IN THE HIGH COURT OF JUDICATURE OF MADRAS DATED: 23.10.2008 CORAM: THE HONOURABLE MR. JUSTICE K.KANNAN A.S.No.164 of 1994 The Farm Tea Estate Syndicate by its Managing Partner Lucy Pandiaraj ... Appellant/Plaintiff Vs. The Tamil Nadu Tea Plantations Ltd., a Government of Tamil Nadu Undertaking, Hill Cottage Coonoor, The Nilgiris ... Respondent/Defendant Appeal filed under section 96 of the Civil Procedure Code against the judgment and decree dated 21.12.1993 passed in O.S.No.132 of 1987 on the file of the learned District Judge, Nilgiris at Ootacamund. For appellant :: Mr.S.K.Raghunathan For Respondent :: Mr.P.Sathish, G.A (Forests) JUDGMENT The appellant is the plaintiff, whose suit for declaration that the attempt made by the defendant on 28.10.1980 for recovery of Rs.1,95,864.90 was null and void and that the plaintiff is not liable to pay any further sum than Rs.17,05,110.24 already paid by it. A consequential relief of injunction was also sought for. 2. The suit, after contest, resulted in the dismissal of the plaintiff's action. The appellant assails the decree of the Court below by pointing out that the trial Court had not properly adverted to the specific clauses in the tender agreement relating to payment of interest and penalty. 3. It is an admitted case that the plaintiff had contracted to purchase green tea through the respondent certain quantities over a https://hcservices.ecourts.gov.in/hcservices/ period of time at specified rates. The agreement entered into between the parties provided inter alia for payment of interest and penalty under clause 7, which is as follows: "7. Payment shall be made by means of Demand Draft drawn in favour of the Managing Director, Tamil Nadu Tea Plantation Corporation Limited, Coonoor payable at any of the banks at Coonoor under intimation to the Divisional Manager, Cherangode Tea Division. If the bill amount is not settled within the time limit specified in the conditions 6 above, interest and penalty will be collected from the contractor on all belated payment as detailed below: -------------------------------------------------- particulars of dues Interest on penalty on belated belated payment payment --------------------------------------------------a) From 8th day to 21st day from the date of 1 invoice 15% b) From 22nd day to 60th day from the date of invoice 15% Rs.35/- per day c) From the 61st day to 90th day from the date of invoice 15% Rs.70/- per day. ------------------------------------------------- It would be evident that the liability to pay penalty has been stipulated only upto a delay of 90 days and there is no stipulation of penalty for subsequent period. Even the liability of interest at 15% has been stipulated only upto 90th day. 4. The contention of the appellant is that for the payments made beyond the period of 90 days, the penalty and interest had been worked out. The appellant adverts to the statement of accounts abstract filed along with the written statement. It is seen that the demand which the respondent had made on 18.7.1978 was Rs.17,78,545.43, which amount admittedly has been paid by the appellant. 5. The contention of the respondent was that the amount had been wrongly calculated as Rs.17,05,110.74 and hence a further demand had been made. The manner of such calculation is brought out through https://hcservices.ecourts.gov.in/hcservices/ the statement of accounts referred to above. The impugned demand itself does not merely refer to the difference over the amount actually demanded on 18.7.1978 but, what according to the respondent, was the amount that fell due subsequently, that represented the interest and penalty from 18.7.1978 to 21.9.1980. 6. In a matter where the rights of the parties are regulated by the term of a contract, a demand for interest and penalty could also be rooted only on such terms. There is no liability in the eye of law for the interest generally outside the provisions of the Interest Act or by the term of the contract. Section 3 (5) of the Interest Act itself states that wherever there is a stipulation of interest under a contract, the Interest Act also will not apply. If the contract stipulates the payment of interest upto a particular date, namely for delay in payment upto 90 days, the demand for interest for subsequent period may not arise. If such liability could be fastened, it could again arise under the Interest Act only, when a written demand is made. While the Interest Act itself provides for the liability for interest, penalty is completely on a different basis that should be sourced to a specific agreement between the parties. 7. I have also referred to the specific clause under the agreement, which stipulates penalty only for delay upto 90 days and there is no provision for collecting the penalty for subsequent period. It is not illogical because the agreement itself provides for a manner of recovery and the respondent fettered even its claim for penalty, in view of the right, which it had, to secure any outstanding payments by resorting to the Revenue Recovery Act. If such procedure was not adopted, it ought not to be taken as a circumstance against a defaulter to enable the respondent to collect penalty also. 8. Section 74 of the Contract Act, which provides for recovery of penalty, which is stipulated in the case of breach of contract states that party complaining of a breach would be entitled to receive from the party, who has broken the contract a reasonable compensation not exceeding the amount named under the contract or the penalty stipulated therefor. If there was no penalty stipulated beyond a period, the liability to pay such penalty does not rise. 9. It is brought to my attention that the respondent has already adjusted Rs.50,000/- from the caution money. During the pendency of the suit, a bank guarantee is reported to have been furnished for Rs.1,50,000/-, which was subsequently encashed by the respondent when the order of injunction was vacated. Therefore, apart from the amount, which had been already paid, the respondent has also collected further sums in the manner referred to above. https://hcservices.ecourts.gov.in/hcservices/ 10. The essential relief, which is sought for in the plaint is on the basis that the demand which is worked out by the respondent as constituting the interest and penalty, is not sustainable. I have no hesitation to conclude that such demand is not available to the respondent and the plaintiff cannot be mulcted with such liability, which is not provided under the contract. 11. I therefore set aside the judgement of the Court below and allow the appeal granting a decree that the demand made by the respondent, which is impugned in the suit is not enforceable and grant the consequential relief as well. However, it shall be open for the respondent to make a fresh calculation giving due credit to the various demands that have been made on the principle of reducing balance without demanding interest and penalty beyond the period of 90 days and restrict the claim only as per the stipulations under the contract. If any amount is still payable on a proper reckoning of the working sheet, the respondent could make a fresh demand. If the accounts so drawn result in any credit as being available to the plaintiff, the same shall be refunded to the plaintiff. This exercise shall be undertaken within a period of four weeks from the date of receipt of a copy of this judgment. 12. The appeal is allowed on the above terms. But under the circumstances, there shall be no direction as to costs. Sd/- Asst. Registrar. /true copy/ Sub Asst. Registrar. Ajr To 1. The District Judge, Nilgiris at Ootacamund 2. The Section Officer, V.R.Section, High Court, Madras-104. + 1 CC To Mr.S.K.Rakhunathan, Advocate SR NO.58808 Judgment in A.S.No.164 of 1994 VM {CO} TP/28.11.08 https://hcservices.ecourts.gov.in/hcservices/