JUDGMENT
1. The question of law that arises in this second appeal is whether under S. 74 of the Contract Act, lh72 in case of breach of contract the amount of compensation mentioned in the agreement is payable or the plaintiff is bound to prove the actual damage that can be recovered from the defaulter. The appellant in this case on 3-3-1970, as per the agreement Ex. A- 1, agreed to supply to the respondent company 125 tonnes of sugarcane grown by him in an extent of 5 acres of land in S.F. Nos. 5S2,” 1 and 610 in Kurudamapalayani village, Coimbatore Taluk, during 1970-71 main season commencing from 15-10-1970. According it) the agreement Ex.A-1 the appellant also agreed to pay a penalty of Rs. 50 per tonne of sugarcane not supplied to the respondent company. According to the plaint allegations the appellant did not supply the sugarcane as agreed and the respondent company has suffered a greater loss than the penalty payable. It is also alleged that the suit was laid to recover only the penalty stipulated in the agreement for, 125 tonnes at the rate of Rs. 50 per tonne amounting to Rs. 62-50.
2. While admitting the agreement Ex. A 1 the appellant herein, the defendant in the suit, pleaded that there was no concluded contract between both the parties. It was contemplated between the parties. I hat t here should be a written contract containing all, the essential terms for the supply of sugarcane by the appellant to the respondent. No such contract was entered into. The allegged agreement Ex.A-1, dated 3-3-1970 is not an agreement at all in the eye of law. The parties were not at ad idem with reference to the quantity, price, mode and manner of supply and performance which are the basic terms relating to the contract. In any event, the alleged agreement is, void and cannot be enforced. The appellant raised on 15-1 I-Iq69 rate on (sic) variety of sugarcane in S.F. 582/1 which was due for harvest within nine months to ten months. Similarly in S.F. 610 the crops were raised on 15-2-1970 to be harvested within ten months. The case of the appellant is that as the parties did not, enter into any contract and as the respondent company never intimated its willingness till January 1971 to enter into any contract, in spite of the fact that the crop was. ripe for harvest in or about 1971, the appellant was under no obligation to supply the sugarcane. The appellant also contended that the penalty is only Rs. 25, as against Rs. 50/- claimed by the respondent company- It is also contended that the respondent had not disclosed whether the respondent actually sustained loss and if so the quantum-or actual loss. In any event, the suit is barred in view of the provisions contained in the Kerala Co-operative Societies Act 1961. The appellant also claimed protection under the provisions of Ordinance 5 of 1978 (Tamil Nadu Act 17 of 1978) which was also negatived by the courts below.
3. The learned Subordinate Judge on a consideration of the evidence documentary and oral, came to the conclusion that there is a valid and concluded contract between the parties for the supply of sugarcane for 1970, 71, season and the said agreement is binding on the appellant. The trial court also found that the appellant committed breach of contract and the penalty of R. 50 per tonne stipulated in Ex.-Al, is payable. On the question of jurisdiction, the trial court held that since the said plea had not been taken as a preliminary issue the game cannot be considered. As against the said judgment the appellant herein filed A.S. 293 of 1978 on the file of the District Judge, Coimbatore, and the learned District Judge on a consideration of the evidence and the materials placed before him concurred with the findings of the trial court and dismissed the appeal. This second appeal is filed challenging the legality and correctness of the decisions of both the
courts below.
4. Learned counsel for the appellant raised the following contentions in support of his argument that the judgment and decree of both the courts below are not sustainable in law –
1. In the absence of proof of actual damage to the respondent company on account of the appellant not supplying the sugarcane by producing the accounts books, etc. of the respondent company no amount can be awarded as damages due to the respondent company;
2. As per the agreement Ex.A-1, there is no concluded contract since there are scorings regarding the quantum of damages and hence there is no pre-determined damages in this regard;
3. The suit is not maintainable in view of the provisions contained in Kerala Cooperative Societies Act, 1961.
5. Before considering the questions raised we will do well by examining the relevant provisions of the Contract Act, 1872, relating to the award of compensation for breach of contract. Sec. 74 of the Contract Act reads 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 byway 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.”
According to the appellant the claim for compensation under S. 74 of the Contract .Act, the actual damage incurred by the respondent on account of the breach will have to be proved in accordance with law even though the quantum of damage is mentioned in the-agreement Ex.A- 1. It is also contended that what is mentioned in Ex.A- I is in the nature of penalty and the same cannot be enforced against the appellant.
