New India Assurance Company Limited vs The Food Corporation of India, Thanjavur and 2 others

Sivasubramaniam, J.—These two regular appeals arise out of the decree and judgment passed in O.S. No. 239 of 1072 on the file of the Subordinate Judge, Thanjavur. The third defendant is the appellant in A.S. No. 234 of 1981, while defendants 1 and 2 are the appellants in A.S. No. 425 of 1981. The first respondent herein was the plaintiff in the trial Court. The plaintiff Food Corporation of India, Thanjavur filed the suit O.S. No. 239 of 1972 for recovery of a sum of Rs. 75,324-55 with costs on the following averments. The defendants 1 and 2 who are the appellants in A.S. No. 423 of 1981, executed an agreement on 15-10-1969 at Thanjavur under which they became the agents of the plaintiff-Corporation, for the purpose of purchasing, stocking, trading in foodgrains; etc, for and on behalf of the first respondent Corporation at Thanjavur. Defendants 1 and 2 were the owners of a rice mill at Peravurani. It was agreed that the agreement should be in force from 1-10-1969 to 30-9-1970. The agreement inter alia provides for procurement of paddy of fair average quality from the producers, hull the same and deliver the rice hulled by them on behalf of the plaintiff-Corporation, The agreement also provides about the mode, delivery, accounts, registers, payments and other aspects. There are provisions regarding charges of milling, etc., which are set out in the agreement in detail. Defendants 1 and 2 procured paddy 132.867 tonnes of I sort paddy and 632.814 tonnes II sort paddy as mentioned in detail in Annexure-A of the plaint during period from 3-1-1970 to 25-5-1970. Out of the said 132.687 tonnes of I sort paddy and 632.814 tonnes of II sort paddy. 39.900 tonnes of I sort paddy and 294.861 tonnes of II sort paddy were moved by the defendants to the nominees of the plaintiff-Corporation. The balance of 92.967 tonnes of I sort paddy and 317.953 tonnes of II sort paddy were taken by the defendants 1 and 2 for converting them into rice and supply them to the State Government through the plaintiff-Corporation. Instead of supplying 63.218 tonnes of I sort rice and 329.808 tonnes of II sort rice, the defendants supplied only 14.920 tonnes of I sort rice and 193.530 tonnes of If sort nee totaling 208.850 tonnes office as shown in Annexure-B in the plait .After supplying rice from 11-3-1970 to 15-2-1971, the defendants stopped supplying the resultant rice and defaulted to supply 48.298 tonnes of I sort rice and 36.278 tonnes of II sort rice totalling 84.576 tonnes of rice. The plaintiff Corporation was liable to pay a sum of Rs. 16,276-04 to the defendants 1 and 2 towards hulling charges, transport charges, cost of gunnies and excess amount collected. On the other hand, the defendants are liable to pay a sum of Rs. 80,623-09 to the plaintiff-Corporation towards quality cut, cut for non-staining of bags, cost of short delivery of rice, liquidated damages and amounts due from the defendants to the plaintiff for samba 1969 hulling bill. It is further contended by the plaintiff that the defendants have to pay liquidated damages at 25% on the cost of total shortage to the tune of Rs. 15,353-22. Out of the plaintiff''s claim of Rs. 80,623-09 deducting the sum payable to the defendants, the plaintiff is entitled to a sum of Rs. 64,347.

As per the terms of the agreement, defendants 1 and 2 have made a security deposit of Rs. 2,000 and the agreement provides that if any default is made by the defendants the security deposit is liable to be forfeited by the plaintiff Corporation. As per the said provision in the agreement, the plaintiff intimated to the defendants by their registered letter dated 15-7-1971 that the security deposit would be liable to be forfeited by the plaintiff as per rules and the terms of the agreement Since the said letter was not served, another registered letter dated 11-8-1971 was sent to the defendants and the same was refused by the defendants. Again on 24-6-1972, another letter was sent to them and they have acknowledged the same. They have not denied the plaintiff''s right to forfeit the security deposit. The third defendant has indemnified the transactions between the defendants I and 2 with the plaintiff-Corporation to the tune of Rs. 1,00,000 in Policy M.R. No. 10/1137/70 dated 23-2-1970. The plaintiff wrote to the third defendant on 4-9-1971 to settle the claim due to the plaintiff from defendants 1 and 2 as per the fidelity Bond given by them and the same was acknowledged by the third defendant by its letter dated 22-9-1971. However, the claim has not been settled. According to the Notification No. 803 dated 16 of the General Insurance Business Notification Act, 1972 by which it has been notified that from 1-1-1974 the undertaking of every merged company would stand transferred to and vested in the New Assurance Company Limited, and hence the New India Assurance Company Limited is impleaded as the third defendant. In spite of repeated demands, the defendants have not paid the amount and hence the suit.

