IN THE HIGH COURT OF KERALA AT ERNAKULAM PRESENT : THE HONOURABLE MR. JUSTICE A.K.BASHEER & THE HONOURABLE MR. JUSTICE P.S.GOPINATHAN TUESDAY, THE 11TH AUGUST 2009 / 20TH SRAVANA 1931 A.S.No. 681 of 1995 ------------------------------- OS.500/1986 of I ADDL.SUB COURT,TRIVANDRUM .................... APPELLANT/PLAINTIFF: -------------------------------------- KERALA STATE ROAD TRANSPORT CORPORATION, TRIVANDRUM, REP BY MANAGING DIRECTOR KSRTC, TRIVANDRUM BY ADV. SRI.V.BHASKARA MENON, SC, KSRTC SHRI.JOHNSON P.JOHN, SC, KSRTC RESPONDENT/DEFENDANT: --------------------------------------------- M/S SUDHIR ASSOCIATES, NO.3 RAJ BHAVAN ROAD BANGALORE, REP BY THE MANAGING PARTNER. THIS APPEAL SUITS HAVING BEEN FINALLY HEARD ON 11/08/2009, ALONG WITH AS NO.480 OF 1995, THE COURT ON THE SAME DAY DELIVERED THE FOLLOWING: A.K.BASHEER & P.S.GOPINATHAN, JJ. - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - A.S.No.480 & 681 OF 1995 - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - Dated this the 11th day of August, 2009 JUDGMENT Basheer, J: These two appeals are being disposed of by this common judgment since they arise from the same decree and judgment passed by the court below. 2. The plaintiff, the Kerala State Road Transport Corporation instituted the suit against defendant M/S Sudhir Associates, Bangalore claiming a total sum of Rs.5,20,475/- with interest at the rate of 12% thereon being the damages allegedly suffered by the Corporation because of the failure of the defendant in fulfilling its obligations under Ext.A1 agreement. The court below granted a decree in favour of the plaintiff for a sum of Rs.2,11,300 with interest at the rate of 12% per annum from the date of suit till realization and also with proportionate cost. 3. The said decree and judgment are under challenge in these two appeals. While the plaintiff in its appeal (A.S.No.480/1995) contends that the court below was not justified in refusing to grant a decree for the entire sum claimed in the plaint, the defendant/Corporation in its appeal (A.S.No.681/1995) contends that the court below was thoroughly unjustified in granting a decree to the plaintiff. 4. The case of the plaintiff may be briefly noticed. The Corporation had invited tenders for awarding the right to display advertisements in all the A.S.No.480 & 681 OF 1995 :: 2 :: bus stations and bus shelters in Kerala specified in the tender notice for a period of three years. 5. The defendant quoted Rs.3,69,000/- and was the highest bidder. The Corporation entered into Ext.A1 agreement with the defendant granting him the right to display advertisements in all the bus stations and bus shelters mentioned in the annexure appended to the agreement for a period of three years commencing from April 1, 1982. The defendant agreed to pay to the Corporation 25% of the guaranteed income at the time of execution of the agreement and the balance of the contractual amount in 36 monthly equal instalments of Rs.7,687.50. The defendant had also to remit 20% of the license fee as security in the form of Treasury Savings Bank Deposit or Bank Guarantee issued by a scheduled bank. (We will refer to the other terms and conditions of the agreement at a later stage). 6. The case of the plaintiff was that the defendant failed to remit 25% of the contract amount at the time of execution of the agreement. He also failed to furnish security equal to the 20% of the contract amount within the stipulated time. Though the defendant issued a cheque for Rs.71,750/- on January 18, 1983 it was dishonoured. Later, in September 1983, the defendant forwarded a cheque for Rs.30,750/-. But the plaintiff returned the same requesting the defendant to send the amount by demand draft. But the defendant did not comply with the above request. In short, the plaintiff alleged that the defendant had violated the terms of the agreement and A.S.No.480 & 681 OF 1995 :: 3 :: failed to remit the sum of Rs.2,76,750/- being the amount payable in 36 equal monthly instalments. 7. The plaintiff admitted that it had received a sum of Rs.73,800/- by invoking the bank guarantee furnished by the defendant apart from a sum of Rs.2,000/- being the earnest money deposited by the defendant. The plaintiff also claimed a total sum of Rs.3,09,275/- being penal charges at the rate of 25% per day for the period from April 1, 1982 to July 31, 1984, the date on which the plaintiff/Corporation had allegedly terminated the contract. Thus, the plaintiff claimed a total sum of Rs.5,20,475/- with interest thereon at the rate of 12% as indicated above. 8. The suit was resisted by the defendant contenting interalia that there was no default on the part of the defendant as alleged in the plaint. According to the defendant, the plaintiff/Corporation had failed to issue the requisite license to the defendant enabling it to display the advertisement boards at the various depots and shelters. Though the defendant had made several requests to the plaintiff to issue formal orders permitting the defendant to display advertisement boards, the plaintiff did not take any steps in this regard. Various other contentions denying the liability towards penalty, damages, etc. were also raised by the defendant in its written statement. The sum and substance of the contention of the defendant was that it was not liable to pay any damages to the plaintiff in as much as the plaintiff alone was responsible for the failure of the defendant to perform its A.S.No.480 & 681 OF 1995 :: 4 :: part of the contract under Ext.A1. 