Coupon Accepted Successfully!


Enhanced rate of interest

A stipulation for increased interest from the date of default may not be a stipulation by way of penalty if the terms of contract are reasonable. A contract between a debtor and his creditor may state that if the debtor does not pay back to the creditor in time, he would be liable to pay a higher amount of interest to the creditor. This higher amount of interest may be worked out in any one of the many possible ways.
  • A mere higher rate of interest, or compound interest in place of simple interest,
  • Higher amount of interest from the date of default
  • Higher amount of interest from the date of loan itself or a combination of any of these.
The stipulation of higher interest in case of default from the date of bond shall be seen as a penalty. Hence, only a reasonable enhancement shall be allowed by Court of Law.


X gives loan to Y ₹ 1,00,000. At an interest of 24% per annum with a provision that if Y makes the payment punctually at the end of the year then X would accept the lower interest rate i.e., 18% per annum, such charging of interest on the failure to make the payment on the due date does not amount to penalty. It should be rather understood as a relief provided by the creditor to the debtor for timely payment.

  • Damages for breach of warranty: Warranty is a stipulation which is collateral to the contract and a breach of warranty would entitle the aggrieved party to claim damages. In case there is a breach of warranty, the buyer is entitled to claim all the losses directly caused by the breach.

Test Your Skills Now!
Take a Quiz now
Reviewer Name