Electricity Board. The suit was decreed for ₹47,63,818/- with
interest at 6% per annum from the date of the suit. Aggrieved
Board Ltd. has preferred this appeal.
2. The parties are hereinafter referred to as they were
arrayed in the suit. Pursuant to a tender for the supply of
plaintiff company, and an agreement was executed between them.
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at the rate of 36,000 sets every month thereafter. The
stipulated period for completion of the supply was 135 days.
3. The plaintiff contended that they supplied a total of
plaintiff to complete the supply on or before 30.01.2012. At
that stage, the plaintiff approached the defendant and
unit, additional time was required to complete the supply.
sets on 28.01.2012. The plaintiff was again directed to
complete the supply on or before 29.02.2012. However, by
purchase order by terminating the contract.
4. The plaintiff further contended that, towards the
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of which the defendant paid only ₹1,34,46,034/-. The
accordingly, forfeited the security deposit of ₹19,46,000/-.
The plaintiff also alleged that the defendant illegally
deducted ₹28,19,198/- as penalty. The suit was therefore
instituted seeking recovery of the said amounts with interest.
5. The defendant contended that the plaintiff was
deposit. It was further contended that, in terms of the
encash the bank guarantee furnished by the plaintiff.
plaintiff is not entitled to any amount.
6. It was further contended that the defendant had
means at higher cost. The defendant also asserted that such
to the non-supply of materials was of paramount concern.
7. The evidence in this case consists of the oral
testimonies of PW1 and DW1, along with Exts. A1 to A28 and B1
to B18. Upon conclusion of the trial, the learned Sub Judge
bill amount as penalty or to encash the bank guarantee. The
towards damages. Accordingly, it was held that the plaintiff
8. We have heard Sri B. Premod, the learned Standing
Counsel for the defendant/appellant, and Sri A. N. Santhosh
and Sri G. Balamuraleedharan, learned counsel for the
9. Having regard to the rival contentions, the following
(3) Whether the defendant has sustained any damage on
account of the delay and short supply of materials by the
plaintiff?
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10. The learned Standing Counsel for the defendant raised
a preliminary contention that the suit is not maintainable on
the ground that the plaintiff failed to implead the Kerala
State Electricity Board Ltd., which succeeded the erstwhile
Kerala State Electricity Board, the defendant. According to
him, the Kerala State Electricity Board Ltd. is not bound by
the liabilities of the erstwhile Kerala State Electricity
Board.
11. In response to the said contention, the learned
counsel for the plaintiff invited our attention to the
decision of this Court in Kerala State Electricity Board v.
M/s. C.K. Thomas and Co. [2022 (2) KHC 52]. In the said case,
an application was filed seeking substitution of the Kerala
State Electricity Board Ltd. in place of the appellant, Kerala
State Electricity Board. The Board contended before the Court
that the Kerala State Electricity Board Ltd. had come into
existence as its successor-in-interest and, therefore, such
substitution was liable to be allowed. The attention of the
court was invited to Clause No.8 of G.O.(P)No.46/2013/PD dated
31.10.2013, wherein it is stated as follows:
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"8. Pending suits, proceedings, etc.- (1) All
proceedings of whatever nature by or against the
erstwhile Board or the Kerala State Electricity Board
pending on the date of the transfer shall not abate or
discontinue or otherwise in any way prejudicially
affected by reason of the transfer under this Scheme and
the proceedings shall be continued, prosecuted and
enforced by or against the Transferee;
(2) The proceedings covered under sub-clause (1)
above shall be continued in the same manner and to the
same extent as it would or might have been continued,
prosecuted and enforced by or against the erstwhile
Board or Kerala State Electricity Board as if the
transfer specified in this Scheme had not been made."
Accepting the said contention, this Court held that the Kerala
State Electricity Board Ltd. is the successor establishment in
which all the functions, properties, interests, rights,
obligations, and liabilities of the erstwhile Kerala State
Electricity Board stand vested. In the light of the said
decision, we reject the preliminary objection raised by the
defendant.
