Penalty clause under Section 74 requires proof of actual loss for reasonable compensation; unproven forfeiture invalid.

JUDGMENT

The original petition has been filed challenging the judgment and decree dated 19.02.2022 of the Principal Sub Court, Ernakulam in Commercial Suit No.369 of 2020 and the judgment dated 16.03.2024 in Commercial Appeal No.4 of 2022 passed by the Commercial Appellate Court. The petitioners were the defendants 2 to 4. The suit was filed by the 1^st respondent for return of the amounts which have been withheld as penalty as well as the travel expenses and cost of proceedings. The basic facts required for a decision in this original petition are as follows;

2. The petitioners had floated Ext.A1 tender notice on 29.10.2012 for supply of Underground Electricity Cable Fault Locator with accessories suitable for 230-20000 Volts to the Lakshadweep Electricity Department. The 1strespondent was the successful bidder. Ext.A3 work order was issued on 27.04.2013. The 1strespondent was responsible for effecting supply, installation, testing and giving training to the entire satisfaction of the petitioners within a period of 45 days from the date of the supply order. 75% of the amount was paid on receipt of the items at Willington Island and the remaining 25% of amount was to be disbursed after successful testing and commissioning and training of the employees at the concerned Islands. Sans details, it is now admitted that the supply and installation are over and final bills were also submitted by the 1strespondent. While making the payments, the petitioners deducted a sum of Rs.7,02,529/- each from the two bills as are evident from Exts.A31 and A32 produced before the Court below. The petitioners rely on the Clause 17 of the tender notice which provides that “in case the successful bidder could not complete the supply, testing and training within the prescribed time limit, a penalty at the rate of 1% per week or part thereof will be imposed subject to a maximum of 10% of the total cost of the work order unless the delay is due to recognized force majeure conditions. The petitioners also contend that Clause 17 is in line with Section 74 of theIndian Contract Act 1872.

3. The respondents contend that the amounts could not have been deducted. The suit was laid after the issuance of the Section 80 notice. The petitioners did not send any reply to the Section 80 notice. The suit went for trial. Exts.A1 to A44 were produced on the side of the respondents to prove the contract and the communications which had ensued during the performance of the contract. Documents were also relied on to submit that there was no delay on the part of the respondents and as a matter of fact, the product which was supplied by the overseas supplier did not contain one particular item, which was required for installation and the same was later supplied. The communications would show that the petitioners had taken active role in getting the item which had not been supplied. The communications also show that it was at the instance of the petitioners that the product was return back to the Willington Island, upgraded, and taken back to the Islands for the purpose of installation. On the side of the plaintiff, PW1 was examined. The petitioners did not adduce any evidence either documentary or oral. The trial court considered the issue and after referring to the judgments of the Hon’ble Supreme Court in Fateh Chand vs. Balkishnan Das [(1964) 1 SCR 515], Oil & Natural Gas Corporation Ltd vs. SAW Pipes Ltd [AIR 2003 SC 2629], Kailash Nath Associates vs. Delhi Development Authority [(2015) 4 SCC 136], Mahanagar Telephone Nigam vs. Tata Communication Limited [2019 KHC 6250] and Dhanrajamal Gobindram vs.Shamji Kalidas and Co. [AIR 1954 SC 44], came to the conclusion that the petitioners were not entitled to impose penalty stipulated in Ext.A3, without havi