The first defendant who is the first appellant in A.S. No. 425 of 1981 filed a written statement raising the following contentions, which was adopted by the second appellant. As the suit agreement is not in conformity with the law applicable to the execution of a document by a Corporation, it is not enforceable in law. It offended the provisions of Act 37 of 1964 and Art.298 of the Indian Constitution. The defendants have been procuring paddy and converting the same into rice and delivering to the plaintiff-Corporation. The statement of accounts filed along with the plaint requires strict proof regarding the supply of paddy and delivery of rice. The defendants have deposited a sum of Rs. 2,000 and the forfeiture of the same is arbitrary. Since the forfeiture is in the nature of a penalty, the defendants are entitled to get credit for the said sum of Rs. 2,000. The claim for liquidated damages and the right to impose cuts are not legal and enforceable as the same amounts to penalty under law. The quality cuts were made arbitrarily without giving an opportunity to the defendants to defend the same. The quantum of paddy procured by the defendants and the quantum of rice supplied by the plaintiff-Corporation showed in the plaint are not correct. Though there had been some shortage, it was due to reasons beyond the control of the defendants. When bags were stored, there was naturally shrinkage and driage and apart from that, some stocks got decayed. The plaintiff''s officials were informed at every stage and they accepted the shortage occurred due to the abovesaid reasons. The net out put has to be only between 50 to 51 kgs. per bag During the period from 31-1 1968 to 12-4-1971, the defendants procured about 56,000 bags of paddy and year after year shortages were adjusted in the next year''s paddy and ultimately about 2,200 bags of paddy was the actual shortage and the shortage also is still within the permissible limits. The shortage noticed in the transactions in question is much lower that the shortage permitted by the Civil Supplies Department and the Central Warehousing Corporation. The Quality Inspector was acting against the interest of the defendants and he has manipulated certain records against them. For the period 1969 to 1971 the defendants have to get Rs. 26,000 by way of charges. The first defendant had signed some statements as required by the quality Inspector at threat of prosecution. The first defendant signed only in blank sheets and as such the defendants are not liable for the shortage. The signature dated 15-3-1971 is not of the first defendant. The interest claimed by the plaintiff is not proper.

The third defendant Insurance Company, who is the appellant in A.S No. 234 of 1981, resisted the suit raising the following contentions in its written statement. The Fidelity Insurance Guarantee issued by the Insurance Company in favour of the plaintiff is in respect of the amount which the plaintiff proposed to advance to defendants 1 and 2 for the purpose of fulfilling the terms and conditions of the agreement made between the Corporation and the miller. The consideration for the Fidelity Guarantee policy was the acceptance of the guarantee by the Insurance Company in lieu of security for the loan required by the miller for the due fulfilment of the terms and conditions of the agreement between the miller and the plaintiff. The plaint is silent about the fact whether the sums required by the miller were advanced by the plaintiff and that there are no particulars regarding the dates of such advances and the amounts so advanced. Since the relationship between the plaintiff and defendants 1 and 2 is that of a principal and agent, there can be only a suit for rendition of accounts and the suit for certain sum of money is not maintainable. The suit agreement executed on 15-10-1969 is to be in force for one year from 1-10-1969 to 30-9-1970. The Fidelity Guarantee Policy refers to the agreement commencing from 13-2-1970 and ending with 13-2-1971 and the currency of the Policy is only for the said period. Annexure A does not give the dates of procurement of paddy and it is not known whether paddy was procured during the period covered by the Policy. The paddy which is said to have been procured from 3-1-1970 to 13-2-1970 cannot be covered by the Policy. The Policy of Insurance provides that the Corporation shall have no rights against the company after the expiry of six months from the date of the termination of the contract. The present suit was filed only on 30-9-1972 and so it is barred by limitation as against the third defendant/Insurance Company. The plaintiff is entitled to recover only the actual loss and not any other damages. The third defendant is not liable to make good the alleged loss of Rs. 64,347. It was for the Corporation to take immediate action in case of any shortage being found and inform the third defendant immediately. This obligation has not been discharged by the Corporation.

The plaintiff has filed a reply statement controverting the averments contained in the written statement of the third defendant.

