IN THE HIGH COURT OF JUDICATURE AT MADRAS
DATED: 11/07/2002
CORAM
THE HONOURABLE MR.JUSTICE S.JAGADEESAN
AND
THE HONOURABLE MR.JUSTICE K.RAVIRAJA PANDIAN
O.S.A.NO.6 OF 1994
1. Preetam Singh (died)
2. Anitha, P.C.
3. Vikram Singh Chhabria .... Appellants
Appellants No.2 and 3 were
brought on record as legal
representatives of deceased first
appellant as per orders in C.M.P.No.
4368 of 2002 dated 15.4.2002.
Versus
Tamil Nadu Slum Clearance Board
No.5, Kamarajar Salai
Madras-600 005. .... Respondent
Prayer: Original Side Appeal filed against the judgment and decree
dated 14.6.1993 made in C.S.No.34 of 1984 by the Honourable Mr. Justice
Govardhan.
!For Appellants : Mr.V.S.Subramanian
^For Respondent : Mr.M.Muthappan for
Mr.K.Venkataramana
:J U D G M E N T
K.RAVIRAJA PANDIAN,J.
The above appeal is directed against the judgment and decree of the
learned trial Judge dated 14.6.1993 made in C.S.No.34 of 1984 on the file of
this Court, whereby the learned Single Judge non-suited the appellant for the
relief claimed in the suit, in the sense, for a decree directing the
defendant/respondent herein to pay to the appellant/plaintiff a sum of
Rs.2,45,880.41ps with interest on Rs.1,25,206.92 ps at 10 per cent per annum
from the date of plaint till the date of realisation.
2. The appellant laid the suit for the said relief on the ground that
the appellant is one of the leading suppliers of pipes and accessories and the
defendant used to place orders for supply of several materials required by
them. At times, without calling for tenders, the defendant used to place
orders on the plaintiff. On certain other occasions, the defendant call for
tenders. After becoming successful tenderer, the plaintiff used to supply the
materials as per the tender and there had been several instances where the
goods were used to be supplied on oral instructions to the defendant.
3. It is the further case of the appellant/ plaintiff that in
pursuance of a call for tenders by the defendant, the plaintiff had offered on
17.11.1978 to supply G.I. pipes and specials and deposited a sum of
Rs.2,300/- as Earnest Money Deposit as per the tender condition. The
defendant accepted the offer for supply of goods to the value of Rs.3,18,279/-
and demanded a further deposit of Rs.7,250/- towards additional security
deposit. The appellant/plaintiff has given a Bank Guarantee for the said
amount. The plaintiff also supplied some of the materials as per the tender
and sent an invoice for a sum of Rs.28,243.47ps. The plaintiff also supplied
materials worth about Rs.5,607.56 and Rs.5,544.12ps under different invoices
and further supplies were also made for a sum of Rs.3,215.87ps on 23.4.1979.
While that being so, the Executive Engineer of the defendant Board informed
that a sum of Rs.31,828/- being ten per cent of the total value of the
contract was withheld as a penalty for default in making the supply. The
plaintiff was also asked to show cause why the name of the plaintiff should
not be recommended for being black-listed. The agreement between the
plaintiff and the defendant did not provide any clause with reference to price
escalation and therefore neither valid nor enforceable. Even assuming that
the agreement is a valid one, the defendant should have ascertained the loss
suffered immediately. Without ascertaining the loss, the defendant cannot
withheld or forfeit the amount deposited by the plaintiff. It is further
contended that there cannot be two penalties viz., black-listing and
imposition of fine and forfeiture of Earnest Money Deposit and Additional
security deposit. The conditions to that effect in the agreement is invalid.
Even then, the plaintiff is entitled to the relief from the penal clause in
law. The plaintiff’s money cannot be withheld nor can the earnest money and
additional security deposit forfeited. The defendant not having purchased any
materials at the risk and cost of the plaintiff is not entitled to withheld
any amount.
4. Likewise, pursuant to a tender, the plaintiff offered on 5.3.1979
to supply GI pipes and specials and deposited bank guarantee for a sum of
Rs.7,500/- towards Earnest Money deposit and agreement was also entered into.
