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PETITIONER: FATEH CHAND

       Vs.

RESPONDENT: BALKISHAN DAS

DATE OF JUDGMENT: 15/01/1963

BENCH: SHAH, J.C. BENCH: SHAH, J.C. SINHA, BHUVNESHWAR P.(CJ) GAJENDRAGADKAR, P.B. WANCHOO, K.N. GUPTA, K.C. DAS

CITATION:  1963 AIR 1405            1964 SCR  (1) 515  CITATOR INFO :  RF         1970 SC1955  (3,5)  E&D        1970 SC1986  (34)  RF         1971 SC 422  (20)

ACT: Contract-Compensation  for breach of contract where  penalty stipulated for-"the contract contains any other  stipulation by way of penalty", if applicable, to all stipulation by way of penalty-Indian Contract Act, 1872 (Act IX of 1872), i. 74 --Code  of Civil Procedure, 1908 (Act 5 of 1908), s. 2  (12) and O.    20 r. 12(1) (c).

HEADNOTE: By agreement dated March 21, 1949, the plaintiff  contracted to  sell  leasehold  rights in a piece of land  and  in  the building   constructed  thereon  to  the   defendant.    The plaintiff  received  Rs. 25,000/- under  the  agreement  and delivered  possession  of the building and the land  in  his occupation to the defendant, but the sale was not  completed before the expiry of the period stipulated in the agreement, and  for  this  default each party blamed  the  other.   The plaintiff instituted a suit in the court of the  Subordinate judge  claiming  to  forfeit  the  amount  of  Rs.  25,000/- received by him, and praying for a decree for possession  of the  land  and  building and for compensation  for  use  and occupation  of  the building from the date  of  delivery  of possession to the defendant of the property.  The  defendant contended  that  the plaintiff having  broken  the  contract could not forfeit the amount of Rs. 25,000/- received by him nor  claim any compensation.  The trial judge held that  the plaintiff had failed to put the defendant in possession  and could  not  therefore retain Rs.  25,000/-  and  accordingly directed that on the plaintiff depositing Rs. 25,000/-  less Rs. 1,400/- the defendant do put the plaintiff in possession and  awarded  to the plaintiff future mesne profits  at  the rate of Rs. 140/- permitters from the date of the suit until delivery  of possession.  On appeal the High Court  modified the  decree  of  the  trial court  and  declared  ,that  the plaintiff was entitled to retain out of Rs. 25,000/- paid by

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the  defendant  under  the  sale agreement,  a  sum  of  Rs. 11,250/-  and  directed that the plaintiff do get  from  the defendant compensation for use at the rate of Rs. 265/-  per mensem. Held,  that  the High Court was right in  holding  that  the defendant had committed breach of the contract; 516 Held, further that the expression "the contract contains any other stipulation by way of penalty" comprehensively applies to  every  covenant involving a penalty-whether  it  is  for payment  on  breach  of contract of money,  or  delivery  of property  in future, or for forfeiture of right to money  or other  property already delivered.  Duty not to enforce  the penalty clause but only to award reasonable compensation  is statutorily  imposed  upon  courts by s. 74  of  the  Indian Contract  Act.   In all cases, therefore, where there  is  a stipulation  in the nature of penalty for forfeiture  of  an amount deposited pursuant to’ the terms of a contract  which expressly   provides   for   forfeiture,   the   court   has jurisdiction  to  award  such  sum  only  as  it   considers reasonable,  but not exceeding the amount specified  in  the contract as liable to forfeiture. In  the present case in the absence of any proof  of  damage arising  from  the  breach of contract, the  amount  of  Rs. 1,000/which  had been forfeited and liability to  forfeiture whereof  was  not  challenged and  the  advantage  that  the plaintiff  derived by retaining the sum of Rs. 24,000/-  was sufficient  compensation to the plaintiff For loss  suffered by  him.  In the absence of evidence to show that the  value of the property had depreciated, since the dateof     the contract, the decree passed by the High Court awarding10% of the contract price to the plaintiff as compensation could not be sustained. Abdul  Gani & Co. v. Trustees of the Port Bombay, I.  L.  R. 1952  Bom. 747 and Natesa Aiyar v. Appavu Padayachi,  (1913) I. L. R. 38 Mad. 178, distinguished Held,  further, that the plaintiff was not only entitled  to mesne profits at the rate fixed by the trial court, but  was also entitled to interest on such profits : vide s. 2(12) of the Code of Civil Procedure.