The trial Court framed relevant issues arising out of the pleadings of parties and on a consideration of the evidence adduced in the case decreed the suit for a sum of Rs. 79,576-50 deducting a sum of Rs. 1,945 out of the suit claim with proportionate costs. In so far as the third defendant Insurance company is concerned it has held that the suit is not barred by limitation and that the Insurance Company is liable to meet the claim of the plaintiff under the terms of the policy agreement Ex.A1. Aggrieved against these findings the third defendant-Insurance Company as well as defendants 1 and 2 have filed the abovesaid appeals.

A.S. No. 231 of 1981:

In this appeal what arises for consideration is whether the third defendant insurance Company is not liable for the suit claim.

It is the case that the third defendant/Insurance Company issued a Fidelity Guarantee Ex.A1 to the extent of Rs. 1,00,000 for the due performance of the contract by defendants 1 and 2 and if the defendants 1 and 2 made any default in their dealings with the plaintiff, the third defendant has undertaken to make good the loss. The Fidelity Insurance Guarantee Ex.A1 was entered into on 23-2-1970 between the Food Corporation of India and the Anand Insurance Company Limited. The relevant clause in this agreement is as follows:

In consideration of the Corporation having at our request agreed to accept this guarantee by The Anand Insurance Co., Ltd., in lieu of security for the loan required from Mr. A.V. Arunachalam & A. Venkidasamy Thevar (hereinafter called the ''Miller'' for the fulfilment by them of the terms and conditions of the agreement made between the Miller and the Food Corporation of India for procurement of paddy, hulling and delivery of rice (hereinafter called the agreement during the period commencing from 13-8-1970 and ending on 13-8-1971 or the extended period from time to time, if any, we. The Anand Insurance Co. Ltd., do hereby undertake to indemnify and keep indemnified the Corporation) to the extent of Rs. 1,00,000 (Rupees one Lakh only) against any loss, claim, suit, proceedings and expenses caused to or suffered by the Corporation by reason of any error by the said Miller of any term or condition of the said agreement and authorise the Corporation to recover the same directly from us. We agree to pay the Corporation on demand any sum which may become payable to the Corporation under the said agreement and in respect of which The Anand Insurance Co., Ltd. hereby give this guarantee for payment. We The Insurance Co., Ltd., agree that the Corporation shall be the sole judge whether the said Miller has committed any breach or breaches of any of the terms and conditions of the said Agreement and the extent of loss, cost, charges and expenses suffered or incurred by the Corporation on account thereof, We, The Anand Insurance Co., Ltd., further agree that the guarantee herein contained shall remain in full force and effective upto and inclusive of the 13-2-1971, the date referred to above or the expiry of the extended period from time, if any, and that it shall continue to been force able till and the dues of the Corporation under or by virtue of the said agreement have been fully paid and its claim satisfied or discharged or till the Regional Manager of the Food Corporation of India certified that the terms and conditions of the said agreement have been fully and properly carried out by the said Miller and accordingly discharges the guarantee, subject, however, that the Corporation shall have no rights under this bond after the expiry of (period) six months from the date of the termination of the contract.

The clause restricting the period for making the claim within 6 months from the date of the termination of the contract is relied on by the Insurance Company and it is contended on that basis that the suit itself ought to have been filed within a period of months from 30-9-1970. Learned Counsel for the appellant/Insurance Company contended that the suit, which ought to have been find before 30-3-1971, has been filed only on 30-91972. According to him, the period of six months contemplated in Ex.A1 had already expired and, therefore, the suit is not maintainable against the Insurance Company. Emphasis is made on the words "that the Corporation shall have no rights under this bond after the expiry of (period) six months from the date of the termination of the contract". Learned counsel for the first respondent submits that the word "termination" found in the agreement is used only in the case of contract brought to an end by either party during the currency of the agreement. On the other hand learned counsel for the appellant contended that the clause to the effect that the Corporation shall have no rights under this bond after the expiry of six months from the date of termination of the contract, clearly shows that as far as the third defendant was concerned, it was completely discharged from its obligation by 30-3-1971. Various Courts have considered the question whether such a clause restricting the period for seeking a remedy contrary to the provisions of the Limitation Act is valid in law in view of the prohibition contained in S.28 of the Contract Act which read as follows:�

Every agreement, by which any party thereto is restricted absolutely from enforcing his rights under or in respect of any contract, by the usual legal proceedings in the ordinary tribunals, or which limits the time within which he may thus enforce his rights, is void to that extent.

