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2000 DIGILAW 115 (ORI)

RADHA PRASAD v. UNITED COMMERCIAL BANK

2000-03-03

P.K.MISRA

body2000
P. K. MISRA, J. ( 1 ) DEFENDANT has tiled this appeal. ( 2 ) PLAINTIFF-RESPONDENT is a nationalised bank. It had filed Money Suit No. 51 of 1978 for realisation of Rs. 1,03,008. 11 paise and damages at the rate of Rs. 1,000/- per month till disposal of the suit with the undertaking to pay the court-fee after the amount of damages is determined by the Court, on the following allegations : defendant is the owner of plot No. " 1068. He made an offer to construct a building having an area of 3,000 square-feet for the use of the Bank for its office and residence of its manager. The offer was accepted as per the terms and conditions indicated in the letter of acceptance dated 27. 5-1975 ana thereafter, an agreement was signed between the parties on 11. 6. 1975 incorporating the terms and conditions. A loan for Rs. 1,00,000/- was sanctioned. It was stipulated that the house would be completed and possession would be delivered within six months from the date of agreement; the loan amount together with interest should be repaid within a period of ten years from the date of delivery of possession and the Bank may occupy the building on monthly rent of Rs. 1,000/- which could be adjusted or appropriated by the Bank towards the dues of the Bank. It was also stipulated that if the defendant fails to deliver possession of the building within the stipulated period, the plaintiff shall be entitled to revoke the agreement and realise the entire amount with interest and in such an event, the Bank shall be at liberty to claim damages at the rate of Rs. 1,000/- per month. It was stipulated that the loan amount shall be paid in instalments to the defendant in the discretion of the Bank depending upon the stage of construction of the building. It was alleged in the plaint that a sum of Rs. 25,000/- was paid to the defendant on 8. 7. 1975 with the understanding that the said amount shall be utilised for making construction upto the plinth level. Subsequently, further instalment of Rs. 25,000/-was advanced to the defendant. However, as there was no further progress of construction after availing the second instalment in spite of oral and written directions of the Bank, the Bank issued registered notice to return all monies along with interest. Subsequently, further instalment of Rs. 25,000/-was advanced to the defendant. However, as there was no further progress of construction after availing the second instalment in spite of oral and written directions of the Bank, the Bank issued registered notice to return all monies along with interest. Accordingly, the suit was filed for realisation of a sum of Rs. 50,000/-alongwith interest and for realisation of damages. ( 3 ) THE defendant in his written statement took the plea that the money required for construction was not advanced in due time. It was further asserted that though at the time of payment of the second instalment it was shown that Rs. 25,000/- had been paid, actually a sum of Rs. 12,000/- had been paid after illegally deducting Rs. 13,000/- towards other alleged dues of the Bank. It was further stated that the Bank defaulted in paying the other instalments in spite of several letters of the defendant. The claim of the Bank for payment of damages was resisted. ( 4 ) THE trial court found that a sum of rs. 50,000/- had been advanced by the Bank to the defendant and the defendant had not completed the building within the stipulated period. Accordingly, the trial court decreed the suit and directed payment of Rs. 88,088. 11 paise including a sum of Rs. 15,000/- towards damages for thirty months at the rate of rs. 500/- per month. The aforesaid decree is under challenge at the instance of the defendant. A cross-objection has been filed by the bank claiming that the trial court should have granted the entire damages of Rs. 30,000/-claimed by the Bank. ( 5 ) THE learned counsel appearing for the appellant contended that the agreement between the parties indicated that there was a reciprocal contract between the parties, as envisaged under Section 54 of the Contract act and the Bank has failed to perform its promise by not paying the instalments in due time and by not payment the last two instalments at all. It is highlighted by the counsel for the appellant that even though the agreement was executed on 11. 6. 1975, the first instalment of loan was not paid until 8. 7. 1975. Similarly, the second instalment was made available only on 29. 9. 1975 even though approach was made on 10. 9. 1975. It is highlighted by the counsel for the appellant that even though the agreement was executed on 11. 6. 1975, the first instalment of loan was not paid until 8. 7. 1975. Similarly, the second instalment was made available only on 29. 9. 1975 even though approach was made on 10. 9. 1975. ( 6 ) A perusal of the agreement indicates that the stipulation relating to payment of loan to the defendant did not impose any absolute obligation on the Bank to advance the loan. Rather, it was left to the discretion to the Bank to advance a loan upto rupees one lakh in four instalments in its discretion depending upon the progress in the construction made. The materials on record clearly indicate that after availing the first instalment for the purpose of constructing upto plinth level, the defendant had not made the necessary progress in the construction. Even though the second instalment was to be paid only after construction of the building upto plinth level and it had not been so completed, the Bank advanced the second instalment of Rs. 25,000/- on 29. 9. 