IN THE HIGH COURT OF HIMACHAL PRADESH SHIMLA RSA No. 316 of 1997 Date of Decision: July 10, 2008. Banta Ram ..Appellant. Versus. H.P. State Forest Corporation ..Respondent. Coram: The Hon’ble Mr. Justice Deepak Gupta, Judge. Whether approved for Reporting? No. For the Appellant(s): Mr. H.K.Bhardwaj, Advocate with Mr.Yoginder Paul, Advocate. For the Respondent(s): Mr. Neel Kamal Sood, Advocate. Deepak Gupta, J.( Oral). This appeal has been admitted on the following substantial questions of law:- 1. “Whether certain clauses in Agreement Ex.PA are unreasonable? 2. Whether while determining the compensation even five times, when the plaintiff has not proved actual damages or loss caused to the Corporation in breach to the contract is arbitrary and unbridled?” Briefly stated the facts of the case are that the H.P. State Forest Corporation (hereinafter referred to as the plaintiff) awarded a contract for extraction and delivery - 2 - of resin from lot No.6/88 Rajgarh Block to the appellant Shri Banta Ram ( hereinafter referred to as the defendant). Various disputes were raised at the stage of trial but the question now involved is short. It is not disputed that in terms of the contract, the plaintiff was required to extract 35 quintals of resin from 1000 blazes and had agreed to deliver the yield of 192.50 quintals to the plaintiff- Corporation. The Corporation granted 10% remission to the defendant for fire/wind falls to trees thereby the yield was decreased by approximately 19.25 quintals. After allowing this decrease, the defendant was in terms of the contract required to deliver 171.75 quintals of resin to the plaintiff/Corporation. It is not disputed that the defendant had actually delivered 120.39 quintals of resin to the Corporation and therefore, there was a short fall of 120.39 quintal of resin. In terms of the contract, the plaintiff was required to pay a sum of Rs. 215/- per quintal of resin supplied. Clause 29 of the contract is relevant for the purpose of this case which reads as follows:- “29. In case the Agent(s) fail(s) to extract the minimum yield fixed for each lot, a compensation of Rs. 1000/-s per qtl. For short fall shall be recovered from the Agent(s) by the - 3 - Corporation. Compensation for decrease upto 10% may be waived off if the Managing Director of the Corporation is satisfied that the decrease in yield is on account of circumstances beyond the control of the Agent(s).” A perusal of this clause shows that the Corporation was entitled to recover compensation @ Rs. 1000/- per quintal for the shortfall in the supply made by the defendant after excluding the remissions or waivers made by the Corporation. The plaintiff after adjusting the amount paid to the defendant and after adjusting the amount paid on behalf of the defendant, filed a suit for recovery of Rs.17096.85 paise as principal amount plus interest at the rate of 18% per annum, totaling Rs.19,405.85 paise. Future interest and costs of the suit were also claimed. This suit was contested by the defendant on various grounds including the ground that the yield per blaze fixed was highly excessive. In fact the defendant filed a counter-claim and prayed for a decree of mandatory injunction directing the plaintiff to pay him an amount of Rs.35,088.15 paise. The learned trial Court dismissed the suit of the plaintiff as well as the counter-claim filed by the defendant. The counter-claim was dismissed on the ground that only a decree for mandatory injunction was - 4 - prayed for and no decree for recovery of the amount had been prayed for. It was also observed that no court- fee had been fixed on the counter claim as required under the Court-fees Act. The defendant did not file any appeal. The plaintiff filed an appeal. The learned District Judge, came to the conclusion that in terms of the contract the Corporation was entitled to Rs.1000/- per quintals and the suit should have been decreed as prayed. He also came to the conclusion that the learned trial Court had erred in holding that Rs. 215 per quintal paid to the defendant by the plaintiff was the cost of the resin. According to the learned court below, this was the cost of extraction and carriage of the resin only. I have heard Shri H.K.Bhardwaj learned counsel for the defendant/appellant and Shri Neel Kamal Sood, learned counsel for the Corporation/plaintiff. The main thrust of the argument of Shri Bhardwaj is that in terms of Section 74 of the Indian Contract Act, ( for short: the Act) even if the plaintiff was entitled to compensation, it was for the plaintiff to prove what reasonable compensation was payable to it. He submits that Rs. 1000/- per quintal as fixed in the agreement is the - 5 - maximum compensation payable. Under Section 74 of the Act in case of breach of contract, even if no actual loss or damages is caused but the Court has to award reasonable compensation in favour of the party which has suffered due to the breach. This compensation cannot exceed the amount fixed in the contract. He further urges that the findings of the learned trial court that Rs.215/- per quintal was not the cost of resin is incorrect. On the other hand Shri Neel Kamal Sood learned counsel for the plaintiff has supported the findings of the learned District Judge and argues that in terms of Clause 29, the contract entered