JUDGMENT - Chagla, C.J.

(1) This appeal arises out of a suit filed by the plaintiffs for return of a deposit made by them of a sum of Rs. 3,000 under a contract which they entered into with the defendants, who are the Trustees of the Port of Bombay. The contract was for the supply of timber, bamboos and of her miscellaneous articles during the year 1947. Under the contract, the plaintiffs had to supply materials of the value of about Rs. 30,000 and the deposit had to be made of 10 per cent, of that value. In fact, the plaintiffs supplied materials of the value of Rs. 56,000. and then they intimated to the defendants that they would not make any further supplies. Thereupon the defendants forfeited the deposit of Rs. 3,000. And the question that arose in the suit, and which arises in this appeal, is whether the plaintiffs are entitled to recover the deposit.

(2) It is not disputed by the plaintiffs that they committed a breach of the contract in failing to supply materials to the defendants although called upon to do so. But the contention of the plaintiffs is that the deposit which they made, and which was forfeited by the defendants, was in the nature of a penalty, and that the plaintiffs are entitled to be relieved against the penal provision in the contract. Now, in order to appreciate the contentions of the parties, it may perhaps be necessary to look at the terms of the contract between the parties. The general conditions of tender provided that, on acceptance of a tender, a separate contract deposit would be required to be made.

This was in contra-distinction to earnest money which had to be paid along with the tender. In the fender which the plaintiffs forwarded to the Controller of Stores, Bombay Port Trust, they undertook to give security in cash, or by Government or Public Securities, or by Bankers Guarantee Bond, to the extent of 10 per cent, of the total approximate value of the accepted items. Clause 8 of the agreement provided that if there was any default in supplying any of the articles covered by the contract, or if any of the articles were rejected by the defendants, the Controller of Stores of the defendants could procure these articles as may be required, and the plaintiffs were liable to make good the difference between the price fixed under the contract and the price which the defendants would have to pay to buy these articles in the open market. And this difference in price was to be recovered from the amount of any bills which the defendants had to pay to the plaintiffs or from the amount deposited by the plaintiffs as security for the due performance of the contract.

Therefore, the amount which was to be deposited, and which was described as a contract deposit, could be availed of both as a fund from which the defendants could draw in the event of proper articles not being supplied by the plaintiffs and the defendants being compelled to buy the articles at a higher price, and as security for the due performance of the contract. Under Clause14 of the agreement there was an obligation upon the plaintiffs to supply the quantity of the articles mentioned in the contract plus 25 per cent, and the right was given to the plaintiffs, after the articles were supplied and after a further 25 per cent, was also supplied, to intimate to the defendants their unwillingness to make any further supplies. If this was done, there was no further obligation upon the plaintiffs to make any further supplies; but if the plaintiffs did not indicate their unwillingness within seven days they were liable to supply such further quantity of articles or goods as might be ordered by the defendants at the price and upon the terms and conditions mentioned in the contract.

Now. in this case, the plaintiffs, having sup-plied 25 per cent, over the quantity specified in the contract, failed to intimate their unwillingness to make any further supplies find therefore they became liable to continue to supply goods during the period of the contract

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