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2025 DIGILAW 430 (GUJ)

Jaswant Construction v. State Of Gujarat

2025-06-11

HEMANT M.PRACHCHHAK

body2025
JUDGMENT : HEMANT M. PRACHCHHAK, J. 1. Present appeal is directed against the impugned judgment and order dated 15.07.2005 passed by the learned Principal Senior Civil Judge, Civil Court (S.D.), Dhrangadhra, (hereinafter be referred to as “the trial Court”) in Special Civil Suit No. 23 of 1996 whereby the trial Court has dismissed the suit filed by the appellant – original claimant. 2. Facts of the present case, in nutshell, are that the appellant has undertaken construction work of Ganjela – Ghanad Road by hot mix plant and paver finishing work and for such construction, the respondents invited tender and estimated cost was Rs.9,14,066/- and the tender of the appellant was accepted being lowest amount at Rs.10,37,464.10. It is the case of the appellant that as per the terms and conditions of the agreement, the appellant had deposited Rs.18,300/- towards requisite fixed deposit and the work order was issued and the work was to be completed within twelve months. It is also the case of the appellant that the respondents have failed to hand over the possession of the site within reasonable time, for which the appellant has drawn the attention to the respondents, however, respondent No.3 was unable to handover the site of construction because of monsoon and rainy water the road was damaged. It is alleged that some farmers raised objection towards the road and not permitted the appellant to carry out the work and obtained stay from the concerned Civil Court. That the raw material of the work was not supplied by the respondents as and when asked by the appellant and watering work was not completed by the respondents before monsoon, so the appellant was not in a position to start and complete the work as per the contract. It is the case of the appellant that as per the agreement, the appellant was not in a position to start this work because of the fault on the part of the respondents and for considerable long time, it was not started and because of delay occurred on the part of the respondents and, therefore, the appellant is entitled to get revised rates. It is the case of the appellant that the running bills were not paid within time to the appellant, so the appellant was not in a position to complete the work in time and, therefore, the appellant suffered loss in profit. It is the case of the appellant that the running bills were not paid within time to the appellant, so the appellant was not in a position to complete the work in time and, therefore, the appellant suffered loss in profit. 2.1 After considering the details, the trial Court framed the issues at Exhibit 19 which reads as under:- 1. Whether plaintiff proves debt as averred in plaint against defendants? 2. Whether plaintiff is entitled to get interest on suit amount? If yes, at what rate and from which date? 3. What order and decree? 2.2 The trial Court answered to aforesaid issue Nos.1 and 2 in negative and issue No.3 as per final order. 2.3 The trial Court has, after considering the documents produced by the appellant and documents produced by the respondents and after evaluating the evidence, dismissed the suit of the appellant. 3. Being aggrieved and dissatisfied with the impugned judgment and order, the present appeal is filed by the appellant. 4. Heard Mr.K. G. Sukhwani, learned counsel appearing for the appellant, Ms.Krishna Desai, learned Assistant Government Pleader appearing for the respondent No.1 and Mr.H. S. Munshaw, learned counsel appearing for respondents No.2 and 3 at length. 5. Mr.Sukhwani, learned counsel appearing for the appellant has submitted that the appellant could not complete the work for which the contract was allocated because of the dispute arose between the authority and the farmers whose lands were used for laying down the road between the Village Ganjela – Ghanad and, therefore, the appellant has prayed for the damages and the amount which is kept by the authority as security deposit and the amount of Rs.3900/- towards time limit deposit deducted by the respondents from the running bills and Rs.27700/- was claimed towards the security deposit. He has submitted that the suit was filed by the appellant wherein respondents No.2 and 3 served with the summons and appeared through their advocate and filed written statement at Exhibit 86 denying the entitlement of the appellant for the alleged amount of damages along with the security deposit and other amount. 5.1 Mr.Sukhwani, learned counsel has submitted that though the trial Court has considered the different clauses of the agreement. 5.1 Mr.Sukhwani, learned counsel has submitted that though the trial Court has considered the different clauses of the agreement. He has submitted that the trial Court has failed to appreciate the fact that the work was not completed because of the injunction order passed in the suit filed against the respondents by the original land owners/farmers and since there was an injunction order, the appellant could not conclude the work within time limit and not completed contractual liability for which the appellant is not responsible and, therefore, the appellant is entitled to get the amount of damages along with the security deposit and other amount. He has submitted that the trial Court has not considered the said contention while passing the impugned judgment and order and thus, the appeal deserves to be allowed and the impugned judgment and order deserves to be quashed and set aside. 