12. Coming to the other disputed questions, it is to be
noted at the outset that the defendant has not disputed the
allegation that it paid only ₹1,34,46,034/- out of
₹1,62,77,108/-, which is the amount due towards the supply of
a total quantity of 58,927 sets of cross arms. The case of the
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defendant is only that it is entitled to adjust the remaining
amount towards the damages allegedly suffered by it, by
invoking Clause 15 of Ext. A5 purchase order and Clause 13 of
Ext. A6 agreement. The relevant portions of the said clauses
relied on by the defendant read as follows:
"15. Damages for delayed supply:-
xx xx xx xx
If the delivery schedule as per this order is not maintained,
penalty at the rate of one percent for every month of delay on
the all-inclusive order rate minus taxes and duties (i.e., ex-
works rate + F&I), subject to a maximum of ten percent, will
be levied on the value of the materials supplied belatedly."
"13. In cases where a successful tenderer, after having made
partial supplies, fails to fulfil the contract in full, all or
any of the materials not supplied may, at the discretion of
the purchasing officer, be procured through another
tender/quotation or by negotiation from the next higher
tenderer who had already offered to supply, and the loss, if
any, caused to the Board thereby, together with such sums as
may be fixed by the Board towards damages, shall be recovered
from the defaulting tenderer."
In view of the said conditions, the defendant contends that it
is entitled to impose a penalty up to a maximum of 10% on the
value of the materials supplied and also to recover damages
for the loss allegedly sustained by it, together with such
sums as may be fixed by the Board, from the defaulting
tenderer.
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13. Sri B. Premod, the learned Standing Counsel for the
Kerala Electricity Board, referred to the following decisions
to substantiate his contention that the defendant is entitled
to adjust the amount claimed in the plaint against the value
of the materials supplied and the security deposit, on the
ground that the contract provides for liquidated damages based
on a genuine pre-estimate of the loss that would be suffered
by the defendant in the event of breach: (i) Fateh Chand v.
Balkishan Dass (AIR 1963 SC 1405), (ii) Maula Bux v. Union of
India (AIR 1970 SC 1955) (iii) Kailash Nath Associates M/s. v.
Delhi Development Authority and Another [(2015) 4 SCC 136]
(iv) BSNL v. Reliance Communication Ltd. [(2011) 1 SCC 394]
(v) Oil and Natural Gas Corporation Ltd. v. SAW Pipes Ltd.
(AIR 2003 SC 2629) (vi) Hind Construction Contractors (M/s) v.
State of Maharashtra (AIR 1979 SC 720).
14. The law relating to the effect of a clause in the
nature referred to above is well settled. The term
"compensation" denotes something that constitutes an
equivalent or recompense and, therefore, can be awarded only
where there is a legal injury, namely, loss or damage.
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Compensation can be given not because the terms of contract
permits it, but for the damage caused to the party claiming
it. Section 74 of the Indian Contract Act, 1872 (for short,
"the Act") provides that, whether or not a sum is named in the
contract as the amount payable in case of breach, or the
contract contains a stipulation by way of penalty, the party
complaining of the breach is entitled to receive from the
party in breach reasonable compensation not exceeding the
amount so named or the penalty stipulated. Even where
liquidated damages are provided for in the agreement, the
court is bound to award only reasonable compensation, not
exceeding the amount stipulated. Nevertheless, if it is
impossible or difficult to prove the actual loss or damage
suffered by the nature of the subject matter of the contract,
the court may award the amount stipulated in the contract,
provided it represents a genuine pre-estimate of the damages
likely to have been caused.
15. Chapter VI of the Act, comprising Sections 73 to 75,
deals with compensation for breach of contract resulting in
loss or damage, and not for breach simpliciter. Section 74
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must therefore be read in conjunction with Sections 73 and 75.
The expression "whether or not actual damage is proved"
occurring in Section 74 does not entirely dispense with the
requirement of establishing that some loss or damage has been
suffered. What is dispensed with is proof of the precise
extent of damage, not the existence of damage itself, and that
too only in cases where such proof is inherently difficult or
impossible, depending on the nature of the loss claimed. In
cases of breach involving a stipulation by way of penalty, the
measure of damages is confined to reasonable compensation,
which shall not exceed the amount stipulated as penalty.
16. The scope of Section 74 has been considered in
several decisions of the Apex Court. In Fateh Chand v.
Balkishan Dass (supra), a Constitution Bench of five Judges
examined the true import and ambit of Section 74 of the Act.
