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Anand Construction Works Vs. the State of Bihar - Court Judgment

LegalCrystal Citation
SubjectContract
CourtKolkata High Court
Decided On
Case NumberCommercial Cause Suit No. 3034 of 1947
Judge
Reported inAIR1973Cal550
ActsContract Act, 1872 - Sections 55 and 74
AppellantAnand Construction Works
RespondentThe State of Bihar
Advocates:Sinha, Adv.
DispositionSuit dismissed
Cases ReferredMoula Bux v. Union of India
Excerpt:
- orderramendra mohan datta, j.1. this is a suit for the recovery of a sum of rs. 10,977/- which has been deducted by the then province of bihar from the plaintiff's bill in accordance with the conditions of a tender for the supply of stones, stone metals and gravel to the defendant for the purpose of repair and construction of certain portions of grant trunk road. the tender was accepted by the public works department of the then province of bihar.2. the said tender, inter alia, provided the following clauses in the conditions of contract:'2. the contractor is to deliver the materials on or before the dates mentioned in the tender, failing which he shall be subject to pay or allow one per cent. on the total amount of the contract for every day not exceeding ten days that he shall exceed.....
Judgment:
ORDER

Ramendra Mohan Datta, J.

1. This is a suit for the recovery of a sum of Rs. 10,977/- which has been deducted by the then Province of Bihar from the plaintiff's bill in accordance with the conditions of a tender for the supply of stones, stone metals and gravel to the defendant for the purpose of repair and construction of certain portions of Grant Trunk Road. The tender was accepted by the Public Works Department of the then province of Bihar.

2. The said tender, inter alia, provided the following clauses in the conditions of contract:

'2. The contractor is to deliver the materials on or before the dates mentioned in the Tender, failing which he shall be subject to pay or allow one per cent. On the total amount of the contract for every day not exceeding ten days that he shall exceed his time as liquidated damages.

3. In every case in which the payment or allowances mentioned in Clause 2 shall have been incurred for ten consecutive days, the Executive Engineer shall have power either to annul the contract altogether, or to have the supply completed without further notice at the contractor's risk and expense as he may deem best suited to the interests of Government, and the contractor shall have no claim to compensation for any loss that he may incur in any way.

4. If the contractor shall be hindered in the supply of the materials so as to necessitate an extension of the time allowed in this Tender, he shall apply in writing to the Executive Engineer, who shall grant it in writing if reasonable grounds be shown for it and without such written authority of the Executive Engineer, the Contractor shall not claim exemption from the damages leviable under Clause 2.'

3. The materials were to be delivered on or before June 30, 1946 under the said contract. Sometime prior to the expiry of the said date of delivery the plaintiff applied in writing for extension on the ground that there were hindrances in the supply of the materials because of want of transport. The plaintiff states that the defendant allowed the time for delivery to expire but did not grant any extension in writing. The defendant by its conduct induced the plaintiff to effect delivery of the materials on the assurance of extending the time for such delivery. By a letter dated November 21, 1944 the plaintiff was informed that the Additional Chief Engineer had refused to grant the plaintiff any extension of time. By another letter dated November 25, 1944 the previous letter dated November 21. 1944 was cancelled. The plaintiff continued performance of the agreement on the basis that the time for the completion of the works thereunder had not expired and the defendant accepted the benefit of such performance of the agreement by the plaintiff.

4. The plaintiff states that the failure of the Executive Engineer to extend time is wrongful, arbitrary and ineffective and that the agreement between the parties with all its terms and conditions excepting the time for completion of the work thereunder remained in force and subsisting. The plaintiff has pleaded that the defendant is estopped from denying that the time for completion of works under the contract has not been extended. In any event the plaintiff states that such time has been extended by mutual agreement which has to be inferred from the conduct and course of dealings between the parties. The plaintiff states further that the provision for deducting one per cent, of the total amount of the contract for every day not exceeding 10 days, is by way of penalty and is not enforceable in law. Accordingly, deductions from the plaintiff's bill to the extent of Rs. 10,977/- as such liquidated damages is wrongful. The defendant has refused to pay or to return the said amount to the plaintiff.

5. The plaintiff has pleaded an alterative case to the effect that should the Court hold that there was valid termination or annulment of the contract by the defendant as from 30th June, 1944, the plaintiff will contend that in that event the plaintiff is entitled to be paid for the said materials supplied by the plaintiff to the defendant after 30th June, 1944 at a fair and reasonable rate under the circumstances under which the materials were supplied after that date. On that basis the plaintiff has claimed an extra sum of Rupees 4-12 as per hundred cft. per mile over and above the amount which was paid by the plaintiff. On that basis the plaintiff has claimed a sum of Rs. 1,19,500/- as money due and owing by the defendant to the plaintiff. The plaintiff has claimed the said amount by way of compensation by pleading the provisions of Section 70 of the Indian Contract Act.

