Actual damages must be proved for recovery in breach of contract. Clauses implying penalties cannot be enforced without valid demonstration of loss.

JUDGMENT :

P. KRISHNA KUMAR, J.

1. The respondents in this appeal instituted a suit for recovery of money on the basis of a supply contract entered into between them and the appellant herein, the Kerala State Electricity Board. The suit was decreed for Rs.47,63,818/- with interest at 6% per annum from the date of the suit. Aggrieved by the said decree and judgment, the Kerala State Electricity Board Ltd. has preferred this appeal.

2. The parties are hereinafter referred to as they were arrayed in the suit. Pursuant to a tender for the supply of 1,41,000 sets of 4-line cross arms with Clamp, Bolt and Nut (CNB), the defendants (hereinafter referred to as “the defendant”) issued a purchase order dated 05.01.2010 to the plaintiff company, and an agreement was executed between them. As per the delivery schedule under the purchase order, the plaintiff was required to supply 1,41,000 sets of 4-line cross arms with CNB, of which 33,000 sets were to be supplied within 45 days from the date of the purchase order, and the balance at the rate of 36,000 sets every month thereafter. The stipulated period for completion of the supply was 135 days.

3. The plaintiff contended that they supplied a total of 58,927 sets up to 25.10.2011, and thereafter, the defendant issued a letter dated 16.12.2011 (Ext.A16), directing the plaintiff to complete the supply on or before 30.01.2012. At that stage, the plaintiff approached the defendant and represented that, owing to a continuous labour strike in its unit, additional time was required to complete the supply. Upon acceptance of the request, the plaintiff supplied 5,000 sets on 28.01.2012. The plaintiff was again directed to complete the supply on or before 29.02.2012. However, by letter dated 20.04.2012 (Ext.A19), the defendant cancelled the purchase order by terminating the contract.

4. The plaintiff further contended that, towards the supply of 58,927 sets, it was entitled to Rs.1,62,77,108/-, out of which the defendant paid only Rs.1,34,46,034/-. The defendant, by letter dated 13.12.2012 (Ext.A25), claimed that it had sustained loss due to short supply of materials and, accordingly, forfeited the security deposit of Rs.19,46,000/-. The plaintiff also alleged that the defendant illegally deducted Rs.28,19,198/- as penalty. The suit was therefore instituted seeking recovery of the said amounts with interest.

5. The defendant contended that the plaintiff was responsible for the breach of contract and was bound by the conditions contained in the purchase order and the agreement, under which the defendant was entitled to forfeit the security deposit. It was further contended that, in terms of the contract, the defendant was entitled to make deductions in payment up to 10% by invoking the penalty clause and also to encash the bank guarantee furnished by the plaintiff. According to the defendant, upon valid termination of the contract at the risk and cost of the plaintiff and upon making deductions in accordance with the terms of the contract, the plaintiff is not entitled to any amount.

6. It was further contended that the defendant had sustained loss and damage due to the non-supply of materials and was compelled to procure the same through alternative means at higher cost. The defendant also asserted that such loss could not be quantified merely in monetary terms, as the inconvenience and hardship caused to the public at large due to the non-supply of materials was of paramount concern.

7. The evidence in this case consists of the oral testimonies of PW1 and DW1, along with Exts.