1. The defendants in O. S. No. 3476 of 1964, on the file of the City Civil Court, Madras, are the appellants herein.
2. The facts are not in controversy, and the appeal itself lies within a narrow compass, and, therefore, we do not propose to refer to the pleadings of the parties in extenso in this appeal. One Mr. Fred Reist, Field representative of Pratt and Whitney Engineers Division of United Craft Export Corporation of U. S. A., applied on 10-10-1956 for a permit to bring into India with him his personal Mercedece Benz car from Manilla. The application was rejected on 28-11-1956, on the ground that a licence could not be issued for import of a built-up-car. But no appeals by the appellant herein for and on behalf of the said Fred Reist, a Customs Clearance permit dated 15-1-1957, marked as Ex. A-1 in these proceedings, was issued to him as a special case to bring his car into India. This permit imposed a condition that the car imported against the said permit should be re-exported, when the licencee leaves this country. The covering letter dated 16-1-1957 (Ex. A-1) made it clear that the said condition about re-export would not be relaxed on any account. Subsequently the first appellant, as the agent of the said Fred Reist, and the second appellant, as a surety executed Ex. A-2 bond. Under this bond, they undertook that they would not sell or dispose the care when the same is in India and that they would procure and deliver to the Joint Chief Controller of Imports and Exports, Madras, within one month or such extended period as may be allowed by the said Joint Chief Controller of Imports, Madras from the date of departure from India of the said Fred Reist, evidence to prove that the car had been re-exported out of India. They further undertook that in lieu of the delivery of evidence as referred to above, the first appellant and his heirs or representatives, shall, upon demand by the Joint Chief Controller of Imports and Exports, Madras, pay or cause to be paid to him a sum of Rupees 13,923.10, in which case the bond shall become void and of no effect; otherwise the bond shall be and remain in force. The second appellant, was we have pointed out already, joined the execution of the bond as a surety. The bond is dated 16-4-1957, and the said bond was accepted by the Joint Chief Controller of Imports and Exports, Madras. In October 1961, the Joint Chief Controller of Imports and Exports, Madras, learnt that Mr. Reist left India for the United States of America on 2-5-1959, but the car was not re-exported, and was being used by the first appellant herein as the representative of Messrs. L. A. Lewis, INC. On this, a notice was issued by the Joint Chief Controller of Imports and Exports, Madras, to the first appellant herein to produce evidence to show that the car was re-exported. No such evidence being produced, the Joint Chief Controller of Imports and Exports, Madras called upon the first appellant to re-export the car within a fixed time. Correspondence ensued between the appellants and the Joint Chief Controller of Imports and Exports, Madras in which the appellants took the stand that the car was involved in a serious accident, and, therefore, commercially, it was not worthwhile re-exporting the car, because the cost of re-export would exceed the value of the car in that condition, and consequently, they were seeking the permission of the Government of India, to sell the car in India, either privately or through the State Trading Corporation. Ultimately, no such permission was granted by the Government of India, and thereafter, after issuing a notice to the appellants through the Government Pleader, Madras, the present suit was instituted to enforce the bond, Ex. A-2 and recover the sum of Rs.13,923/10 with interest at six per cent, per annum.
3. In the written statement filed by the first defendant, which was adopted by the second defendant, the facts were not disputed. The contention that was put forward by way of defence to the suit was that the license was granted to Fred Reist, and with reference to that license, the appellants cannot be penalised for the failure on the part of Fred Reist to re-export the car. Another contention that was put forward by the appellants was that the Joint Chief Controller of Imports and Exports could not represent the Union of India for the purpose of filing the suit. Lastly, they contended that the provision for payment of the amount in Ex. A-2 was in the nature of penalty, and the court should relieve the appellants of the said penalty. Yet another plea raised by the appellants was that since the car met with a severe accident, it could not be exported and, therefore, the contract became impossible of performance.
