1. The first three plaintiffs are the receivers appointed by defendant 4 bank on 16th July 1938 under its powers in indentures of mortgage and charge dated 7th May 1934 and 16th October 1935, by which Messrs. John King & Co. Ltd. (now in liquidation) charged their assets, including the Victoria Engine Works, Howrah, in favour of the bank. It is convenient hereafter to refer to plaintiffs 1, 2 and 3 as 'the plaintiffs.' No point arises with regard to vesting of the Engine Works in the plaintiffs, nor their right and authority to deal with and dispose of the property, buildings, plant and materials thereupon or to bring the present suit. In September 1939 the plaintiffs invited tenders upon the terms contained in their Conditions of Tender with the Conditions of Contract attached thereto. By letters passing between the plaintiffs and defendants 2 dated 30th September 1939 and 3rd October 1939 and by telephonic conversations between the plaintiffs and defendants 2 as agents for defendant 1, a contract was made between the plaintiffs and defendant 1. In the written statement of the latter the authority of defendants 2 to act and contract as agents for defendant 1 is denied. Mr. S.N. Banerjee, learned Counsel for defendant 1, however, stated at the outset that his client admitted that throughout defendants 2 were agents for defendant 1, and the suit contract was made by them on his client's behalf upon the terms contained in the letters and abovementioned documents. In the plaint, it is alleged that by the suit contract defendant 1 agreed to pay Rs. 80,000 to the plaintiffs and to demolish the structures and buildings erected upon the site of the Victoria Engine Works and to remove the demolished and other materials, which then became his property, the contract to be completed by 28th March 1940. A further sum of Rs. 10,000, as security deposit, was payable with the tender which was to be forfeited, and all materials lying, erected or stored on the premises at the time of breach to be confiscated by the plaintiffs and to become their absolute property in the event of non-compliance by defendant 1 of the Conditions of the Contract. A further term of the contract provided that the ownership of all materials and structures should be vested in the plaintiffs so long as they were lying at the site and would only become defendant l's property after removal.
2. On 4th October 1939, a meeting was held between the representatives of the plaintiffs, defendant land defendants 2, respectively, when it was arranged that in addition defendant 1 should be entitled to remove the several effects set out in a record of the meeting dated 5th October 1939, in addition to the materials covered by the contract. The price of Rs. 80,000 was duly paid, but the security deposit of Rs. 10,000 was not furnished by defendant 1. On 3rd October 1939 the plaintiffs wrote to defendants 2 asking for this sum to be deposited, when the price of Rs. 80,000 was remitted, thirty days after possession was taken by defendant 1, and the letter confirmed that defendants 2's durwans had taken possession of the buildings. On 7th October 1939 defendants 2 replied stating they were calling upon their principals to furnish them with the security deposit. On 2nd November 1989, defendants 2 wrote confirming they would be responsible for realisation and payment to the plaintiffs of the security deposit of Rs. 10,000 in, - the event of the purchaser failing - to fulfil the terms and conditions of sale. The letter continues that in defendants 2's position as agents they had obligations to principals and buyers, and it was a recognised procedure that any amount demanded in the terms of sale by way of extra security deposit should be with held by them as trustees until the due fulfilment of the contract. The plaintiffs replied on 4th November 1939 that they were not agreeable that defendants 2 should hold the security deposit and requested this to be forwarded immediately. Defendants 2 wrote to defendant 1 on 7th November asking for payment of the security deposit with the balance of the purchase price by 17th November 1939, failing which, without further notice, they would proceed to effect a resale of the structures. On 12th January 1940 the plaintiffs wrote to defendants 2 complaining of the removal of scrap, and that unless defendant 1 compensated them for this material already removed and suspended his salvage operations or entered into some acceptable agreement for its purchase, they would be compelled to call upon 'you' for immediate payment of his deposit money. A copy of this letter was forwarded by defendants 2 to defendant 1 on 16th January.