6. In the written statement the defendant states that the plaintiff agreed to allow the defendant to deduct and retain the said amount by way of liquidated damages. The plaintiff failed and neglected to complete its part of the said contract by 30th June, 1944 and requested the defendant to extend the time of such completion till the end of December, 1944. The defendant did not accede to such request. The defendant has denied that the plaintiff was hindered in the supply of materials or that the said alleged hindrance necessitated an application for extension of time as alleged by the plaintiff. The allegations of extension of time by mutual agreement or as to estoppel have been denied by the defendant. The defendant has ultimately deducted the said sum of Rs. 10,977/- by way of liquidated damages in terms of the said contract.

7. The alternative case as made out in the plaint has also been denied and the defendant has denied its liability to pay any sum by way of compensation under Section 70 of the Indian Contract Act.

8. The following issues were settled at the trial:

1. Was there any reasonable ground for extension of time? If so, was the Executive Engineer bound to grant such extension?

2. Was the failure on the part of the Executive Engineer to extend the time wrongful or arbitrary or ineffective as alleged in paragraph 12 of the plaint?

3. Was the time extended by mutual agreement which was to be inferred from the conduct and course of dealings between the parties?

4. Was the defendant estopped from denying that the time for completion of the work under the contract had not been extended?

5 (a) Was the provision in the contract for deduction of one per cent of the total amount of the contract for every day not exceeding 10 days by way of liquidated damages enforceable in law?

(b) Was such provision in the contract a penalty or liquidated damages?

6. To what relief, if any, is the plaintiff entitled?

On May 22, 1973 at the hearing of the suit on behalf of the defendant, an additional issue was suggested on the question of jurisdiction of this Court as follows:

'Has this Court jurisdiction to try or entertain the suit?

9. Subsequently, however, on May 24, 1973 this issue was not pressed on behalf of the defendant in view of the fact that the point was found to be of no substance. The documents which are tendered in evidence show that the contract was actually entered into at Calcutta and accordingly, this issue is decided in favour of the plaintiff and it is held that this Court has jurisdiction to try and to entertain the suit.

10. On the issues as to extension of time the documentary evidence shows that by his letter dated December. 30. 1943 the Executive Engineer intimated that the supply will have to be completed within six months from 1st January, 1944. From the extract of the memorandum dated January 3, 1944 from the Additional Chief Engineer to the Executive Engineer it appears that preference was decided to be given to contractors using motor trucks and no extension would be given for non-availability of cars. By its letter dated January 22, 1944 the plaintiff wrote to the Provincial Transport Controller through the Executive Engineer for five trucks for transport of the materials. By its letter dated January 24, 1944 the plaintiff requested the Executive Engineer to arrange for the purchase by the plaintiff of 20 motor trucks. By his letter dated February 11, 1944 the plaintiff requested the Provincial Motor Transport Controller, Bihar for release of five lease/land chassis and asked for requisite order to enable the plaintiff to acquire the same. The Executive Engineer required the plaintiff to make a formal application for lease/loud trucks to the Provincial Motor Transport Corporation and to submit the same through his office. The plaintiff thereupon wrote to the said authority to arrange for 20 motor trucks under the lease/lend terms. The Additional Chief Engineer recommended to the said authority that the terms for the purchase of 15 trucks might be issued in favour of the plaintiff. On March 18, 1944 the Executive Engineer wrote to the plaintiff complaining about non-delivery of any material and threatened to take action according to Clause 3 of the conditions of contract. By its letter dated March 23, 1944 the plaintiff asked the Executive Engineer to withdraw the above notice. By his letter dated March 31, 1944 the Executive Engineer intimated the plaintiff that in the contract there was no stipulation that trucks were to be arranged for by his department. The plaintiff thereupon asked for accommodation by supplying lease/lend trucks and thereupon the Executive Engineer duly helped the plaintiff in all possible manner to enable it to secure trucks. By his letter dated May 9, 1944 the Executive Engineer recorded its complaint that during the first three months no attempt was made to start the work. By his letter dated May 19, 1944 the Executive Engineer wrote to the plaintiff to the effect that the progress report ending 30th April showed that progress was practically nil. He further intimated that no extension would be granted. On May 31, 1944 the Executive Engineer wrote to the plaintiff that failing completion of supply, penalty would be imposed on the plaintiff under the terms of the contract. By the 3rd June letter the plaintiff asked for favourable consideration of the difficulties referred to therein and to grant extension of time as might be required for fulfilment of the remaining portion of the job.

