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Judgment
S. Murtaza Fazl Ali, J.—This is a suit for recovery of Rs. 21,400/- including interest representing the balance of tire purchase money for
which the Defendants have purchased the property in question from the Plaintiffs.
The Plaintiffs' case was that on 26th June 1961 there was an agreement between The Plaintiffs and the Defendants by which the Plaintiffs agreed
to sell a house situated at Residency Road and which Ts described in the plaint for a total consideration of Rs. 85,000/- as mentioned in the
various sale deeds the Plaintiffs' case further was that the real consideration settled between the parties was Rs. 78,000/- out of which the Plaintiffs
received only Rs. 58,000/- leaving a balance of Rs. 20,000/-. At the time of arguments however, the learned Counsel for the Plaintiffs abandoned
tins plea and conceded that the suit may be decided on the tooting that the consideration fixed was Rs. 85,000/- out of which the Plaintiff had got
Rs. 65,000/- leaving a balance of Rs. 20,000/-. The reason for this concession was that whatever may be the consideration between the parties,
there was no dispute that a sum of Rs. 20,000/- out of the entire consideration money was not paid to the Plaintiffs. In view of these
circumstances, therefore, I can take it that the real consideration of the sale deed was as mentioned m the various sale deeds that is to say Rs.
85,000/- out of which the Plaintiff had received Rs. 65,000/-.
According to the terms to the agreement dated 26-6-1961 the plaintitts were to deliver vacant possession to the Defendants within a period of tour
months from that date. I might mention that at the time when the agreement to cell was executed, the property in question was in possession of the
Income lax department as a tenant which was paying a rent of Rs. 350/- per month. It was also stipulated in the agreement that after the execution
of the sale deed, the purchaser would be entitled to the rent paid by the tenant. In tact, the main controversy between the parties centres round the
interpretation of that part of the agreement which relates to nanaing (sic) over vacant possession to the Defendants within the stipulated period.
The case of the Plaintiffs further was, that they in fulfilment of their duties, gave a notice to the Income lax department for vacating the premises but
as the Defendants accepted rent from the tenants without the Knowledge of the Plaintiffs and thus established direct contact with the tenant, they
waived the condition regarding handing over of vacant possession, it was further pleaded that the agreement in so far as it related to the handing
over of vacant possession to the Defendants within a period of tour months was an impossible agreement and was, therefore void. Finally, it was
averred that even if the agreement regarding handing over vacant possession to the deferents (sic) was valid, it amounted to a penalty for which the
Court could grant relief to the Plaintiffs by fixing only a reasonable compensation for the breach of the terms.
The case of the Defendants mainly was that under the agreement the Plaintiffs had undertaken to give vacant possession of the property to them,
failing which a sum of Rs. 20,000/- was to be forfeited and since the Plaintiffs did not perform their part of the contract, they were not entitled to
the balance of Rs. 20,000/- which stored forfeited. In other words, the Defendant main plea was, that the handing over of vacant possession was
an intengral part of the contract failing which the parties had agreed to fix pre-estimated damages at Rs. 20,000/- and since the Plaintiffs had
committed a breach of the agreement, they were not entitled to recover this amount from the Defendant. The Defendants further contended that
they did non (sic) contact the income tax department directly nor did they act as owners in effecting repairs to the property before the expiry of the
period fixed in the agreement. The Defendants, however, admitted to have received rent within period stipulated and the explanation given by them
was that under the agreement they were entitled to take the rent from the tenants afterr having purchased the property.
On the pleadings of the parties, the tonowing (sic) issues were framed:
Whether in view of the terms and recitals of the agreement sell relied upon by both the parties, the Plaintiff Is entitled to a decree of Rs.
20,000/-? O.P.P.
Has the Defendant committed any breach of the terms of the agreement so tar he is concerned? it so in what manner and with what effect?
O.P.P.
Is the provision in the agreement relating to relinquishment of Rs. 20,000/- by the Plaintiff a penal one so as to be unenforceable ? O.P.P.
Did the agreement between the parties become impossible of performance and as such void? O.P.P.