4. On the basis of these pleadings, the trial Court framed the following issues:–
1. Cannot the conditions in the suit contract for payment of Rs.13,928.10 be enforced against the defendants ?
2. Is the said condition, in the nature of a penalty which cannot be enforced ?
3. Is the suit not properly instituted for the reasons stated in para 5 of the written statement ?
4. Did the car meet with a severe accident and if so has the contract become impossible of performance ?
5. Is the plaintiff not entitled to recover the amount ?
6. To what relief, if any, is the plaintiff entitled ?
The learned Seventh Assistant Judge, City Civil Court, Madras who tried the suit, came to the conclusion that though the stipulation for the payment of the amount in question was in the nature of penalty, still the contract can be enforced against the appellants herein. He also came to the further conclusion that the Joint Chief Controller of Imports and Exports, Madras, in whose favour alone the bond was executed, was competent to represent the Union of India and institute the suit. With regard to the contention put forward that because the car met with a serious accident, it could not be re-exported, the learned Judge rejected the same. On the basis of these findings, by judgment and decree dated 26-11-1966, the learned Judge decreed the suit as prayed for. Hence, the present appeal by the defendants in the suit.
5. Mr. Habibullah Badsha, the learned counsel for the appellants having regard to the findings of the court below on the points such as whether the suit is maintainable by the Joint Chief Controller of Imports and Exports and whether the contract became impossible of performance by virtue of the car meeting with a severe accident, did not pursue those points. However, the learned counsel strongly relied on Section 74 of the Indian Contract Act, and contended, with reference to that section, that no damage can be awarded by the court in favour of the respondent herein for the alleged breach of contract without the respondent proving that he has actually suffered damage. In this context, Mr. Badsha relied on clause 5(1)(iii) of the Imports (Control) Order 1955, which provide-
“5(1). The licensing authority issuing licence under this order may issue the same subject to one or more of the conditions stated below…………. (iii) that the applicant for a licence shall execute a bond for complying with the terms subject to which a licence may be granted.”
The argument of Mr. Badsha is that this provision contemplates the execution of a bond for complying with the condition with regard to the re-export, and it does not contemplate the situation for the payment of a penalty in the event of the failure to comply with the terms of the contract. We shall now consider this argument of the learned Counsel for the appellants.
6. With regard to the contention that in view of clause 5(1)(iii) of the Imports (Control) Order, 1955, the stipulation in Ex. A-2, for payment of the said sum of money by way of penalty for failure to comply with the terms of the contract, is illegal, we are clearly of the opinion that no such plea is available to the appellants. In the notice passed between the parties, at no stage the appellants took the stand that they were not bound to enter into the bond containing such a stipulation and such a stipulation was illegal. Apart from this, the appellants have not pleaded in the written statement that though such stipulation was outside the scope of clause 5(1)(iii) of the Imports (Control) Order, 1955, they were still compelled or forced to enter into the bonds under any special circumstances. Having regard to these features, we are unable to entertain this plea, because the parties in this case freely entered into the bond with the full knowledge of terms of the bond, and there is no principle or provision of law, which renders such a stipulation in a contract freely entered into between the parties, illegal. Consequently, we hold that the stipulation in the bond cannot be said to be illegal or unenforceable from any point of view.
7. The next submission based on Section 74 of the Indian Contract Act requires consideration as to the scope of that section. Section 74 of the Indian Contract Act is as follows:–
“When a contract has been broken, if a sum is named in the contract as the amount to be paid in case of such breach, or if the contract contains any other stipulation by way of penalty, the party complaining of the breach is entitled, whether or not actual damage or loss is proved to have been caused thereby, to receive from the party who has broken the contract reasonable compensation not exceeding the amount so named or as the case may be, the penalty stipulated for.
Explanation: A stipulation for increased interest from the date of default may be stipulation by way of penalty.
Exception: When any person enters into any bail-bond, recognisance or other instrument of the same nature, or under the provisions of any law, or under the orders, of the Central Government or of any State Government gives any bond for the performance of any public duty or act in which the public are interested, he shall be liable, upon breach of the condition of any such instrument, to pay the whole sum mentioned therein.
Explanation: A person who enters into a contract with Government does not necessarily thereby undertake any public duty, or promise to do an act in which the public are interested”.
