Andhra HC (Pre-Telangana)
Chebrolu Jaganmohana Rao S/O ... vs Sri Bhavanarayanaswamy And Sri Kasi ... on 1 August, 2007
Equivalent citations: 2007(6)ALD60, 2007(6)ALT766
JUDGMENT G.V. Seethapathy, J.
1. This appeal is directed against the judgment and decree dated 24.2.1990 in OS No. 1 of 1985 on the file of the Court of Subordinate Judge, Bapatla, wherein the suit filed by the respondent herein for recovery of a sum of Rs. 31,750/- towards damages, was decreed with future interest at 6% per annum from the date of decree, till the date of realisation.
2. The respondent-temple filed suit with the following averments:
The Executive Authority of the plaintiff temple conducted auction on 1.9.1982 for sale of paddy belonging to the temple, after due publication. It was stipulated among other things that at the time of the auction, the highest bidder has to pay 1/3rd of the bid amount including the deposit on conclusion of the auction and that the highest bid is subject to final confirmation and approval by the Commissioner, Endowments and the highest bidder has to take delivery of paddy duly paying the sale price, within three days of the intimation of the approval, or otherwise, the deposit amount is liable to be forfeited. The paddy was sold in two lots of 61 bags of Akkulu variety and 1500 bags of masuri variety. The initial deposit was fixed at Rs. 200/- and Rs. 500/- respectively for the two varieties. The defendant participated in the auction and he was the highest bidder in respect of 5000 bags of masuri variety of the paddy at the rate of Rs. 120/- per bag. The bid being highest was accepted and the sale was knocked in favour of the defendant. At the request of the defendant, the condition regarding the payment of 1/3rd price on the date of auction was also waived. The plaintiff authorities informed the Commissioner, Endowment about the auction and the Commissioner by his proceedings dated 6.9.1982 approved the auction. The plaintiff temple by their notice dated 26.9.1982 called upon the defendant to pay the cost of 1500 bags of paddy within three days and take delivery. As there was no response, the plaintiff addressed another letter dated 6.12.1982 to the defendant, putting him on notice that if he fails to pay the balance amount, and take delivery of paddy of 1500 bags within 30 days, the paddy would be put to sale again besides forfeiting the deposit of Rs. 5000/-. The defendant would be liable for any loss that may be occasioned to the plaintiff on account of re-sale of the paddy. The defendant did not pay the balance sale price nor lifted the paddy of 1500 bags. The plaintiff forfeited the initial deposit of Rs. 5000/- deposited by the defendant.
The resale fetched only at Rs. 100/- per bag and thereby caused loss at Rs. 20/- per bag to the plaintiff. The plaintiff sustained loss of Rs. 30,000/- on account of the re-sale of 1500 bags and after deducting amount of Rs. 5000/- forfeited by the plaintiff, the plaintiff filed the suit for balance amount of Rs. 25,000/- with interest at 12% per annum.
3. The appellant-defendant filed written statement contending in brief as follows:
The defendant was intimated of the approval of the auction by the Commissioner on 26.9.1982 i.e., 26 days after the auction. Even then they did not cooperate in getting the paddy weighed inventing some reason or other. Even after issuance of notice dated 6.12.1982 also, the plaintiff authorities did not effect the weighment for taking the delivery stating that the Assistant Commissioner, Endowments was not available. To the reply notice got issued by the plaintiff dated 4.1.1983, the defendant got a reply issued on 3.2.1983. The terms and conditions stipulated in the pamphlet dated 21.8.1982 particularly condition No. 3 is to the effect that within 3 days after approval by the Commissioner, Endowments, paddy should be got weighed and taken delivery on payment of balance, failing which the deposit would be liable to be forfeited. No stipulation to make the auction purchaser liable for damages by way of difference of sale price in the event of resale. The deliberate inaction and delay on the part of the plaintiff in effecting delivery of the paddy to the defendant necessitated the re-auction, for which, the defendant is not responsible. The clause for forfeiture of deposit of Rs. 5000/- is illegal, as the deposit was made involuntarily in a heat of competition and in anxiety to establish his supremacy. Hence the said deposit of Rs. 5000/- is liable to be refunded to the defendant and he is not liable for the suit amount.