11. Then came the letter from the plaintiff on June 21, 1944 asking for extension of time to complete the work. By his letter dated June 27, 1944 the plaintiff was intimated by the Provincial Motor Transport Controller that no lease/lend trucks would be sold to them. On July 4, 1944 the plaintiff was paid a sum of Rs. 5,455/- on the first running bill. By his letter dated July 5, 1944 the Executive Engineer wrote to the plaintiff to intimate him the specified time for which the plaintiff wanted extension for the completion of the works. On August 1, 1944 the plaintiff was paid a further sum of Rs. 855/- and on August 30, 1944 another sum of Rs. 13,005/- was paid.

12. Then followed another chapter when the plaintiff by his letter dated August 31, 1944 intimated the Executive Engineer that due to heavy rains roads became impassable and the plaintiff was compelled to return the lorries to the owners. The plaintiff returned the balance of the petrol coupons for 574 gallons.

13. By his letter dated 9th October. 1944 the Executive Engineer asked the plaintiff to show cause why the liquidated damages should not be imposed upon the plaintiff under Clause 2 of the conditions of contract. By his letter dated 21st November, 1944 the Executive Engineer intimated the plaintiff that the Additional Chief Engineer (Military Works) had refused to grant any extension. As stated above this letter was cancelled by the Additional Chief Engineer's (Military Works) letter dated November 25, 1944 and the Executive Engineer's letter dated 1st December, 1944. By his letter dated December 11, 1944 the Executive Engineer asked the plaintiff to arrange to expedite completion of the works. By his letter dated December 18, 1944 the Executive Engineer intimated the plaintiff that further supplies of the required quantities of materials would be completed at the plaintiff's expenses through other contractors.

14. Finally, by his letter dated February 10, 1945 the Executive Engineer wrote to the plaintiff annulling the contract under Clause 3. Thereafter what happened is not material for this case except that on June 8, 1945 the defendant prepared the final bill of the plaintiff showing deduction of Rs. 10,977/-under Clause 2 of the conditions of contract. In November 1947 the present suit was filed.

15. The plaintiff called as a witness one Mulchand Chaudhuri who at the relevant point of time worked with the plaintiff between 1943 and 1946. He was examined on commission in September, 1958 when he was posted as the Executive Engineer, Rour-kela Steel Project.

16. According to the witness, to carry about 5,50,000 cft. of materials for an average lead of 11 miles by bullock carts was an impossible affair. A bullock cart can make hardly one trip per day. A bullock cart can hardly carry 10 cft. of stone metals which amounts to near about 20 mounds. So in carrying 5,50,000 cft. 50.000 bullock carts would be required and if 25 days in a month would be taken as the working days, and if bullock carts are available, it will require 3,670 bullock carts to complete the job within six months. It was not a practical proposition since so many bullock carts could never be made available in the nearabout villages. Hence the only way to carry the materials was by trucks. According to him the Executive Engineer, Mr. Bhaduri was quite aware of the difficulties from the very beginning when trucks were applied for through him. He forwarded the application with his recommendation. He knew that it was not possible to complete the works by using a fleet of 10 trucks for months together. He told the plaintiff firm that they must complete the job and he promised that whatever time would be required for completing the job that would be arranged and extension could be granted for that.

17. Upto 30th June, 1944 work was in progress and by that time some materials were supplied. Even though it was not possible to carry the material by bullock carts but still some bullock carts were engaged and materials were carried on the road-side even after 30th June. Payment were received even after 30th June, 1944. There was no question of cancelling or stopping of work. Everybody knew that the work could not have been completed within 30th June on that basis the work was being done even after 30th June as the Eecutive Engineer assured the plaintiff that the time would be extended and the work was continued until it was stopped later on. In or about the end of August before the work was suspended due to rains the witness accompanied the Executive Engineer and went up to the quarry and inspected the condition of the road and it was found that by no means the work could be continued till the rainy season was over and accordingly whatever petrol coupons were issued for trucks the same were returned to the said Executive Engineer. There was no refusal for extension of time. There was no question of payment of liquidated damages. The Government paid all the bills after 30th June without deducting any liquidated damages. The said Executive Engineer told the plaintiff many times that since the work had been hindered due to non-availability of trucks which were being controlled by the Govt. there must be extension of time but that was to be decided after the work was completed and it would be regularised at that time. He was personally of the opinion that the extension should continue.

