Boburkhon Badriddinov

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One of the ways to ensure the fulfillment of the obligation provided for in civil law relations is a penalty. According to Roman jurists, a penalty is a conditional agreement between the parties that the debtor is liable for paying a penalty in favor of the injured party for violating the terms of the contract. According to Grimm, the purpose of this agreement is to ensure the fulfillment of the main obligation by putting pressure on the debtor(  Grimm, 2003, p.496). In this blogpost, I will consider the importance of penalty in the legislation of Uzbekistan and the problems related to reducing the amount of penalty by the courts.

Penalty and “Penya” in Uzbek Civil Code

According to Article 261 of Civil code of Uzbekistan (hereinafter, CC), a penalty can be in the form of a fine or a penya.  A fine is a type of penalty that a debtor must pay certain amount of money in the condition of default or improper performance of an obligation. The important thing is that the percentage is fixed. That is, no matter how many more days the day on which the obligation is due is delayed, the penalty is a fixed portion of the amount that remains unfulfilled. In the case of penya, the amount of the penalty is not fixed and increases by the agreed percentage of the unfulfilled obligation for each day of the missed period.

The current CC expresses two different natures of penalty. One is to ensure the fulfillment of obligations as specified in Chapter 22 of the CC, while the other constitutes liability for breach of obligations, as expressed in Chapter 24 of the CC. Grishin explains the essence of the two different legal natures of penalty. He stressed that ensuring the fulfillment of the obligation as a method, penalty is designed to ensure the proper performance of obligations, if the obligation is not performed properly, penalty acquires a new meaning as a penalty and becomes a liability(Grishin, 2005, p.170). To me, this opinion is well-founded. That is, if the penalty is a means of ensuring the fulfillment of the debtor’s obligation at the time of the conclusion of the contract, the penalty becomes a liability in case of non-performance of the obligation.

Legal theories on reduction of penalty by courts

Among lawyers, there are two different views on the issue of reducing the amount of penalty by the courts. Some argue that “pacta sunt servanda” means the contract must be followed, while others argue that “the law must be fair”. It is obvious that such a contradiction is caused by the contradiction between the nature of the contractual relationship of civil law and the social duty of the legislator to the implementation of justice enshrined in law. Indeed, the state must also take into account the interests of the weaker side. Furthermore, participants in civil law relationships do not always exercise their rights conscientiously. In such a case, the legislature should take steps to limit the abuse of the right. In my opinion, the purpose of allowing the courts to reduce the amount of the penalty is to prevent the subjects of civil law relations from abusing their rights and to help the debtor to continue his activities . But in practice, I think that this norm does not adequately meet the intended purpose. The reason is that as a result of the absolute empowerment of the courts in reducing the penalty, sometimes there seems to be a conflict of interest. Therefore, we believe that we need to further improve the mechanism for reducing the amount of penalties by the courts.

Court practice in Uzbekistan

When the parties are free to enter into a contract and agree to settle the penalty, the court reducesthe amount of the penalty by 3-4 times,despite the fact that one of the parties violated the terms of the contract. However, there is no explanation as to when the penalty will be disproportionate to the consequences of the breach of the creditor’s obligation.

Furthermore, even if the amount of the penalty is reduced to the requirements of the law (that is the total amount of penalty should not exceed 50 percent of unfulfillment of obligations. This rule isfor contracts concluded only between business entities, but an exception to this rule can be made when an individual is involved), the court will drastically reduce the penalty.

   As an example of court practice, the Yangikurgan economic court handled case on the claim of the plaintiff to recover from the respondent 51.306.307 soums of debt, 5.028.018,09 soums of fines totaling 56.334.325,09 soums(case number: 4-1604-2102/1324). Although the respondent was aware of the time and place of the hearing, his representative failed to appear at the hearing. But the court continued to hear the case without respondent. According to the contract, the respondent undertook to supply the plaintiff with products, and the plaintiff undertook to pay the cost of the product on time. Pursuant to this agreement, the plaintiff transferred 51,306,307 soums to the respondent in advance. However, the contractual obligation was not fulfilled by the respondent at all. The agreement between the parties stipulates that in case of breach of the obligation, the guilty pays a penalty of 0.1 percent for each day of delay, the amount of the penalty does not exceed 50 percent of the amount of product received. Based on this, the plaintiff asked the repondent to pay a penalty of 5,028,018.09 soums (51,306,307 soums x 0.1% = 51,306 soums x 98 days = 5,028,018.09 soums). The court found that even if the respondent did not attend the trial, the penalty should be reduced by almost 80 percent. 

Isn’t this a violation of the principle of freedom of contract?

Some scholars are against the courts’ reduction of penalty. Russian scientist  Chicherov argues that the court will not have the right to change the amount of the penalty if there are no grounds to change the terms of the contract in a specific dispute situation. He also considers that the court has no right to violate one of the basic principles of civil law by changing the terms of the contract on its own initiative(Chicherov, 2007, pp.18-27). I agree with Chicherov. In particular, the parties are free to conclude a contract based on Article 354 of the CC. Moreover, Article 384 of the CC stipulates the procedure for amending and terminating a contract, and according to this, the amendment or termination of a contract is concluded in the same form as the contract. After the other party rejects the proposal to amend or terminate the contract, the parties may submit a request for amendment or termination of the contract to the court. In other words, if the terms of the contract need to be changed, first of all, the parties of the contract must act by mutual agreement. 

Courts should not reduce penalty on their own initiative. The penalty is a condition of the contract, we believe that it would be expedient to consider the issue of the penalty on the writtenapplication of the parties, not on the initiative of the court. This is on the one hand consistent with the principles of freedom of contract and voluntariness. Moreover, a written application of the debtor enables the court to make an accurate and fair assessment of the situation, because debtor must provide substantiating evidence in the application. Currently, the court can consider the issue of reducing the penalty on its own initiative, even if the debtor is not involved in the case. This leads the debtor to believe that “even if I do not attend the trial, the court will still reduce the penalty.” If the norm is revised in the above order, the court may not reduce the amount of the penalty on its own initiative until the debtor submits a written application to the court . This will help increase the debtor’s liability for subpoenas.


This blogpost discussed the importance of penalty in contractual obligations and the courts’ right to reduce penalty. By taking court practise into consideration this blogpost justified that the courts should have the right to reduce the penalty based on the written application of the interested party and not directly on their own initiative.

Cite as: Boburkhon Badriddinov, “How do civil courts decide ‘disproportionateness’ of penalties?”, Uzbekistan Law Blog, 17.11.2022.