JUDGMENT : A. Misra, J. - The unsuccessful Plaintiff is the Appellant. 2. The facts, so far relevant for the present purpose are as follows : In a general auction sale of forest coupes held in the district of Keonjhar in the year 1961.62, Thakurani East Coupe No. 17, lot No. II was knocked down in favour of the Plaintiff for his highest bid of Rs. 40,000/- on 12.9.1961. He paid the security deposit of Rs. 6,000/-, but did not get the work order, though he waited for a considerable period after the aforementioned payment. In reply to his letter dated 8.1.1962 to the Divisional Forest Officer for refund of his security deposit on the ground that the work order had not been issued, the latter intimated him by his letter dated 26-12-1961 delivered to him on 9-1-1962 that, the security deposit was forfeited under clause a of the General Conditions of Sale as the balance, security money of Rs. 2, 000/- was not paid within seven days. Plaintiff alleges that he had no knowledge that a further amount of Rs. 2,000/- was to be deposited and The Action of The D.F.O. in forfeiting the security deposit is illegal. After service of notice u/s 80 Code of Civil Procedure, be filed The suit for recovery of Rs. 6,000/- constituting the security deposit with damages at 6 percent from The date of deposit, the total claim a mounting to Rs. 7075/-. He also claim pendente lite and future interest at the same rate. 3. Defendant, The State of Orissa resisted the suit alleging that The D.F.O. had the discretion to fix the security deposit ranging from 15 to 25 per cent of the bid amount, and in the case of Plaintiff, be fixed it at 20 per cent. The Plaintiff having failed to deposit the balance of Rs. 2,000/- within seven days, The security money deposited was forfeited under Clause 8 of The General Conditions of Sale, Part III and the sale cancelled. The order of The D.F.O. being in accordance with the conditions of sale, The Plaintiff is not entitled to recover either the security deposit or any damages or compensation. 4. The trial Court dismissed the suit on the following findings : (1) The D.F.O. had the discretion to fix the percentage of The security deposit, and in the case of Plaintiff, he fixed at Rs. 4. The trial Court dismissed the suit on the following findings : (1) The D.F.O. had the discretion to fix the percentage of The security deposit, and in the case of Plaintiff, he fixed at Rs. 8,000/- constituting 20 per cent of the bid amount; (2) the D.F.O. was competent to forfeit the partly paid security deposit when the bidder failed to deposit the balance security amount within the time allowed; (3) as the Plaintiff failed to pay the balance of Rs. 2,000/- towards the security deposit, the forfeiture of Rs. 6,000/- is valid; and (4) the security deposit was in the nature of earnest money for due performance of contract, and as such, Section 74 of the Indian Contract Act has no application. 5. The findings that the security deposit was fixed at Rs. 8, 000/- and that the Plaintiff paid Rs. 6000/- towards part of the same and failed to deposit the balance within the further time allowed are not challenged. The only point urged by learned Counsel for Appellant is that Clause 8 of the General Conditions of Sale, Part III which provides for forfeiture of the security deposit is in the nature of a penalty, and therefore, Section 74 of the Contract Act will be applicable and all that the Defendant will be entitled in case of failure of deposit of the balance security amount is only reasonable compensation an not the entire security deposit respective of considerations of his having Buffered any damage or not. 6. Learned Additional Standing Counsel for Respondent, on the other hand, contends as has been held by the trial Court that the security deposit in the present case being in the nature of earnest money paid for due performance of the contract, Section 74 of the Contract Act has no application and the Defendant has the right to forfeit the entire security deposit irrespective of having suffered any damage or otherwise. 