5.2 Mr.Sukhwani, learned counsel has submitted that though the law is well settled from the year 1970 onward that failure to perform the contract, the same has not resulted into loss or damages suffered by the respondents. He has submitted that the appellant is entitled to get the security deposit and other differential amount and the running bills. He has submitted that the trial Court has committed serious error of law and facts in passing the impugned judgment and order and without appreciating the relevant observation made in paras 7 and 8 by the Hon’ble Supreme Court in the case of Maula Bux Vs. Union of India , reported in AIR 1970 SC 1955 . He has submitted that subsequently thereafter the said decision has been referred to and relied upon by the Division Bench of this Court (Coram: Hon’ble Mr.Justice Jayant Patel and Hon’ble Mr.Justice C. L. Soni) in First Appeal No. 2972 of 2000 with First Appeal N2o. 1635 of 2001. In the said judgment, the Division Bench of this Court has observed in paras - 7, 9, 10 and 11 as under:- “7. Aforesaid brings us to examine the aspects for refund of the security deposit allowed by the lower Court. 1635 of 2001. In the said judgment, the Division Bench of this Court has observed in paras - 7, 9, 10 and 11 as under:- “7. Aforesaid brings us to examine the aspects for refund of the security deposit allowed by the lower Court. Shri Marshall, learned Senior Counsel appearing for the ONGC has contended that when there was express stipulation provided which has been reproduced by the learned Judge at paragraph 11, and once there was failure to perform the contract on the part of the plaintiff, the defendant was justified in forfeiting the amount of security deposit, therefore, the Court ought not to have allowed the suit of the plaintiff by directing refund of the security deposit. In his submission, said express clause of forfeiture of security deposit is not barred by the provisions of section 74 of the Contract Act since it was open and it was for both the sides to abide by the particular condition and the Court should not have enforced otherwise. 9. In our view, said aspect has been elaborately considered by the learned Judge but we find it proper to refer to two decisions of the apex Court on the said aspect which, of course, have been considered by the learned Judge. In case of Fateh Chand versus Balkishan Dass reported in AIR 1963 SC 1405 wherein at paragraph 8,10 and 11, the apex court has observed thus; 8. The claim made by the plaintiff to forfeit the amount of Rs.24,000/- may be adjudged in the light of s. 74 of the Indian Contract Act, which in its material part provides :- "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 maybe, the penalty stipulated for." The section is clearly an attempt to eliminate the somewhat elaborate refinements made under the English common law in distinguishing between stipulations providing for payment of liquidated damages and stipulations in the nature of penalty. Under the common law a genuine pre-estimate of damages by mutual agreement is regarded as a stipulation naming liquidated damages and binding between the parties: a stipulation in a contract in terrors is a penalty and the Court refuses to enforce it, awarding to the aggrieved party only reasonable compensation. The Indian Legislature has sought to cut across the web of rules and presumptions under the English common law, by enacting a uniform principle applicable to all stipulations naming amounts to be paid in case of breach, and stipulations by way of penalty. The second clause of the contract provides that if for any reason the vender fails to get the sale-deed registered by the date stipulated, the amount of Rs. 25,000/- (Rs. 1,000/- paid as earnest money and Rs. 24,000/- paid out of the price on delivery of possession) shall stand forfeited and the agreement shall be deemed cancelled. The covenant for forfeiture of Rs. 24,000/- is manifestly a stipulation by way of penalty. 10. Section 74 of the Indian Contract Act deals with the measure of damages in two classes of cases (i) where the contract names a sum to be paid in case of breach and `ii) where the contract contains any other stipulation by way of penalty. We are in the present case not concerned to decide whether a covenant of forfeiture of deposit for due performance of a contract falls within the first class. The measure of damages in the case of breach of a stipulation by way of penalty is by s.74 reasonable compensation not exceeding the penalty stipulated for. In assessing damages the Court has, subject to the limit of the penalty stipulated, jurisdiction to award such compensation as it deems reasonable having regard to all the circumstances of tile case. jurisdiction of the Court to award compensation in case of breach of contract is unqualified except as to the maximum stipulated; but compensation has to be reasonable, and that imposes upon the Court duty to award compensation according, to settled principles. The section undoubtedly says that the aggrieved party is entitled to receive compensation from the party who has broken the contract, whether or not actual damage or loss is proved to have been caused by the breach. The section undoubtedly says that the aggrieved party is entitled to receive compensation from the party who has broken the contract, whether or not actual damage or loss is proved to have been caused by the breach. Thereby it merely dispenses with proof of "actual loss or damages"; does not justify the award of compensation when in consequence of the breach no legal injury at all has resulted, because compensation for breach of contract can be awarded to make good loss or damage which naturally arose in the usual course of things, or which the parties knew when they made the contract, to be likely to result from the breach. 