Did the Defendants forfeit their remedy by entering in collusion with the income lax department regarding the properties sought to be sold?
O.P.P.
To what relief, if any, is the Plaintiff enudear (sic) O.P.P.
Issue Nos. 1 to 5 are inter-connected and I propose to decide them together. The main dispute between the parties is confined to two matters:
In the first place, the question is as to whether or not the agreement relating to handing over of the possession to the Defendants, failing which the
Defendants were to forfeit a sum of Rs. 20,000/- is void as Wing an impossible agreement. Secondly, whether the forfeiture clause of Rs. 20,000/-
is a penalty within the meaning of Section 74 of the Contract Act so as to enable the Plaintiffs to get refer trom the Court.
I would take up the first point, regarding the impossibility of the contract.
The agreement is Ext. HW 4/A and the relevant portion of the agreement may be quoted thus:
igyk vkneh] 4 ekgrd fdjk;snkj tk;nkn etdwj dks can[ky djds dCtk djkj ik;k gS A Qjhd&nqljk tk;nkn] etdwjdks nsxk vkSj Qjhd&nqljk dCtsnkj
okdS Qfjd igys ls ysus ij otekur #- 20000 @& Qjhd igys dks vnk djsxk A fdjk;snkj dks csn[ky djus dh btktr vkSj ftEesnkjh Qjhd igys ij gS A vxj
Qjhd&igyk fdjk;snkj dks fe;kn eqdjZj ds vanj csn[ky djds Qjhd nqljs dks dCtk nkj okds u nsxk rks Qjhd igyk csn[ky #- 20000 @& dk gDdnkj
gksxk A
A perusal of this agreement shows that under this agreement the Plaintiffs had to give physical possession or the property to the Defendants
within a period of tour months from the date of the agreement and that the responsibility for doing so was entirely on the Plaintiffs, it was further
provided that the Plaintiffs were entitled to the balance of the consideration of Rs. 20,000/- only if they fulfilled this condition. It was contended
(sic) by the learned Counsel for the Plaintiffs that it was impossible for the Plaintiffs to have given vacant possession to the Defendants within such a
short time particularly when the parties were aware that the property in question was in possession or the income lax department as a tenant and
no suit Court (sic) have been decided against the tenant In such a snort turn time. The argument appears to be impressive, but on a closer scrutiny,
it is not tenable. It is true that the Plaintiffs gave a notice to the Income Tax department on 15-7-1961for vacating the premises. This notice is Ex.
PW 2/1 and in reply to this notice the Income Tax department gave a notice which is Ex. PW 2/l (a), dated 22-8-1961 by which it refused to
vacate the premises on the ground that the Plaintiffs having transferred the property to the Defendants, had no locus standi to eject them.
Thereafter, the Plaintiffs did not take any action. They could have easily filed a suit to eject the tenant and also joined the Defendants as co-
Plaintiffs with them in that suit or they could nave impleaded them as pro forma Defendants.
It will be very difficult to fix any particular period within which a suit can be disposed of it all depends on the nature of the suit, nature of the
evidence that the Parties have to adduce and other considerations. It cannot, however, be said that it is impossible to get a suit of thus nature
disposed of within a period of four months. It was, no doubt, very difficult to do so, but that does not by use itself show that the contract was for
doing an impossible act. Another contention raised by the learned Counsel for the Plaintiffs was that since the Plaintiffs had already parted with
their title in favour of the Defendants, it was impossible for them to have brought a suit for ejectment against the tenant. I cannot agree with this
contention, under the deed of agreement, which has been endorsed by the various sale deeds, the Plaintiffs were given a clear authority to acquire
vacant possession of the property. This was a sufficient title for them to bring a suit for ejectment, as I have already indicated above, the difficulty
about absence of title could have been met by joining the Defendants as co-Plaintiffs or malting them as pro forma Defendants.