18. In answer to questions 325 and 326 the witness said that though extension was not granted in writing but it was clearly understood with the Executive Engineer that the work would have to be completed as the time was considered extended and only final date would have to be communicated in writing and until then the plaintiff should continue with the work. Accordingly, the work was continued until the letter dated 18th December, 1944 was received. In answer to question 427 which was put in cross-examination the witness said that the plaintiff was not getting trucks for transporting the materials which were held up mostly for want of trucks. At no point of time the permission for purchasing the same had been given. In answer to question 532 the witness said that a large quantity of materials were already collected at the quarry site but the same could not be transported for want of trucks. In question 717 the witness said, the plaintiff was more or less definite that extension of time would be granted and in fact there were verbal assurances from the Executive Engineer many times that extension would be a formal matter and would be so granted. At that time transport was under the control of the Government and only through the recommendation of the Executive Engineer transport was available and as such the said Executive Engineer in performance of his duty was trying to help the plaintiff. It was not correct to say that he was going out of his way to help the plaintiff. The witness admitted that the Executive Engineer had no liability under the terms of the contract to supply trucks. Mr. Bhaduri was one of the recommending authorities through whose recommendation trucks were received (Questions 737 and 738).

19. In answer to question 995 the witness admitted that no extension was granted in writing but the same was granted by action. By action he meant that the plaintiff was allowed to continue the work. In question 1005 he was asked that there was no extension because the provision for extension had not been complied with and he answered that extension was granted by action and the date of completion became at large and therefore the date could not be fixed.

20. The defendant called one Brahmeshwar Dayal. He was an Executive Engineer in 1945. He relieved Mr. J. N. Bhaduri as Executive Engineer, Patna Division. He deposed that to his knowledge Sri Bhaduri was not alive at the date when the witness gave his evidence. He has proved certain correspondence for which he was responsible at the relevant time. He was the author of the letter dated 5th December, 1945. According to him the reason why the said sum of Rs. 10,977/- was retained by the Government was mentioned in that letter. By that letter it was made clear that no extra rate was payable to the plaintiff in respect of materials collected after 30th June, 1944.

21. His evidence was given on the basis of the letters that were written by him to the plaintiff and he practically remembered nothing except what was written in his letters. Accordingly, it would be of little use in dealing with his evidence in detail.

22. From the evidence on record both oral and documentary I am convinced that the plaintiff was told from the very beginning that delivery was to be effected by 30th June, 1944. It might be that the plaintiff was inconvenienced for want of sufficient number of trucks; but to enter into such a venture without possessing any means of transport was not what was desired by the parties while entering into the said contract. It was made clear that the responsibility to provide for transport of the materials lay with the plaintiff and the defendant was not responsible for the same. The then Executive Engineer Mr. Bhaduri rendered all possible help and assistance to the plaintiff to secure trucks but if the plaintiff failed to secure such trucks the plaintiff could not blame the Government for such failure. It is true that the plaintiff went on supplying the materials even after 30th June, 1944 and the defendant did not raise any objection in respect thereto but that by itself could not suggest that there was extension in terms of the contract. There is an express provision for such extension. Even though the defendant allowed the plaintiff to supply the materials after the due date yet that did not by itself amount to extension of time to perform the contract.

23. To my mind, to constitute an extension of time under this contract firstly, the contractor must be hindered in the supply of materials; secondly, the hindrance must be of such a nature that it would necessitate an extension of time, thirdly, the contractor under such circumstances must apply in writing to the Executive Engineer; fourthly, the contractor must make out reasonable ground for such extension and fifthly, if such reasonable grounds would be shown then the Executive Engineer would be obliged to grant an extension in writing. In this case all that had been done to get an extension was that the contractor applied in writing to the Executive Engineer and even there no time was mentioned till when such extension was required. This is not a case where the contractor intimated the Government that if such extension in writing would not be granted then the contractor would not be obliged to supply the materials any further,

24. Be that as it may, we are not concerned here to find out whether there was an extension of time for the purpose of the performance of the contract. The question of extension of time becomes material here for the purpose of considering whether the contractor would be entitled to claim exemption from the damages which were levied under Clause 2 of the conditions of contract. This is not a case of damages for breach of contract. This is a case primarily based on the facts that the Government was bound to grant the extension in writing and on that basis the contractor was entitled to claim exemption from the liquidated damages as provided under Clause 2. Even the alternative case is not made out on the basis of breach of contract but under Section 70 of the Indian Contract Act.