3. On 23rd January the plaintiffs wrote to defendants 2 referring to a meeting on the previous Saturday. They confirmed they were prepared to accept Rs. 1200 for the purchase of the salvage rights of scrap material lying underground on the factory site. This letter appeared to terminate a dispute which had arisen regarding the right of defendant 1 to remove the scrap material from the site of the Engine Works. On 21st March 1940 (seven days before the expiration of the period for completion of the contract) defendants 2 wrote to the plaintiffs stating that it would not be possible to complete the work of clearing the site within the stipulated time and requesting an extension of three months ending June 1940. The letter continued that in view of the fact that the work of demolition had proceeded regularly from the day possession was given to defendant 1 the writers trusted the plaintiffs would see their way to allow the extension, and should they be agreeable 'we' will accept the responsibility in regard to the extra security deposit of Rs. 10,000; and would undertake to be responsible for realization on the plaintiffs' behalf from defendant 1 of such expenses which would probably be incurred by way of municipal taxes.
4. On 6th April 1940 the plaintiffs wrote to defendants 2 that they were prepared to grant an extension up to 31st May 1940 for completion of the demolition of the structures and levelling of the site on the terms that : No further extension would be asked for or granted; the extension would not prejudice their right to call on 'you' for payment to the plaintiffs of Rs. 10,000 security deposit at any time; materials and structures on the site after 31st May 1940 would remain the undisputed property of the plaintiffs; failure to complete by 31st May 1940 would be sufficient grounds to forfeit the Its. 10,000 security deposit; 'your' indemnity in respect of the foreshore land would continue; and 'you' would reimburse the plaintiffs for all expenses which they might incur in consequence of the structures not having been removed by 28th March. Defendants 2 replied by letter on 8th April 1940 that the contents, of the plaintiffs' letter were confirmed. On 27th May 1940 defendants 2 wrote to the plaintiffs asking for a further extension of time to the end of June 1940, to which the plaintiffs replied on 30th May that before they were prepared to consider any further extension, the security deposit of Rs. 10,000 should be forwarded. This request was repeated in another letter from the plaintiffs dated 4th June 1940. Defendants 2 wrote to defendant 1 giving the information received from the plaintiffs and asking for the security deposit to be sent to them two days later.
5. On 10th June 1940, the attorneys for defendant 1 wrote to defendants 2 that before their client made the original offer he was given to understand five months time would be allowed for demolition and removal, and possession of the premises would be afforded to defendant 1 immediately. The transaction was completed on 28th September 1939, and completion was to take place by 28th March 1940. It was a matter of record that possession of only a portion of the buildings was made over on 15th November 1939 and the plaintiffs continued to remain in occupation of a substantial portion of the buildings until the end of April 1940, and some portions still remained in their occupation, and their clients were entitled to have time until the end of September 1940 for completion of the demolition and removal of the materials. A copy of this letter was forwarded to the plaintiffs, and their solicitors wrote to defendants 2 on 15th June 1940 that the allegations in the letter of 10th June were not admitted and payment of the Rs. 10,000 was demanded to be made not later than 18th June. On that date the present suit was filed. The plaint alleges the time for completion, after the extension, expired on 31st May 1940, after which date defendant 1 wrongfully removed materials from the site' and intended to continue such removal, the value of the property so taken was Rs. 5000. The plaintiffs claim, (1) an injunction (a) restraining defendant 1 from demolishing the buildings and structures or removing materials from the site and (b) restraining defendant 1 from entering upon the site, (2) a decree against both defendants for Rupees 10,000, (3) a decree against defendant 1 for Rupees 5000 or alternatively for an account of the value of the property removed after 1st June 1940, and a decree for the amount, and (4) a decree for Rupees 1000, the estimated additional taxes payable by the plaintiffs.
6. In his written statement, so far as is now material, defendant 1 alleges that vacant possession was not given even at the end of April 1940. The question of the security deposit was first raised by the plaintiffs in June 1940. The time to complete the demolition and removal had not expired by 1st June and would not expire before the end of September 1940, and he denied he had committed any breach of the agreement or was not entitled to remove the materials after 1st June, or the value of materials so removed was Rs. 5000. Further, that the forfeiture of Rs. 10,000 security deposit was a penalty, and the plaintiffs were entitled only to reasonable compensation, if any. In their written statement, defendants 2 admit they were agents for defendant 1 and took possession of some of the buildings and structures under the agreement. They acted solely as agents for defendant 1 and denied they are personally liable for the sum of Es, 10,000 and in the event of being held to be responsible for this amount, they claim to be reimbursed by defendant 1.