4. On the strength of the pleadings, the trial Court framed the following issues for trial.
1. Whether the plaintiff is entitled for damages, if so, to what amount?
2. Whether the plaintiff is entitled to forfeit the initial deposit?
3. To what relief?
5. PWs. 1 to 3 were examined and Exs. A.1 to A.17 were marked on behalf of the plaintiff. D.W. 1 was examined and Exs. B.1 and B.2 were marked on behalf of the defendant.
6. On a consideration of the evidence on record, the trial Court gave finding on issue Nos. 1 and 2 that the defendant committed breach of contract for not paying the balance sale price and lifting paddy which necessitated in resale of the paddy at loss and the defendant is liable to pay the suit amount by way of damages. Accordingly decree was passed for the suit amount with interest at 12% per annum from the date of the suit, till the date of decree and future interest at 6% per annum, till the date of realisation.
7. Aggrieved by the said judgment and decree, the defendant preferred the present appeal.
8. Arguments of the learned Counsel for the appellant and respondent are heard. Records are perused.
9. Learned Counsel for the appellant contended that there was no fault on the part of the defendant, as the plaintiff authorities themselves delayed the intimation of the bid till 26.9.1982 and even thereafter they did not cooperate for weighment and lifting of paddy and therefore, the defendant is not liable for the alleged loss on account of the re-sale. She would further contend that the terms of auction did not stipulate that in the event of default of the highest bidder for payment of balance of sale price and lifting the stock, he would be held liable for loss, if any sustained on account of the re-sale of the paddy and in the absence of any such term of the contract, the defendant is not liable for suit amount. She would further contend that the plaintiff authority forfeited the initial deposit of Rs. 5000/-, which itself is illegal and the plaintiff is not entitled to claim any further damages from the defendant.
10. Learned Counsel for the plaintiff contended that Section 73 and 74 of the Indian Contract Act are independent of each other and operate in different fields and irrespective of forfeiture of the deposit of Rs. 5000/- under Section 74, the plaintiff would still be entitled to recover the loss by way of damages under Section 73 of the Contract Act.
11. In view of the rival contentions of the parties, the question, which arises for consideration in this appeal, is whether the plaintiff is entitled to recover damages from the defendant because of resale of the paddy?
12. It is not in dispute that the plaintiff-temple has after due publication put the paddy stocks to sale by public auction and the defendant became successful bidder for sale of 1500 bags of masuri variety of paddy at the rate of Rs. 120/- per bag, iIn the auction held on 1.9.1982 and his bid, being highest, was approved by the Commissioner of Endowments, and the same was intimated to the defendant by notice Ex.B.1 dated 26.9.1982 informing him to pay the balance of sale price and lift the stocks. It is also not disputed that on the date of auction, at the request of the defendant, condition of payment of 1/3rd of the sale price, was also waived on the same day. Ex. A.4 is the publication of the auction terms by way of pamphlet dated 21.8.1982. Ex. A.5 is the auction conditions containing the signatures of the defendant and other bidders in acknowledgment of the terms having been read over to, and admitted by them, before participating in the auction. In Ex. A.4 itself it is stipulated in Clause 3 that after the bid is knocked in favour of the highest bidder, the same is subject to approval by the Endowments Department and only after receipt of such approval, the paddy will be weighed at the cost of the highest bidder and within three days of the communication of the approval to him, the highest bidder shall lift the stock and pay the sale price, failing which the deposit amount would be forfeited and the highest bidder would lose all his rights over the subject paddy. Clause 1 of Ex. A.4 stipulates that the bidders shall make a deposit of Rs. 5000/- before participating in the auction and it will not carry any interest. Ex. A.5 reiterates the above terms. The defendant has admittedly, participated in the auction, agreeing for the said terms. It is