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1976 Supreme(Cal) 339
High Court Of Calcutta
A. K. SEN, M. N. RAY
SUBIR GHOSH - Appellant
Versus
INDIAN IRON AND STEEL CO.LTD. - Respondent
Appeal from Original Decree No. 947 of 1969.
Decided On : 09/22/1976
AMAL KUMAR GHOSH, B.P.GUPTA, DWIJENDRA PROSAD BAGCHI
An agreement between an employer and an employee, which provides for liquidated damages in case of breach of the agreement, is valid and enforceable, and the employee is liable to pay the liquidated damages even in the absence of proof of actual damage.
Headnote:
CONTRACT - Agreement between company and officer trainee - Training for 2 years - Undertaking by trainee to serve company for 5 years after training - Bond executed by trainee to pay Rs. 6,000/- as premium - Termination of employment by trainee after 6 months - Suit by company for recovery of Rs. 3,000/- as per bond - Whether agreement and bond are valid - Whether amount payable is penalty or liquidated damages - Applicability of section 74 of the Contract Act.
Fact of the Case:
The appellant was recruited as an officer trainee by the respondent company under its First Staff Assistant Scheme for training. He executed an agreement to serve the company for 5 years after training and a bond to pay Rs. 6,000/- as premium. After 6 months of training, the appellant terminated his employment. The respondent company sued for recovery of Rs. 3,000/- as per the bond.
Finding of the Court:
The court held that the agreement and bond were valid and enforceable. The amount payable under the bond was liquidated damages and not penalty. The respondent company was entitled to recover the amount claimed as liquidated damages, even in the absence of proof of actual damage.
Issues: 1. Whether the agreement and bond are valid and enforceable. 2. Whether the amount payable under the bond is penalty or liquidated damages. 3. Whether the respondent company is entitled to recover the amount claimed as liquidated damages, even in the absence of proof of actual damage.
Ratio Decidendi: 1. The agreement and bond are valid and enforceable as they do not constitute restraint of trade. 2. The amount payable under the bond is liquidated damages and not penalty, as it is a genuine pre-estimate of the damage to be suffered by the company in case of breach of the agreement. 3. The respondent company is entitled to recover the amount claimed as liquidated damages, even in the absence of proof of actual damage, as section 74 of the Contract Act dispenses with the need for proof of actual damage.
Final Decision: The appeal was dismissed and the judgment and decree of the trial court were affirmed.
( 1 ) THIS is an appeal by the defendant in a suit for recovery of money and is directed against the original decree passed by the learned Judge, 4th Bench, City Civil Court at Calcutta, dated March 18, 1969, passed in Money Suit No. 161 of 1967. This appeal has been argued on two questions of law, facts not being very much in dispute.
( 2 ) THE appellant was recruited as an officer trainee by the respondent company under its First Staff Assistant Scheme for training. He was so recruited on an agreement between the parties made on September 20, 1965. The agreement provided: in consideration of a bond to be executed immediately after the signing hereof by the Officer trainee in favour of the Company whereby he shall bind himself to pay to the Company a sum of Rs. 6,000/- by way of premium but subject to the condition provided by such bond and also to the undertakings on his part herein contained the Company undertakes to afford such training and instruction to the officer trainee as the company shall deem necessary to qualify him for employment by the Company as a First Staff Assistant in any of its work. ? the agreement proceeded to provide that the training will be for a period of two years subject, however, to the Company's approbation and subject further to the Company's right to determine the same at any time without any notice and without assigning any reason. During the period of training the Company agreed to pay the officer trainee a salary of Rs. 300/- and an allowance of Rs. 100/- as dearness allowance per month and provided free accommodation in one of the Company's hostels. The officer trainee was made entitled to free medical facilities similar to those available to permanent First Staff Assistants of the Company and one month's leave on full pay for every completed year of training. Under the said agreement the appellant undertook to service the company during the period of training diligently and to the utmost of his power and skill and to devote whole of his time to work and duties assigned to him and to carry out all orders and directions by his superior authority and observe and perform all service conditions and standing orders of the company for the time being in force. He further undertook not to apply for any outside appointment without a prior written permission from the company and that he would not become a member of the trade union or any other organisation of the employees. The more important undertaking given in the said agreement was to the effect that if during or at the expiration of the said term of training the company offers employment to him as a First Staff Assistant with the company on terms and conditions as prevailing for the time being, the officer trainee will accept suchemployment and will well and faithfully discharge the duties and observe and perform the terms and conditions of employment for a period of not less than 5 years and will not either directly or indirectly nor on his account or as servant or agent of any other person, firm or company accept any employment otherwise than with the company. The last clause in this agreement provided that in the event the officer trainee be found guilty of any misconduct as specified therein ?the company may summarily terminate the training notwithstanding any other penalty to which the officer trainee may be liable under any of the provisions contained in his agreement and in the bond referred to in clause 2 hereof.
( 3 ) SIMULTANEOUSLY, the appellant executed a bond as envisaged by clause 2 of the agreement, as aforesaid, and since it is necessary to refer to the actual terms of the bond for deciding one of the points of law raised in this appeal we set out the bond hereunder: whereas by an Agreement dated the 20th day of September, 1965 and made between myself of the one part and the Company of the other part (hereinafter referred to as ?the said Agreement?) I bound myself to serve the Company as a trainee in the Co
