Question
Legal Studies Question on Laws of Contract
A stipulation in a bond for payment of compound interest on failure to pay simple interest at the same rate as was payable upon the principal is not a penalty within the meaning of which of the following provision of the Indian Contract Act, 1872?
A
Section 73
B
Section 74
C
Section 75
D
Section 76
Answer
Section 74
Explanation
Solution
According to Section 74 of the Indian Contract Act, a stipulation for payment of compound interest upon default in paying simple interest is not considered a penalty, provided the interest rate remains the same as the principal.