25. The plaintiff's cause of action is based mainly on the plea of estoppel. As the pleadings suggest, although the time for the completion of the supply of goods mentioned in the agreement expired the defendant stood by and through its officers allowed and encouraged the plaintiff to continue the performance of the agreement on the basis that the time had been and/or would be extended, and by acts and omissions led the plaintiff to believe that the contracts subsisted and to act on such belief to its prejudice. On the evidence before me I am inclined to hold that the Government not only did not put an end to or annul the contract on the due date of delivery but did not disallow the contractor to deliver the goods in performance of the contract. The plaintiff having delivered some materials in performance of the contract under such circumstances was entitled to payment under the contract and has actually received such payment under the contract. Had it been a case of non-payment of the money payable in respect of the materials delivered under the contract the plea of estoppel would have held good even though there was no written extension of time. But in this case the Government nevermade any representation either expressly orby conduct that Clause 2 of the conditionsof contract would not be enforced. On thecontrary it is an express stipulation in theconditions of contract that liquidateddamages, as mentioned therein,would be payable by the contractorfor non-performance of the contractwithin 30th June, 1944 and further that theonly way the contractor would claim anexemption was on the basis of the writtenextension of time as provided under Clause 4of the conditions of contract. Moreover, thedocumentary evidence would clearly suggestthat the Government repeatedly intimated thecontractor that liquidated damages would belevied under Clause 2 if the materials wouldact be delivered within 30th June. There isno pleading of estoppel on that basis. Admittedly, the supply of materials was not completed within 30th June, 1944. Admittedly,there was no extension in writing. Admittedly, as agreed to between the parties theplaintiff could not claim exemption from theliquidated damages for want of written authority.

26. It is argued that the Executive Engineer was bound to grant such extension because there were reasonable grounds for such extension of time. In the facts of this case it might be that the plaintiff had been hindered in the supply of the materials, to some extent, but such hindrance could not be said to be of such magnitude so as to necessitate an extension of time because the grounds made out for such extension were not such that it would make it absolutely obligatory on the part of the Executive Engineer to grant such extension in writing,

27. It is next argued that the clause relating to liquidated damages amounts to penalty and the recovery thereof is not enforceable in law. To examine this point it is necessary, in the first instance, to examine the provision of Section 55 of the Indian Contract Act which provides as follows: Section 55:

'When a party to a contract promises to do a certain thing at or before a specified time, or certain things at or before specified times, and fails to do any such thing at or before the specified time, the contract, or so much of it as has not been performed, becomes voidable at the option of the promisee, if the intention of the parties was that time should be of the essence of the contract.

If it was not the intention of the parties that time should be of the essence of the contract, the contract does not become voidable by the failure to do such thing at or before the specified time; but the promisee is entitled to compensation from the promisor for any loss occasioned to him by such failure.

If, in case of a contract voidable on account of the promisor's failure to perform his promise at the time agreed, the promisee accepts performance of such promise at any time other than that agreed, the promisee cannot claim compensation for any loss occasioned by the non-performance of the promise at the time agreed, unless, at the time of such acceptance, he gives notice to the promisor of his intention to do so.'

This is not a case where time was of the essence of the contract. The said Clause 4 of the conditions of contract itself provides for extension of time. The admitted position is that time was not of the essence of the contract. Accordingly, the second paragraph of Section 55 would apply in this case and the contract does not become voidable by the failure to deliver the goods on June 30, 1944. It follows that without annulling the contract the Government could ask for compensation in terms of Clause 2 of the conditions of contract and at the same time allow the contract to be performed. It is clear that Clause 2 of the conditions of contract is a clause which can be enforced without annulling the contract as provided under Clause 3. The question of extension comes in for the purpose of claiming an exemption from liquidated damages imposed under Clause 2, The third paragraph of Section 55 is not applicable in this case because time was not of the essence of the contract and accordingly, compensation as provided under Clause 2 of the said conditions of contract remains unaffected and valid in spite of the performance of the contract to some extent and becomes legally recoverable.

28. As to whether the amount of Rs. 10,977/- is payable by way of liquidated damages or whether the same is not recoverable as penalty would depend on the construction of the provision of Section 74 of the Indian Contract Act which provides as follows:

'74. 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 hereby, 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 a stipulation by way of penalty.

Exception.-- When any person enters into any bail-bond, recognizance 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 entered 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.'