11. Before turning to the question about the compensation which may be awarded to the plaintiff, it is necessary to consider whether s. 74 applies to stipulations for forfeiture of amounts deposited or paid under the contract. It was urged that the section deals in terms with the right to receive from the party who has 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 S.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 sought 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 s. 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 sum only as it considers reasonable, but not exceeding the amount specified in the contract as liable to forfeiture. 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 sum only as it considers reasonable, but not exceeding the amount specified in the contract as liable to forfeiture. We may briefly refer to certain illustrative cases decided by the High Courts in India which have expressed a different view.” 10.Subsequently, in the another decision of the apex court in case of Maula Bux v. Union of India reported in AIR 1970 SC 1955 , in para 7 and 8, it was observed thus; 7. Forfeiture of earnest money under a contract for sale of property – movable or immovable – if the amount is reasonable, does not fall within section 74.That has been decided in several cases; AIR 1926 P. C. 1: Roshan Lal v. Delhi Cloth and General Mills CO. ltd., Delhi,(1911) ILR 33 All 166; Muhammad Habibullah v. Muhammad Shafi, ILR 41 All 324 – ( AIR 1919 All 265 ); Bishan Chand v. Radha Kishan Das, (1897) ILR 19 All 489. These cases are easily explained for forfeiture of a reasonable amount paid as earnest money does not amount to imposing a penalty. But if forfeiture is of the nature of penalty, Section 74 applies. 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 a breach of contract, the undertaking is of the nature of a penalty. 8. Counsel for the Union, however, urged that in the present case Rs. 10,000/- in respect of the potato contract and Rs.8,500/-in respect of the poultry contract were genuine pre-estimates of damages which the Union was likely to suffer as a result of breach of contract, and the plaintiff was not entitled to any relief against forfeiture. Reliance in support of this contention was placed upon the expression (used in s. 74 of the Contract Act), "the party complaining of the breach is entitled, whether or not actual damage or loss is proved to have been caused there by, to receive from the party who has broken the contract reasonable compensation". Reliance in support of this contention was placed upon the expression (used in s. 74 of the Contract Act), "the party complaining of the breach is entitled, whether or not actual damage or loss is proved to have been caused there by, to receive from the party who has broken the contract reasonable compensation". It is true that in every case of breach of contract the person aggrieved by the breach is not required to prove actual loss or damage suffered by him before he can claim a decree, and the Court is competent to award reasonable compensation in case of breach even if no actual damage is proved to have been suffered in consequence of the breach of contract. But the expression "whether or not actual damage or loss is proved to have been caused thereby" is intended to cover different classes of contracts which come before the Courts. In case of breach of some contracts it may be impossible for the Court to assess compensation arising from breach, while in other cases compensation can be calculated in accordance with established rules. Where the Court is unable to assess the compensation, the sum named by the parties if it be regarded as a genuine pre-estimate may be taken into consideration as the measure of reasonable compensation, but not if the sum named is in the nature of a penalty. Where loss in terms of money can be determined, the party claiming compensation must prove the loss suffered by him.” 11.Therefore, it is not a case where express liquidated damages were provided in a contract but it is a case where express forfeiture of security deposit upon failure to perform contract was provided. If the character of failure to perform contract is considered enabling the forfeiture of security deposit, it is to be treated as having penal character and could be termed as 'by way of penalty'. Even in those cases also as per the above referred observations made by the apex court, the court will have regard to the actual damage or the loss suffered by the parties with whom it was agreed that the penalty could be recovered. Therefore, it is not a matter where irrespective of quantum of damages suffered, the parties to the contract would be entitled to forfeit the amount of security deposit. Therefore, it is not a matter where irrespective of quantum of damages suffered, the parties to the contract would be entitled to forfeit the amount of security deposit. Such