7. Defendants 2 have made no claim against defendant 1 by way of a suit or by third party procedure, and the reimbursement mentioned in their written statement does not therefore arise. On 19th June 1940, an injunction was granted against defendant 1 restraining the removal of building and materials from the site, which injunction continues up to date. (After referring to the oral evidence in the case, the judgment proceeded.) I come to consider now the claim for Rs. 10,000 against both defendants. As against defendant 1, the claim is that under the contract he was to pay Rs. 10,000 as security deposit, which was to be forfeited upon breach by him of a condition. Having failed to complete the demolition and removal by 31st May 1940, after an extension of time from 28th March 1940 (the date provided in the contract) there was a breach of the contract condition entitling the plaintiffs to forfeit the security deposit. This security deposit was not paid, as the contract required, and is now recoverable by the plaintiffs. The claim against defendants 2 is under two agreements made in November 1939 and April 1940, in which they agreed personally to be responsible for payment of the security deposit and are now liable for this sum upon the failure of defendant 1 to complete his contract on the due date.
8. The contract between the plaintiffs and defendant 1 was upon the terms contained in the tender form and the conditions of sale attached thereto and in the two letters dated 30th September and 3rd October 1939. The material terms are as follows : (1) All tenders should be accompanied by a security deposit of Rs. 10,000. (2) Defendant 1 to carry out the work of demolition strictly in accordance with the terms and conditions of the contract. (3) In the event of non-compliance with the conditions of the contract by defendant 1, the plaintiffs should have the right to forfeit the security deposit and in addition, to confiscate all materials lying, erected or stored on the premises at the time of the breach which again should become the absolute property of the plaintiffs, without any claim thereto by defendant 1. (4) The ownership of all materials in the buildings and structures to be demolished should be vested in the plaintiffs so long as such materials are lying on the site and to become the property of defendant 1 after removal from the site. (5) The work to be completed by 28th March 1940. (6) Defendant 1 to pay the plaintiffs Rs. 80,000.
9. Mr. Banerji contended that term 3 shows that upon the making of the contract the property in all structures and materials passed to defendant 1, as it was provided that in the event of a breach by him the materials then upon the site should be confiscated and again become the property of the plaintiffs. This, he argued, indicated that from the making of the contract the materials belonged to defendant 1, otherwise they could not again become the plaintiffs' property. This term, he said, is at variance with the provisions in term 4, which comes later in the contract and should be ignored as having no effect. In my opinion, this is not correct. Term 3 is subject to term 4, by which the property in the materials remained in the plaintiffs until removal. Term 3 makes it clear that after the breach by defendant 1 he had no right to remove the materials in order to perfect his title. Beading these two terms together, the contract provides that the ownership or property in the materials remained with the plaintiffs until actually removed by defendant 1 and he could not perfect his title to materials not removed by the specified date. Whilst term 1 provides that the security deposit should accompany the tender, the suit contract having been made upon the terms contained in the tender form in which this provision appears, the sum of Rs. 10,000 was payable by defendant 1 to the plaintiffs as security deposit upon the making of the agreement. In para. 2 of his written statement defendant 1 alleges that he purchased the structures lying on the site, and there can be no doubt that the suit contract was for the sale of the structures and materials as well as for the work of demolition. The property in the materials did not pass under the contract until the buildings were demolished and the materials removed. The sum of Rs. 10,000 was payable in addition to the contract price of Rs. 80,000, and it was expressed to be a security deposit. It was a guarantee that defendant 1 would carry out his part of the contract and as a form of earnest to show he meant business.