JUDGMENT: CIVIL APPELLATE JURISDICTION : Civil Appeal No. 287 of 1960. Appeal from the judgment and decree dated August 22, 1957 of the  Punjab High Court in (Circuit Bench) at Delhi in  Civil Regular First Appeal No. 37-D of 1960. M.   C. Setalvad, Attorney General of India, M.   L.  Bagai,  S.  K.  Mehta and  K.  L.  Mehta,  for  the appellant.     Mohan Behari Lal, for the respondent.  517 1963.  January 15.  The Judgment of the Court was  delivered by SHAH,  J.-By a registered deed of lease dated May 19,  1927, which was renewed on January 30, 1947, the Delhi Improvement Trust  granted leasehold rights for 90 years to one  Dr.  M. M.Joshi  in  respect of a plot of land No.  3,  ’E’  Block:’ Qarol  Bagh, Delhi, admeasuring 2433 sq. yards.   Dr.  Joshi constructed  a  building  on  the  land’  demised  to   him. Chandrawati,  widow of Dr. Joshi, as guardian of  her  minor son  Murli Manohar, by sale-deed dated April 21, 1947,  sold the leasehold rights in the land together with the  building to Lala Balkishan Daswho will hereinafter be referred to  as

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’the  plaintiff’for  Rs. 63,000/-.  By  an  agreement  dated March 21, 1949-the plaintiff contracted to sell this  rights in the land and the building to Seth Fateh Chand-hereinafter called  ’the  defendant’.  It was recited in  the  agreement that the plaintiff agreed to sell the building together with ’pattern’ rights appertaining to the land admeasuring 2433 ’ sq. yards for Rs. 1,12,500/-, and that Rs. 1,000/- wire paid to him as earnest money at the time of the execution of  the agreement.  The conditions of the agreement were :               "(1)  I,  the  executant,  shall  deliver  the               actual  possession,  i.  e.  complete   vacant               possession  of kothi (bungalow) to the  vendee               on  March 30, 1949, and the vendee shall  have               to give another cheque for Rs. 24,000/- to me,               out of the sale price.               (2)   Then  the vendee shall have to  get  the               sale  (deed)  registered by the 1st  of  June,               1949.   If,  on  account of  any  reason,  the               vendee   fails  to  get  the  said   sale-deed               registered by June, 1949, then this sum of Rs.               25,000/-   (twenty-five  thousand)   mentioned               above shall be deemed to be forfeited and  the               agreement cancelled.               518               Moreover,  the  vendee shall have  to  deliver               back  the  complete vacant possession  of  the               kothi (bungalow) to me, the executant. if  due               to certain reason, any delay takes place on my               part in the registration of the sale-deed,  by               1st June 1949, then 1, the executant, shall be               liable to pay a further sum of Rs. 25,000/- as               damages,  apart from the aforesaid sum of  Rs.               25,000/- to the vendee, and the bargain  shall               be deemed to be cancelled." The  southern  boundary  of the land was  described  in  the agreement "Bungalow of Murli Manohar Joshi." On  March 25, 1949, the plaintiff received Rs. 24,000/-  and delivered  possession  of the building and the land  in  his occupation  to the defendant, but the sale of  the  property was not completed before the expiry of the period stipulated in  the agreement.  Each party blamed the other for  failing to  complete  the  sale  according  to  the  terms  of   the agreement.   Alleging  that  the  agreement  was   rescinded because  the defendant had committed default  in  performing the  agreement  and  the sum of Rs.  25,000/-  paid  by  the defendant stood forfeited, the plaintiff in an action  filed in  the  Court of the Subordinate judge,  Delhi,  claimed  a decree for possession of the land and building described  in the  plaint and a decree for Rs. 6,5001 as compensation  for use  and occupation of the building from March 25, 1949,  to January  24, 1950, and for an order directing enquiry as  to compensation for use and occupation of the land and building from the date of the institution of the suit until  delivery of possession to the plaintiff.  The defendant resisted  the claim  contending  inter  alia  that  the  plaintiff  having committed  breach  of  the contract could  not  forfeit  the amount   of  Rs.  25,000/received  by  him  nor  claim   any compensation.   The trial judge held that the plaintiff  bad failed to put  519 the  defendant in possession of the land agreed to  be  sold and  could not therefore retain Rs. 25,000/received  by  him under  the  contract.  He accordingly directed that  on  the plaintiff depositing Rs. 25,000/less Rs. 1,400/- (being  the amount  of mesne profits prior to the date of the suit)  the

