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CMA Foundation · Fundamentals of Business Laws and Business Communication · Breach of Contract and Remedies for Breach of Contract

Ravi Traders borrows Rs. 1,000 from Meena under a bond carrying interest at 12 per cent, with a stipulation that on default interest will be payable at 75 per cent from the date of default. According to Section 74, this stipulation is:

The clause is a stipulation by way of penalty. Meena is entitled only to such compensation as the Court considers reasonable, not the whole increased interest at 75 per cent, because Section 74 treats increased interest from the date of default as a possible penalty.

  1. AA valid liquidated damages clause enforceable in full
  2. BA stipulation by way of penalty, so Meena can recover only reasonable compensation as the Court considers fitCorrect
  3. CVoid, so Meena can recover nothing beyond the principal
  4. DEnforceable only if Ravi Traders consented in writing again after default

Explanation

The Explanation to Section 74 and illustration (d) say a stipulation for increased interest from the date of default may be a penalty. The lender then gets only reasonable compensation fixed by the Court, not the full 75 per cent. It is not void altogether.

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