1975 so that the walls could be raised till roof level. It cannot be said that the Bank had failed to fulfil its obligation merely because there had been some delay (according to the defendant)in disbursement of the instalment. The fact that the second instalment was made available even though construction upto plinth level had not been completed is itself indicative of the fact that the Bank was prepared to co-operate in the matter. However, even after availing the second instalment, the defendant did not raise the walls upto roof level. Therefore, there was enough justification for the Bank to stop payment of any further instalment of the loan to the defendant. As observed by the trial court, the breach was on the part of the defendant and not of the Bank. ( 7 ) IN the aforesaid context, the learned counsel for the appellant had contended that while paying the second instalment of Rs. 25,000/-, actually a sum of Rs. 12,000/- was paid and the Bank had illegally adjusted the balance Rs. 13,000/- towards other alleged dues of the defendant. From the materials on record, it is apparent that the defendant did not raise any protest at the time when the second instalment of Rs. 25,000/- was sanctioned and a sum of Rs. 25,000/-, actually a sum of Rs. 12,000/- was paid and the Bank had illegally adjusted the balance Rs. 13,000/- towards other alleged dues of the defendant. From the materials on record, it is apparent that the defendant did not raise any protest at the time when the second instalment of Rs. 25,000/- was sanctioned and a sum of Rs. 13,000/- out of it was adjusted towards other dues. As rightly observed by the trial court, the defendant raised objection after a long period obviously as an afterthought. In the facts and circumstances of the case, the" findings recorded by the trial court on these aspects appear to be justified and there cannot be any doubt that a sum of Rs. 50,000 had been advanced and the defendant is liable to pay the same along with stipulated interest at the rate of 13. 5 per cent. The direction regarding payment of Rs. 73,088. 11 paise towards repayment of loan alongwith interest cannot be held to be erroneous. ( 8 ) THE learned counsel for the appellant also contended that there was no justification for imposing Rs. 15,000/- as penalty. On the other hand, the learned counsel for the respondent-Bank which has filed cross-objection claiming further sum of Rs. l5,000/-towards penalty submitted that in view of the clear stipulation in the agreement, penalty at the rate of rs. 1,000/- per month should have been imposed for a period of thirty months. ( 9 ) A perusal of the relevant clause in the agreement leaves no room for doubt that the stipulation regarding payment of penalty had been included not as a measure of prior estimate of liquidated damage, but "in terrorem". To such a clause, the provision contained in section 74 of the CONTRACT ACT, 1872 is applicable. Relevant provision contained in Section 74 of the CONTRACT ACT, 1872 reads as follows : "74. To such a clause, the provision contained in section 74 of the CONTRACT ACT, 1872 is applicable. Relevant provision contained in Section 74 of the CONTRACT ACT, 1872 reads as follows : "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 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. As explained in the decision of the Supreme court, reported in (Fatech Chand v. Balkishan dass), a party is entitled to receive reasonable compensation upto the limit indicated in such a clause in accordance with the provision contained in Section 74 of the CONTRACT ACT, 1872. ( 10 ) IN the present case, it was for the bank to establish by clear evidence the extent of damages suffered by the Bank. The amount is to be paid by way of compensation and not as penalty. In the present case, as per the agreement, the Bank was to occupy the building after completion for a period of ten years and a sum of Rs. 1,000/- was to be paid/adjusted towards loan. The right of the Bank to realise themoney advanced alongwith interest is not in dispute. Merely because the Bank has advanced some loan, it cannot be said that it has suffered any damages, as the Bank is entitled to recover its loan alongwith interest as stipulated in the agreement. Damage, if any, could have been sustained by the Bank by the fact that due to non-completion of the building, it had to occupy some other house by paying higher rent. In the present case, the bank was to occupy the building on payment of Rs. 1,000/ -. If Bank could have shown that it had to occupy other house by paying higher rent, a reasonable conclusion could have been reached that the Bank sustained damages as it had to pay higher rent. In the present case, the bank was to occupy the building on payment of Rs. 1,000/ -. If Bank could have shown that it had to occupy other house by paying higher rent, a reasonable conclusion could have been reached that the Bank sustained damages as it had to pay higher rent. In the present case, no evidence has been adduced to prove that the bank had to occupy other house by paying higher rent. In the absence of any such evidence, it is difficult to come to the conclusion regarding the extent of damages suffered by the Bank. ( 11 ) EVEN though the extent of damage has not been proved, it can be concluded that the Bank has suffered some legal injury for which some reasonable compensation is to be paid. In the facts and circumstances of the case, award of damages of Rs. 15,000/- at the rate of Rs. 500/- per month for thirty months appears to be irrational and unjustified. It appears from the correspondence that the Bank itself terminated the contract and as such, the Bank knew very well that the house would not be delivered to the Bank. Therefore, there cannot be justification for directing payment of damages for thirty months. Having regard to the facts and circumstances of the case, the direction regarding payment of Rs. 5,000/- (Five thousand) towards damages would meet the ends of justice. ( 12 ) FOR the aforesaid reasons, the appeal is allowed in part and it is directed that in addition to the sum of Rs. 73,088. 11 paise representing the principal amount as well as interest, the defendant is liable to pay further sum of Rs. 5,000/- towards damages. The decree of the lower court is modified accordingly. There would be no order as to costs of the present appeal. ( 13 ) IT appears that pursuant to directions of this Court, a sum of Rs. 50,000/- has been deposited by the appellant. The aforesaid amount alongwith accrued interest, if any. shall be paid to the Bank. The Bank would be entitled to recover the balance amount by proceeding with execution case. Appeal allowed partly.