The Court concluded as follows:
"....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
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compensation as it deems reasonable having regard
to all the circumstances of the case. Jurisdiction
of the Court to award compensation in case of
breach of contract is unqualified except as to the
maximum stipulated, but compensation has to be
reasonable, and that imposes upon the Court duty
to award compensation according to settled
principles. The section undoubtedly says that the
aggrieved party is entitled to receive
compensation from the party who has broken the
contract whether or not actual damage or loss is
proved to have been caused by the breach. Thereby
it merely dispenses with proof of "actual loss or
damage"; it does not justify the award of
compensation when in consequence of the breach no
legal injury at all has resulted because
compensation for breach of contract can be awarded
to make good loss or damage which naturally arose
in the usual course of things, or which the
parties knew when they made the contract, to be
likely to result from the breach.
xxxxxx
Duty not to enforce the penalty clause but only to
award reasonable compensation is statutorily
imposed upon Courts by S. 74. 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 contact as liable to forfeiture.
We may briefly refer to certain illustrative cases
decided by the High Courts in India which have
expressed a different view.
xxxxxx
S.74 declares the law as to liability upon breach
of contract where compensation is by agreement of
the parties predetermined, or where there is a
stipulation by way of penalty. But the application
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of enactment is not restricted to cases where the
aggrieved party claims relief as a plaintiff. The
section does not confer a special benefit upon any
party, it merely declares the law that
notwithstanding any term in the contract
predetermining damages or providing for forfeiture
of any property by way of penalty, the Court will
award to the party aggrieved only reasonable
compensation not exceeding the amount named or
penalty stipulated. The jurisdiction of the Court
is not determined by the accidental circumstance
of the party in default being a plaintiff or a
defendant in a suit. Use of the expression "to
receive from the party who has broken the
contract" does not predicate that the jurisdiction
of the Court to adjust amounts which have been
paid by the party in default cannot be exercised
in dealing with the claim of the party complaining
of breach of contract."
Following the aforesaid decision, a three-Judge Bench of the
Apex Court in Maula Bux v. Union of India (supra) further
elucidated the legal position, particularly with reference to
whether the provision applies to stipulations for forfeiture
of security deposit or amount paid under a contract. In the
said case, the plaintiff had entered into a contract with the
Government of India for the supply of potatoes to the Military
Headquarters and had deposited a sum of ₹10,000/- as security
for the due performance of the contract. Upon the plaintiff's
default in effecting regular supply, the Government of India
rescinded the contract and forfeited the security deposit. The
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learned counsel for the Union contended that the security
deposit represented a genuine pre-estimate of the damages
likely to be suffered by the Union as a result of the breach
and, therefore, the plaintiff was not entitled to any relief
against forfeiture in view of Section 74 of the Act. In
support of the said contention, reliance was placed on the
expression in Section 74 that "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." In that
context, the Court held as follows:
"6. Counsel for the Union, however, urged that in the
present case Rs. 10,000/- in respect of the potato contract
and Rs. 8,500/- in respect of the poultry contract were
genuine preestimates of damages which the Union was likely
to suffer as a result of breach of contract, and the
plaintiff was not entitled to any relief against forfeiture.
Reliance in support of this contention was placed upon the
expression (used in S.74 of the Contract Act), "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". It is true that in every case of
breach of contract the person aggrieved by the breach is not
required to prove actual loss or damage suffered by him
before he can claim a decree, and the Court is competent to
award reasonable compensation in case of breach even if no
actual damage is proved to have been suffered in consequence
of the breach of contract. But the expression "whether or
not actual damage or loss is proved to have been caused
thereby" is intended to cover different classes of contracts
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which come before the Courts. In case of breach of some
contracts it may be impossible for the Court to assess
compensation arising from breach, while in other cases
compensation can be calculated in accordance with
established rules. Where the Court is unable to assess the
compensation, the sum named by the parties if it be regarded
as a genuine preestimate may be taken into consideration as
the measure of reasonable compensation, but not if the sum
named is in the nature of a penalty. Where loss in terms of
money can be determined, the party claiming compensation
must prove the loss suffered by him.
7. In the present case, it was possible for the Government
of India to lead evidence to prove the rates at which
potatoes, poultry, eggs and fish were purchased by them when
the plaintiff failed to deliver "regularly and fully" the
quantities stipulated under the terms of the contracts and
after the contracts were terminated. They could have proved
the rates at which they had to be purchased and also the
other incidental charges incurred by them in procuring the
goods contracted for. But no such attempt was made."
