State of Gujarat vs M.K. Patel and Co. and Another

The State of Gujarat is the petitioner before me. The State wanted to enforce a Bank guarantee furnished to it by a contractor by asking the Bank to pay over the amount to the State. It was the stand of the State that the contractor had committed default and consequently the State is entitled to enforce its guarantee. When the contractor felt that the Bank is likely to pay over the amount to the State, the present suit, out of which the injunction matter has arisen, was filed by the Contractor and an injunction was sought restraining the payment of the amount by the Bank to the State Government. The plaintiff succeeded in obtaining the injunction and that is confirmed in appeal. That is challenged in this revision.

The discretion has been exercised by both the Courts below against the State and in a revision proceeding it is not for this Court to interfere. No circumstance justifying such interference is seen in this case.

1 may also point out that, in law, the position taken by the Courts below is correct. Any stipulation for unliquidated damages in a contract gives rise only to a right to sue on default and no right to the amount. This is because, unlike in England, in India the stipulation for unliquidated damages does not by itself give rise to a claim for that amount. The reasonableness of the quantum of damages agreed upon is a matter for examination, for, the law of contracts in India does not permit penalty to be stipulated by the parties for non-performance. The distinction between penalty and damages naturally calls for consideration in every case to decide whether stipulated damages would amount to penalty or, would fall within the scope of damages. That exercise can be done only by a Court. That is why oil default a right to sue alone would arise. That right to sue will furnish a cause of action for the suit. This position has been well settled. Reference may be made to Union of India (UOI) Vs. Raman Iron Foundry, . 1 may also advert to a decision which I had occasion to render as a Judge of Kerala High Court in Chellappan. v. Executive Engineer 1979 Ker LT 53, where the same view was taken.

The revision application is dismissed in the circumstances. Rule discharged. No costs.

Application dismissed.