasad in instalments on specified dates. It was further stipulated that on default of payment of sum due under two consecutive instalments, the defendant kishorilal would execute a sale-deed of 8. 48 acres of land in favour of the plaintiff and the plaintiff would return the amount recovered till then in accordance with the decree. The defendant committed the defaults as a result of which the plaintiff/respondent put the decree into execution and claimed execution of the decree in its terms. On being noticed, the defendant objected to the execution on the grounds that the terms as to execution of the sale-deed on default of payment of instalments was penal in nature and that he was entitled to be relieved against it. The parties led no evidence before the executing Court. The trial Court upheld the objection and refused to enforce the clause in the compromise decree relating to the execution of sale-deed. In appeal, the lower appellate Court held that the default clause relating to execution of sale-deed being within the scope of the original claim in the suit cannot be regarded penal. During the course of the judgment, the lower appellate Court has observed that the trial Court could have enquired into whether the price of Rs. 2,000 was inadequate but since this question was not raised before it, the lower appellate Court was precluded from making any investigation in the direction. It has, therefore, directed the execution to proceed. Hence this appeal by the legal representatives of the deceased defendant/judgment-debtor. ( 2. ) IN support of the appeal, Shri N. S. Kale, learned counsel for the appellants, argued that the direction in the compromise decree regarding execution of sale-deed was in terrorem, the principal decree being for payment of Rs. 2,000. It was also submitted that if this term is given effect to it would put the respondent/plaintiff to an unfair advantage inasmuch as it would enable him to obtain the sale-deed only for a sum of Rs. 2,000. It was also submitted that if this term is given effect to it would put the respondent/plaintiff to an unfair advantage inasmuch as it would enable him to obtain the sale-deed only for a sum of Rs. 1,000 which was paid before the filing of the suit. It was pointed out that the land in question is all that the appellants possess and forms the only source of their livelihood. On the date of the compromise the land was very valuable. According to the learned counsel, these circumstances obtaining on the date of the compromise are also indicative of the penal nature of the clause directing sale. As against this, Shri S. L. Jain, learned counsel for the respondent contended that the suit itself was for specific performance of the contract to sell and by the compromise decree the plaintiff got nothing more than what he claimed in the suit. Learned counsel added that payment of the amount in instalments was only a concession given to the defendant and, therefore, the stipulation as to execution of sale-deed cannot be termed as penal. ( 3. ) HAVING heard the learned counsel for the parties, I am of opinion that this appeal must be allowed. It is lawful to incorporate in a contract as one of its terms that upon breach of the contract the party in default shall pay to the other contracting party certain specified sum or perform any other act by way of penalty. Section 74 of the Contract Act, which embodies the law in this behalf, is as follows : "when a contract has been broken, if a 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. " This section provides for the liability upon the breach of the contract where compensation is by agreement of the parties pre-determined or where there is stipulation by way of penalty. " This section provides for the liability upon the breach of the contract where compensation is by agreement of the parties pre-determined or where there is stipulation by way of penalty. As the Supreme Court in Fateh chand v. Balkishan Dass AIR 1963 SC 1405 , pointed out, this section does not confer a special benefit upon any party. It merely declares the law that notwithstanding any term in the contract pre-determining damages or providing for forfeiture of any property by way of penalty, the Court will award to the party aggrieved only reasonable compensation not exceeding the amount named or penalty stipulated. Thus, the parties to a contract may fix a particular amount payable in case of a breach. This amount may be either a genuine pre-estimate of the loss occasioned to a party if the contract is broken by the other or it may be in the nature, of a threat held over to the other party in terrorem, i. e. , a security to the promisee that the contract will be performed. The question whether the amount named or forfeiture of any property stipulated for in a contract as a result of its breach is a penalty is always a question of law. Any expression used in the contract itself is not conclusive. It is for the Court to decide if any such stipulation is in truth a penalty. The relevant time for consideration is when the contract was made and not when the breach is committed. Terms and inherent circumstances of each particular contract at the time of its making have to be taken into account and the circumstances existing at the time when the breach is committed are not relevant. The following tests may prove helpful or even conclusive in deciding the question : " (a) It will be held to