29. Mr. Sinha on behalf of the plaintiff contends that the reasonable compensation which is provided in the above section is a matter of proof and in the absence of such proof no amount is payable and accordingly, the said sum of Rs. 10,977/- which has been recovered from the last bill of the plaintiff has been so recovered wrongfully and the defendant is liable to pay the said sum to the plaintiff. According to Mr. Ghose's contention made on behalf of the Government there is no distinction between penalty and liquidated damages in India and 'the amount is recoverable if it would not exceed the amount mentioned in the contract because the parties themselves had foreseen that by the breach of the contract such amount would be the reasonable compensation:

30. To my mind it is no good saying that the matter is absolutely free from difficulty. The amendment of the section has created a good deal of confusion in its language. The section provides that reasonable compensation is payable. It provides at the same time, that such reasonable compensation would be receivable whether or not actual damage or loss is proved to have been caused by the breach. If it is a case of reasonable compensation then surely such reasonableness would depend on the facts and circumstances of each case. But the section provides that it makes no difference whether or not actual damage or loss is proved. Then again, the last part of the sentence provides that such reasonable compensation is not to exceed the amount named in the contract or the penalty stipulated for in the contract.

31. Mr. Sinha has referred to me the case of Bhai Panna Singh v. Bhai Arjun Singh reported in AIR 1929 PC 179, where the Judicial Committee of the Privy Council at page 180 observed:

'The effect of Section 74 Contract Act, 1872 is to disentitle the plaintiffs to recover simpliciter the sum of Rs. 10,000/- whether penalty or liquidated damages. The plaintiffs must prove the damages they have suffered.' In that case the agreement provided for the sale of a serai in Peshawar to the purchasers for Rs. 1,05,000/-. The purchasers were to pay Rs. 500/- as earnest money. There was a clause in the agreement which provided that the party retracing from the contract would pay Rs. 10,000/- as damages. No time was fixed for the completion of the said purchase but the purchasers paid the earnest money and obtained a receipt which provided that the balance was to be received before the Sub-Registrar and the deed was to be registered within a month. The agreement was dated 19th February, 1924 and the receipt also was granted on the very same date. On 9th May there were various points on which the purchasers wanted clarification before completing the purchase and ultimately on 9th May the purchasers sent a written notice saying that the vendors had not got the sale deed registered within a month as provided in the said receipt and claim- ed payment of Rs. 10,000/- within a week. The vendors threatened to sue for specific performance for damages. On 9th June the vendors agreed to sell to another purchaser at Rs. 1,04,000/- and on 1st October, 1924 they issued their plaint claiming Rs. 10,000/-for further damages. On 11th October the purchasers filed their cross-suit claiming Rs. 10,000/- and also the sum paid for earnest money and stamp paper. The trial Court found in favour of the vendors and gave them judgment. The Judicial Committee accepted the findings of the Subordinate Judge on that point. In assessing damages the Judicial Committee observed that the only evidence for loss before the Committee was that such loss on re-sale amounted to Rs. 1,000/- only. There is no ground for awarding them interest. On the other hand they had received earnest money of Rupees 500/- so that their actual damage was to the extent of Rs. 500/-. The vendors had also received for the value of the stamp paper realised after deducting commission charged in respect of the purchasers' contribution to the extent of Rs. 689-1 anna. Accordingly, the decree of the District Judge in the vendor's suit was varied by substituting Rupees 500/- for the sum awarded by him.

32. On the basis of that judgmentMr. Sinha argues that following the aboveobservations in the Privy Council case thisCourt should hold that inasmuch as thereis no proof of actual damages the defendantis not entitled to recover from the plaintiff's bill the said sum of Rs. 10,977/- aswrongfully deducted by them.

33. The above Privy Council case was considered by Ameer Ali, J. in the case of Mahadeo Prasad v. Siemen Ltd. reported in AIR 1934 Cal 285. In that case the question arose as to what was the effect of naming a sum in the contract having regard to the provision of Section 74 of the Indian Contract Act. It appears that the point gave the learned Judge considerable trouble in arriving at the decision specially in view of the observations of the Privy Council in the aforesaid case reported in AIR 1929 PC 179 (supra). Ameer Ali J. explained the judgment of the Judicial Committee by observing that the Judicial Committee did not mean that the sum named in a contract was not to be given effect to at all. What the Judicial Committee meant was that the plaintiff 'must prove his damages.' Ameer Ali, J. observed:

'But is not the figure named some proof? It is not to be conclusive proof, but is it not some proof? Is not the estimate made by the parties with full consideration of some evidence? I think it is. 'According to the learned Judge' ....... inEnglish Law the sum named, if a penalty, ceases to have any effect at all either as a lower or upper limit. In Indian Law it remains an upper limit or maximum.' The learned Judge also observes:

'To my mind, the following is the intention of the legislature: (1) The plaintiff must prove his damage in a general sense;(2) The contract made by the parties estimating their damages is in itself evidence;(3) If there is no other evidence of damages, I can conceive of certain cases where this evidence alone will be considered sufficient, nor do I think that the Judicial Committee intended by anything said in AIR 1934 Cal 285 to exclude such a possibility; (4) The sum named however is not conclusive evidence, that is to say, if there is other evidence or circumstances showing that it was excessive, the Court will not consider itself bound by it; (5) If, on the other hand, the other evidence and circumstances indicate that the damage equals or may equal or is likely to exceed the amount named, the Court will abide by it, and lastly, (6) In case (4), that is to say, where the other evidence shows that it is unreasonable, the plaintiff will have to prove his damages irrespective of the figure.'

