IN THE HIGH COURT OF KERALA AT ERNAKULAM
SA No. 230 of 1994()
1. K.V.THOMAS
... Petitioner
Vs
1. INSTRUMENTATION LTD.,PALAKKAD
... Respondent
For Petitioner :SRI.V.CHITAMBARESH
For Respondent :SRI.U.K.RAMAKRISHNAN
The Hon'ble MR. Justice M.SASIDHARAN NAMBIAR
Dated :31/07/2007
O R D E R
M.SASIDHARAN NAMBIAR,J.
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S.A. NO. 230 OF 1994
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Dated this the 31st day of July, 2007
JUDGMENT
Appellant was the first defendant in
O.S.20/1985 on the file of Sub Court, Palakkad, a
suit filed by first respondent Company for
realisation of Rs.15,000/- as damages on account of
the breach of conditions provided under Ext.A1
agreement. Appellant was an employee of first
respondent Company. He was selected for training
and sent to West Germany to undergo training with
M/s.Heylig-Enstaedt & Co. He completed the
training and worked with first respondent Company
for 1 = years. Thereafter resigned. At the time
of sending the appellant for training, he executed
Ext.A1 agreement along with respondents 2 and 3 as
sureties. He had undertaken to serve the Company
for a period of three years. He has also
undertaken to pay a liquidated damages of
Rs.15,000/- if he fails to serve the Company for
S.A.230/1994 2
the said period. The suit was filed for
realisation of the said liquidated damages.
Appellant resisted the suit contending that the
agreement is void and unenforceable. It was
contended that though a liquidated damage is
provided, on account of his resignation first
respondent Company did not sustain any loss or
damage and therefore he is not liable to pay the
damages. It was contended that he could not
continue the work due to his poor health and hence
he is not liable to pay the damages. Trial court
on the evidence of Pws.1 and 2, DW1 and Exts.A1 to
A12 held that Ext.A1 is not void but valid and
defendants are bound to pay the amount
stipulated in Ext.A1. But holding that first
respondent did not establish the actual damage
sustained and finding that appellant had served the
Company for half of the period provided under
Ext.A1, damage was fixed at half of the liquidated
damages named in Ext.A1. a decree for realisation
of Rs.7500/- with interest was passed. Appellant
S.A.230/1994 3
challenged the decree and judgment before the
Additional District Court, Palakkad. First
respondent preferred a Cross Objection contending
that trial court should have granted the damages
of Rs.15,000/-as named in Ext.A1. Learned District
Judge on reappreciation of evidence found that even
according to appellant Rs.39,000/- was incurred by
the Company for the training of the appellant at
West Germany and therefore the liquidated damage
fixed in Ext.A1 is reasonable. He modified the
decree for reaslisation of the entire amount named
in Ext.A1. It is challenged in the second appeal.
2. Appeal was admitted formulating the
following substantial questions of law.
1) Whether the courts below were justified in
law in granting a decree for compensation as
prayed, overlooking the fact that the party
complaining of breach is entitled only to a
reasonable compensation, irrespective of the amount
stipulated in the contract as liquidated damages?
2) In the absence of any pleading much less
S.A.230/1994 4
any proof to show the discontinuance of the
operation of the machine and the resultant loss of
income, were the courts below correct in law in
passing the impugned decree? Is not proof of
damages a sine qua non to claim compensation?
3) When the first defendant has admittedly
served the plaintiff company for half the period
specified in the contract after training, does it
not go a long way in mitigation of damages? Has
not the lower appellate court erred in reversing
the decree of the trial court in that regard?
3. Learned counsel appearing for appellant and
first respondent were heard.
4. The finding of courts below that Ext.A1
agreement is not void and is valid and binding on
the appellant was not challenged. The challenge
was only against the quantum of compensation fixed
by the first appellate court. Ext.A1 agreement
admittedly executed by appellant along with the
other defendants provide for payment of a
liquidated damages of Rs.15,000/- in the event of
S.A.230/1994 5
the failure of the appellant to serve the Company
for the agreed period of three years. Clause 7 of
Ext.A1 agreement reads:-
“That the employee shall not
leave the services of the
Company during the period of
this bond. In the event of
the employee leaving,
abandoning or resigning the
service of the company in
breach of the terms of this
bond before the expiry of the
training period as well as
thereafter for the reamining
terms of the bond, he shall
not directly or indirectly
engage in or carry on of his
own accord or in partnership
with others, the business at
present being carried on by
the Company and shall not
S.A.230/1994 6
serve in any capacity,
whatsoever or be associated
with any presons, firm or
company carrying on such
business for the remainder of
the said period and in
addition to pay the Company
as liquidated damages an
amount of Rs.15,000/-
(Rs.Fifteen thousand only)
which includes the amount
that the Company might have
spent on the employee’s
training together with
interest thereon calculated
at a fixed Government rate in
force at the relevant time
for Government loans from the
date of demand.”