7. The point of law that arises for determination is whether taking into consideration the nature and purpose of the security deposit, the aforementioned forfeiture clause has to be read in the light of Section 74 of the Contract Act or independent of it. The relevant portion of clause a is as follows: xx xx xx xx xx xx. 7. The point of law that arises for determination is whether taking into consideration the nature and purpose of the security deposit, the aforementioned forfeiture clause has to be read in the light of Section 74 of the Contract Act or independent of it. The relevant portion of clause a is as follows: xx xx xx xx xx xx. If for any reason a successful bidder, from whom a security of more than 15 percent is demanded, is unable to pay the full amount of the security, the Divisional Forest Officer may accept a deposit of not less than 15 pet cent of the total sale value and may fix a date not more than seven days later for the payment of the balance. If the bidder fails to complete the payment within the time allowed, the deposit shall be forfeited. x x x x x 8. The trial Court relying on a decision of this Court in N.V. Jagannadhayya v. Ramanatha 1956 C.L.T. 568 held that Section 74 of the Contract Act does not apply to the facts of the present case since the security deposit was in the nature of earnest .money and paid as a guarantee for due performance of the contract and it being ancillary to the contract dues, the amount may be forfeited. Section 74 of the Contact Act runs as follows: 74. 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 contains any other stipulation by way of penalty, the party complaining 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 named or, as the case may be, the penalty stipulated for. In the decision in Fateh Chand v. Balkrishna Das AIR 19155 S.C. 1405, the Supreme Court, on an examination of the scope of Section 74, classified the nature of convenant broadly into two categories, one being 80 genuine pre-estimate of damages by agreement which is to be regarded as a stipulation naming liquidated damages and binding between the parties and the other, a stipulation in a contract in terrorem which is a penalty and in which case the Court refuses to enforce it awarding to the aggrieved party only reasonable compensation. The Supreme Court also observed in paragraph 11 of their judgment: It was urged that the section deals in terms with the right to receive from the party who is broken the contract reasonable compensation and not the right to forfeit what has already been received by the party aggrieved. There is however no warrant for the assumption made by some of the High Courts in India, that Section 74 applies only to cases where the aggrieved party is seeking to receive some amount on breach of contract and not to cases where upon breach of contract an amount received under the contract is brought to be forfeited. In our judgment, the expression "the contract contains any other stipulation by way of penalty" comprehensively applies to every covenant involving a penalty whether it is for payment on breach of contract of money or delivery of property in future, or for forfeiture of right to money or other property already delivered. Duty not to enforce the penalty clause but only to award reasonable compensation is statutorily imposed upon courts by Section 74. In all cases, therefore, where there is a stipulation in the nature of penalty for forfeiture of an amount deposited pursuant to the terms of contract which expressly provides for forfeiture, the Court has jurisdiction to award such some only as it considers reasonable, but not exceeding an amount specified in the contract liable for forfeiture. In another recent decision of the Supreme Court in Maula Bux Vs. Union of India (UOI) this point again arose for consideration. In that case, the Plaintiff had entered into the contracts with the union of India and furnished security deposits of Rs. 10,000/- and Rs. 8,500/- respectively for due performance of the contracts. In another recent decision of the Supreme Court in Maula Bux Vs. Union of India (UOI) this point again arose for consideration. In that case, the Plaintiff had entered into the contracts with the union of India and furnished security deposits of Rs. 10,000/- and Rs. 8,500/- respectively for due performance of the contracts. There was a stipulation for rescission of the contracts in certain contingences, in which case, the security deposit or such portion of it as the sanction in Officer considered fit was to stand forfeited. As the contractor committed delay and neglect in supplying the commodities as per the contracts, they were rescinded and the security deposits forfeited. The suit was filed to recover the security deposits. It was held that Section 74 of the Contract. Act was applicable, that the clause was in the nature of a penalty, and as such, the party complaining of breach is entitled only to reasonable compensation commensurate with the loss, if any, sustained due to such breach. The principles laid down in the decision reported in Fateh Ghand v. Ballcrishna Das AIR 19155 S.C. 1405, were reiterated and it was observed: Where under the terms of the contract, the party in breach has undertaken to pay a sum of money or to forfeit a sum of money which he has already paid to the party complaining of breach of contract, the under taking is of the nature of a penalty. The question