The central legal point established in the judgment is that under Sections 73 & 74 of the Indian Contract Act, a party may be entitled to forfeit a security deposit without proving specific damages if the contract provides for liquidated damages in case of breach.

In this second appeal, challenge is made to the Judgment and Decree dated 18.09.2003 passed in A.S.No.110 of 2002 on the file of the Additional District Judge, II Fast Track Court, Chennai, reversing the Judgment and Decree dated 30.08.2001 passed in O.S.No.4734 of 1997 on the file of VIII Assistant Judge, City Civil Court, Chennai.

2. The second appeal has been admitted on the following substantial questions of law :

“1. Whether there is any legal obligation on the part of the defendant to prove the actual damage and whether liguidated damage has been fixed by the parties in the event of breach of contract as the measure of reasonable compensation?

2. Whether on the pleading and material brought on record by the plaintiff, the first appellate Court was right in holding that the plaintiff was entitled for the relief claimed in the suit?

3. Whether the lower appellate court is right in allowing the suit prayers without considering the terms of the contract?

4. Whether the lower appellate court is right in holding that the defendant is not entitled for compensation for the breach of the contract on the part of the plaintiff against the specific provisions of sections 73 & 74 of the Indian Contract Act?

5. Whether the lower appellate Court is right in allowing the suit prayer, especially when the plaintiff admits the breach of contract and also existence of forfeiture clause in the tender document?

6. Whether the lower appellate court is right in allowing the suit prayer contrary to the law laid down by the Hon'ble Supreme Court of India in ONGC Limited Vs. Saw Pipes Limited reported in (2003) 5 SCC pg.705?

7. Whether there is an obligation on the part of the defendant to claim damages by a separate demand without exercising the right of forfeiture in the tender document, when there is an admitted breach of contract on the part of the defendant?

8. Whether the lower appellate court is right in allowing the appeal reversing the judgment and decree of the lower court?

3. Considering the scope of the issues involved in the second appeal lying in a narrow compass, it is unnecessary to dwell into the facts of the case in detail.

4. Suffice to state that the respondent/plaintiff accepting the tender conditions of the appellant in the supply of the medicines, accordingly, it is seen that with reference to the same, the parties had entered into an agreement dated 23.01.1995 marked as Ex.A2 and it is found that as per the tender conditions, the respondent had paid a sum of Rs.2,00,000/- to the appellant towards the EMD/Security deposit and according to the respondent, as the appellant had suddenly deducted the above said EMD/Security deposit sum of Rs.2,00,000/- without providing opportunity to present its case and as the appellant had not sustained any damages as such for any entitlement to deduct the said amount and as the appellant had refused to pay the same, despite being called upon by the respondent, even after exchange of notices, it is found that the respondent had chosen to prefer the suit for the recovery of the suit amount with interest against the appellant.

5. The appellant has taken the plea that the sum of Rs.2,00,000/- had been deposited/paid by the respondent as per the tender conditions with reference to the supply of the medicines and accordingly, inasmuch as the respondent had failed to supply the medicines as stipulated under the tender conditions and as the agreement entered into between the parties, the appellant is entitled to deduct the said amount and the appellant need not issue any show cause notice to the respondent before deducting the said amount and further, according to the appellant, dehors whether the appellant had sustained any damage or not, when as per the terms and conditions of the contract entered into between the parties, the appellant is entitled to deduct the above said sum, it is stated that the plaintiff's suit would not lie and is liable to be dismissed. 6. The trial Court agreed with the cas