Indeed, the Plaintiffs should have at least attempted this and it they failed to make any such attempt in filing the suit against the Defendant they
cannot be heard to say that the, agreement itself was an impossible one. I would, therefore, hold that the agreement between the parties was valid
and cannot be void on the ground of impossibility. It was next contended by the learned Counsel for the Plaintiffs that the Defendants have waived
their right to get vacant possession from the Plaintiffs by their subsequent conduct. In this connection, evidence was adduced before me by the
Plaintiffs to show that there was an oral agreement between the parties at the time when the agreement to sell was executed to the effect that as
long as vacant possession of the property was not delivered to the Defendants, they would not realise rent from the tenant directly, The only
witness to prove this fact was one of the Plaintiffs Janw Nath Zutshi. This witness admits in his cross examination that this fact was not mentioned in
the agreement, a perusal of the agreement clearly shows that after the (sic) sale the Defendants would be entitled to the rent of the property. There
is no mention about this oral agreement between the parties either in the agreement Ex. P.W. 4/A or in the sale deeds Ex. D.W. 1/A, Ex. D.W.
1/A1 and Ex. D.W./A2. on the other hand, there is the evidence of the Defendants consisting of D.W. No. 2 that no such agreement was arrived
at between the parties.
In these circumstances, therefore, I am not in a position to hold that there was any such agreement between the parties that the Defendants were to
receive the rent from the tenant directly. It appears from the evidence or P.W. 2 Dharam Singh a clerk in the Income tax department that the
Defendants accepted the first instalment, or rent on 20-9-1961 and before that the Plaintiffs had Been receiving the rent. The witness explained
that he had sent for the Defendants and asked them to take the lent since they had purchased the property, it is true that on the date when the
Defendants received the rent from the tenant, it was within four months of the stipulated period in the agreement. But as I have already held that
there was nothing in the agreement or the sale deeds to debar the Defendants from accepting the rent from' the tenant, this conduct on their part
cannot amount to a waiver of their rights.
It was further contended by the learned Counsel for me Plaintiffs that the Defendants started making repairs to the property in. question and this
amounts to waiver of their rights under the agreement. It appears, however, from the evidence adduced by the Plaintiffs themselves that the
Defendants did not take any step to cause repairs to the property In question within the stipulated period (four months from 26-6-1961). P.W. 3
the Income Tax Officer was stated that the Defendants started repairs to the building after 15-11-1961 because it was on 15-11-1961 that he had
sent a letter to the Defendants Ex. PW3/B requesting them to effect the necessary repairs to the building, the period of four months mentioned in
the agreement expired on 26-10-1961. It is, therefore, clear that any repairs which the Defendants made to the property in question were after the
expiry of this period. Moreover, Ex. PW 1 /l which is the order of the Secretary, Municipality granting permission to effect the repairs was passed
as late as 9-12-1901 and it also refers to the application given by the Defendants on 25-11-1961. Similarly Ex. P.W. 1/Ai is a report of the
Overseer regarding the repairs and this report is also dated 25-11-1961. Thus if any step towards making repairs, to the property was taken by
the Defendants, it was taken after the expiry of the period of four months mentioned in the agreement to sell Ex. P.W. 4/A.
It is obvious that if the Plaintiffs were unable to fulfil their part of the contract in giving vacant possession to the Defendants within the period of four
months, that is to say till 26-10-1961, the Defendants were fully within their rights to take charge of the property and to get it (sic) repaired when
they were asked to do so by their tenants. This conduct on their part, therefore, could not constitute a waiver of their rights under the agreement
particularly when the period fixed in the agreement had already expired. This is the only evidence adduced by the Plaintiffs to show that there was
a waiver on the part of the Defendants of their rights in the agreement. On a consecration of the evidence, I am, therefore, clearly of the opinion
that the Defendants did not waive their rights in the agreement so as to absolve the Plaintiffs of their responsibility to give vacant possession to the
Defendants.
Issue Nos. 2, 4 and 5 are, therefore, decided in favour of the Defendants and against the Plaintiffs.
I would now take up the question as to whether the agreement regarding forfeiture of Rs. 20,000/- can be held to be a penalty within the
meaning of Section. 74 of the Contract Act. This question is the subject matter of Issues Nos. 1 and 3.