(Emphasis added)
It is relevant to note that the Apex Court considered the
expression employed in Section 74, namely, "whether or not
actual damage or loss is proved to have been caused," and
observed that the purpose of the said expression is to
encompass different classes of contracts that may come before
the Court. The principle that emerges from the law laid down
by the Apex Court is that, where it is impossible for the
Court to assess the compensation arising from the breach, the
Court must consider whether the sum named by the parties in
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the contract represents a genuine pre-estimate of the damages
likely to be suffered in the event of breach; and if so, the
Court may adopt it as the measure of reasonable compensation.
However, where it is not impossible to assess such
compensation, and the quantum of loss is capable of proof, the
sum named would partake the character of a penalty. In other
words, where the loss is determinable in monetary terms, the
party claiming compensation must prove the loss actually
suffered and cannot rely solely on the stipulations contained
in the contract.
17. Following the principles laid down in Fateh Chand v.
Balkishan Dass and Maula Bux v. Union of India, a Division
Bench of this Court in State of Kerala v. United Shipper &
Dredgers (1982 KLT 738) held that compensation cannot be
claimed in the absence of a legal injury. The Court undertook
an elaborate consideration of the scheme of Chapter VII of the
Act, comprising Sections 73, 74, and 75, as well as the
heading of the Chapter, namely, "Of the consequences of breach
of contract." The Court also examined the meaning of the term
"actual" in Section 74 and the phrase "whether or not actual
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damage or loss is proved to have been caused thereby," in the
historical context of the law relating to compensation for
breach of contract, and further held as follows:
"12. When the parties agreed that in case one party shall
do a stipulated act or omit to do it, the other party
shall receive just reasonable and conventional damages for
loss sustained by such act or omission, in such cases.
Courts of equity would not interfere to grant relief. But
where the provision assumes the character of gross
extravagance or of wanton and unreasonable disproportion
to the nature or extent of the injury, courts of equity
would regard the provision as in terrorem and refuse to
enforce it. However in those cases also reasonable
compensation would be awarded The law has been pithily
summarised in Cheshire and Fifoot's Law of Contract at
page 556 in the following manner:
"Firstly, it may be a genuine pre-estimate of the loss
that will be caused to one party if the contract is broken
by the other. In this case it is called liquidated damages
and it constitutes the amount, no more and no less, that
the plaintiff is entitled to recover in the event of
breach without being required to prove actual damage.
Secondly, it may in the nature of a threat held over the
other party in terrorem a security to the promisee that
the contract will be performed. A sum of this nature is
called a penalty and it has long been subject to equitable
jurisdiction. Courts of equity have taken the view that,
since the penalty is designed as mere security for the
performance of the contract, the promisee is sufficiently
compensated by being indemnified for his actual loss, and
that he acts unconscionably if he demands a sum which,
though certainly fixed by agreement, may well be
disproportionate to the injury. The rule, therefore, is
that a plaintiff who brings an action for the enforcement
of a penalty can recover compensation only for the damage
that he has in fact suffered. He is not entitled to
recover the sum stated in the contract if he has not in
fact suffered so much loss." (Emphasis supplied)
This was how the expression "actual loss" or "loss
suffered in fact" gained currency in English common Law.
These expressions have been used to distinguish between
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cases of liquidated damages with genuine pre-estimate of
the loss made in the contract and cases of penalties. A
provision for liquidated damages is specifically
enforceable in English Courts, whatever be the extent of
the loss suffered actually or in fact. In such a case the
court would not make an assessment of the actual loss or
damage, but would enforce the provision. In the case of
provision for penalty, however, since it is not
enforceable as such, the court has to determine the loss
or damage suffered in fact, in reality or actually and
assess compensation on that basis.