The leading decision on ''his point is found in Pearl Insurance Co. Vs. Atma Ram, which was rendered by a Full Bench of the Punjab High Court. In that case also a similar clause restricting the period is found. It was contended that the clause was rended void by reason of S.28 of the Contract Act. The referring to some of the important cases, held that as the clause did not limit the time within which the insured could enforce his right and only limited the time during which the contract would remain alive, it was not hit by the provisions of S.28 of the Indian Contract Act. It is unnecessary for us to go tit detail regarding this aspect, since the matter has been concluded by two decisions of this Court. In The New Delhi Assurance Company Limited Unit: Anand Insurance Company Limited and another v. The Food Corporation of India represented by its District Manager, Thanjavur and another A.S. No. 177 of 1977, dated 21-7-1960, Sethuraman, J., dealt with the identical agreement between the Corporation and the same Insurance Company, namely, New India Assurance Company Limited Unit: Anand Insurance Company Limited. Following the Full Bench decision of the Punjab High Court in Pearl Insurance Co. Vs. Atma Ram, ., the learned Judge held that such an agreement is valid in law and the Food Corporation should exercise their right within a period of six months. However, in that case, it was found that a demand was made by the Corporation within the period of six months completed under the agreement, and, therefore, Sethuraman, J., held that the claim having been made within the prescribed time, the suit is not barred by Limitation. An identical question again arose in Balakrishna and Partners, represented by N. Balakrishan and another v. The Food Corporation of India, represented by its Deputy Manager A.S. Nos. 76 and 178 of 1977, dated 29-4-1981 between the Food Corporation and the same Insurance Company as herein, which was decided by a Bench of this Court consisting of Natarajan and Mohan, JJ. The Bench by its judgment, dated 29-4-1981, elaborately considered the entire law on this aspect and approved the decision of Sethuraman, J. However, the learned Judges differed from the opinion of Sethuraman, J. to the effect that the claim made by the Food Corporation by issuing a notice within the period of six months will save the right of the Corporation as against the Insurance Company. They held that the object of the clause is not merely to require the Insurance Company to be put on notice, but on the other hand, the remedy of suit cannot in any way be kept alive by issue of a notice alone within the stipulated period. It was further held that the remedy of suit was not in any way extinguished, but the agreement would not be enforceable after the period stipulated in the agreement. However, we are not concerned with this part of the decision in this case. On the basis of these decisions we have to hold that the clause retracting the period to six months is valid in law and that the suit filed beyond the period of six month is not maintainable, in so far as the appellant/Insurance Company is concerned. The approach made by the trial Court on the ground that the third defendant, by issuing a Fidelity Guarantee in favour of defendants 1 and 2 had attained the Character of a surety, is not sustainable. Therefore, this appeal is allowed and the suit is dismissed as against the third defendant/Insurance Company. However, considering the fact that the controversy relates to a pure question of law which was not well settled at the time of the suit, we direct each party to bear their own costs in this appeal.

A.S. No. 425 of 1981:

As far as this appear is concerned, the points that arise for consideration are:

Whether the suit Agreement Ex.A4 is valid, true and enforceable.

Whether defendants 1 and 2 appellants herein are not liable for any shortage ?

Whether the plaintiff first respondent is entitled to impose quality cuts ?

Whether the claim for liquidated damages to valid?

Point No. 1 : The present suit was filed by the Food Corporation on the basis of the agreement Ex.A4 entered into between tee plaintiff Corporation and defendants 1 and 2. This is being challenged by the defendants on the ground that they were not aware of the contents of the document and that they were simply made to sign on the impression that it contained the same terms as found in the earlier agreement marked as Ex.A80 of the year 1961. However, such a specific defence was not raised in the written statement. The objection taken in the Written Statement was that Ex.A4 suffered from legal infirmities as it offends the provisions of Act 37 of 1964 and Article 298 of the Constitution of India. It was only during the course of the evidence, the second'' defendant as D.W.1 deposed that he and his father signed Ex.A4 without knowing the contents of the document. Ex.A4 has been proved beyond any doubt by the plaintiff Corporation. P.W.1 is the Assistant of the plaintiff Corporation and P.W.2 was one of the Officers of the Corporation at the time of the execution of Ex.A4. They have spoken about the execution of the said document. P.W.2 who has attested Ex.A4, has categorically stated that the contents of Ex.A4 were not known to the defendants 1 and 2 and that they executed the document in Thanjavur. It is not as if that defendants I and 2 are illiterate village rustics. They are seasoned businessmen having dealings with the Corporation during the earlier years also. They had executed agreement on earlier occasions. It is too much for them to say they signed Ex.A without actually knowing the contends of the said agreement. It is seen that even the earlier agreement Ex.A80 was written in English It was only on the basis of Ex. A4, they were appointed as agents and they carried on their business. They had made security deposit and, obtained a Fidelity Guarantee from the third defendant on the basis of Ex. A4 alone. The entire transactions were carried on by them only on the basis of the said agreement. S.37 of Act 37 of 1984 deals with powers which could be delegated to the subordinate officers of the plaintiff Corporation. Chapter No. 43 found in page 347 in the Official Manual of the Food Corporation gives powers of delegation regarding finance and cognate powers. Therefore, we find that there is absolutely no substance in the objections raised by the defendants regarding the validity of Ex.A4 and, therefore, this point is held against them.