8. One of us had to consider the scope and effect of Section 73, 74 and 75 of the Indian Contract Act in the judgment in W. P. No. 124 of 1969, dated 16-4-1970 (Mad). In that judgment, after quoting Sections 73, 74 and 75 of the Indian Contract Act, it was held:
“Thus, it will be seen that Section 73 talks of compensation for any loss or damage caused to a party to the contract by the breach of the contract committed by the other party. Therefore, so far as Section 73 is concerned, a party to a contract can claim compensation from the other party, who has broken the contract only if he proves that he has sustained loss or damage and that too only to the extent of such loss or damage suffered by him. This conclusion flows from the language used in the section itself, namely, ‘compensation for any loss or damage caused him thereby’. Similar is the expression used in Section 75 too. That section refers to ‘compensation for any damage which he has sustained through the non-fulfilment of the contract.’ Consequently, both under Section 73 and under Section 75, a person will be entitled to recover compensation only if he has sustained loss or damage and the amount of compensation will be only to the extent of such loss or damage. On the other hand, Section 74 is intended to meet a different situation altogether and it provides for a different consequence. That section clearly and categorically states that the party complaining of breach is entitled to compensation, whether or not actual damage or loss is proved to have been caused by the breach of the contract. Again, as distinct from the use of the expression ‘compensation for any loss or damage caused to him thereby’ in Section 73 and the use of the expression ‘compensation for any damage which he has sustained through the non-fulfilment of the contract’ in Section 75, Section 74 uses the expression ‘reasonable compensation’. Therefore, Section 74 is more or less in the nature of an exception to Section 73. Hence, where a case falls within the scope of Section 74, a claimant will be entitled to the reasonable compensation, irrespective of the fact whether actual loss or damage is proved to have been caused to him or not. However, Section 74 will apply only if in the contract a sum has been named as the amount to be paid in case of breach or if the contract contains any other stipulation by way of penalty. If this test is not satisfied, Section 74 will not be attracted. When this test is satisfied and Section 74 is attracted, the reasonable compensation cannot exceed the amount named in the contract or the penalty stipulated for will be the maximum which a party will be entitled to by way of reasonable compensation. From the very nature of the case, it is the duty of the court to assess and arrive at the reasonable compensation and if the reasonable compensation so arrived at exceeds the sum named in the contract or the penalty stipulated for, the successful party will be entitled only to the sum so named or the penalty stipulated for. On the other hand, if the reasonable compensation arrived at by the court is less than the sum so named in the contract or the penalty stipulated for, the successful party will be entitled to the amount assessed by the court. Hence, a combined reading of Secs. 73 and 74 of the Indian Contract Act leads to the following result:–
Whenever a contract has been broken, the party who has suffered by such breach is entitled to recover from the party in breach, compensation for loss or damage caused to him by such breach. This naturally assumes that the claimant had suffered loss or damage and therefore before claiming anything by way of compensation, he must prove that he has suffered loss or damage. The quantum of compensation will depend upon the extent of the loss or damage caused to him and in other words, the compensation will be only to cover the loss or damage suffered by him. This will be the position in respect of a contract where the parties themselves have not mentioned any amount as being the amount payable in the event of a breach or have not stipulated for payment of any penalty. On the other hand, where the parties to a contract have named an amount as being payable in the event of a breach or stipulated for payment of penalty, the party not in breach will be entitled to recover from the party in breach a reasonable compensation and for recovering this reasonable compensation, it is not necessary for the claimant to prove that he has actually suffered any loss or damage. The reasonable compensation to be awarded by the Court cannot exceed the amount named by the parties to the contract or the penalty stipulated for, the same being treated to be the maximum to which the party not in breach is entitled.”
