Makkala Narsimlu v. Gunnala Raghunandan Rao .

1. The principal question raised in this Letters Patent Appeal is about the compensation awarded by our learned brother Sriramulu, j., for failure to perform a contract. The defendant, against whom the compensation was awarded by our learned brother, has preferred this appeal.

2. The matter arose thus :- The appellants executed an agreement of sale Ex. A-1 dated 29-3-66 in favour of the respondent agreeing to sell a house for Rs. 20,000. A sum of Rs. 4,000 was paid on that date by way of advance or earnest money. The vendor agreed to get two things done within nine months there from. Once is to get a further sale deed in his favour from whom he had purchased. The second condition was that he would vacate the tenants from the house and give vacant possession to the purchaser within the period of nine months. That was why the parties fixed he period of nine months for performance of the contract. Once the vendor was ready with these two requirements, the purchaser was to pay the balance of Rs. 16,000 and to take a sale deed. However, the vendor was unable to perform either of the two conditions with the result that the agreement could not be performed. The purchaser filed the suit to recover a sum of Rs. 8,000 consisting of Rs. 4,000 towards principal and Rupees 4,000 as liquidated damages with costs and future interest thereon at 6% per annum from date of suit till realisation. This sum of Rs. 4,000 claimed as liquidated damages was mentioned in the agreement of sale Ex. A-1 itself.

3. The defence was that the defendant did not commit any breach of agreement and that the plaintiff was not entitled to any damages. The trial Court was very equivocal in its finding about the occurrence of breach of agreement on the part of the defendant. In one place it clearly said thus:

"In my opinion there has been a breach of agreement on the part of the defendant."

In another place it has concluded by saying:

"In the circumstances I hold that though there had been no breach of contract on the part of the defendant, the plaintiff is entitled to recover the amount of Rs. 4,000."

Thus the trial Court was not clear or certain in its mind about the breach having been committed by the defendant. It gave a decree for the refund of Rs. 4,000 and rejected the claim for the balance of Rs. 4,000 as liquidated damages. While refusing to grant liquidated damages, the lower Court once again said that there had been no breach of contract. The shortcoming of the judgment of the lower Court did not stop with this. When the plaintiff filed the suit for recovery of these two amounts of Rs. 4,000 each, with costs and future interest at 6% per annum from the date of suit, it did not say anything about interest, though the plaintiffs suit was partly decreed without costs.

4. The defendant kept quiet but the plaintiff carried the matter in appeal in respect of Rs. 4,000 which was disallowed to him. He claimed interest on the disallowed amount of Rs. 4,000. There was no specific ground or separate Court- fee paid on the amount of costs disallowed or the interest on Rs. 4,000 decreed by the trial Court.

5. Sriramulu, J., while disposing of the appeal did not go into the question whether there was a breach of the contract by the defendant. He posed for himself the question whether in addition to the refund of Rs. 4,000 the plaintiff was entitled to any compensation. He was of the opinion that reasonable compensation should be provided for the plaintiff, since the agreed amount of Rs. 4,000 as damages appeared to him to be in the nature of penalty. He noted the fact that no evidence particularly had been adduced to show that the amount of Rs. 4,000 claimed by the plaintiff was reasonable. The learned Judge considered that a sum of Rs. 2,000 would be reasonable compensation. Therefore he awarded that amount as compensation. Consequently he passed a decree for Rs. 4,000 already decreed by the trial Court by way of refund plus Rs. 2,000 with interest on Rs. 4,000 at the rate of 6% per annum from the date of suit till realisation. In regard to costs, though there was no appeal or cross-objections preferred by the plaintiff, the learned Judge awarded proportionate costs in the trial Court as well as the Appellate Court in view of the fact that costs and interest were claimed in the suit. Consequently, the learned Judge awarded proportionate costs in the trial Court as well as in the appeal on condition of the plaintiff paying the Court - fee on costs. It is this decree and judgment that is challenged before us by the defendant.

6. Sri G. V. R. Mohan Rao for the appellants raises three contentions. The first contention is in regard to Rs. 2,000 allowed by our learned brother by way of compensation. The learned counsel pointed out that the sum of Rs. 4,000 provided in the contract between the parties as damages was considered by the learned Judge to be in the nature of penalty. Therefore, that sum could not be granted. He also refers to the observation of the learned Judge that there was no evidence regarding the reasonableness of the amount of Rs. 4,000 as damages. In these circumstances, the learned counsel urges that the fixation of Rs. 2,000 as compensation is arbitrary and cannot be sustained. It should be noted that the learned Judge awarded Rs. 2,000 as reasonable damages or compensation for the breach of the contract. This is what the learned Judge stated in this connection :

"I, therefore, partly allow the appeal and direct that the respondent shall further pay a sum of Rs. 2,000 to the appellants by way of damages for the breach of contract."