9. The court below framed the following issues. i) Is the suit maintainable? ii) Is there any concluded contract between the parties? iii) Is there any agreement executed between the parties on 8-4-81? iv) Whether the plaintiff is entitled to damages prayed for? v) Reliefs and costs? 10. An officer of the Corporation was examined as PW1 and Exts.A1 to A8 were marked on its side. There was no oral or documentary evidence on the side of the defence. (Of course the defendant made himself available for chief examination. But thereafter he did not appear before the court) 11. The court below while dealing with issue Nos.2 to 5 took note of the fact that the defendant had admitted execution of the agreement. The defendant being the successful bidder for the right to display the advertisement boards in the various depots, sub depots, shelters etc. the court below also found that the defendant had committed breach of contract in as much as it had failed to remit 20% license fee as stipulated in the agreement. Thus, the learned Judge proceeded to hold that the defendant was liable to pay damages to the plaintiff. However, the court below held that the plaintiff was not entitled to claim penalty at the rate of Rs.25 per day for the period from April 1, 1982 to July 1, 1984. Thus, the claim for Rs.3,09,275/- was repelled by the court below. A.S.No.480 & 681 OF 1995 :: 5 :: 12. It is true that Clause 3 of Ext.A1 agreement stipulates that in the event of failure of the successful tenderer (defendant) to remit the amount in the manner specified in the agreement, the penalty of Rs.25 per day shall be realized. The court below while dealing with the claim of the plaintiff towards penal charges (as described by the plaintiff) has referred to the provisions contained in Section 74 of the Contract Act, 1872 and also to a decision of the apex court in Maula Bux V. Union of India [AIR 1970 SC 1955] and also to a decision of this Court in C.K.Kesavan V. Kudaythoor Panchayat and another [1990 (2) KLJ 424]. 13. A perusal of the provisions contained in Section 74 will show that the party complaining of the breach would be entitled to claim penalty only if the contract contains a specific stipulation to that effect. In other words, there must be a stipulation to pay penalty in the event of breach in the contract itself. Clause 3 in Ext.A1 agreement stipulates only payment of penalty of Rs.25 per day for the failure on the part of the successful bidder to remit the license fee. In our view, the penalty referred to in Clause 3 would not come within the purview of Section 74. 14. We have carefully perused the decision in Kesavan’s case (Supra). While distinguishing the liquidity damages and penalty, this court had held that the payment would be held to be a penalty if the sum stipulated for is an extravagant or unconscionable amount in comparison with the loss that could conceivably be proved to have followed from the breach. In our A.S.No.480 & 681 OF 1995 :: 6 :: view, the sum of Rs.3,09,275/- claimed by the plaintiff as penalty charges would squarely fall within the category of penalty as held by this court in Kesavan’s case (Supra). 15. In Maula Bux (supra), the apex court held that where loss in terms of money can be determined, the party claiming compensation must prove the loss suffered by him in order to apply Section 74 of the Act. A perusal of the pleadings of the plaintiff in the plaint will clearly show that a sum of Rs.3,09,275/- was claimed at the rate of Rs.25 per day for the entire period of 28 months. In our view, the above claim is totally unconscionable and unsustainable. Therefore, the court below was justified in declining the above prayer of the plaintiffs. 16. But the court below noticed that the Corporation had allowed the defendant to remit the dues in 36 monthly instalments at the rate of Rs.10,250/- in modification of the earlier stipulation that the defendant should pay the instalments at the rate of Rs.7,687.50/-. The court below also proceeded to hold that due to the laches and negligence of the defendant, the contract fell through and thereby the Corporation suffered a loss of the income of licence fee for a period of 28 months. The loss suffered by the plaintiff is legally recoverable from the defendant as per the terms of Ext.A1 and therefore the court below fixed the amount payable by the defendant at Rs.2,87,000/- for 28 months at the rate of Rs.10,250/- per month. An amount of Rs.73,800/- recovered by the plaintiff by invoking the bank guarantee and A.S.No.480 & 681 OF 1995 :: 7 :: also the sum of Rs.2,000/- earnest money deposit made by the defendant were adjusted from the said sum of Rs.2,87,000/-. Thus, the amount payable by the defendant was fixed at Rs.2,11,200/-. The court below directed the defendant to pay the said sum with interest thereon at the rate of 12% from the date of suit till realization. 