It is well settled that after the amendment or 1899 in Section 74 of the Contract Act in India the Legislature abolished the distinction between
penalty and liquidated damages. Section 74 of the Contract Act runs as follows:
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.
A perusal of this Section clearly snows that even though the parties may by an agreement settle a fixed sum as damages for the breach of the
contract, the Court is not powerless to grant relief to the party committing default, if it is held that the amount of damages fixed by the parties is
unconscionable or penal. Once the Court comes to this finding, it is open to it to grant such reasonable compensation as the Court may in the
circumstances determine. In Bhai Panna Singh v. Arjun Singh AIR 1929 PC l9, their Lordships of the Privy Council while considering the scope
and effect of Section 74 observed as follows:
The effect of Section 74 Contract Act of 1872, is to disentitle the Plaintiffs to recover simpliciter the sum 01 Rs. 10,000/- whether penalty or
liquidated damages, the Plaintiffs must prove the damages they have sufferred.
In a later case, Michel Habib v. Sulaiman El Taji AIR 1941 PC 101 the same principle was enunciated and it was held that the amount fixed
by the parties in the contract would not Include a sum fixed in terrorem covering breaches of contract of varying degrees, their Lordships further
held that the agreed liquidated damages in order to be enforced must be the result of a genuine pre- estimate of damages. In this connection, their
Loraships observed as follows:
Agreed liquidated damages, if to be enforced must De the result of a ""genuine pre-estimate of damages"" to use the illuminating phrase of Lord
Dunedin. They do not include a sum fixed in terrorem covering breaches of contract of many varying degrees of importance the possible damages
from which bear no relation to the fixed sum, and which obviously have at no time been estimated by the contracting parties. It seems right
therefore, to conclude that now when the code is applied to contracts, ""damages"" will be taken to mean actual damages, and the article win only
apply to an agreement which represents ""a genuine, pre-estimate of damages"". Where there is such an agreed sum ""no more and no less"" can be
awarded. But if the Court applying well known rules has to conclude that the sum agreed was a penalty, whatever it may be called in the
agreement, then the penal stipulation will not be enforced"". It seems to me that where the clause relating to the award of damages as consequence
of the breach of the contract is an integral part of the contract and has been added as a guarantee for the performance of the contract, and the sum
fixed is pre-estimate of damages, agreed to by the parties, the Courts should normally carry out the terms of the contract and grant damages as
agreed to between the parties. I am supported in this view by a decision of the Nagpur High Court reported in AIR 1937 143 (Nagpur) , and also
Vaithinatha Iyer v. Govindaswami Odayar AIR 1922 Mad 67. The question as to whether or not the amount fixed In me contract is pre-estimate
of damages or is a penalty will have to be determined according to the facts of each case, in the instant case, we have to find out as to whether the
clause relating to withholding of the balance of the consideration money of Rs. 20,000/- was a penalty was really a pre-estimate damage as agreed
to between parties.
In order to this conclusion, various Courts in India have laid down a number of tests. The most important test to determine whether the stipulation
amounts to penalty or not, is the question as to whether or not the payment of money was in terrorem i.e. it was meant as a punishment to be
inflicted on the party committing default. This, therefore, envisages that there must be two agreements, the primary agreement and the subsidiary
agreement. Another test to determine whether a particular clause Is penal or not would be the fact as to whether the damages fixed are much more
in proportion to the actual breach caused. Another test that has to be applied is as to whether If the parties are placed in the same position as they
were the party committing default, is put in a worse position or not. These tests may not be conclusive one way or the other but they may give the
Court a general idea in particular case to determine whether the clause in dispute amounts to penalty or not. A Division Bench or the Rajasthan
High Court after consideration of various authorities In India has. very clearly enunciated the principles by which the Courts are to be governed in
holding whether ther a particular clause amounts to a penalty or not.