10. The date of completion under the contract was 28th March 1940, which was subsequently extended to 31st May 1940. It has not been contended that this extension affected the plaintiffs' right of forfeiture, nor that time was not the essence of the contract. Further, it is not disputed that defendant 1 failed to demolish and remove all the structures and materials by 31st May 1940. Whilst defendant 1 did not pay the security deposit as the contract required, his failure to do so cannot affect the question whether the plaintiffs are entitled to recover or to forfeit the sum of Rs. 10,000. Defendant 1 cannot be in a better position by reason of his own default than if he had fulfilled his obligations see Dewar v. Mintoft (1912) 2 K.B. 373. The claim by the plaintiffs for Rs. 10,000 and the question whether the security deposit is forfeitable can therefore be approached in the same way as if it had been paid to and retained by the plaintiffs and defendant 1 was claiming its return. Defendant 1 relies upon Section 74, Contract Act, which provides as follows:
When a contract has been broken, if a sum is named in the contract as the amount to be paid in the 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.
11. The argument against the plaintiffs' claim is that the sum of Rs. 10,000 is a penalty, and under Section 74 the plaintiffs can recover only reasonable compensation for the breach by defendant 1 to complete the demolition and removal. In the plaint no damage is alleged to have been sustained and no claim as such is made, and as no loss has been proved, consequently the claim must fail. In support of this argument, three decisions of the Judicial Committee were cited. In Bhai Panna Singh v. Arjun Singh Bhajan Singh ('29) 16 A.I.R. 1929 P.C. 179 there was a contract for the sale of a serai in Peshawar, which provided that the party retracting from the contract should pay Rs. 10,000 as damages. The purchasers were held to be in default and the sellers sought to recover this sum. In the judgment at p. 951 their Lordships of the Privy Council said:
The effect of the Indian Contract Act of 1872, Section 74, is to disentitle the plaintiffs to recover simpliciter the sum of Rs. 10,000 whether as penalty or liquidated damages. The plaintiffs must prove the damages they have suffered.
12. The evidence was that Rs. 1000 was the loss which was treated as the sum to which the plaintiffs were entitled, subject to setting off a sum of Rs. 500 earnest money. In Kilmer v. British Columbia Orchard Lands Ltd. (1913) 1913 A.C. 319, payment of the purchase price was to be by instalments in a contract for the sale of land. Upon default of any instalment the agreement was to be null and void and all payments made were to be forfeited to the vendor. It was pointed out that this provision became more and more severe as the agreement approached completion and the money liable to confiscation became larger. The defaulting purchaser was relieved from what was held to be a penalty. In both these two cases no sum was payable as earnest money or as security or guarantee for performance of the contract. In the first case, the sum of Rupees 10,000 was payable as damages for the breach, and in the second case the instalment payments towards the purchase price became forfeitable. In Banku Behari Dhur v. J.C. Galstaun ('22) 9 A.I.R. 1922 P.C. 339 by Clause G of a contract the respondent was to accept the title to some property upon the appellant making out a marketable title thereto, and if the purchase was not completed within one month thereof the interest upon the part of the principal money secured by. a mortgage and further charges should cease to run and the respondent should be deemed to be the owner of the property, subject to the charges and mortgage in Clause A of the contract, as well as to all existing encumbrances. The appellant did not make out a marketable title and could not therefore enforce the provisions in Clause G. At p. 82 their Lordships observed that they thought that even if he had not been in default and the provision in Clause G might be regarded as one in the nature of a penalty, the appellant had not made out any loss. In this case again, there was nothing paid as security deposit or as earnest or guarantee for the performance of the contract, which was to be forfeited upon the failure to make performance.