not disputed that even after intimation of the approval of the bid by the Commissioner, the defendant failed to pay the balance of sale price and lift the stock. The plaintiff got issued registered notice dated 5.12.1982 wherein, it is stated that the defendant has not responded to the earlier notice dated 26.9.1982, and he failed to pay the sale price of the paddy and that in the event of the defendant not making the payment within three days and lifting the paddy, plaintiff would cancel the auction and forfeit the deposit and the paddy would be put to re-auction and the defendant would be held liable for the loss that may be occasioned on account of the re-sale. The defendant did not give any reply and did not also make the payment of the sale price nor did he take any steps to lift the paddy stocks. Thereupon, the Commissioner, Endowments by proceedings Ex. A.2 dated 24.2.1983 accorded permission to the Executive Officer of the plaintiff-temple to forfeit the initial deposit of Rs. 5000/-. The plaintiff got issued a legal notice Ex. A.3 dated 9.3.1983 to the defendant informing him about the forfeiture of the deposit and also putting him on notice that the plaintiff would recover the loss suffered by him on account of the default committed by the defendant leading to resale at a lower price. In his reply notice Ex. B.2, the defendant has, for the first time, stated that he was ready and willing to pay the sale price, but the Assistant Commissioner was not available. He further pleaded that after issuance of the letter dated 6.12.1982 under Ex. A.7 (same as Ex. A.1), the Executive Officer requested him to wait for the arrival of the Assistant Commissioner, who never turned up and the said event did not take place and therefore, the temple authorities committed default. The defendant in his written statement reiterates the same plea.
13. As per the terms of the auction, the defendant was aware by virtue of his acknowledgment under Ex. A.5, the highest bid knocked was subject to the approval of the Commissioner, Endowments and within three days of the intimation of such approval, the defendant was liable to pay the sale price and lift the paddy stocks at his own cost. In spite of intimation of the approval of the auction by letter Ex. B.1 dated 26.9.1982, the defendant has not paid the auction price nor lifted the stocks. There was no response from him even to the notice Ex. A.1 issued about three months thereafter. His plea that after issuing notice Ex. A.1, the Executive Officer asked him to wait for the arrival of the Assistant Commissioner for weighment of the paddy and that he waited for his arrival and therefore, he has not committed any default, does not merit any consideration. There is nothing on record to show that the presence of the Assistant Commissioner for the purpose of weighment and delivery of possession of the paddy was required or stipulated. Admittedly, the auction was conducted in the presence of the Assistant Commissioner. The evidence of P.W. 3, the unsuccessful bidder, in respect of lot No. 1, being the second highest bidder at Rs. 116/- per bag, as against the highest bidder at Rs. 120/- per bag and who was successful bidder in respect of Lot No. 2, shows that there was no practice of Assistant Commissioner making himself available for weighment and delivery of the paddy. If really, the defendant was always ready and willing to perform his part of contract, there was absolutely no reason as to why he has not responded to the notice of intimation issued under Ex. B.1 or subsequent registered notice under Ex. A.1. The attitude of the defendant throwing the blame on the temple authorities, is clearly an after thought, in order to cover up his own failure to pay the sale price and take delivery of paddy, may be due to fluctuations in the market rate of paddy. The trial Court has on proper appreciation of the evidence, rejected the plea of the defendant and held that he committed default by not paying the sale price and lifting the stock in time i.e., within three days after receipt of intimation of Ex. B.1 about the approval of the bid knocked down in his favour. The said finding does not call for any interference in the appeal.
14. The question then arises for consideration is whether the plaintiff is entitled to recover the damages from the defendant on account of the loss sustained by them due to re-sale of the paddy?