In Badhava Singh v. Charan Singh (S) AIR 1955 Raj 87, their Lordships of the Rajasthan High Court made the following observations:
On review of the authorities cited above, we are of Opinion that the true effect of Section 74 may be summarised somewhat as follows:
Where a sum is named in the agreement as payable on breach thereof, the Plaintiff cannot be entitled to ma entire sum so named ""simpliciter that
is, merely because such a sum may be mentioned in the agreement to be so payable.
All that the Plaintiff would be entitled to is a ""reasonable compensation"" subject to the amount namely (sic) therein being maximum.
What is ""reasonable compensation"" would depend upon and must be determined by the circumstances of each case.
The aforesaid result must hold good regardless of the consideration that the sum named in the agreement is what under the English Law is
termed ""liquidated damages"" or is in nature of a ""penalty"". The effect of the Indian law as embodied in Section 74 is to do away with the distinction
between ""penalty"" and unliquidated damages"" under the English Law which has been a prolific force of case law and which has sometimes given
rise to not a little confusion.
It must be for the Plaintiff to prove the damage suffered by him, but such proof may be direct or circumstantial, and need not possess the quality
of arithmetical exactitude.
If the Plaintiff succeeds in establishing that the sum named in the agreement is a genuine pre-estimate 01 damages, or would otherwise be a
reasonable compensation for the breach, the Court may grant the entire sum named In the breach as such compensation, if on the other hand, the
Court comes to the conclusion that the amount as fixed was ""in terrorero"" or unconscionable and extravagant, it would be open to It to award such
sum as may appear to be reasonable.
In deciding whether the amount fixed is a genuine pre-estimate or reasonable compensation or not, it would be a factor for consideration
whether the sum named in the agreement is not disproportionate to the injury caused and whether the burden evenly and equitably falls on both
parties to the contract.
Moreover the view taken by me, that is to say, that the essence of penalty is a payment of money in terrorem, is supported by the following
authorities:
Mt. Asa Devi Vs. Mt. Champa Devi and Others, ; Kanak Kumari Sahiba Vs. Chandan Lall Khattry and Another, ; Ramalinga Adaviar and
Another Vs. Meenakshisundaram Pillai and Others, and Thallur Narasimhulu Setty Vs. Kotha Seshayya, .
Applying these tests, therefore, I would try to find out whether or not the clause by which the Defendants were entitled to withhold the
consideration of Rs. 20,000/- is a penal one and amounts to payment of money in terrorem. To begin with, it is clear from the agreement to sell Ex.
D.W.4/A and the sale deed Ex. D.W.1/A, D.W.1/A and Ex. D.W.1/A2 that the withholding of the consideration does not appear to be and
integral part of the contract It is nowhere stipulated that if vacant possession is not delivered to the Defendants, the contract will become void and
so as to relegate the parties to their original to the agreement between the parties did not affect the title of the Defendants at all. Having regard to
this circumstance therefore. It is difficult to hold that the penal clause was and integral part of the contract.
Moreover, from this agreement Anr. important fact, which is one of the tests to determine whether or not the payment is in terrorem, is established.
The title of the Defendants was not affected if the Plaintiffs committed a breach of the agreement, and since the contract was riot to become void if
vacant possession was not given to the Defendants, it follows that if the parties are relegated to their original position, the Plaintiffs would be
adversely affected because they would lose a part of the consideration money and yet not be able to avoid the contract. Thus the position of the
Plaintiffs would become worse If the parties are relegated to their original positions, this in my opinion, is an important circumstance, which snows
that the clause was meant not as genuine pre-estimate of damage but as a payment in terrorem, that is to say, a stipulation incorporated in order to
punish the Plaintiffs for their breach. Secondly, both the parties were fully aware that the property in question was in possession of a tenant and
vacant possession could not be made easily available to the purchasers without filing a suit. In spite of this a very short period of four months was
fixed which made the task of the Plaintiffs both oppressive and onerous. It may not have been impossible for the Plaintiffs to have achieved this
task but all the same it was difficult and burdensome. This is yet Anr. circumstance that shows that the clause by which the sum of Rs. 20,000/-
was to be withheld amounts to a penalty.