13. The Indian Legislature in giving shape to S.74 of the
Act resolved to do away with two significant features of
English Common Law. One is the distinction between
liquidated damages enforceable in court of law and
penalties against which relief would be given. Both these
situations have been brought together in S.74 of the Act
thus doing away with the distinction between the two
maintained by the English Common Law. Under S.74 of the
Act, whether it is a case of liquidated damages or
penalty, what the party faced with the breach gets is only
reasonable compensation, subject to the limit of the
amount stipulated in the contract itself. The second point
of departure is that while in English Common Law penalty
clause has to be completely ignored and the party claiming
compensation has to prove the extent of loss or damage
suffered in fact or actually, and obtain compensation on
that basis. S.74 dispenses with such proof of the extent
of real or actual loss or damage, but provides for grant
of reasonable compensation, subject to the condition that
it shall not exceed the sum stipulated as penalty in the
contract. The proof of the extent of loss or damage
suffered in fact, i. e. proof of extent of actual damage
or loss suffered h sought to be dispensed with in S.74 of
the Act. It is only in this light that the expression
"whether or not actual damage or loss is proved to have
been caused thereby" has been introduced in S.74 of the
Act. This historical background of the provision would
explain the purport of S.74 of the Act.
14. The phrase referred to above finding a place in S.74
only means that unlike in England, a party faced with
breach of contract in India is not compelled to prove the
extent of the loss or damage suffered by him in fact or
actually. He need not prove in an exact manner the extent
of the real loss or damage suffered by him or the loss or
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damage suffered by him in fact. However, if he proves it,
that will certainly help the court to arrive at the
proper compensation. Even if he fails to prove it, court
cannot throw out his case on that ground, but must
proceed to assess reasonable compensation which is to be
awarded to him, on the materials before the court and
subject to the limit of the amount stipulated in the
contract. Viewed in this light it is not possible to
accept the contention of the appellants that what S.74
dispenses with is the basic condition of the breach
resulting in any loss or damage which can be called
"legal injury". The interpretation canvassed by the
appellants would go against the legislative purpose in
using the word "compensation" in all the three sections,
viz., S.73, 74 and 75 of Chapter VI of the Act. One
cannot compensate a person, who has not suffered any loss
or damage. There may be cases where the actual loss or
damage is incapable of proof; facts may be so complicated
that it may be difficult for the party to prove actual
extent of the loss or damage. S.74 of the Act exempts him
from such responsibility and enables him to claim
compensation in spite of his failure to prove the actual
extent of the loss or damage provided of course he
establishes the basic requirement for award of
"compensation", viz., the fact that he has suffered some
loss or damage. The proof of this basic requirement is
not dispensed with by S.74 of the Act."
(Emphasis added)
18. In Kailash Nath Associates v. Delhi Development
Authority and Another (supra), the Apex Court, after surveying
a catena of its earlier decisions on the subject, restated the
legal position and ultimately summarised the governing
principles as follows:
"43. On a conspectus of the above authorities, the law on
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compensation for breach of contract under S.74 can be
stated to be as follows: -
1. Where a sum is named in a contract as a liquidated
amount payable by way of damages, the party
complaining of a breach can receive as reasonable
compensation such liquidated amount only if it is a
genuine pre - estimate of damages fixed by both
parties and found to be such by the Court. In other
cases, where a sum is named in a contract as a
liquidated amount payable by way of damages, only
reasonable compensation can be awarded not exceeding
the amount so stated. Similarly, in cases where the
amount fixed is in the nature of penalty, only
reasonable compensation can be awarded not exceeding
the penalty so stated. In both cases, the liquidated
amount or penalty is the upper limit beyond which the
Court cannot grant reasonable compensation.
2. Reasonable compensation will be fixed on well known
principles that are applicable to the law of contract,
which are to be found inter alia in S.73 of the
Contract Act.
3. Since S.74 awards reasonable compensation for
damage or loss caused by a breach of contract, damage
or loss caused is a sine qua non for the applicability
of the Section.
4. The Section applies whether a person is a plaintiff
or a defendant in a suit.
5. The sum spoken of may already be paid or be payable
in future.
6. The expression "whether or not actual damage or
loss is proved to have been caused thereby" means that
where it is possible to prove actual damage or loss,
such proof is not dispensed with. It is only in cases
where damage or loss is difficult or impossible to
prove that the liquidated amount named in the
contract, if a genuine pre - estimate of damage or
loss, can be awarded.
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7. S.74 will apply to cases of forfeiture of earnest
money under a contract. Where, however, forfeiture
takes place under the terms and conditions of a public
auction before agreement is reached, S.74 would have
no application."
44. The Division Bench has gone wrong in principle. As has
been pointed out above, there has been no breach of
contract by the appellant. Further, we cannot accept the
view of the Division Bench that the fact that the DDA made
a profit from re - auction is irrelevant, as that would fly
in the face of the most basic principle on the award of
damages - namely, that compensation can only be given for
damage or loss suffered. If damage or loss is not suffered,
the law does not provide for a windfall."