Point No. 2 : We find from the evidence of P.W.1 that during the period covered by Ex.A4 and the period extended till February, 1971, the plaintiff Corporation supplied 132.867 metric tonnes of first sort paddy and 632.814 metric tonnes of second sort paddy and further at the direction of the Corporation, they had supplied 39.900 metric tonnes of first sort paddy and 294.861 metric tonnes of second sort paddy to the nominees of the plaintiff Corporation. The balance of 430.920 metric tonnes of paddy was retained with the defendants 1 and 2 for converting the same into rice. The Circular of the District Revenue Officer, Thanjavur, which is marked as Ex.A20 speaks about the fixation of outturn. On the basis of this circular, it is claimed that 68% of rice out of the paddy supplied to defendants 1 and 2 is payable by the defendants. P.W.1 says that for 92.967 metric tonnes of paddy, defendants 1 and 2 have to supply 63.218 metric tonnes of rice and for 335.953 metric tonnes of second sort paddy, they have to supply 229.808 metric tonnes of rice. But according to him they had supplied only 13.920 metric tonnes of first sort of rice and 193.530 metric tonnes of second sort rice, totalling 208.450 tonnes of rice as shown in the Annexure B in the plaint and that they have defaulted to supply 48.298 metric tonnes of first sort rice and 36.273 metric tonnes of second sort rice totalling 84.576 tonnes of rice. At the rate of Rs. 745 per tonne for first sort rice and at the rate of 701 per tonne for the second sort rice, the defendants are liable to pay a sum of Rs. 35,892-01 and Rs. 25,430-88 respectively for both the varieties totalling Rs. 61,412-89. According to the terms of Ex.A4 agreement, the plaintiff is entitled to claim liquidated damages not exceeding 25% of the total value. Therefore, the claim is made for Rs. 15,353-22 towards liquidated damage. It appears that there is no serious dispute regarding the quality of paddy supplied to the defendants and the resultant rice delivered by the defendants in this case. The details regarding the paddy procurement by the defendants are shown in Ex. A16 relating to samba sessions, 1970, namely, the period covered between 3-1-1970 and 25-5-1971. Ex.A47 relates to the rice supplied by the defendants from 11-3-1970 to 11-6-1970. Again it is seen from Ex.A48 which is Part I of hulling bill working sheet, that details regarding the total paddy procured and paddy converted into rice quantity supplied as paddy and the balance due from the defendants are mentioned. Ex.A49 is another hulling bill working sheet Part-II showing the amount due to the defendants 1 and 2 towards hulling charges, transport charges, cost of gunnies, commission payable to them and the amount due to the plaintiff-Corporation from defendants 1 and 2 towards short delivery of rice, towards quality cuts, failure to stencil the bags and the liquidated damages. It could be seen from these statements that a sum of Rs. 80,623-09 is payable by the defendants 1 and 2 to the plaintiff Corporation and a sum of Rs. 16,276-04 is payable to the defendants and 2 by the plaintiff Corporation. Therefore, deducting the later amount, the balance of Rs. 64,347-05 is claimed in the suit. Ex. A5 to A-11 are the acceptance certificates for the entrustment of paddy procured which were given by defendants 1 and 2 to the quality Inspector, Peravurani, where the above said details were shown. Regarding these aspects, it is not open to the defendants to seriously challenge the correctness of the same in view of Ex.A53 and A54 letters given by them accepting their liabilities. Again in Ex.A61, A74 and A75, they have admitted the shortage at every stage. However, D.W.1 chose to deny these documents. It is too much to assume that the Corporation would have fabricated these documents.