From a perusal of the sale deeds Ex. D.W.1/A, Ex. D1/A1 and Ex. D.W. 1/A2 it seems that the total consideration between the parties was Rs.
85,000/- out of which the Plaintiffs got Rs. 65,000/- Rs. 10500/- by virtue of the sale deed Ex. D.W.1/A, Rs. 10500/- by virtue of Ex. D.W.1/A1
and Rs. 64,000/- by virtue of Ex. D.W.1/A2 leaving a balance of Rs. 20,000/-. It is, therefore, clear that what was withheld was not earnest
money but a part of the consideration agreed between the parties. This also shows that the clause relating to with holding of Rs. 20,000/- would
not amount to a pre-estimate of damage but a penalty.
The Advocate General appearing for the Defendants submitted that once an amount is fixed is a contract for a breach, the Court has no right to
interfere and has got to carry out the terms of the contract. in support of his argument he has placed reliance on a decision of the Supreme Court
reported in Sir Chunilal V. Mehta and Sons, Ltd. Vs. The Century Spinning and Manufacturing Co., Ltd., . I nave gone through that case and I
think that it is of no assistant to the Defendants. In that case the question of penalty was not only not raised hut there was a finding of Tact of the
High Court that the amount was a reasonable one. Referring to this finding, their Lordships observed as follows:
In our opinion these words, as rightly pointed out of the High Court, were intended only to emphasise the tact that compensation will be
computable at an amount not more than Rs. 6000/- p.m. Apparently they though in desirable to emphasise the point that the amount or Rs. 6000/-
p.m. was regarded by them as reasonable and intended that it should not be reduced by the Court in its discretion.
The question in that case was really whether or not the Plaintiffs were entitled to an amount more than the one fixed in the contract which is not the
question here. As I Have Already indicated above, there was a finding by the High Court that the amount fixed was reasonable and the question of
penalty could not possibly have arisen. In fact the object of Section 74 of the Contract Act is that where the parties fix an amount as damages the
Court cannot grant a sum in excess of tile amount in the contract but It does not letter, the-discretion, of the Court to reduce the amount where it
finds that the sum fixed amounts to a penalty.
The Advocate General again placed reliance on a decision of the Andnra Pradesh High Court reported in Hindustan Shipyard Private Ltd.,
Visakhapatnam v. Atill Appalaswami AIR 1963 Andh Pra n. this case relates to a deposit and not to withholding of consideration, in the present
case it cannot be said with any snow of force that the withholding of the portion of the consideration settled between parties would amount a
deposit, this case also in my opinion, does not support the Advocate General. Moreover although In the agreement period of tour months for
delivery of vacant possession is specified, yet in the sale deeds it is only mentioned that the amount of Rs. 20,000/- will be paid when the Plaintiffs
deliver possession to the Defendants. No date or period has been pacified in the sale deeds at all. This is yet Anr. circumstance to show that the
stipulation in the agreement Ex. P.W.4/A la not an Integral part of the contract of sale. Again it seems to me that the amount of Rs. 20,000/-
appears to be excessive and unreasonable in proportion to the harm which may be caused to the Defendants, it the Plaintiffs committed a breach of
this contract. The Defendants were already getting a substantial fair rent of the property in question and even if they did not get actual possession
they could nave done so by filing a suit for possession after giving notice to the tenant. The tenant Being the income Tax department having an
income of more than Rs. 50,000/- a year as deposed to by the Income Tax Officer Mr. Mehra P.W. 3 the provisions of the Houses and Shops
Rent Control Act, 2009 did not apply. In these circumsances, therefore, with-holding of a substantial (sic portion?) of the consideration of the sale
appears to be both unconscionable, oppressive, and unreasonable.
In (S) Kanak Kumari Sahiba Vs. Chandan Lall Khattry and Another, , a case which appear to be on all tours with the facts of the present
case, an identical stipulation was held to be a payment in terrorem and therefore a penalty. In that case, it appears that the Plaintiff had entered into
an agreement with two Defendants for the purchase of net weaving and hosiery machines and had fixed a price of rupee one lac. Under this
agreement out of the total consideration a balance of Rs. 20,000/- was payable when the machines were to be Installed at Dumraon and put in
working order. It appears that the machines could not be Installed within the period fixed by the agreement and consequently a suit for damages
was filed by the Plaintiff against the Defendants. Their Lordships held that the balance of Rs. 20,000/- was a penalty and the Court could only
grant a reasonable compensation.