into between the parties and voluntarily signed by the defendant, the defendant is liable to pay the damages at the rate of Rs.1000/- per quintal. Section 74 of the Indian Contract Act reads as under:- 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 contents any other stipulation by way of penalty, the party completing 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 trained or, as the case may be, the penalty stipulated for. Explanation. - A stipulation for increased interest from the date of default may be a stipulation by way of penalty.] - 6 - Exception. - When any person enters into any bail bond, recognizance or other instrument of the same nature or, under the provisions of any law, or under the orders of the Central Government or of any State Government, gives any bond for the performance of any public duty or act in which the public are interested, he shall be liable, upon breach of the condition of any such instrument to pay the whole sum mentioned therein. Explanation. - A person who enters into a contract with Government does not necessarily thereby undertake any public duty, or promise to do all act in which the public are interested. Section 73 of the Act provides compensation for loss or damage caused by breach of contract. Section 74 deals with cases where compensation so stipulated in the agreement. A bare reading of Section 73 makes it clear that the stipulation in the agreement does not necessarily mean that the amount stipulated in the agreement has to be awarded in every case. Section 74 postulates that reasonable compensation has to be awarded by the Court. However, where there is penalty clause like in present case, the compensation cannot exceed the amount stipulated in the agreement. Therefore, it is but natural that the party claiming the compensation must lead some evidence and must prove what is the reasonable compensation it is entitled to. In fact, this Court has dealt with a similar matter in ILR 1985 HP 732, Jit Singh versus Executive Engineer, Township Division Sunderngar, wherein the learned Single Judge of this Court held as follows:- - 7 - “5. Section 74 of the Indian Contract Act further stipulates that reasonable compensation has to be paid to the claimant regardless of the fact whether he has or has not proved the actual damage or loss caused to him by the breach of the contract. The only harmonious construction which this stipulation admits of is that the claimant may fail to prove in certain cases the actual damage or loss caused to him but he may still be entitled to reasonable compensation. Compensation can only be against actual damage or loss, for what is there to compensate if no damage or loss has been caused by the breach of contract. Failure to prove such damage or loss, of course, is another matter. Therefore, the claimant must, on his part, allege and prove actual damage or loss caused to him by the breach of contract. This would enable the Court to determine reasonable compensation to be awarded. 6. There can be cases where the compensation determined by the Court equals or exceeds the sum named in the contract as the amount to be paid in case of breach or the amount of penalty otherwise stipulated therefore. Here, the claimant will be entitled to receive the sum named or the amount of penalty but in lieu of reasonable compensation.” I am in total agreement with the law as stated in this judgment. There can be no dispute that the even though actual loss /damage may not caused to the plaintiff, he can still claim the compensation but the claimant must plead and prove what is the compensation to which he is entitled to. In the present case, the Corporation was paying to the defendant a sum of Rs. 215/- per quintal for the - 8 - extraction and carriage of the resin. In addition thereto, the Corporation may have incurred some administrative costs. As far as the plaintiff is concerned, the cost of the resin cannot be more than what it was paid for extraction and carriage and some administrative costs incurred by it. It was for the corporation to prove what was the actual cost of the resin and at what rate it was selling the resin in the market. This would have enabled the Court to determine the reasonable compensation, if any, which the corporation was entitled to. This was neither pleaded nor proved. Therefore, the learned trial Court rightly dismissed the suit. The findings of the learned lower appellate court are against the law and the provisions of Section 74 of the Indian Contract Act and the same are set aside. In view of the above discussion, question No.1 is answered by holding that the clauses in the agreement are not unreasonable. However, it is held that in terms of Section 74 of the Contract Act, the plaintiff was required to prove what compensation it was entitled to. The amount of Rs.1000/- per quintal mentioned in Clause 29 of the agreement was only the maximum amount payable in terms of the agreement and the reasonable - 9 - compensation had to be determined by the trial Court on the basis of the evidence led before it. Consequently, the suit of the plaintiff is dismissed. The judgment and decree of the learned lower appellate court is set aside. There shall be no order as to costs. Decree sheet be prepared accordingly. July 10, 2008. ( Deepak Gupta ), J. s.