6. The question for decision in this second appeal is whether the terms of the agreement Ex.A-1 by which damages of Rs. 50 per tonne is fixed are enforceable in the event of the breach of the agreement. The contention is that in such cases only the reasonable compensation proved by the respondent company is awardable as damages and not the amount stipulated in the agreement. In this connection learned counsel for the appellant also relied upon a Division Bench decision of this court reported in S.K. Nataraja v. Special Officer, Amarvathi Co-operative Sugar Mills, Krishnapurarn 197.3 T.L.N.J. 520, where the Division Bench observed as followed – –
“On the other question of liability under bye-law 39 read with S. 74 of the Contract Act, Sec. 74 will have to be read as a whole. It speaks of the grant of reasonable compensation. But the idea of compensation implies losses. The expression ‘reasonableness’ in S. 74 would mean that, although a higher compensation has been prescribed, it is within the discretion of the Tribunal and court to grant what is reasonable. It may be open to the authorities to stipulate the maximum penalty and what the court can grant should never exceed that limit. In these cases, no attempt has been made by the Tribunal to find whether the Society actually incurred losses and, therefore, is entitled to recover compensation or penalty, as provided by byelaw 39.”
That was a caw arising between the members of it the Amaravathi Co-operative Sugar Mills Ltd. and the Mills regarding a bye-law which lays down that for every share held by a member, he must have at least 2/3 acre of land and supply to the Society the entire sugarcane grown thereon and if any member fads to, supply sugarcane accordingly, the Board shall have power to fine him at the rate of Rs. 25 per every tonne of sugarcane not supplied by him, besides recovering a nonrefundable share deposit of Rs. 2 per every tonne of sugarcane not supplied by him. All the fines imposed under-this bye-law shall be recoverable as debts due to the Society. Evidently, on a reading of the bye-law it is clear that the stipulation of Rs. 25 per tonne is in the nature of penalty and not a pre-estimated damage. In view of this, the Division Bench concluded that the Mills are bound to prove the actual damage before recovering the same as provided in bye-law 39. But in this case, there is a definite agreement to supply sugarcane grown in the lands of the appellant and it was also specifically agreed about the quantity of the tonnage and in, a case of failure to supply, the appellant will pay Rs. 50 per tonne as penalty. Learned counsel for the appellant laid stress on the word ‘penalty’ and contended that a penalty cannot be recovered and that the clause in terrorem will have to be relieved as the same is oppressive. We have to consider whether the amount stipulated or payable on failure to supply in Ex.A-1 is a penalty or a pre-estimated liquidated damage payable to the respondent, in case of failure to supply which again depends upon the terms of the agreement and the circumstances of the case. It is open to the parties to agree ‘upon the amount payable in case of breach and if that amount is not unconscionable then it can only be an estimate of liquidated damages in the event of breach. The terminology is not the criterion but the surrounding circumstances will have to be looked into to see whether the amounts stipulated is in the nature of penalty or pre-ascertained liquidated damage. Unless it is shown by the appellant that the amount fixed in Ex.A-1 viz, Rs. 50 per tonne is unconscionable the only conclusion that can be arrived at is that it is only a pre-estimated liquidated damage payable in case of the breach.’ In the case reported in Special Officer Amaravathi Coop. Mills v. Thirumalswamy, (1973) 2 Mad U 361 Ismail J. as he then was, interpreting a similar sugar factory agreement expressed as follows –
“Having regard to the express language contained in S. 74 of the Contract Act, and the various decisions of the courts, in a case to which S. 74 of the 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.”
In view of the principles laid down in the above decision and in view of the fact that there is no evidence to show that the amount is unconscionable the conclusion of there is no evidence to show that the amount fixed is unconscionable the conclusion of both the courts below that the amount is recoverable is correct in law.
7. The next contention raised on behalf of the appellant is that there is a correction in the agreement Ex.A 1 by which Rs. 25 is scored out and Rs. 50 is substituted instead and as such there is no consensus ad idem between the parties with reference to the quantum of compensation. In the written statement it has not been specifically stated that there is a correction, subsequent to the signing of the agreement Ex.A-1. No proof had been let in with reference to any subsequent correction. In this state of evidence, the findings of both the courts below that the amount agreed upon is Rs. 50 and not Rs. 25 as contended by the appellant is correct.
8. The next question raised on behalf of the appellant is that the suit is barred under the provisions of the Kerala Co-operative Societies Act, and as such the suit ought to have been dismissed. This argument is based upon the arbitration provision contained in the Kerala Co-operative Societies Act. But the contract has been entered into in Tamil Nadu and the same is enforceable in Tamil Nadu. As such with reference to the contract entered into in Tamil Nadu, and enforceable in Tamil Nadu provisions of the Kerala Cooperative Societies Act cannot be applied, Under the circumstances, both the courts below are right in negativing the contention relating to jurisdiction.
9. With reference to interest, taking into consideration the fact that no interest is provided for in the agreement Ex.A-1, the courts below ought not to have awarded interest up to the date of decree, interest can be levied only under the provisions of the Civil P.C. on the amount decreed. In the result the appeal is dismissed subject to the modification with reference to interest by awarding interest on the amount of compensation only from the date of decree till the date of payment. There will be no order as to costs.
10. Order accordingly.