The plaintiff supplied various materials under 3 invoices for Rs.23,805.45ps,
Rs.7,640.85ps and Rs.21,349.37ps. The appellant also supplied materials under
different invoices on three other occasions. However, the Executive Engineer
of the defendant informed the plaintiff that a sum of Rs.51,984/- being 10
percent of the value of the agreement has been withheld and has threatened
penal action including black-listing. In respect of the three tenders due on
20.3.19 79, the plaintiff submitted his offers dated 19.3.1979 together with
earnest money deposits by way of bank guarantees for Rs.1500/-, Rs.38 00/- and
Rs.2600/- respectively. The defendant required the plaintiff to remit the
additional security deposit and also called for explanation as to the reason
for the delay in the execution of the agreement. A sum of Rs.1,57,686.18ps is
due and payable by the defendant towards the goods supplied. Towards the
earnest money deposit and additional security deposit, a sum of Rs.39,311/- is
due to the plaintiff. The plaintiff is also entitled to interest on the said
amount. The plaintiff is entitled for a sum of Rs.1,95,206.92ps with
subsequent interest from the date of plaint on Rs.1,57,686.18ps towards the
earnest money deposit and additional security deposit. The defendant is
liable to pay the plaintiff a sum of Rs.39,311/- and interest of Rs.11,3
62.49ps from 24.7.1980 till the date of plaint. Hence, the suit for recovery
of the amount.
5. The suit was contested by filing written statement by the
defendant, wherein it was contended inter alia that the defendant never placed
oral order to supply materials without calling for tender. Only after calling
for tender and execution of necessary agreement thereto, orders would be
passed for supply of materials. It is open to the plaintiff to claim money
for the supply effected as per the agreement entered into between them after
producing the relevant records and vouchers signed by the authorities of the
defendant. NO claim can be made on the basis of the plaintiff’s own voucher
or delivery note. For supply of G.I. pipes and specials to M.G.R. Nagar
Scheme, the plaintiff has become successful tenderer for the value of
Rs.3,18,279/-. As per the agreement, the price shall be firm through out the
period of supply as the time fixed was only one month. The plaintiff did not
supply the material as per the agreement but supplied only 14 percent of the
total quantity. In spite of repeated demands made, the plaintiff did not
adhere to the time schedule and made the supply, which resulted in issue of
show cause notice. The agreement entered into is binding on the parties. The
defendant invoked the penal clause since there was a breach. The black
listing the contractor and the enforcement of penal clause in the agreement
are totally two different acts. Likewise, the plaintiff has become the
successful tenderer for supply of G.I Spun pipes and specials to M.G.R. Nagar
Scheme and an agreement to the value of Rs.5,19,842/- was entered into. Here
also, as per the terms of the agreement, the price was to be firm excepting
for variations in J.PC price of piyrion prevailing on the date of their
tender. The plaintiff did not commence supply and the plaintiff ought to have
completed supply of the materials within one month, but had supplied only 22
percent after a long interval of time. The plaintiff himself has suggested
for cancellation of the agreement. The breach committed by the plaintiff
called for penalty and as such 10 percent of the value of the agreement was
withheld. In respect of supply of G.I. pipes and specials for Annai Sivagami
Nagar for value of Rs.2,52,3 65/- plus taxes Ammaniammal Nagar for value of
Rs.1,26,318/- plus taxes Sivagami Ammaiyar Nagar for value of Rs.1,26,318/-
plus taxes, the plaintiff was the successful tenderer, but breached the
contract/ tender. Hence, the earnest money deposit was forfeited as per the
terms of the tender. The claim of the plaintiff is unsustainable. with these
allegations, the defendant/respondent herein sought for dismissal of the suit.
6. The learned Judge after taking into consideration of the materials
placed and also after taking into consideration of the arguments advanced,
non-suited the plaintiff/appellant herein for the relief of recovery of the
amount, which has been forfeited by the defendant Board for violation of the
tender conditions. The correctness of the said order is put in issue in the
present appeal.
7. The learned counsel appearing for the appellant has reiterated the
very same contentions raised before the learned Judge for supply of materials
on oral orders. For that purpose, he has relied on certain vouchers, wherein
the order numbers are quoted and in certain other vouchers, no such order
number was mentioned.