15. The defendant contends that either in Ex. A.4 publication of the terms or in Ex. A.5 the terms of the auction acknowledged by the defendant and other bidders, there was no stipulation for re-sale of the paddy or that the party committing breach would be liable to pay any damages on account of the loss occasioned due to resale and in the absence of such a stipulation, the plaintiff is not entitled to claim any damages. In Exs. A.4 and A.5 besides stating that the deposit amount would be forfeited, it is also stated that the bidder will lose all his rights over the paddy. Once the defendant has committed default and thereby lost all his rights over the subject matter of the sale, the plaintiff is entitled to re-auction the paddy. In notice Ex. A.8, the defendant was informed that any loss that the plaintiff may sustain on account of the re- auction would be recovered from the defendant.
16. Section 73 of the Indian Contract Act, provides for compensation for loss or damage caused by breach of contract and it reads thus:
Section 73 :- Compensation for loss or damage caused by breach of contract-When a contract has been broken, the party who suffers by such breach is entitled to receive, from the party who has broken the contract, compensation for any loss or damage caused to him thereby, which naturally arose in the usual course of things from such breach, or which the parties knew, when they made the contract, to be likely to result from the breach of it. Such compensation is not to be given for any remote and indirect loss or damage sustained by reason of the breach. Compensation for failure to discharge obligation resembling those created by contract - When an obligation resembling those created by contract has been incurred and has not been discharged, any person injured by the failure to discharge it is entitled to receive the same compensation from the party in default, as if such person had contracted to discharge it and had broken his contract.
17. The first principle for award of damages has been stated in 'British Westinghouse Electric and Mfg. Co. Ltd. v. Underground Electric Railways Co. of London Ltd. (1912) AC 673 which reads as follows:
That as far as possible he who has proved a breach of a bargain to supply what he has contracted to get is to be placed as far as money can do it, in as good a situation as if the contract had been performed. The fundamental basis thus is compensation for the pecuniary loss which naturally flows for the breach, or as stated by Lord Wright in Monarch Steamship case (1949) AC 196), broad principle of the law of damages is that the party injured by the other party's breach of contract is entitled to such money compensation as will put him in the position he would have been but for the breach.
18. In Murlidhar Chiranjilal v. Harishchandra Dwarakadas the Apex Court held as follows:
The first principle is that he who has proved a breach of a bargain to supply what he has contracted to get, is to be placed so far as money can do it in as good a situation as if the contract has been performed; but this principle is qualified by a second which imposes on a plaintiff the duty of taking all reasonable steps to mitigate the loss consequent on the breach, and debars him from claiming any part of the damage which is due to his neglect to take such steps.
These two principles also follow from the law as laid down in Section 73 read with the Explanation thereof.
19. General damages are those which arise naturally and in the normal course of events; whereas special damages are those, which do not arise naturally out of the defendant's breach and are recoverable only where they are in reasonable contemplation of the parties at the time they made the contract. In case of general damages, the plaintiff is only required to assert such damage has been suffered on account of the breach committed by the defendant, whereas in the case of special damages, the plaintiff has to specifically plead and prove the same. Special damages are those losses, which can be calculated in financial terms, and they represent the precise amount of pecuniary loss, which the claimant proves to have suffered from the set of facts pleaded.
20. The plaintiff has specifically pleaded that because of the breach committed by the defendant, they had to put the paddy for resale, which resulted in fetching a lower price of Rs. 100/- per bag, thereby causing loss of Rs. 20/- per bag. The evidence adduced by the plaintiff through PWs. 1 and 2, the officials of the plaintiff temple, coupled with Exs. A.9 to A.14 show that the re-auction fetched only Rs. 100/- per bag. The plaintiff has therefore suffered loss at the rate of Rs. 20/- per bag because of breach committed by the defendant, which necessitated the re-auction. Therefore, the plaintiff is certainly entitled to recover such loss from the defendant by virtue of Section 73 of the Contract Act, as the said loss has naturally arisen in the usual course of things and flowed from the breach committed by the defendant. Such recovery of compensation for the loss under Section 73 of the Contract Act, has nothing to do with the claim for compensation under Section 74 of the Contract Act, which reads thus:
Section 74 : Compensation for breach of contract where penalty stipulated for-
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 stipulations 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.