(Emphasis added)
19. Similar to the facts of Maula Bux case (supra), the
agreement between the plaintiff and the defendant was for the
supply of 4-line cross arms, and it stands established that
the contract was breached by the plaintiff due to its failure
to supply the agreed quantity. The defendant pleaded in the
written statement that it had incurred substantial expenditure
in procuring the required materials from alternative sources
at higher rates. Despite contending that materials were
procured from M/s. Sona Sales Corporation to meet the
shortfall, the defendant did not make any earnest attempt to
substantiate the said claim. Though Exts. B3 to B7 letters,
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purportedly issued by M/s. Sona Sales Corporation, were
produced, the trial court declined to accept them in evidence,
as they were merely photocopies and their marking was objected
to by the plaintiff. It was also pointed out at the time of
hearing that, in any event, the quantity of materials
allegedly procured under Exts. B3 to B7 would not justify the
extent of the amount retained by the defendant as unpaid.
20. In the present case, the legal position summarised in
Kailash Nath Associates v. Delhi Development Authority and
Another (supra), particularly clauses 6 and 7 thereof, assumes
considerable relevance. Here it was possible to prove actual
damage or loss, and thus the need for such proof cannot be
dispensed with. As the damage or loss is not difficult or
impossible to prove, there is no reason for permitting the
defendant to adjust the amount as a genuine pre - estimate of
damage or loss.
21. Reliance was placed by the learned Standing Counsel
for the defendant on Oil and Natural Gas Corporation Ltd. v.
SAW Pipes Ltd. (supra) to contend that it would be wholly
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unjust to hold that a party committing breach of contract is
not liable to pay compensation. In that case, on an analysis
of the facts, the Apex Court found that it was difficult to
prove the exact loss or damage suffered on account of the
breach. It was also found that the parties had pre-estimated
such loss in the contract after clear understanding. However,
the factual situation in the present case is materially
different. There is nothing on record to indicate that the
amount mentioned in clause 15 is a genuine pre-estimation of
loss or damages by both sides. In BSNL v. Reliance
Communication Ltd. (supra), it was observed that the
description of a sum payable upon breach as "penalty" or
"liquidated damages" in the contract is relevant, though not
conclusive. Significantly, Clause 15 of Ext. A5 itself
describes the stipulation as a "penalty" ("penalty at the rate
of one percent for every month of delay... subject to a maximum
of ten percent"). From all the circumstances mentioned above,
we could consider the said clause only as a penalty, and not
otherwise.
22. Sri B. Premod, the learned Standing Counsel for the
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defendant, further contended that, since the Kerala State
Electricity Board would not be able to assess or prove the
actual damage caused to the public due to short supply and
delay, Clause 15 of Ext. A5 ought to be treated as a genuine
pre-estimate of damages likely to be suffered by the defendant
in the event of breach. We are not in a position to accept
this contention for several reasons. First, the Board is not
entitled to claim compensation from the plaintiff for any
alleged inconvenience or hardship caused to the public.
Secondly, Clause 15, on a plain reading, appears to be
intended to secure due performance of the contract rather than
to represent a fair and genuine pre-estimate of damages agreed
upon by the parties. As already noted, the loss allegedly
sustained by the defendant due to short supply of materials is
capable of being proved; hence, there was no occasion to
invoke the principle applicable to genuine pre-estimates of
damages in cases where proof is impossible or inherently
difficult.
23. Where the loss is capable of proof, a clause of the
above nature, which provides for forfeiture calculated on the
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value of materials supplied, can only be regarded as a penalty
within the meaning of Section 74 of the Act. Consequently, the
defendant can forfeit the security deposit only to the extent
that it establishes actual damages. Significantly, there is no
pleading that the stipulation in question was intended as a
genuine pre-estimate of damages arising from delay in supply,
particularly on the footing that the consequences of such
delay on production and supply of electricity are incapable of
precise proof. For the aforesaid reasons, we find no infirmity
in the impugned judgment. The appeal is thus liable to be
dismissed.
In the result, the appeal is dismissed.
Sd/-
SATHISH NINAN
JUDGE
Sd/-
P. KRISHNA KUMAR
JUDGE
sv
