January, 1963 Equivalent citations: 1963 AIR 1405, 1964 SCR (1) 515 Author: S C. Bench: Sinha, Bhuvneshwar P.(Cj), Gajendragadkar, P.B., Wanchoo, K.N., Gupta, K.C. Das, Shah, J.C. PETITIONER: FATEH CHAND Vs. RESPONDENT: BALKISHAN DAS DATE OF JUDGMENT: 15/01/1963 BENCH: SHAH, J.C. BENCH: SHAH, J.C. SINHA, BHUVNESHWAR P.(CJ) GAJENDRAGADKAR, P.B. WANCHOO, K.N. GUPTA, K.C. DAS CITATION: 1963 AIR 1405 1964 SCR (1) 515 CITATOR INFO : RF 1970 SC1955 (3,5) E&D 1970 SC1986 (34) RF 1971 SC 422 (20) ACT: Contract-Compensation for breach of contract where penalty stipulated for-"the contract contains any other stipulation by way of penalty", if applicable, to all stipulation by way of penalty-Indian Contract Act, 1872 (Act IX of 1872), i. 74 --Code of Civil Procedure, 1908 (Act 5 of 1908), s. 2 (12) and O. 20 r. 12(1) (c). HEADNOTE: By agreement dated March 21, 1949, the plaintiff contracted to sell leasehold rights in a piece of land and in the building constructed thereon to the defendant. The plaintiff received Rs. 25,000/- under the agreement and delivered possession of the building and the land
court and declared ,that the plaintiff was entitled to retain out of Rs. 25,000/- paid by the defendant under the sale agreement, a sum of Rs. 11,250/- and directed that the plaintiff do get from the defendant compensation for use at the rate of Rs. 265/- per mensem. Held, that the High Court was right in holding that the defendant had committed breach of the contract; 516 Held, further that the expression "the contract contains any other stipulation by way of penalty" comprehensively applies to every covenant involving a penalty-whether it is for payment on breach of contract of money, or delivery of property in future, or for forfeiture of right to money or other property already delivered. Duty not to enforce the penalty clause but only to award reasonable compensation is statutorily imposed upon courts by s. 74 of the Indian Contract Act. 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 a 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
contract as liable to forfeiture. In the present case in the absence of any proof of damage arising from the breach of contract, the amount of Rs. 1,000/which had been forfeited and liability to forfeiture whereof was not challenged and the advantage that the plaintiff derived by retaining the sum of Rs. 24,000/- was sufficient compensation to the plaintiff For loss suffered by him. In the absence of evidence to show that the value of the property had depreciated, since the dateof the contract, the decree passed by the High Court awarding10% of the contract price to the plaintiff as compensation could not be sustained. Abdul Gani & Co. v. Trustees of the Port Bombay, I. L. R. 1952 Bom. 747 and Natesa Aiyar v. Appavu Padayachi, (1913) I. L. R. 38 Mad. 178, distinguished Held, further, that the plaintiff was not only entitled to mesne profits at the rate fixed by the trial court, but was also entitled to interest on such profits : vide s. 2(12) of the Code of Civil Procedure.
present case not concerned to decide whether a covenant of forfeiture of deposit for due performance of a contract falls within the first class. The measure of damages in the case of breach of a stipulation by way of penalty is by s. 74 reasonable compensation not exceeding the penalty stipulated for. In assessing damages the Court has, subject to the limit of the penalty stipulated, jurisdiction to award such compensation as it deems reasonable having regard to all the circumstances of tile case. jurisdiction of the Court to award compensation in case of breach of contract is unqualified except as to the maximum stipulated; but compensation has to be reasonable, and that imposes upon the Court duty to award compensation according, to settled principles. The section undoubtedly says that the aggrieved party is entitled to receive compensation from the party who has broken the contract, whether or not actual damage or loss is proved to have been caused by the breach. Thereby it merely dispenses with proof of "actual loss or damages"; t 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