34. In the case of Fate Chand v. Balkishan reported in : [1964]1SCR515 the Supreme Court has considered the scope and applicability of section 74 of the Indian Contract Act and has distinguished the Indian Law from the English Common Law on the question of recovery of liquidated damages and penalty and observed that the distinction made in the English Common Law between stipulations for liquidated damages and penalty have been eliminated by the provisions of Section 74 of the Indian Contract Act. This was also a case of a sale of certain land and building providing for forfeiture of a certain stipulated sum in case the vendee would fail to get the sale deed registered by the stipulated date. It is observed that the measure of damages in the case of breach of a stipulation by way of penalty is, by Section 74, reasonable compensation not exceeding the penalty stipulated for. At page 1411 it is observed:

'............ in assessing damages, theCourt 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 qualified except as to maximum stipulation; butcompensation 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 the 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.'

35. On the basis of the above observation Mr. Sinha contends that not only that legal injury has to be proved but also the loss or damages under Section 73 of the Indian Contract Act has to be proved because the Supreme Court in making the above observation has practically borrowed the language of Section 73 of the Indian Contract Act.

36. It is no doubt true that the legal injury caused by the breach has to be proved but in making the above observation what was intended to be conveyed can be gathered from the following sentence which appears a little below the said passage as follows:

'In all cases, therefore, where there is a stipulation in the nature of penalty for forfeiture of an amount deposited pursuant to the terms of contract which expressly provides for forfeiture, the Court has jurisdiction to award such sum only as it considers reasonable, but not exceeding the amount specified in the contract as liable to forfeiture.'

The Supreme Court obviously had in mind the cases where there are stipulations of forfeiture in case of breach and not cases where the parties already made a genuine pre-estimate of damages at the time of entering into the contract.

37. In another case before the Supreme Court in Moula Bux v. Union of India reported in : [1970]1SCR928 similar question regarding forfeiture of the earnest money and the contract for sale of property came up for consideration. In that case a stipulated sum was paid as security by way of guarantee for the due performance of the contract to the party complaining of the breach of the contract. That was also a case of compensation where the amount stipulated for was a penalty and there also the Supreme Court observed that the person aggrieved by the breach was not required to prove actual loss or damage suffered by him before he could claim a decree, and the Court was competent to award reasonable compensation in case of breach even if no actual damage was proved to have been suffered in consequence of the breach of contract. In that case the Supreme Court made a distinction between different classes of contract. It is observed-

'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 the established rules. Where a Court is unable to assess the compensation, the sum named by the parties if it is regarded as genuine pre-estimate may be taken into consideration as a 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.'

That was the meaning that was attached to the expression 'whether or not actual damage or loss is proved to have been caused thereby' as provided in Section 74 of the Indian Contract Act.

38. In my opinion, the above passage clearly lays down the law on the point and accordingly in a case, such as is before me, where it is not possible for the Court to assess the reasonable compensation arising from -such breach the Court has to fall back on the damage that was assessed by the parties themselves in case of breach.

39. In Moula Bux's case, AIR 1970 SC 1955 the contractor failed to supply potatoes contracted for and the Government rescinded the contract and forfeited the security deposit. No evidence was adduced by the Government as to the extent of damages suffered by it although such evidence was available and could be adduced. Hence the Court disallowed the amount which was claimed by way of forfeiture and awarded decree in favour of the plaintiff-contractor with interest at the rate of 3% but did not allow cost of the suit.

40. In the case before me there is sufficient evidence to prove legal injury suffered by the Government. The correspondence will not only prove that but the admission contained therein will show that to employ any other contractor under these circumstances would have caused damages to the extent of Rs. 4-75 p. per mile in completing the said job. The plaintiffs alternative case as made out in the plaint will also suggest that if any other contractor had been employed the Government would have suffered certain loss and damage thereby.