In this connection, their Lordships observed as follows:
Section 74, as is evident from its terms, is not limited to the case of liquidated damage or pre-esunated (sic) damage only. It covers the case of
penalty as well. In the case of liquidated damage or what is known as pre-estimated damage (sic) settled at the time of making the contract
damage to be decreed is generally the figure settled by the parties though in the case of penalty the Court is not to act on that figure but has to
come to its own conclusion about (sic) the actual damage suffered by the Plaintiff as a result of breach of warranty.
Under a contract the parties may agree that a particular sum shall be payable for the breach of the contract. The sum so fixed may be either in the
nature of liquidated damages i.e. a sum payable as damages the amount or which instead of being left to the determination of the Court is
previously determined by the agreement of the parties or in the nature of a penalty for breach of the agreement. The distinction between liquidated
damages and penalty is to be found in this, that the essence of a penalty is a payment of money stipulated as ""in terrorem"" of the offending party;
the essence of liquidated damages is a genuine covenanted pre-estimate of damage.
In the present case, I am unable to hold that the amount of Rs. 20,000/- was a genuine pre-estimate of damages agreed to between the
parties. There can be no doubt that the basic Idea under the contract was not pre-estimate of damage arising out of the breach committed by a
defaulting party but it was meant to be a security or a guarantee to discharge the obligation resting on the Plaintiffs and that too under such
oppressive circumstances. Un a consideration of the entire evidence and circumstances, I hold that the amount of Rs. 20,000/- was a penalty
within the meaning of Section 74 of the Contract Act and the Plaintiffs are, therefore, entitled to get relief from the Court.
The next question Is as to the amount of reasonable compensation that should be allowed to the Defendants because of the breach committed
by the Plaintiffs with respect to the clause of agreement in question. In my opinion, a sum of Rs. 5000/- (Rupees five thousand) would be a
reasonable amount to cover the incidental expenses which may have been incurred by the Defendants and the mental worry caused to them for
getting the vacant possession of the premises. Thus the Plaintiffs are entitled to recover Rs. 15,000/- after giving credit for the compensation to
which the Defendants would be reasonably entitled.
Issue Nos. 1, 2 and 3 are therefore, decided accordingly. As, however, the Plaintiffs entered into We agreement with open eyes, they cannot
be allowed to recover interest prior to the suit, on the amount for which they, are entitled to be given relief by this Court. They were a defaulting
party and at the most the Court can only relieve them of such part of the damages as is considered reasonable. I would, therefore, disallow the
interest charged by the Plaintiffs. The Plaintiffs will, however, be entitled to interest from the date of the decree to me date of realisation at 6% per
annum.
There is yet Anr. question on which the Defendants have led some evidence. The Defendants have 'adduced evidence to prove that they had
spent an amount of Rs. 29,080/- on the repairs of the house sold to them. In support of their claim they have relied on Ex. D.W.3/A, Ex.
D.W.3/A1, Ex. D.W.5/A and Ex. D.W.5/A1. It is not necessary for me to go into this question because this is wholly irrelevant to the issues which
have to be decided in this case. It is the case of neither party that the entire contract for sale of the property is void so as to enable the Defendants
to be reimbursed for what they had spent on the property. On the other hand, since the Defendants got indefeasible title to this property by virtue
of the sate deeds they were fully within their rights to spend anything they linked. The Advocate General also conceded that a finding on this point
is not germane to the questions in volved in this case.
The Plaintiffs' suit is, therefore, decreed in part to, the extent of Rs. 15,000/- with interest at 6% per annum from the date of the decree to the
date of realisation and a decree for this amount is hereby passed.
The Plaintiffs are also entitled to the proportionate costs of this suit.