FATEH CHAND vs BALKISHAN DAS

The Supreme Court held that under Section 74 of the Indian Contract Act, 1872, a penalty clause in a contract must not be enforced, and only reasonable compensation should be awarded. The Court affirmed the High Court's decision that the defendant breached the contract, allowing the plaintiff to retain part of the Rs. 25,000 received and awarding compensation for use and occupation. The ruling clarified that any stipulation involving a penalty applies comprehensively to all covenants, and courts have the jurisdiction to award reasonable sums not exceeding the forfeited amount.