8. Though the vouchers and delivery challans were raised in favour of
the respondent/defendant, there is no material made available on record to
prove that the goods were supplied to the defendant on oral instruction or
orders. The defendant being a statutory body, cannot place oral orders but
bound to call for tenders and place orders only after accepting the lowest
tender. Unless the plaintiff is able to prove that the supply has been made
on oral orders or directions as contended by them by clear evidence that the
defendant used to receive the goods on oral orders, it cannot be sustained.
In the absence of any material evidence, and in the light of the oral evidence
of P.W.1, which has been denied by the defendant, it is not possible to accept
the case of the appellant/plaintiff that the supply of goods were made
pursuant to the oral instructions or orders made by the respondent/defendant.
Hence, the claim made as to the supply of materials on oral orders cannot at
all be sustained and the rejection of the same by the trial Judge cannot at
all be complained off.
9. The learned counsel appearing for the appellant relied on the
decisions of SHAPOOR FREDOOM MAZDA VS. DURGA PROSAD CHAMARIA AND OTHERS
reported in AIR 1961 SUPREME COURT 1236, M/S.L.C.MILLS VS. ALUMINIUM
CORPORATION OF INDIA reported in 1971 SUPREME COURT 1482 and P.D. PILLAI VS.
KALIYANIKUTTY AMMA reported in AIR 1995 KERALA 78 FULL BENCH in order to
substantiate his contention that the goods were supplied to the
defendant/respondent on oral orders placed by them and contended that there
was a jural relationship of debtor and creditor. In those cases, it was held
that the acknowledgement as prescribed under Section 19 of the Limitation Act
merely renews the date. A mere acknowledgement of the liability in respect of
the right in question is enough. It need not be accompanied by a promise to
pay either expressly or even implication. So far as the present case is
concerned, as stated already, there is absolutely no material to prove that
supply of material by the appellant/plaintiff has been made on the oral orders
or directions and the supply has been received by the defendant. In the
absence of any material to prove that supply has been made to the defendant
except the evidence of P.W.1, which has been categorically denied by the
defendant, the reliance of the above three judgements would not in any way
advance the case of the appellant.
10. Yet another point, which was very vehemently argued by the
learned counsel for the appellant is that the defendant is not entitled to
withhold any amount in view of Section 74 of the Contract Act without proving
the actual loss or damage caused.
11. There is no dispute as to the appellant was a successful bidder
in respect of three tenders and the earnest money deposit and additional
security deposit deposited by the appellant/plaintiff in accordance with the
terms and conditions of the tender/agreement entered into pursuant to the
tender and also the Madras Detailed Standard Specifications and the clauses in
the standard preliminary specification would also form part of the agreement,
which provides for forfeiture of earnest money deposit, additional security
deposit and ten percent of the value of the contract in case of default. In
the admitted factual position, it was contended by the learned counsel that
unless or otherwise the actual loss or damage is proved, the defendant cannot
forfeit the same in view of Section 74 of the Indian Contract Act. The
heading under which Section 34 was arrayed is of consequence of breach of
contract. Section 74 of the Contract Act provides that
“when a contract has been broken, if a sum is named in the contract as the
amount 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.”
12. As per the above said provision, the party faced with a breach of
contract is not compelled to prove the extent of loss or damage suffered by
him in fact or actually. He need not prove in an exact manner the extent of
real loss or damages suffered by him. Even if he fails to prove it, Court
cannot throw out his case on that ground, but must proceed to assess the
reasonable compensation, which is to be awarded to him on the materials before
the Court and subject to the limit of the amount stipulated in the contract.
There may be cases where the actual loss or damage is incapable of proof.
Facts of such case may be so complicated that it might be difficult for a
party to prove the actual extent of loss or damage. The above provision of
the Contract Act thus exempt such a party from such responsibility and enables
him to claim compensation in spite of not proving the actual extent of loss
and damages.