be a penalty if the sum stipulated for is extravagant and unconscionable in amount in comparison with the greatest loss which could conceivably be proved to have followed from the breach. The following tests may prove helpful or even conclusive in deciding the question : " (a) It will be held to be a penalty if the sum stipulated for is extravagant and unconscionable in amount in comparison with the greatest loss which could conceivably be proved to have followed from the breach. (b) It will be held to be a penalty if the breach consists only in not paying a sum of money, and the sum stipulated is a sum greater than the sum which ought to have been paid (c) There is a presumption (but no more) that it is a penalty when a single lump sum is made payable by way of compensation, on the occurrence of one or more or all of several events, some of which may occasion serious and others but trifling damage. On the other hand : (d) It is no obstacle to the sum stipulated being a genuine pre-estimate of damage, that the consequences of the breach are such as to make precise pre-estimation almost an impossibility. On the contrary, that is just the situation when it is probable that pre-estimated damage was the true bargain between the parties. " - Chitty on Contracts, 23rd Edition, volume-I, Para 1492. Concessions and penalties in a contract are clearly distinguishable. In construing the true nature of a given stipulation in a consent decree, the entire contents should be scrutinised in the light of the main relief claimed in the suit and the obligations undertaken by the defendant. If these obligations are the main relief granted to the plaintiff and the penalty is to operate on default of fulfilment of those obligations, it cannot be said that any concession to the defendant was contemplated. If, however, it is otherwise and the defendant is given an option to avoid the main relief, the option so given will be by way of concession. If, however, it is otherwise and the defendant is given an option to avoid the main relief, the option so given will be by way of concession. It has, therefore, been held that where it appears that at the time of the compromise the plaintiff was entitled to the relief of eviction but he agreed, as a matter of concession to the defendant, to forego that relief if the defendant had made certain payments on specified dates, the clause that the defendant would be liable to be evicted on his failure to pay the amounts on speciffed dates, the clause that the defendant would be liable to be evicted on his failure to pay the amounts specified therein on due dates cannot be construed as a penal clause (see Nonjibhai v. Ramkishan, 1976 MPLJ 650 . ). ( 4. ) IT is now well settled that the principles underlying section 74 of the Contract Act are applicable to a consent decree. Further merely because the contract between the parties is embodied in a decree, it will not lose its efficacy as a contract and shall be subject to all incidents as any other contract. The clause in the nature of penalty would not render a contract unlawful. At the time such contract is being enforced, the Court will have all power to grant relief against such penalty. The executing Court shall always have power to apply the equitable principles embodied in Section 74 of the Contract Act and relieve one of the parties to the contract against any term which operates as a penalty even if such a contract is embodied in the decree of a Court. (See: Shyam Sundar v. Indramoni Das, AIR 1951 Orissa 46. ). It will, therefore, be not correct to say that while granting relief against such a penal clause in the contract the executing Court will be going behind the decree. I am in complete agreement with the similar view expressed by this Court in Nonjibhais case (supra ). ( 5. ) ANOTHER thing to be noticed about provisions contained in Section 74 of the Contract Act is that it is not restricted to money, increased interest or the like. I am in complete agreement with the similar view expressed by this Court in Nonjibhais case (supra ). ( 5. ) ANOTHER thing to be noticed about provisions contained in Section 74 of the Contract Act is that it is not restricted to money, increased interest or the like. Any other kind of stipulation in the nature of penalty is also within its embrace and it may as well include a stipulation to convey certain property in default of payment of debt on a fixed date. Such a term in the contract stipulating transfer of a property in default of payment of debt by a specified date may be construed as penal but would not render the contract otherwise unlawful. When such a contract is sought to be enforced, Court may well apply the equitable principles underlying section 74 of the Contract Act and may relieve a party against which the term may be enforced. ( 6. ) IN the instant case, the facts as I have earlier narrated show that the consideration for transfer was settled at Rs. 2,000 and that Rs. 1,000 were paid at the time of the making of the contract. The balance of this sum remained to be paid to the vendor and was agreed to be paid at the time of execution of the contract. When the vendor received notice of the suit and appeared, the parties chose not to contest the litigation and compromised. The terms of the compromise show that the vendee (respondent) agreed to receive a sum of Rs. 2,000 although he had till then been paid only Rs. 1,000. This amount