13. In Howe v. Smith (1884) 27 Ch. D. 89 500 was paid as deposit and part payment of the purchase money. The purchaser failed to complete by the contract date and the vendors sold to someone else. The purchaser sued for specific performance, which was refused, and for the return of his deposit. It was held that the deposit, being in the nature of a guarantee, was forfeited and should not be returned. Fry L.J. observed; 'It (the deposit) is not merely a part payment, but is then also an earnest to bind the bargain.' This decision was referred to with approval and applied by the Judicial Committee in Mayson v. Clouet (1924) 1924 A.C. 980. In Manian Patter v. Madras Railway Co. ('06) 29 Mad. 118 it was held that neither Section 74, Contract Act, nor the principles of law laid down in decisions dealing with promises to pay specified sums upon a breach of contract apply to cases of forfeiture of deposits for breach of stipulations even when some of them are but trifling while others are not, and the forfeiture of a sum deposited as security for performance will not be interfered with, if reasonable m amount. This decision was referred to with approval by a Division Bench of this Court in Singer Manufacturing Co. v. Raja Prosad ('09) 36 Cal. 960 in which Rs. 20 was paid upon the making of a hire purchase agreement for a sewing machine, for which monthly instalments of Rs. 5 were payable until Rs. 145 had been paid, when the deposit of Rs. 20 would be credited to the hirer and the machine would become his property. The contract provided that if the hiring was terminated by the hirer and/or the machine returned to the owner, the hirer should not be entitled to the credit or return of any money paid by him. The hirer defaulted, Later, the machine was returned to the owners. It was held that the owners were entitled to forfeit the deposit of Rs. 20 the amount not being unreasonable. Natesa Aiyer v. Appavu Padayachi ('15) 2 A.I.R. 1915 Mad. 896 followed the decision in Manian Patter v. Madras Railway Co. ('06) 29 Mad. 118.
14. In my opinion, the three decisions of the Judicial Committee cited by Mr. Banerji do not cover the present case. In none of them was a deposit made to secure or guarantee the performance of a contract. In all the other cases to which reference has been made, particularly in Howe v. Smith (1884) 27 Ch. D. 89, which the Judicial Committee referred to with approval in Mayson v. Clouet (1924) 1924 A.C. 980 it was held that a deposit in the nature of a guarantee for performance of a contract is forfeitable upon default made by the depositor, and in the Indian oases the forfeiture was held to be justified if the amount was reasonable or not unreasonable. In my view, these oases are in point and cover the present case. The sum of Rs. 10,000 was expressly agreed to be a payment as a security deposit. It was by way of guarantee and to show the earnestness of defendant 1 to complete his part of the contract. The price payable under the agreement was Rs. 80,000 and the subject-matter of the contract was considerable. Substantial buildings and structures upon a large site were to be demolished and the materials removed. The original time for completion was six months, later extended to eight months, indicating the extent of the subject-matter. I do not think that Rs. 10,000 in all the circumstances was an unreasonable sum as security by way of guarantee for due performance by defendant 1 nor that the right to confiscate unremoved materials makes the provisions unreasonable. I hold that the provisions of Section 74, Contract Act, do not apply, and the plaintiffs are entitled to recover from defendant 1 the sum of Rs. 10,000 which had it been deposited as the contract required, the plaintiffs would have been entitled to forfeit for defendant 1's failure to complete the contract within time.
15. The claim for Rs. 10,000 against defendants 2 is on the ground, as stated earlier, that in November 1939 they agreed to be responsible for the realisation of payment of this sum if defendant 1 failed to fulfil the terms of his contract, and further under an agreement contained in two letters dated 6th and 8th April 1940. No question arises of an oral contract by which the plaintiffs are entitled to recover against defendants 2. Learned counsel, for the plaintiffs conceded that the only contract in November upon which he could rely must be obtained from letters passing between the plaintiffs and defendants 2 dated 2nd and 4th November. In the first letter defendants 2 wrote that they confirm they would be responsible for realization and payment to the plaintiffs of the security, deposit of Rs. 10,000 in the event of the purchaser failing to fulfil the terms and conditions of same, and that as agents defendants 2. had obligations both to principals and buyers, and that any extra security deposit should be held by them as trustees. This was an offer which defendants 2 made to the plaintiffs. The plaintiffs replied on 4th November. They recorded they were not agreeable that defendants 2 should hold the security deposit and requested it to be forwarded to the plaintiffs immediately. The offer by defendants 2 was therefore not accepted. Consequently, there was no contract at this time between the plaintiffs and defendants 2 and no obligation fell upon the latter to pay Rs. 10,000 to the plaintiffs and the plaintiffs therefore had no right to call upon them to make such payment. Between November 1939 and April 1940 there is no question that the plaintiffs acquired any right to call upon defendants 2 to pay to them Rs. 10,000 the security deposit. On 6th April 1940, the plaintiffs wrote to defendants 2 setting out the terms upon which the time to complete the work under the contract between themselves and defendant 1 would be extended to 31st May 1940. These terms were accepted by defendants 2 in their letter of 8th April 1940, defendants 2 at that time being the agents for defendant 1. Para. 2 of the plaintiffs' letter of 6th April reads as follows : 'The extension of time will not prejudice our right to call on you 'for payment to us of the Rs. 10,000 security deposit at any time'.'
