1. The plaintiffs, who are the lessees of the Sivaganga zemindari, gave a sub-lease of certain properties to the defendant in Fasli 1318 for ten years. On the allegation that a default was made by the defendant in carrying out the stipulations contained in the lease deed, the plaintiffs cancelled the lease and entered into possession of the properties. They brought this suit on the ground that a sum of Rs. 483-6-0 is due to them as arrears of rent. The defendant pleaded that he is entitled to a set off of the sum of Rs. 362-8-0 which was deposited by him with the plaintiffs in Fasli 1318 when the lease was granted.
2. The Subordinate Judge held that the stipulation that the deposit amount should be forfeited if the conditions were not complied with was in the nature of a penalty and that it should be relieved against. I am unable to agree with him in this conclusion.
3. The amount deposited represents one twentieth of the amount due to the plaintiffs for rent. Prima facie there is nothing unreasonable in such a sum being forfeited for non-performance of the conditions of the contract.
4. Mr. Krishnaswami Iyer argues that, as under clause 22 of the lease deed, the amount of deposit is to be applied as the last instalment of the rent due to the plaintiffs, the sum of Rs. 362-8-0 is not really a deposit but only a provision by way of penalty. Clause 22 has to be read with clause 23. Clause 22 contemplates the lease as subsisting and provides that if the lease continues to be in force, the defendant is entitled to claim that the sum of Rs. 362-8-0 shall be applied towards the last instalment of rent due from him. Clause 23 provides for the cancellation of the lease. In that case, it states that the amount of deposit shall be forfeited. This is an express stipulation. It matters little whether we call it an independent or collateral contract. I do not think that clause 22 takes away from the liability to forfeiture referred to in clause 23. It has to be remembered that this stipulation is not a provision for damages for breaches of contract but is one to enforce its due performance.
5. As pointed in Manian Pattar v. Madras Railway Co., (1) the applicability of S. 74 cannot arise in cases where a precautionary provision is made for the due performance of the contract. That section would only apply to terms which are intended to provide a certain sum of money by way of damages to the party whose contract has been broken.
6. I am bound by the Full Bench decision reported in Natesa Aiyar v. Appavu Padayachi(2) which holds that if there is an express contract which stipulates that on breach of it the amount deposited shall be forfeited—that contract must be given effect to, without reference to Section 74 of the Contract Act. Mr. Krishnaswami Iyer seeks to distinguish the present case from Natesa Aiyar v. Appavu on the ground that the contract therein considered was one for the sale of land; he argues that the principle enunciated in that case has no application to contracts of lease. I am unable to agree with him in this contention. There are statutory provisions in the Transfer of Property Act regarding relief against forfeiture. In S. 112 there is a provision for relieving against non-payment of rent. S. 134 provides for relief against re-entry. Relief against forfeiture of deposits is not provided for; and in the absence of a statutory declaration to that effect in the Act the general law of contracts must apply. I hold that there is no distinction between contracts of sales and contracts of lease on this point. In both classes of contracts deposits are usual. Mr. Krishnaswami Iyer relies upon the decision in Srinivasa v. Ratnasabapathi(3). I do not think Sir Arnold White, C.J, intended to regard that case as binding authority, as he subsequently refers with approval to the decision in Manian Pattar v. Madras Railway Co. which cast doubts on the correctness of the decision in Srinivasa v. Ratnasabapathi.
7. Another point relied on by the learned Vakil is that even if the forfeiture had been incurred the question of the reasonableness of the amount to be forfeited has to be decided by the Court below, and that he is entitled to a finding upon that question. Reliance is placed upon the observation of the learned Chief Justice in Natesa Aiyar v. Appavu. As I read the judgment of the learned Chief Justice, I do not understand him to lay down that where there is an express contract relating to the forfeiture of the deposit, the question of the reasonableness of the amount can enter into the consideration as to whether the forfeiture has been rightly incurred or not. The reference to In re Dagenham (Thames) Dock Co., Ex parte Hulse(4) shows that the reasonableness of the amount is one of the factors in determining whether there was a deposit in reality, although it goes by that name in the contract. If the amount is very large, naturally the Courts would be unwilling to hold that it was by way of deposit that the money was originally paid. In this case, as I pointed out at the outset, the sum deposited represents only one-twentieth of the amount due under the lease. The learned Chief Justice himself has stated in the case already referred to that there is certainly nothing extraordinary in a 10 per cent, deposit under an agreement for the sale of land being regarded as reasonable. I am, therefore, unable to hold that the amount of Rs. 362-8-0 is such a large amount that its forfeiture should be regarded as unreasonable. Speaking for myself, whether the amount is large or small, if there are unmistakable indications that the original payment was by way of deposit and if there is an express clause relating to forfeiture, the quantum of the deposit is not an element for consideration.
8. Mr. Krishnaswami Iyer referred to the decision in Cornwall v. Henson(5) as throwing doubt upon the correctness of the decision in Howe v. Smith(6). The case in Cormoal v. Henson was not one of deposit at all. In that case the plaintiff sought for the refund of instalments which had been paid under the contract, and the learned Lords Justices who took part in the case held that the principle regulating the forfeiture of deposits would not apply to such a case.
9. On the whole I have come to the conclusion that the decision of the Subordinate Judge is wrong and must be set aside.
10. It was argued by Mr. K. Srinivasa Iyengar that the mere rescission of the contract indicates that the forfeiture had been rightly incurred. I cannot follow this argument. The lessees were entitled to two remedies against the defaulting party. One was to rescind the contract; the other was to enforce the forfeiture. It is open to the defendant to say that notwithstanding that the contract had been put an end to, he is entitled, to show that the forfeiture has not been incurred.
11. As the Sub-Judge has disposed of the case upon a preliminary point, his decree must be reversed. He must take the case back on his file and dispose of it according to law. Costs will abide the result.
S.N/R.K
12. Decree reversed.