was payable in instalments. This additional sum of Rs. 1,000 which was agreed to be paid to the vendee apparently appears to be a compensation for his foregoing the claim for specific performance. This payment of Rs. 2,000 thus appears to be the main relief granted to the respondent under the compromise decree. However, in order to enforce timely payment with a view to secure due performance of the main obligation, the term as to transfer of land was added. Clearly this subsidiary stipulation was in lerrorem and was in the nature of penalty as it gave the vendee an additional and unfair advantage and would unduly enrich him by securing to him a property only for Rs. 1,000 although he himself had agreed to purchase it for Rs. Clearly this subsidiary stipulation was in lerrorem and was in the nature of penalty as it gave the vendee an additional and unfair advantage and would unduly enrich him by securing to him a property only for Rs. 1,000 although he himself had agreed to purchase it for Rs. 2,000. I am, therefore, of opinion that the clause in the compromise decree stipulating transfer of land in default of payment is in the nature of penalty and cannot be enforced. The appellants are entitled to be relieved against it. ( 7. ) THE learned counsel for the appellants submitted an application for permission to adduce additional evidence to show that at the time the compromise was entered into and the consent decree was passed, the vaiue of the land (8. 48 acres) was very much above Rs. 2,000 and that it was all the land with the vendor and formed the only source of his livelihood. Evidence on these matters was requested in view of the legal position that in order to determine if a clause in a contract is in terrorem, the circumstances on the date of contract and at the time of its enforcement should be seen. Without expressing any opinion as to the admissibility of such evidence, I would only say that this application has been made at a very late stage without satisfactorily explaining the delay in making that application. This application is, therefore, rejected. ( 8. ) THE learned counsel for the respondent strongly relied upon a decision of the Allahabad High Court in Jhurai Lai v. Mohin Das, AIR 1972 All 457 . That was a case of ejectment of a tenant. Arrears of rent were also claimed. The suit was compromised and it was agreed that the defendant-tenant would pay the arrears of rent within three months and to give possession of vacant pieces of land within a month. A Gumti on a part of the tenanted premises was allowed to be retained by the defendant as a tenant. It was agreed that on failure of the defendant to comply with those two terms, he would quit the entire suit accommodation including the Gumti. A Gumti on a part of the tenanted premises was allowed to be retained by the defendant as a tenant. It was agreed that on failure of the defendant to comply with those two terms, he would quit the entire suit accommodation including the Gumti. Under these circumstances, it was held that since the ejectment of the entire suit accommodation and arrears of rent were the reliefs to which the plaintiff was entitled, the two terms regarding payment of arrears of rent within three months and the delivery of possession of open pieces of land in a month were only by way of concession and, therefore, the stipulation that on failure to comply with them, there shall be a decree for ejectment in respect of the entire suit accommodation cannot be said to be penal. Discussing Section 74 of the Contract Act, the learned Judge observed: - "the first fact which should weigh in deciding this question would be as to whether the decree-holder was claiming something more than what he claimed in the suit, or he claimed in the execution by way of penalty only that much of the just claim to which he was entitled to. The second consideration should be as to whether the just part of the claim was conceded by the defendant judgment-debtor in complying with the terms of the compromise within a certain period. And, the third condition should be as to whether the judgment-debtor failed to comply with the terms of the compromise without any just and proper cause so as to disentitle him to the concession allowed to him by the decree-holder under the compromise. " The statement of the law is in no way different than what has been expressed earlier by this Court in Fulchand v. Paluram. Second Appeal No. 502 of 1960, decided on the 11th Dec. 1962 (1963 MPLJ Short Note 84 ), And on the facts it has rightly been held that the decree granted some concession to the defendants and the stipulation as to quitting the entire premises was not in the nature of penalty. This decision, therefore, renders no assistance to the respondent. ( 9. ) THE appeal succeeds and is allowed. 1962 (1963 MPLJ Short Note 84 ), And on the facts it has rightly been held that the decree granted some concession to the defendants and the stipulation as to quitting the entire premises was not in the nature of penalty. This decision, therefore, renders no assistance to the respondent. ( 9. ) THE appeal succeeds and is allowed. The impugned order passed by the lower appellate Court is set aside and that of the executing (first)Court holding that the clause in the compromise decree directing sale of the land is penal and, therefore, unenforceable is restored with costs throughout. Counsels fee Rs. 100. Appeal allowed.