21. A reading of the above provision makes it clear that when a contract has been broken, the party complaining breach is entitled 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. The contract may stipulate a specific amount to be paid in case of breach or it may contain any other stipulation by way of penalty. The claim of the party complaining of breach for compensation by way of stipulated amount or stipulated penalty under Section 74 of the Contract Act is independent of his claim for compensation by way of damages or loss, which has arisen as a natural corollary or consequence of the breach under Section 73 of the Contract Act.
22. In the present case, the terms of the auction stipulate forfeiture of the deposit. The entitlement of the plaintiff to forfeit the deposit of Rs. 5000/- does not disentitle them from claiming compensation for the loss occasioned to them because of resale, which in fact, was necessitated as a result of the breach committed by the defendant, inasmuch as Sections 73 and 74 of the Contract Act are independent provisions operating in different fields and do not over lap each other.
23. In Shiva Jute Baling Ltd. v. Hindley & Co. Ltd. , the Apex Court held that 'both Sections 73 and 74 of the Contract Act provide for reasonable compensation; and Section 74 contemplates that the maximum reasonable compensation may be the amount, which may be, named in the contract.
24. The decision in Tarsem Singh v. Sukhminder Singh cited by the learned Counsel for the appellant is not applicable to the facts of the present case, for the reason that in the above case it was found on facts that the agreement in question was void from its inception as the parties suffered from mutual mistake with regard to the area and price of the plots of land agreed to be sold, the forfeiture clause would, for that reason also be void and, therefore, it was held the petitioner could not legally forfeit the amount.
25. In the present case, there is no such plea of contract being void on account of any mistake or any other reason. The suit transaction is not vitiated for any reason and the plaintiff is certainly entitled to invoke the clause of forfeiture of the deposit besides claiming compensation for the actual loss suffered by them, which they have specifically pleaded and proved.
26. In Union of India v. Rampur Distillery and Chemical Co. Ltd. , the Apex Court held as follows:
...It was held by this Court that forfeiture of earnest money under a contract for sale of property does not fall within Section 70 of the Contract Act, if the amount is reasonable, because the forfeiture of a reasonable sum paid as earnest money does not amount to the imposition of a penalty. But, 'where under the terms of the contract the party in breach has undertaken to pay a sum of money or to forfeit a sum of money which he has already paid to the party complaining of a breach of contract, the undertaking is of the nature of a penalty.
27. In the present case, the amount of Rs. 5000/- represented only the earnest money deposit and the said amount was also not paid by the defendant separately and it was deducted from out of the compensation of Rs. 30,000/- claimed by the plaintiff and the suit is filed for recovery of the balance amount of Rs. 25,000/- with interest thereon. Even the stipulation for payment of 1/3rd of the sale price at the time of the auction was also admittedly waived on the request of the defendant. Thus, the plaintiff has not paid any amount whatsoever either before or during or subsequent to the auction. He merely participated in the auction, became highest bidder and even after intimation of the approval of the bid in his favour, he did not pay any amount towards sale price and did not lift the paddy stocks, thereby forcing the plaintiff to conduct re-auction, which as borne out by the evidence on record yielded lesser price of Rs. 100/- per bag i.e., loss of Rs. 20/- per bag, which loss is directly attributable to the breach committed by the plaintiff while calculating the said loss in a sum of Rs. 30,000/-, the plaintiff has deducted the forfeited amount of Rs. 5,000/- towards earnest money deposit, which does not amount to imposition of any penalty, the amount of Rs. 5,000/- being reasonable. The plaintiff is therefore, certainly entitled to recover the suit amount, which represented the actual loss on account of to re-sale with interest at reasonable rate of 12% per annum, making up a total claim of Rs. 31,750/-. There are absolutely no valid or sufficient grounds to interfere with the judgment and decree passed by the trial Court.
28. In the circumstances and for the reasons stated above, the judgment and decree dated 24.02.1990 passed by the trial Court in OS No. 1 of 1985, are held not liable to be interfered with.
29. In the result, the appeal is dismissed. In the circumstances, no order as to costs.