13. The scope of Section 74 has been explained in several cases by
the Supreme Court. In FATEH CHAND VS. BALKISHAN DASS reported in AIR 1 963
SUPREME COURT 1405, while explaining the background of Section 7 4 of the Act,
the Supreme Court observed thus:
“In assessing damages the Court has, subject to the limit of the
penalty stipulated, jurisdiction to award such compensation as it deems
reasonable having regard to all the circumstances of the case. Jurisdiction
of the Court to award compensation in case of breach of contract is
unqualified except as to the maximum stipulated; but compensation has to be
reasonable, and that imposes upon the Court duty to award compensation
according to settled principles. The Section undoubtedly says that the
aggrieved party is entitled to receive compensation from the party who has
broken the contract, whether or not actual damage or loss is proved to have
been caused by the breach. Thereby it merely dispenses with proof of “actual
loss or damage”, it does not justify the award of compensation when in
consequence of the breach no legal injury at all has resulted, because
compensation for breach of contract can be awarded to make good loss or damage
which naturally arose in the usual course of things, or which the parties knew
when they made the contract, to be likely to result from the breach.
14. In MAULA BUX VS. UNION OF INDIA reported in AIR 1970 SUPREME
COURT 1955, the Supreme Court held thus:
“Under the terms of the agreements the amounts deposited by the
plaintiff as security for due performance of the contracts were to stand
forfeited in case the plaintiff neglected to perform his part of the contract.
The High Court observed that the deposits so made may be regarded as earnest
money. But that view cannot be accepted. According to Earl Jowitt in “The
Dictionary of English Law” at p 689: “Giving an earnest or earnest-money is a
mode of signifying assent to a contract of sale or the like by giving to the
vendor a nominal sum ( e.g. A shilling) as a token that the parties are in
earnest or have made up their minds.” As observed by the Judicial Committee in
Chiranjit Singh Vs. Har Swarup (AIR 1926 P C.1).
“Earnest Money is part of the purchase price when the transaction goes
forward it is forfeited when the transaction falls through by reason of the
fault or failure of the vendee.
In the present case the deposit was made not of a sum of money by the
purchaser to be applied towards part payment of the price when the contract
was completed and till then as evidencing an intention on the part of the
purchaser to buy property or goods. Here the plaintiff had deposited the
amounts claimed as security for guaranteeing due performance of the contracts.
Such deposits cannot be regarded as earnest-money.”
In this case also the EMD was deposited at the time of tender. Though
the nomenclature is so stated it cannot be regarded as earnest money and the
amount can only be claimed as security for guaranteeing due performance of the
contract. This is also fortified by calling for the plaintiff to deposit the
additional security amount depending upon the value of the contract. The word
additional security connotes what was deposited by the plaintiff as EMD is
only a security. The Supreme Court further proceeds as follows:
“It is true that in every case of breach of
contract the person aggrieved by the breach is not required to prove actual
loss or damage suffered by him before he can claim a decree and the Court is
competent to award reasonable compensation in case of breach even if no actual
damage is proved to have been suffered in consequence of the breach of
contract. But the expression “Whether or not actual damage or loss is proved
to have been caused thereby” is intended to cover different classes of
contracts which come before the Courts. In case of breach of some contracts
it may be impossible for the Court to assess compensation arising from breach,
while in other cases compensation can be calculated in accordance with
established rules. Where the Court is unable to assess the compensation, the
sum named by the parties if it be regarded as a genuine pre-estimate may be
taken into consideration as the measure of reasonable compensation, but not if
the sum named is in the nature of a penalty. Where loss in terms of money can
be determined, the party claiming compensation must prove the loss suffered by
him.”
So far as the present case is concerned, there is no pleading in the
plaint to the effect that the actual damage caused has to be proved or the
defendant never sustained any damage. As stated already, in this case, the
damage or actual loss caused can not be easily proved because of the
complicity of contracts ente red into for the project of construction of
tenements with various persons and the delay caused by the plaintiff in
non-supplying the material caused delay in the chain of contracts in
completing the project at every stage.
15. In SHREE HANUMAN COTTON MILLS AND ANOTHER VS. TATA AIR CRAFT
LTD. REPORTED IN AIR 1970 SUPREME COURT 1986, the Supreme Court held that if
the person contesting the forfeiture of earnest money deposit or the
additional security deposit as unreasonable, they should have laid a
foundation for the same by raising appropriate pleas and also let in proper
evidence regarding the same so that the respondent would have an opportunity
of making such claim. Admittedly, in the case on hand, no such foundation has
been laid as to unreasonableness except saying that the forfeiture is invalid.
