A deposit made as security for the due fulfilment of the obligations under a contract is not governed by Section 74 of the Indian Contract Act and can be forfeited in the event of default being committed by the contracting party, even in the absence of an express agreement for forfeiture.

CHANDRA REDDY, C. J.

( 1 ) THIS is a revision petition against the decree of the District Munsif. Visakhapatnam in S. C. S. No. 839 of 1958 decreeing the plaintiffs suit for a sum of Rs. 500. 00.

( 2 ) THE respondent entered into a contract with the petitioner for removal of timber scrap in the ship-yard of the petitioner for a period of six months on terms and conditions which need not be set out here. He deposited Rs. 200. 00 along with his tender and another sum of Rs. 300. 00 after his tender was accepted for the due performance of the contract. It was inter alia provided in the tender notice that the successful tenderer would be called upon to pay a further sum ot Rs. 300. 00 as security deposit for the due fulfilment of the contract and it would be refunded to him after the completion of the contract and that the tender deposit of the successful tenderer would be refunded to him after satisfactory completion of the contract. The terms of the tender notice were incorporated in the contract that was entered into between the parties subsequently. As the respondent failed in the performance of the contract, the petitioner refused to refund the tender deposit as well as the security deposit in spite of the request of the respondent. Hence, he laid the suit out of which this petition has arisen for recovery of Rs. 500. 00 representing the security deposit and the tender deposit.

( 3 ) THE answer of the defendant-petitioner was that as the plaintiff failed to clear off the scrap and thus committed a breach of contract, he was not entitled to have his money back and that it was open to the defendant to forfeit both the deposits.

( 4 ) DISAGREEING with this defence, the trial court entered judgment for the plaintiff. In the opinion of the District Munsif, in the absence of an express agreement for forfeiture, the defendant had no right to retain the deposits, its only right being to postpone the payment till satisfactory completion of the contract by the plaintiff. This conclusion of the District Munsif is assailed in this revision.

( 5 ) IT is argued for the petitioner by Sri Kodan-daramayya that the absence of an express provision for forfeiture does not prevent the defendant to forfeit the two sums when the deposits were made for the due performance of the contract. The learned counsel also questions the correctness of the decision of Govinda Menon, J. of the Madras High Court in Venkataperumal v. Thiruppuvanam Panchayat Board, 67 Mad LW 1241: ( (S) AIR 1955 Mad 717) on which the trial court rested its opinion. In the cited case, the plaintiff agreed with the defendant to construct a bus-stand on a land belonging to him and after doing so to lease out the building to the Panchayat Board on a rental of Rs. 200. 00 a year. The plaintiff did not perform his original contract for a long time. Later on, he wrote to the Panchayat Board stating that for the due performance of the contract within a period to be extended by the Panchayat Board he would deposit a sum of Rs. 500. 00. Yet, he did not build the bus-stand. Since he failed to construct the bus-stand even within the extended period, the amount of Rs. 500. 00paid by him was forfeited. The question arose whether it was competent for the Panchayat Board to retain this sum of Rs. 500. 00 and the learned Judge answered it in the negative in the opinion that there should be an agreement of forfeiture in default and such a thing could not be implied from the fact of mere failure to perform the contract and that, if so advised, it was open to the defendant to file a suit for non-performance of the contract. The judgment shows that the learned Judge was under the impression that such a case was governed by Section 74 of the Indian Contract Act.

( 6 ) IN my opinion the case of a deposit made of as security for the due fulfilment of the obligations under a contract is not governed by Section 74. The rule as to penalty dealt with in Section 74 is not applicable to cases of forfeiture of

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