of applicability of Section 74 of the Contract Act to such stipulations in forest contracts came up for consideration before this Court in two recent decisions, one in State of Orissa ans Ors. v. Jilludumudi Venlcataraj 32 C.L.T. 521 and an unreported Division Bench decision in Goverdhan Raj Anand v. State of Orissa F.A. Nos. 16, 17/1964-D/20-10-1970. In the latter case, the previous decision of this Court reported in N.V. Jagannadhayya v. Ramanatha 1956 C.L.T. 568, relied upon by The trial Court was considered, distinguished and it was observed that the said decision does not lay down any precise principle with regard to the application of Section 74 of The Contract Act. 16, 17/1964-D/20-10-1970. In the latter case, the previous decision of this Court reported in N.V. Jagannadhayya v. Ramanatha 1956 C.L.T. 568, relied upon by The trial Court was considered, distinguished and it was observed that the said decision does not lay down any precise principle with regard to the application of Section 74 of The Contract Act. Relying on the decision; reported in Fateh Ghand v. Ballcrishna Das AIR 19155 S.C. 1405 it was held that stipulations for forfeiture in forest contracts are in the nature of a penalty to which Section 74 of the contract Act is applicable, and therefore, the party complaining of breach is entitled only to reasonable compensation for the loss, if any, proved and not to forfeiture of the entire amount by way of penalty. The view of the trial Court that the security deposit constituted earnest money is not correct. The Judicial committee in Chiranjit Singh v. Har Swarup AIR 1926 P.C.I. observed: Earnest money is part of the purchase price when the transaction goes forward; it is forfeited when the transaction falls through, by reason of the fault of failure of the vendee. 9. In the present case the security deposit was made not of a sum of money by the purchaser to be applied towards part payment of the price when the contract was completed and till then as evidencing an Intention on the part of the purchaser to buy goods. Here, the Plaintiff deposited the security amount for guaranteeing due performance of the contract when it is completed. The general sale conditions also provide for payment of 'the full bid money in four instalments irrespective of he security deposit. Under Rule 37 of the Forest Contract Rules, provision is made for refund of such portion of the security deposit which still remains to the credit of the contractor after making deductions, if any, under other rules when the contract is finalised, and thereafter termination takes place by efflux of time. Such deposits, as has been observed in the decision in Maula Bux Vs. Union of India (UOI) do not constitute earnest money as they were never intended to form part of the sale consideration. This being so, the provision regarding forfeiture being in the nature of a penalty has to be read in the light of Section 74 of the Contact Act and not independent of it. Union of India (UOI) do not constitute earnest money as they were never intended to form part of the sale consideration. This being so, the provision regarding forfeiture being in the nature of a penalty has to be read in the light of Section 74 of the Contact Act and not independent of it. Therefore, all that the Defendant will be entitled to get on account of failure of the Plaintiff to deposit the balance security amount is the amount of reasonable compensation for the loss, if any, suffered and cannot claim to forfeit the entire deposit independent and irrespective of considerations whether the State has suffered any damage or not. There Is no averment in the written statement, much less proved, that on account of default of payment of the balance security deposit, the State suffered any damage. It has also not been stated that on account of any subsequent re-sale or re-settlement, a lesser amount was obtained. Thus, the Defendant not having alleged or proved any loss has no right to forfeit any portion of the security deposit and Plaintiff is entitled to, recover the same. 10. The next point for consideration is whether Plaintiff will be entitled to damages at the rate of 6 per cent from the date of deposit till the date of suit and future interest at that rate. It is conceded by learned Counsel for Appellant that there was no stipulation to pay interest and Plaintiff has not proved to have sustained any damage. Therefore, that part of the claim of the Plaintiff cannot succeed and must be rejected. 11. In the result, the appeal is allowed in part, the judgment and decree of the trial Court are set aside and it is ordered that the Plaintiff's suit be decreed in part for Rs. 6,000/- with proportionate costs throughout. Final Result : Allowed