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defendant do put the plaintiff in possession of the land and the building, and awarded to the plaintiff future mesne pro- fits  at the rate of Rs. 140/- per mensem from the  date  of the suit until delivery of possession or until expiration of three  years  from the date of the  decree  whichever  event first occurred.  In appeal the High Court of Punjab modified the decree passed by the trial Court and declared "that  the plaintiff was entitled to retain out of Rs. 25,000/- paid by the  defendant  under  the  sale agreement,  a  sum  of  Rs. 11,250/-"  being compensation for loss suffered by  him  and directed  that  the  plaintiff do  get  from  the  defendant compensation for use and occupation at the rate of Rs. 265/- per  mensem.  The defendant has appealed to this Court  with certificate under Art. 133(1)(a) of the Constitution. The  first  question which falls to be  determined  in  this appeal  is as to who committed breach of the contract.   The plaintiff’s  case as disclosed in his pleading and  evidence was  that  he  had  agreed to  sell  to  the  defendant  the leasehold rights in the land and building thereon  purchased by him from Murli Manoharjoshi by sale-deed dated April  21, 1947,  that  at the time of execution of the  agreement  the defendant had inspected the sale deed and the lease executed by  the  Improvement Trust dated January 30,  1947  and  the sketch  plan  annexed to the lease, that the  plaintiff  had handed over to the defendant a copy of that plan and had put the  defendant  in possession of the property agreed  to  be sold, but the defendant despite repeated requests failed and neglected  to  pay the balance remaining due by him  and  to obtain the sale deed in his favour. 520 The  defendant’s  case  on  the  other  hand  was  that  the plaintiff  had  agreed  to sell the area  according  to  the measurement and boundaries in the plan annexed to the  lease granted  by the Improvement Trust and had promised  to  have the southern boundary demarcated and to have a boundary wall built, that at the time of the execution of the agreement of sale  the plaintiff did not show him the sale deed by  which he  had purchased the property, nor the lease obtained  from the  Improvement Trust in favour of Dr. Joshi nor  even  the ’sketch  plan,’ that the plaintiff had given him a  copy  of the  ’sketch plan’ not at the time of the execution  of  the agreement,  but  three  or four days after  he  was  put  in possession of the premises and that on measuring the site in the  light  of  the plan lie discovered  that  there  was  a "shortage  on  the southern side opposite to  Rohtak  Road", that  thereupon lie approached the plaintiff and  repeatedly called  upon  him to put him in possession of  the  land  as shown in the plan and to get the boundary wall built in  his presence but the plaintiff neglected to do so.  We have been taken through the relevant evidence by counsel and we  agree with the conclusion of the High Court that the defendant and not the plaintiff committed breach of the contract. The defendant’s case is founded primarily on two pleas               (i)that the plaintiff offered to sell  land               not  according  to  the  description  in   the               written  agreement, but according to the  plan               appended to the Improvement Trust lease,  and,               that  he--the defendant-accepted  that  offer,               and               (ii)The plaintiff had undertaken to have the               southern  boundary demarcated and  a  boundary               wall built thereon, If the case of the defendant be true, it is a singular  521 circumstance that those covenants are not found incorporated

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in  the  written agreement nor are they referred to  in  any document prior to the date fixed for completion of the sale. The defendant was put-in possession on March 25, 1949 and he paid  Rs. 24,000/- as agreed.  If the plaintiff did not  put the  defendant  in possession of the entire area  which  the latter  had agreed to buy, it is difficult to  believe  that the  defendant  would part with a large sum of  money  which admittedly  was to be paid by him at the time  of  obtaining possession  of the premises, and in any event he would  have immediately  raised a protest in writing that the  plaintiff had  not  put him in posses-,ion of the area  agreed  to  be delivered.  It is implicit in the plea of the defendant that lie  knew that the southern boundary was irregular and  that the plaintiff was not in possession of the area agreed to be sold  under the agreement.  Why then did the  defendant  not insist that the terms pleaded by  him be incorporated in the agreement  ? We find no rational answer to that  question  ; and  none  has been furnished.  The story of  the  defendant that  he  agreed  to purchase the  land  according  to  ’the measurement  and boundaries’ in the Improvement  Trust  Plan without even seeing that plan, is impossible of acceptance. It  is  common ground that according to this plan  the  land demised  was  rectangular in shape admeasuring 140’  x  160’ though the conveyance was in respect of 2433 sq. yards only. Manifestly  if  the  land conveyed  to  the  predecessor-in- interest of the plaintiff was a perfect rectangle the length of  the  boundaries must be inaccurate, for the  area  of  a rectangular plot of land 140’ x 160’ would be 248 sq.  yards and  8 sq. feet and not 2433 sq. yards.  The  plaintiff  had purchased  from his predecessor-ininterest land  admeasuring 2433  sq. yards and by the express recital in the  agreement the plaintiff agreed to sell that area to the defendant.  At the request 522 of  the plaintiff the trial Court appointed  a  Commissioner for measuring the land of which possession was delivered  to the  defendant, and according to the Commissioner  the  land "admeasured   141/142’   feet   by   157/158   feet".    The Commissioner  found, that two constructions-a latrine and  a garage-on  the adjacent property belonging to Murli  Manohar Joshi "broke the regular line of the southern boundary.  The fact that the southern boundary was irregular must have been noticed  by  the defendant at the time of the  agreement  of sale, and in any event soon after he obtained possession  of the property.  But for nearly three months after he obtained possession  the  defendant did not raise any  objections  in that  behalf.  His story that he had orally called upon  the plaintiff repeatedly to put him in possession of the land as shown in the Improvement Trust Plan cannot be believed.  The defendant’s  case  that  a part of the  land  agreed  to  be conveyed  was in the possession of Murli Manohar  Joshi  was set  up  for the first time by the defendant in  his  letter dated  June  17,  1949.   On June  1,  1949,  the  defendant informed  the  plaintiff by a telegram that the  latter  was responsible  for  damages as he had failed to  complete  the contract.   The plaintiff by a telegram replied that he  was ready  and willing to perform his part of the  contract  and called  upon  the  defendant to obtain  a  sale  deed.   The defendant  then addressed a letter on June 9, 1949,  to  the plaintiff  informing  him that the ’latter had  to  get  the document executed and registered after giving clear title by June 1, 1949.  To that letter the plaintiff replied that the defendant had inspected the title-deeds before he agreed  to purchase  the property and had satisfied  himself  regarding the  plaintiff’s  title thereto and that the  defendant  had