After considering the decisions of the Supreme Court and certain other decisions, the judgment concluded–
“…………. having regard to the express language contained in Section 74 of the Indian Contract Act and the various decisions of the Courts referred to above, in case to which Section 74 of the Indian Contract Act applies, the party claiming compensation need not prove that he has actually suffered any loss or damages, and he is entitled to claim reasonable compensation solely because breach of the contract has been committed by the other party and the parties themselves have agreed to the payment of a particular sum, whether it is called ‘damage’ or ‘penalty’ in the event of a breach and that the only restriction which the law imposes is that the reasonable compensation to be assessed or computed by the court cannot exceed the amount agreed to by the parties, whether by way of damages or by way of penalty. To contend that even in such circumstances, the party claiming compensation must prove that he has actually suffered loss or damage is to fly at the face of the express language contained in Section 74 of the Indian Contract Act and to ignore the same altogether. If the plaintiff actually proves the extent of loss of damage sustained by him as a result of the breach committed by the other party, it would certainly constitute relevant material to be taken into account by the court in assessing the reasonable compensation. But is far different from saying that he is not entitled to any compensation at all unless he proves that he has actually sustained loss or damage. Where it is established that the plaintiff has not suffered any loss or damage at all, the court may not award him any substantial amount. But that is far different from denying him the right to claim compensation as provided for by Section 74 of the Indian Contract Act on the ground that he has not actually suffered any loss or damage”. In our opinion, the above extracts from the judgment correctly represent the position of law with reference to Sections 73, 74 and 75 of the Indian Contract Act.
9. Even with reference to this judgment, Mr. Badsha contended that the court has to fix a reasonable compensation not exceeding the amount agreed to between the parties, and there is not evidence before the court for fixing this reasonable compensation, and in the present case, the trial Court merely awarded the amount stipulated in the bond Ex. A-2 as the compensation. This argument happens to be advanced in view of the fact that no oral evidence whatever was let in the present case, and the parties proceeded with the trial of the suit only on the basis of the documents marked on behalf of the respondent herein, viz., the Customs Clearance permit Ex. A-1 and the bond, Ex. A-2 and the correspondence that passed between the parties. In our opinion, this argument of the learned Counsel for the appellants overlooks the exception to Section 74 of the Indian Contract Act, which also we have extracted. That exception takes two categories of instruments out of the scope of the restriction contained in Section 74. One category of instruments is bail bond, recognisance or other instrument of the same nature. The other category is any bond entered into by any person under the provisions of any law or under the orders of the Central Government or of any State Government for the performance of any public duty or act in which the public are interested. In both these cases, the person who entered into the bond, recognisance or other instrument, upon breach of the condition of any such instrument, shall be liable to pay the whole sum mentioned therein. If the case of the appellant falls within the scope of the excepti2on, certainly the appellants are liable to pay the entire amount mentioned in Ex. A-2, without the court assessing the reasonable compensation for the breach of contract committed by the appellants herein. We are clearly of the opinion that the bond executed by the appellants is covered by the Exception to the section and comes within the second category referred to above. That it is a bond is not disputed. That it was executed under orders of the Central Government is not disputed either. The bond itself states that it was executed under the orders of the Central Government and was in respect of an act in which the public are interested. For one thing, the appellants having executed the bond with the express stipulation that the bond was entered into under the orders of the Central Government, for the performance of an act in which the public are interested, are not entitled to go back on the said stipulation and contend that it was not executed under the orders of the Central Government, and it was not for the performance of an act in which the public are interested. Even assuming that the appellants are entitled to go back on the express stipulation and can canvass the position as to whether the present bond was executed in respect of an act in which the public are interested, we are clearly of the opinion that the present case falls within the scope of the exception referred to, independent of the above stipulation in Ex. A-2. It is not disputed that the import of foreign cars is prohibited. Such prohibition is imposed by the Government, among others, for giving protection to indigenous production of the cars. Therefore, the fulfilment of the condition of re-export subject to which the foreign car is imported is an act in which the public as a whole are interested, and indisputably the stipulation itself was inserted in the bond under the orders of the Central Government. Consequently, the case falls directly within the scope of the exception, and the appellants herein having failed to perform the obligation of re-exporting the car are bound to pay to the respondent the sum mentioned in the bond, and the question of the court itself determining a reasonable compensation not exceeding the sum mentioned in the bond does not arise.
10. Under the circumstances, we hold that the conclusion of the learned trial Judge is correct, and the suit was rightly decreed. Consequently, the appeal fails and is dismissed. But we do not make any order as to costs.
11. Appeal dismissed.