16. This provision presupposes that at the date the letter was written the plaintiffs had a right to look to defendants 2 for payment, which existing right was not to be prejudiced. There was no such existing right, as no concluded contract was made in November 1939 under which defendants 2 were under an obligation to make the payment of Rs. 10,000 and no right had been acquired subsequently. At the date this letter was written, the plaintiffs were solely entitled to look to defendant 1 alone for payment of this sum under the contract with him, but they had not a similar right which they could exercise against defendants 2. The words which I have quoted above do not, in my view, create a new obligation by defendants 2 to pay Rs. 10,000 to the plaintiffs but retain the existing right enforceable against defendant 1. In my opinion, and I hold, there was no contract either in November 1939 or in April 1940 by which defendants 2 were to pay Rs. 10,000 to the plaintiffs upon the failure by defendant 1 to carry out the terms of his agreement.
17. The next matter for consideration is whether the plaintiffs are entitled to an injunction. The site of the Victoria Engine Works is in Howrah, which is outside the original jurisdiction of this Court. It is contended therefore that an injunction cannot be granted, as it affects the proprietary and possessory title to land outside the jurisdiction and is therefore a suit for land within Clause 12 of the Letters Patent of 1865. The case in Goculdas v. Chaganlal ('27) 14 A.I.R. 1927 was cited in support of this contention. Learned Counsel for the plaintiffs abandoned the claim to an injunction restraining defendant 1 from entering upon the site and stated that his clients would restrict their claim to part of the injunction sought in para. 1 of the plaint, namely, to restrain defendant 1, his servants or agents from removing any materials whatsoever from the site. This being so, there is nothing in the pleadings raising an issue as to the plaintiffs' title. Under the terms of the contract, when defendant 1 failed to complete the contract by 31st May 1940, he had no longer any right to remove the materials after that date, and the property in them remained with the plaintiffs and could not be acquired or passed to defendant 1. The claim to an injunction which is now sought is not a suit for land outside the jurisdiction, although the materials are lying on such land, the object being to prevent defendant 1 from taking moveable property belonging to the plaintiffs. The statements in the affidavit of Tulsiram Shaw, to which reference has been made, are admissions that defendant 1 had removed materials after 31st May, which he had no right to do, and an assertion that those materials were his property. This justified the application for, and the grant of, the interim injunction, although the injunction which was granted was wider in its terms than that which is now sought. In my view, the plaintiffs are entitled to the relief which they now seek. No other grounds by way of want of jurisdiction were urged against the injunction being granted.
18. As pointed out already, there is no evidence of the value of the materials removed after 31st May 1940, nor any grounds justifying a direction for an account to be taken. Further, there is also no evidence that the sum of Rs. 1000 or any sum was paid or is a liability of the plaintiffs for additional taxes payable in consequence of the extension of the time for completion of the contract. There will be a decree in favour of the plaintiffs against defendant 1 for an injunction restraining him, his servants or agents from removing any materials belonging to the plaintiff from the site of the Victoria Engine Works, Howrah, and for the sum of Rs. 10,000, with interest at the rate of 6 per cent, together with the costs of the suit, which will carry interest at the same rate from taxation. Defendants 2 are dismissed from the suit with costs against the plaintiffs, with a like order a3 to interest. All other claims fail and are dismissed, but without costs. Certificate for two counsel for all parties.