P L D 1971 Supreme Court 743 (PLP)

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73. When a contract has been broken, the party who suffers by such breach is entitled to receive, from the party who has broken the contract, compensation for any loss or damage caused to him thereby, which naturally arose in the usual course of things from such breach, or which the parties knew, when they made the contract, to be likely to result from the breach of it. Such compensation is not to be given for any remote and indirect loss or damage sustained by reason of the breach. When an obligation resembling those created by contract has been incurred and has not been discharged, any person injured by the failure to discharge it is entitled to receive the same compensation from the party in default, as if such person had contracted to discharge it and had broken his contract. Explanation.-In estimating the loss or damages arising from a breach of contract, the means which existed of remedying the inconvenience caused by the non-performance of the contract must be taken into account:

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 ,re4svtlable compensation not exceeding the amount so named or, as the case may be, the penalty stipulated for. Explanation.-A stipulation for increased interest from the date of default may be a stipulation by way of penalty. Exception.-When any person enters into any bail-bond, recognisance or other instrument of the same nature, or, under the provisions of any law, or under the orders of the Central Government or of any Provincial Government, gives any bond for the performance of any public duty or act in which the public are interested, he shall be liable, upon breach of the condition of any such instrument, to pay the whole sum mentioned therein. Explanation.-A person who enters into a contract with Government does not necessarily thereby undertake any public duty, or promise to do an act in which the public are interested." It is clear that section 73 covers cases of breach of contract where no amount of compensation is stipulated in the agreement itself and the compensation has to be assessed strictly on the basis of the loss which has accrued to either of the contracting parties in the usual course of things on account of such breach) or which the parties knew when they made the contract, to be the likely result of the breach. Section 74 provides for cases where a sum is named in the contract itself as the amount to be paid in the case of the breach of the contract, or if the contract contains any other stipulation by way of penalty, the party complaining of the breach has to be compensated, regardless of the proof of any actual damage or loss, and is entitled to receive from the party who has broken the contract reasonable compensation not exceeding the amount so named, or the penalty so stipulated. Since the amount is stipulated fn the present cases, by whatever name it may be described, whether liquidated damages, penalty, recompense or earnest money, the respondent-Bank, on breach of contract by the appellants, was entitled to receive reasonable compensation not exceeding the amount of Rs. 2,000, as provided in the contract. The scope of section 74 of the Contract Act, in relation to recovery of damages for breach of contract, whether as liqui dated damages or penalty or otherwise, came in for consideration by this Court in the case of Province of West Pakistan v. Mistri Patel & Co. (P L D 1969 S C 81) wherein it was held as follows :- "Section 74 of the Contract Act does not recognise the difference that exists in the English .law between liquidated damages and penalty. Under the Common Law a genuine pre-estimate of damages agreed upon by the parties is regarded as liquidated damages. But a stipulation in a contract in terrorent is a penalty. In the case of liquidated damages the contract is binding upon the parties. In the case of penalty, however, the Court; refuses to enforce it and awards to the aggrieved party reasonable compensation. The argument that section 74 of the Contract Act deals only with the right to receive from the party who has broken a contract reasonable compensation and not the right to forfeit what has already been received by the aggrieved party cannot be accepted in view of the terms of the section. The cases in which such a view has been taken appear to have ignored the expression "the contract contains any other stipulation by way of penalty" in the section. This expression is comprehensive enough to include cases of forfeiture of money or any property already delivered as well as cases of recovery of money or any property on the-basis of a promise to pay. It is difficult to see why a contract which contains a covenant for forfeiture of deposit actually made or an amount which is recoverable on failure to perform the contract will not come within the expression "if the contract contains any other stipulation by way of penalty". The award of compensa tion by the Court under section 74 of the Contract Act will depend upon its finding as to what in the facts and circumstances of the case is reasonable compensation subject to the limit of the amount mentioned in the contract. It is true that the aggrieved party is entitled to recover compensa tion from the party who is guilty of breach of the contract whether or not actual damage or loss is proved to have been caused thereby." These observations fully support the case of the respondent Bank for a reasonable compensation on account of breach of contract committed by the appellants regardless of any proof of actual loss, but in working out the amount of reasonable compensation, it would certainly be relevant to consider whether any loss has or has not accrued to the party, which has suffered on account of the breach, and the extent of that loss. In the present cases, the appellants' contention that the Bank has suffered no legal injury or loss is without any substance. Evidence was led by the Bank to prove that the training of the plaintiffs had cost the Bank more than the amount of security deposits made by them. In the case of Sibte Raza, Abdul Kadir Assistant Superintendent, appearing for the respondent-Bank, stated as follows :- "Every Bank trains its employees according to its own system. Plaintiff could not do auditing work without training. It is for one year. He joined in June 1961. We sent him to various branches. We were changing him from every department after 15 days. Like this he went one for one year. We gave instructions to our Managers to use him in every department. He could not do independent work during this period. He was paid full salary and allowances during his training period. We spent Rs, 5,000 on his training." In the case of Abdul Mujib, appellant, Ghulam Ahmad, Senior Superintendent of the Bank, appearing as a witness for the respondent, made the following deposition "The defendants have got their own system of accounting and auditing different from that other banks or organisations. The plaintiff' required training before he could effectively do his work. He was to be trained and was with me for 22 months on audit tour. S. H. Kazmi is senior officer of our bank under whom the plaintiff also went on tour for about 2 months. The plaintiff was paid full salary and allowances, and T. A. during this period. Tour of an officer costs about Rs. 2,000." The appellants did not challenge these statements by way of cross-examination, nor did they lead any evidence to rebut them. This evidence furnished by the Bank has, therefore, gone unchallenged. In view of what has been said above, I am of the opinion that since both the appellants had agreed to pay the sum of Rs. 2,000 each in the event of their leaving the Bank's service before the expiry of 5 years, they were clearly in breach of the agreement for having done so. This breach on their part gave a right to the Bank to claim a reasonable amount of compensation from them regardless of any proof of actual damage suffered by it. The Bank is shown to have spent more than the amount of Rs. 2,030 on the training of each of the appellants to qualify them as trained auditors to discharge their duties. It cannot, therefore, be said that the amount of security deposit viz. Rs. 2,000 forfeited by the Bank in each case is unconscionable or excessive. No exception can thus be taken to the view o the learned Judge of the High Court in dismissing the suits of the appellants for refund of the security deposits. In the result, I would dismiss these appeals, without making any order as to costs. M. R. KHAN, J.-I agree. WAHEEDUDDIN AHMAD, J.-I agree. K. B. A. Appeals dismissed.