41. In my opinion, if the above distinction as made by the Supreme Court is borne in mind then the meaning of the language as provided in Section 74 of the Indian Contract Act becomes crystal clear. When it comes to the question of forfeiture of the security money because of the breach the sum forfeited does not ipso facto, become reasonable compensation if actual loss can be proved. If the party complaining of the breach is in a position to adduce evidence whereby the Court can arrive at the amount of reasonable compensation then without proof of such reasonable compensation the damages will not be decreed. In such circumstances, the amount mentioned in the contract would amount to a penalty and such an amount is not receivable as reasonable compensation. But if the parties mention in the contract a figure which is their pre-estimate of the actual damages and if the party complaining of the breach is unable to assess the compensation because the same cannot be calculated in accordance with the established rules in the facts and circumstances of the particular case then the amount named in the contract itself would be considered as evidence of reasonable compensation. Under such circumstances, it becomes liquidated damages as is commonly known in English Common Law. It seems that the observations of Ameer Ali, J. in the above case reported in AIR 1934 Cal 285 (supra) have in effect been supported by the above Supreme Court case reported in : [1970]1SCR928 .

42. Here in this case on behalf of the Government it was always insisted that the construction work was a matter of extreme urgency. The construction work was to be completed with the help of the materials to be supplied by the contractor before the monsoon would set in, otherwise the construction work would be held up and the Government would suffer loss and damages. The contractor knew that the transport problem was a major problem at that time. The contractor further knew that the materials to be supplied were of such a nature that only by trucks the materials could be delivered in time and the same was not practicable with the help of bullock carts. Knowing all these things the contractor undertook the job. It was true that the Government was not keen to annul the contract and wanted to have the work done through the plaintiff if possible. Hence whatever was possible to be done by the Executive Engineer was so done by the said Officer in the most sympathetic and reasonable manner. The correspondence will show that the matter came to such a pass that it was not possible for the contractor to complete the job without incurring heavy loss. At the earliest opportunity they stopped the work and virtually compelled the Government to annul the contract so that the job might be completed by some other contractor. At such a stage it is practically impossible to find out the actual measure of damages suffered by the Government in view of the nature of work involved in the contract. If a contract of this nature is annulled before completion it is not a question of finding out the difference between the contract rate and the market rate of the materials to be supplied. There could be no ready market for the same. Whoever would be given the said contract, at that stage, would have to supply the same from the quarry. There would be a question of delay in the construction of the road. 'There would be the possibility of the Government's suffering damages because of idle labour caused by the non-supply of the materials, for the construction of the road. There might be many other factors which would result in damages because of such breach. The parties knew beforehand that if the contract would not be performed to its completion it would not be possible for the Government to lead evidence of actual loss and accordingly they must have assessed such loss on the basis of certain percentage of the value of the contract.

43. As stated above, the plaintiff by its correspondence and pleading has admitted that further work would have involved loss to the plaintiff to the extent of about Rs. 4.75 per mile and according to the amount claimed in the plaint by way of alternative case the figure would have been Rs. 1,19,500/-. In this case there is ample proof of legal injury being suffered by the Government by reason of the breach of contract. That being the position, I see no reason why the amount mentioned in Clause 2 of the conditions of contract was not a genuine pre-estimate of the damages.

44. On the basis of the above observations, I now proceed to deal with the issues in the manner as follows:

Issue No. 1: On this issue, my finding is that even though the Government allowed the contract to be performed even beyond the due date of delivery, there was not enough ground so as to make it obligatory on the part of the Executive Engineer to grant an extension of time. Accordingly the question of granting extension in writing in terms of Clause 4 of the conditions of contract would not arise. The plaintiff supplied some materials even after the due date of delivery because no objection in respect thereto was raised on behalf of the Government and the Government too, in its turn, paid for the same, except the sum which was recovered from the last bill.

Issue No. 2: This issue is answered in the negative.

The plaintiff was not entitled to an extension in terms of Clause 4 of the conditions of contract.

Issue No. 3: The decision of this issue will not be helpful to the plaintiff. In any event, my finding is that there could not be any question of any mutual agreement for extension of time because the parties agreed that such agreement must be in writing for the purposes of claiming exemption from the payment of the liquidated damages to be imposed by the defendant under Clause 2 thereof.

Issue No. 4: For the reasons as stated above, this issue is answered in the negative.

Issue No. 5 (a): This issue is answered in the affirmative. I hold that the amount assessed by the parties was a genuine preestimate of the loss which was to be suffered by the Government in case of failure on the part of the contractor to deliver the materials before the due date mentioned in the tender.

Issue No. 5 (b): My finding is that the amount mentioned in Clause 2 of the conditions of contract was not assessed by way of penalty but was a genuine pre-estimate of the damages in the facts and circumstances of this case.

Issue No. 6: The result, therefore, is that the plaintiff is not entitled to any relief in this suit and the suit is, accordingly, dismissed but in the special facts and circumstances of this case each party do pay and bear its own costs.


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