According to P.W.1, some of the registers maintained by them had been taken away by the Quality Inspector Thiru Shetty and a chit has been given by him as an acknowledgement which is marked as Ex.B1 and therefore in the absence of those registers, the actual amount cannot be ascertained. This explanation appears to be an afterthought since when Ex.A50 to A53, A63 and A64 were issued by the plaintiff to the defendants regarding shortage, the defendants did not state that the said registers were taken away by the Quality Inspector. However, the plaintiff had disputed the genuineness of Ex.B1 and it was stated that it was not signed by Thiru Shetty. It is now unnecessary to go into the question whether Ex.B1 was actually issued by Thiru Shetty or not. The evidence of P.W.1 on this aspect is not acceptable because there is inconsistency between his evidence and the written statement filed by defendants 1 and 2. Ex.A12 to A18 are the bills and vouchers for reimbursement of paddy cost. The defendants have acknowledged the same. Ex.A21 contains particulars regarding the movement of rice and Ex.A22 is the bill and voucher for commission and cost of gunnies payable to the defendants 1 and 2. Under Ex. A19, the Quality Inspector has found that the balance rice due to the Government in first sort was 48.298 and second sort 36.158 tonnes. According to the plaintiff, there was a shortage of paddy in 1970 also as evidenced by Ex.A77. The defendants admitted the shortage and had undertaken to make good the shortage. On a consideration of the entire evidence placed before the Court, there is no difficulty in holding that the shortage as claimed by the plaintiff has been satisfactorily proved.

Point No. 3: According to the terms of the agreement between the parties, the defendants are bound to supply the prescribed standard of rice and if there is any defect in the quality, the plaintiff is entitled to effect quality cut. In this case, the Assistant Marketing Officer, Civil Supplies Department has issued quality certificates Ex.A23 to A39 relating to the simple paddy drawn from the consignment with defendants 1 and 2, Defendants 1 and 2 applied to the Collector, Thanjavur asking for re-analysis of the samples. It is seen from Ex.A40 and B41 that on a petition by defendants 1 and 2, the Collector had asked the Regional Storage-Officer to re-analyse the samples. Ex.A42 is the information given by the Regional Storage Officer regarding quality cut. The plaintiff wrote letters under Ex.A68 to 72 to the Collector regarding the request of the defendants for re-analysis. However it is seen from Ex.A72 that the defendants 1 and 2 did not choose to appear before the Regional Storage Officer for re-analysis. The re-analysis appears to have been done regarding some of the samples. The value of cuts imposed on various dates is found in Ex.A45 and it comes to Rs. 2,235-98. The liability on this account has not been seriously challenged by the defendants. Hence this point is found against the appellants.

Point No. 4 : The only other point raised by the learned counsel is that the clause relating to the liquidated damages in the agreement is penal in character and as such, such a clause is not enforceable as per the provisions of S.74 of the Contract Act. According to him, in the earlier agreement under Ex. A80, the quantum of liquidated damages was confined to 5% only and there is no reason for raising it to 25% in the suit agreement. The principles of S. 74 of the Contract Act may not be applicable to the facts of the present case. According to the appellants, there is no evidence that there was any pre-estimated damages. The contract of this nature is different from ordinary contracts. Under the terms of the contract, the defendants were appointed as agents to deal with paddy and rice for purpose of public distribution. Since paddy was procured at controlled rates which were admittedly lesser than the prevailing market rate, a provision was made for payment of liquidated damages in the contract. The reason for fixing liquidated damages in the contract is that the agents so appointed under the agreement should not deliberately commit default in supply of paddy and rice and sell the same in open market thereby causing loss to the Food Corporation and the public. The Food Corporation had their own reasons for increasing the quantum of liquidated damages from 5% to 25% when the suit agreement came to be executed between the parties. Perhaps, they would have found by experience that inspite of fixing 5% as liquidated damages in case of short supply, there were still cases to short supplies. Therefore, as a matter of policy, the plaintiff-Corporation decided to fix 23% as the quantum of liquidated damages. This was introduced as one of the conditions in the agreement. The defendants 1 and 2, having accepted such a condition and carried on business on that basis, are not entitled now to go back upon the agreement and claim that such liquidated damages are penal in character. On the peculiar facts of the transactions like the one we have in this case, we find there is nothing wrong in the plaintiff Corporation enforcing the clause relating to liquidated damages. Hence they are entitled to claim liquidated damages as per the terms of the agreement. Hence this point was also held against the appellants. In view of the findings on the above points, we see no reason to interfere with the findings of the trial court on these aspects, and, therefore, the appeal is dismissed with costs.