For be tter clarity , we feel it is appropriate to refer the relevant passage
of the Supreme Court:
“31. The learned Attorney General very strongly urged that the pleas
covered by the second contention of the appellant had never been raised in the
pleadings nor in the contentions urged before the High Court. The questions
of the quantum of earnest deposit which was forfeited being unreasonable or
the forfeiture being by way of penalty, were never raised by the appellants.
The Attorney General also pointed out that as noted by the High Court the
appellants led no evidence at all and after abandoning the various pleas taken
in the plaint, the only question pressed before the High Court was that the
deposit was not by way of earnest and hence the amount could not be forfeited.
Unless the appellants had pleaded and established that there was
unreasonableness attached to the amount required to be deposited under the
contract or that the clause regarding forfeiture amounted to a stipulation by
way of a penalty the respondents had no opportunity to satisfy the Court that
no question of unreasonableness or the stipulation being by way of penalty
arises. He further urged that the question of unreasonableness or otherwise
regarding earnest money does not at all arise when it is forfeited according
to the terms of the contract.
32. In our opinion the learned Attorney General is well founded in
his contention that the appellants raised no such contentions covered by the
second point, noted above. It is therefore unnecessary for us to go into the
question as to whether the amount deposited by the appellants, in this case by
way of earnest and forfeited as such, can be considered to be reasonable or
not. We express no opinion on the question as to whether the element of
unreasonableness can ever be considered regarding the forfeiture of an amount
deposited by way of earnest and if so what are the necessary factors to be
taken into account in considering the reasonableness or otherwise of the
amount deposited by way of earnest. If the appellants were contesting the
claim on any such grounds, they should have laid the foundation for the same
by raising appropriate pleas and also led proper evidence regarding the same,
so that the respondents would have had an opportunity of meeting such a
claim.”
16. In UNION OF INDIA VS. RAMPUR DISTELLERY AND CHEMICAL CO. LTD
reported in AIR 1973 SUPREME COURT 1098, the principle as enunciated in MAULA
BUX VS. UNION OF INDIA reported in AIR 1970 SUPREME COURT 1955 has been
accepted on the ground that the contract was of a nature in which the loss
alleged to have been caused could have been proved. But on the facts of the
case, it was found that subsequently, the rum contract for has been
subsequently supplied with accepted quality. From the above said judgment, it
is clear that if the extent of loss or damages sustained is capable of being
proved, the same has to be proved by the person, who claims the amount. If
the quantification of loss or damage is not possible, the party, who have
suffered on account of the breach is not without any remedy and claim the
amount as agreed to is found reasonable, he is entitled for.
17. So far as the present case is concerned, the defendant is the
statutory body and the conditions for payment of earnest money deposit as well
as additional security deposit and withholding of ten percent of the value of
the contract if the contractor breached the contract is standard for all. It
is not thrusted or imposed on the appellant alone. Further, in this case, the
nature of the contract is also supply of materials, for the purpose of putting
up of tenements and construction and laying down the pipe line and sewerage.
For that purpose, several independent contracts have been entered into as
stated above. If the supply is delayed by breach of time schedule, it causes
delay in all the chain of subsequent stages in the project and that is the
reason the loss on breach has been reasonably pre-determined and mentioned in
the tender and the agreement itself. Because of the complicity of the nature
of the contract in the entire project, the exact loss and exact damages in the
contract of the disputed nature cannot be assessed with certainty. Hence, we
are of the view that the contention that the actual loss and actual damages
have to be proved as raised by the appellant is not sustainable and as such,
we find no infirmity in the judgment and decree of the learned trial Judge
while considering the material placed and also the evidence.
In the result, the Original side Appeal is dismissed. However, there
shall be no order as to costs.
(S.J.,J.) (K.R.P.,J.)
11.07.2002
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To:
The Sub Asst.Registrar
Original Side
High Court
Madras.
S.JAGADEESAN,J.
AND
K.RAVIRAJA PANDIAN,J
JUDGMENT IN
O.S.A.No.6 OF 1994