The argument of learned counsel appearing for
appellant is that apart from the oral evidence of
S.A.230/1994 7
DW1, there is no evidence to prove the actual
damage suffered by first respondent Company and
when Ext.A1 provides for payment of damages of
Rs.15,000/- for not serving a period of three
years in the Company and appellant served half of
the period, the quantum of damages cannot exceed
half of the liquidated damages provided in Ext.A1
and therefore first appellate court was not
justified in enhancing the compensation granted by
the trial court. It was also argued that Ext.A1
shows that Rs.15,000/- was fixed inclusive of the
expenses met by the Company to send the appellant
to West Germany for training and as the Company was
benefited by the service of the appellant for half
of the period provided under Ext.A1, the damages
could only be half of the liquidated damages
provided in Ext.A1 and therefore the decree is not
sustainable.
5. Learned counsel appearing for first
respondent argued that as found by first appellate
court, appellant himself admitted that Company had
S.A.230/1994 8
spent more than Rs.39,000/- for sending appellant
to West Germany for training and evidence also
establish that without the trained person the
machines cannot be worked and as a result of the
resignation of the appellant another person has to
be sent to West Germany for training and naturally
the said expenses has to be additionally met by the
Company and therefore the liquidated damages of
Rs.15,000/- in Ext.A1 is very reasonable and in
such circumstance, even without evidence as to the
actual loss sustained, the damages awarded by the
first appellate court is perfectly reasonable and
correct and warrants no interference.
6. Section 73 of the Contract Act provides that
when a contract is broken, what is recoverable is
the actual loss sustained. Section 74 of the
Contract Act provides that whether a loss is
suffered or not a party is entitled to the
liquidated damages provided under the contract.
But Sections 73 and 74 are to be read together.
whether a liquidated damage is named or not, a
S.A.230/1994 9
party is entitled to realise only that damage
which he actually sustained. The question is when
Ext.A1 agreement stipulates for payment of
Rs.15,000/- as liquidated damages, whether the
first respondent is entitled to realise the entire
amount without evidence on the actual loss
sustained.
7. An identical question was considered by this
Court in F.A.C.T. Ltd v. Ajayakumar (I.L.R.1991(1)
Kerala 549. As in this case at the time of
undergoing training, the trainee had executed an
agreement undertaking to pay a liquidated damages
of Rs.10,000/-. The question considered was
whether it is necessary to prove the actual damage
sustained by the Company to realise the liquidated
damages. The learned single Judge analysing the
previous decisions held that the effect of Section
74 is only to disentitle the party from getting
whatsoever is provided in the document, whether as
penalty or liquidated damages and confining the
S.A.230/1994 10
claim within reasonable limits subject to the
maximum of the amount so fixed. In a case where
monetary value of the loss or damage is incapable
of proof, court can assess reasonable damage even
if actual damage or loss is not proved. It was
held that in a case in which the Company sustained
damage, but actual quantum of loss is incapable of
proof and the claim is based on the pre estimate
made by the parties, nothing prevents the court
from assessing reasonable compensation from the
facts and circumstances of the case. It was held
that when the liquidated damages claimed in the
agreement it is a genuine pre estimate which is
reasonable that compensation could be awarded.
8. On the evidence first appellate court was
justified in granting the entire liquidated damages
named in Ext.A1. Evidence of appellant himself
establish that Company had spent more than
Rs.39,000/- for sending appellant for training to
West Germany. The Company had spent that amount so
that it would get the benefit of the service of the
S.A.230/1994 11
appellant. Appellant himself admitted that without
the service of a trained employee, the machines
cannot be worked. It is also in evidence that on
account of the resignation of the appellant,
another person has to be sent to West Germany for
training and that expense was also to be met by the
Company, which would not have been the case if the
appellant continued his service in the Company as
undertaken in Ext.A1. In such circumstance, as
rightly found by the first appellate court,
Rs.15,000/- named in Ext.A1 is a very reasonable
genuine pre estimate of damages. In such
circumstances, I find no reason to interfere with
the quantum of damages fixed by the first appellate
court.
The appeal is dismissed.
M.SASIDHARAN NAMBIAR
JUDGE
tpl/-
M.SASIDHARAN NAMBIAR, J.
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S.A..NO.230 /94
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JUDGMENT
31st JULY,2007