17. We have carefully perused the pleadings of the parties and the documents available on record. We have also heard learned counsel for the parties at length. 18. As has been noticed already, there is no dispute that the defendant had entered into Ext.A1 agreement with the Corporation agreeing to pay a sum of Rs.3,69,000/- for the right to display advertisement boards in the various depots, sub depots etc. in the State. While the plaintiff alleged that the defendant had failed to perform its part of the contract, the defendant contended that the entire blame was on the part of the Corporation in as much as it did not issue necessary orders/license enabling the defendant to display the advertisement boards at the various depots, sub depots etc. 19. Admittedly, Ext.A1 agreement was signed by the defendant on May 20, 1982. It is also not in dispute that the defendant had failed to remit 25% of the contractual amount at the time of execution of the agreement. Similarly, going by the stipulations in the agreement, the defendant had to furnish security/bank guarantee equal to 20% of the contractual amount as license fee. A.S.No.480 & 681 OF 1995 :: 8 :: 20. It was admitted by the defendant that he furnished the bank guarantee only on March 4, 1983 more than 10 months after the execution of the agreement. It was also conceded by the defendant that he failed to deposit 25% of the contractual amount. According to the plaintiff, the cheque issued by the defendant in this connection was dishonoured. Though defendant had made yet another payment sometime later through a cheque, it was not accepted by the plaintiff on the ground that only a demand draft would be accepted. The defendant did not bother to send a demand draft as requested by the Corporation. 21. In short, a perusal of the materials available on record will undoubtedly show that the defendant had failed to comply with the vital stipulations or conditions in the agreement. But there appears to be some force in the contention raised by the learned counsel for the defendant also, as regards the indifferent or casual attitude shown by the plaintiff, particularly when the defendant had highlighted certain problems that were being faced by him in performing his part of the contract. Ext.A7 is one such communication sent by the defendant to the plaintiff requesting for immediate necessary action to enable the defendant to display the advertisement boards at the depots. A perusal of the evidence of PW1 will clearly show that precious little was done by the plaintiff to ameliorate the grievance of the defendant. The evidence will definitely indicate or reveal the indifferent attitude of the Corporation to a large extent. A.S.No.480 & 681 OF 1995 :: 9 :: 22. We do not propose to deal with those aspects of the matter at length in view of the fact that the imbroglio in this case can be sorted out even without doing so. As has been noticed already, the court below has calculated the damages for a total period of 28 months starting from April 1982 till July 1984 (inclusive of both months). But it has to be noticed that the agreement was admittedly executed by the defendant only on May 20, 1982. Ext.A7 communication was sent by the defendant to the Managing Director of the Corporation on September 16, 1982 requesting for immediate necessary action in the matter. Clause 15 of Ext.A1 agreement stipulates that all doubts and disputes arising under or out of this agreement or in relation thereto or regarding the interpretation of any clause thereof, shall be decided by the General Manager and that such decision shall be final and legally binding on the licensee. 23. The evidence of PW1 assumes significance in the light of the above clause and also if we keep in view Ext.A7 and the response thereto from the Corporation (A8), it is in this context we have observed earlier that the Corporation was also partly responsible for the unfortunate turn of events. 24. Anyhow, in our view, the court below was not justified in reckoning the entire period of 28 months to arrive at the quantum of damages. In our considered opinion interest of justice would be met if the period of contract is taken to be starting from May 20, 1982 till September 16, 1983 viz. 16 months. The monthly instalments payable was at the rate of A.S.No.480 & 681 OF 1995 :: 10 :: Rs.10,250/- Thus, the amount payable by the defendant would come to Rs.1,64,000/-. After deducting the sum of Rs.75,800/- (73,800 + 2,000) paid by the defendant, the balance payable would come to Rs.88,200/-. 25. The defendant shall be liable to pay the said sum towards damages to the plaintiff. The defendant shall also pay interest at the rate of 9% on the said sum of Rs.88,200/- from the date of suit till the date of realization. The decree of the court below is modified to the above extent. The parties in these two appeals shall suffer their respective cost. The appeals are disposed of in the above terms. (A.K.BASHEER, JUDGE) (P.S.GOPINATHAN, JUDGE) jes A.S.No.480 & 681 OF 1995 :: 11 :: A.K.BASHEER & P.S.GOPINATHAN, JJ. - - - - - - - - - - - - - - - - - - - - - - - - - - - - A.S.No.480 & 681 OF 1995 - - - - - - - - - - - - - - - - - - - - - - - - - - - - JUDGMENT Dated 11th August, 2009