is to be considered by having nexus and rather in comparison to the actual damages suffered. In the present case, the evidence has come on record that after the plaintiff abandoned the contract or as per the defendant, failed to perform the contract, remaining goods were sold by the defendant at higher prices than the prices agreed with the plaintiff, therefore, the defendant has been able to realize more amount and consequently could be termed as profit. Such totally rules out any loss suffered by the defendant after the plaintiff failed to perform the contract. Under the circumstances, since the failure to perform contract has not resulted into any loss or damages suffered by the defendant, the learned Judge was right in directing to refund the amount of security deposit. We are in agreement with the view taken by the learned Judge on the said aspects.” 5.3 Mr.Sukhwani, learned counsel has urged that considering the aforesaid decisions, the appeal deserves to be allowed and the impugned judgment and order deserves to be quashed and set aside. 6. Ms.Desai, learned Assistant Government Pleader appearing for the respondent No.1 has submitted that the impugned judgment and order passed by the trial Court is just and proper and no interference is required to be called for. She has submitted that the appeal being meritless deserves to be dismissed. 7. Mr.Munshaw, learned counsel appearing for respondents No.2 and 3 has submitted that the trial Court, after considering the evidence and the arguments, has rightly passed the impugned judgment and order. He has submitted that the appellant has committed breach of contract and the appellant has not completed the contractual work allocated to it and because of the fault on the part of the appellant, the work could not be completed and, therefore, the appellant is not entitled to claim any damages nor the refund of the security damages and other amount which is shown by the appellant. He has referred to and relied upon the written submissions filed before the trial Court and urged to dismiss the appeal with costs. 8. He has referred to and relied upon the written submissions filed before the trial Court and urged to dismiss the appeal with costs. 8. Considering the submissions made on behalf of learned counsel appearing for the respective parties, the evidence available on record and the legal aspects more particularly the decision of the Hon’ble Supreme Court which is referred by the Division Bench of this Court in First Appeal No.2972 of 2000 with First Appeal No.1635 of 2001, it appears that the issue involved in the appeal that the trial Court has committed any error while dismissing the suit and whether this Court has to interfere with the finding recorded by the trial Court under Section 96 of the CIVIL PROCEDURE CODE . It appears that the trial Court, while recording the reasons, has referred the different clauses of the agreement in para – 19 and has not at all considered the fact that the work could not be completed by the appellant because of the injunction order passed by the concerned Civil Court in the civil proceedings filed by the land owners / farmers against respondents No.2 and 3 and the appellant unable to perform the contract and conclude the work. It further appears from the record that the trial Court was failed to consider the said fact in its proper perspective in light of the oral as well as documentary evidence produced on record. So far as damage is concerned, this Court is of the opinion that the appellant is not entitled for any damages. So far as the amount of security deposit and other relevant amount is concerned, the appellant is entitled for the same in light of the above referred decision of the Hon’ble Supreme Court. Thus, this Court is of the view that the appeal deserves consideration and interference is required to be called for in the present appeal. 9. Considering the aforesaid facts and circumstances of the case, the appeal is partly allowed. So far as the prayer with regard to claiming the damage is concerned, I am of the opinion that the trial Court has justified in rejecting the prayer of disbelieving the claim of the damage. 9.1 So far as the claim with regard to security and other amount is concerned, the appellant is entitled to get such amount. So far as the prayer with regard to claiming the damage is concerned, I am of the opinion that the trial Court has justified in rejecting the prayer of disbelieving the claim of the damage. 9.1 So far as the claim with regard to security and other amount is concerned, the appellant is entitled to get such amount. Therefore, the amount which is lying with the respondent – authority is to be refunded to the appellant along with the interest as earned by respondents No.2 and 3 as per the bank rate prevailing at the relevant point of time per annum from the date of decree till its realization within three months from the date of receipt of the copy of this order. Registry is directed to draw the decree accordingly. 10. Since the appeal is allowed in part, the respondents shall return / refund the amount to the appellant which the appellant is entitled to. Registry is directed to transmit back the record and proceedings of the case to the concerned trial Court forthwith. There shall be no order as to costs. Pending civil application/s, if any, shall stand disposed of accordingly. Interim relief, if any, granted earlier shall stand vacated forthwith.