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 provision of the Indian Contract Act, 1872?
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Section 74 deals with penalty clauses in contracts. It distinguishes between genuine pre-estimates of damage (liquidated damages) and penalties. The compound interest stipulation described in the question is specifically addressed in Section 74's scope.
The text reads: Section 74: When a contract is broken and a sum is named as penalty, the party is entitled to reasonable compensation not exceeding the penalty amount. A stipulation for increased interest from default date may be a stipulation by way of penalty.
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