That leads to the necessary inference that the learned Judge was of the opinion that the defendant committed breach o contract. We have no hesitation in agreeing with this basis of the learned Judge's conclusion. The defendant agreed to get his title perfected by getting another document from the co-owner. He did not do that, nor did he succeed in giving vacant possession of the premises within the stipulated time of nine months. Thus the failure to perform these two important clauses of the contract was on the part of the defendant. He committed the breach and therefore he was liable to pay damages. In this view the learned Judge is right.

7. Then the question is whether the learned Judge is right in fixing a sum of Rs. 2,000 as the quantum of damages. Section 74 of the Indian Contract Act provides that when a contract has been broken, if a sum is named in the contract as the amount to be paid in the case of such breach, or if the contract contains any other stipulation by way of penalty, the party complaining of the breach is entitled, whether or not actual damages 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. Therefore, from the statute it is clear that where there is a broken contract and an amount is named as compensation, the Court cangrant a reasonable portion of that amount or the entire amount as the case may be, whether or not actual damage or loss is proved to have been caused thereby. In Union Of India v. Raman Iron Foundry ., Bhagwati, J., speaking for the Supreme Court observed while construing Section 74 at page 1273:

".................................. even if there is a stipulation by way of liquidated damages, a party complaining of breach of contract can recover only reasonable compensation for the injury sustained by him, the stipulated amount being merely the outside limit."

In the earlier case in Maula Bux v. Union of India, the Supreme Court laid down 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 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 pre-estimate, 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, termined, the party claiming compensation must prove the loss suffered by him. It is unnecessary to cite more decisions on this aspect. It is now the well settled construction of Section 74 that when there is a breach of contract and when the contract itself has provided that an amount of compensation has to be paid, the Court has power to award either the entire amount so fixed or a reasonable portion thereof, whether or not the actual loss is proved. In this case, undoubtedly the plaintiff lost interest on the amount of advance he paid. Further he had to wait for the implementation of the contract by the defendant. He had to issue a notice and then could not get the house which he wanted to purchase. He had to issue a notice and then could not get the house which he wanted to purchase. In these circumstances, though there is no proof circumstances, though there is no proof of the actual loss, the sum of Rs. 2,000 awarded by the learned single Judge cannot be said to be unreasonable by way of compensation. We are, therefore, not inclined to interfere with the decree passed by the learned Judge awarding Rs. 2,000 awarded by the learned single Judge cannot be said to be unreasonable by way of compensation. We are, therefore, not inclined to interfere with the decree passed by the learned Judge awarding Rs. 2,000 as reasonable compensation for breach. We have already noted that he has not awarded interest on this sum of Rs. 2,000 and there is no appeal or cross-appeal in respect thereof. So, this part of the decree for Rs. 2,000 is affirmed.

7-A. The other two items questioned by the learned counsel for the appellants is that the learned Judge has awarded interest on Rs. 4,000 from the date of the suit till realisation even though there was no appeal about it, and there was no Court- fee paid thereon. Likewise even awarding of proportionate costs by our learned brother of the trial Court and the appellate Court is challenged before us. Sri Mohan Rao relies on a decision in Syed Mohd. Badsha Hussain. In Re 1957-1 Andh WR 257 to say that Court-fee should be paid on disallowed costs. As we have already pointed out, the failure to pay court-fee was taken as a mistake by the learned single Judge. He, therefore, allowed proportionate costs on condition that the plaintiff paid court-fee thereon. We are informed by Sri D. Hanumantha Rao, the learned counsel for the respondent that in pursuance of this direction court-fee has been paid. Awarding of interest on Rs. 4,000 is also challenged by the learned counsel on the ground that no appeal has been preferred in this regard as well. But then the fact remains that the lower Court while awarding a decree for Rs. 4,000 by way of refund, should have awarded interest on that amount and also proportionate costs. It failed to do so and that failure can be rectified by the Appellate Courts even though there was no appeal in this regard. That power is conferred on the Appellate Court under Rule. 33 of Order. 41 of the Civil Procedure Code, which says that the Appellate Court shall have power to pass any decree and make any order which ought to have been passed or made and to pass or make such further or other decree or order as the case may require; and this power may be exercised by the Court notwithstanding that the appeal is as to part only of the decree. In view of this clear and categorical power conferred on the Appellate Court, we find no legal objection to the direction given by our learned brother in regard to the interest on Rs. 4,000 from the date of suit and also the proportionate costs of the trial Court.

8. Thus we see no substance in any of the points raised by the learned counsel for the appellant.

9. The appeal is consequently dismissed with costs.

10. Appeal dismissed.