The main legal point established in the judgment is that the imposition of a penalty, such as Pre-Payment Penalty (PPP), can be justified under Section 74 of the Indian Contract Act, 1972, when there is a genuine pre-estimate of loss, and the party imposing the penalty is not required to prove the actual quantum of loss.

JUDGMENT :

Subrata Talukdar, J.

1. The above referred batch of writ petitions, WP 54 of 2012, WP 89 of 2012, WP 90 of 2012 and WP 91 of 2012 (respectively numbered as WP-I, WP-II, WP-III & WP-IV) raise a common issue. Therefore, all the writ petitions were heard analogously and the issue common to all is decided by this common judgment and order.

2. Since WP-I has been principally argued by Ld. Counsel for both the Writ Petitioner and the Respondent/State Bank of India/the Bank, the arguments in WP-I are considered as adopted in respect of the other Writ Petitions, i.e. WPs II, III, and IV. The findings of this Court in WP-I shall accordingly also cover the other WPs (supra).

3. Now, proceeding to the essential facts as argued in WP-I, Mr. Abhrajit Mitra, Ld. Senior Counsel appearing for the Petitioner submits that the respondent No. 1/State Bank of India (SBI) has acted illegally in deducting Pre-Payment Penalty (PPP) from the Company at the time of foreclosure of its Term Loan (TL) account with the SBI prior to its Maturity.

4. It is submitted that the Petitioners/Companies in all three WPs (supra) are engaged in the business of real estate. The petitioners in all the WPs approached the SBI for sanction of TL for the purpose of developing a piece of real estate. It was agreed by and between the parties, i.e. the Companies and SBI, that the rental income from the constructed portion would be remitted to the Bank towards repayment of the TL. It is alleged that the SBI, after the sanction of the first tranche of TL, when approached by the petitioners to sanction the second and/or subsequent tranches of TLs against repayment through rentals, delayed in doing the same.

5. Mr. Mitra submits that ultimately the second and/or subsequent tranches of TLs was provided by SBI on the usual terms and conditions which, included, inter alia, collateral security, personal guarantee, corporate guarantee, fixed deposit (FD) security and PP charges. It is also alleged that for the delay caused by the SBI in sanctioning the subsequent tranches of TLs the petitioners were compelled to look for better opportunities elsewhere.

6. The petitioner company claims to have received softer funding of TLs from the Indian Overseas Bank (IOB) and hence decided to foreclose the TL altogether with the SBI. It is alleged that the petitioners were compelled to not only refund the balance repayable TL to the SBI but in addition, from their existing FDs, a PPP deducted as penalty by the SBI totalling Rs. 8,22,580/-. It is this deduction of the PPP which is under challenge in this batch of writ petitions.

7. Referring to Section 74 of the Indian Contract Act, 1972 (for short the Contract Act), Mr. Mitra submits that the concept of imposition of penalty would apply only in a situation where a breach of contract has occurred. Ld. Senior Counsel for the Petitioner argues that foreclosure of the TL account cannot be described as a breach of contract warranting levy of penalty. The concept of breach of contract would necessarily include and imply a computable loss caused to one of the contracting parties as a result of the breach.

8. Relying on the authorities of 2015 (4) SCC 136 and 2016 (3) SCC 643, In Re: Kailash Nath Associates vs. Delhi Development Authority & Anr. and In Re: Shree Bhagwati Steel Rolling Mills vs. Commissioner of Central Excise respectively, it is argued that a levy of penalty equivalent to compensating a party for a definable/actual loss can only arise when the suffering party can demonstrate tangible proof of such loss.

9. Mr. Mitra places heavy reliance on Paragraph 32 of 2015 (4) SCC 136 (supra) which reads as follows:-

"32. By an amendment made in 1899, the Section was amended to read:

"74. Compensation for breach of contract where penalty stipulated for.- 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 complai