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never raised any complaint about any defect in the title  of the  plaintiff.  The defendant’s Advocate replied by  letter dated June 17, 1949 :               "This is true that my client paid Rs. 25,000/-               and got possession of the Kothi on the clear                523               understanding that your client has clear title               of the entire area mentioned in the  agreement               of  sale and sketch map attached to it.   Long               before 1st June, my client noticed that a cer-               tain area of the Kothi under sale is under the               possession  of  Shri Murli  Manohar  Joshi  on               which  his garage stands.  Again on  the  same               side Shri Murli Manohar Joshi has got latrines               and  there is clear encroachment on  the  land               included   in  the  sale.   It   was   clearly               understood at the time of bargain that  vacant               possession of the entire area under sale  will               be  given  by  your  client.   My  client  was               anxious  to  put a wall on the  side  of  Shri               Murli Manohar " joshi and when he was actually               starting  the work this difficulty  of  garage               and   latrine  came  in.   Your   client   was               approached x x x." One  thing is noticeable in this letter : according  to  the defendant, there was a sketch-plan attached to the agreement of sale, and that it was known to the parties at the time of the agreement that a part of the land agreed to be sold  had been   encroached  upon  before  the  agreement   by   Murli Manoharjoshi.   If  there  had been  an  "understanding"  as suggested  by  the defendant and if the  plaintiff  had,  in spite  of  demands made in that behalf  by  the  defendant., failed to carry out the agreement or understanding, we would have  expected  this version to be set up  in  the  earliest communication  and not reserved to be set up as a  reply  to the  plaintiff’s  assertion  that the  defendant  had  never complained  about any defect in the title of the  plaintiff. According  to  the written agreement the area agreed  to  be conveyed  was 2433 sq. yards and the land was on  the  south bounded  by  the  Bungalow of Murli Manohar  Joshi.   It  is common ground that the defendant was put in possession of an area  exceeding 2433 sq.yards, and the  land is  within  the four boundaries set out in the agreement, But the  defendant sought to make out 524 the  case  at the trial that he had agree to  purchase  land according to the Improvement Trust plan a fact which is  not incorporated  in  the  agreement, and  which  has  not  been mentioned  even  in the letter dated June  17,  1949).   The assertions made by the defendant in his testimony before the Court,  show that not much reliance can be placed  upon  his word.  He stated that the terms of the contract relating  to forfeiture  of  Rs.  25,000/- paid by him in  the  event  of failure  to carry out the terms of the contract  were  never intended  to  be acted upon and were  incorporated  in  the, agreement at the instance of the writer who wrote the  deed. This plea was never raised in the written statement and  the writer  of  the  deed  was not  questioned  about  it.   The defendant  is  manifestly seeking to add oral terms  to  the written  agreement  which have not been referred to  in  the Correspondence  at the earliest opportunity.   We  therefore agree with the High Court that the plaintiff out his part of the contract to put the defendant in possession of the  land agreed to be sold, and was willing to execute the sale-deed, but  the defendant failed to pay the balance of  the  price,

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and   otherwise  to  show  his  willingness  to   obtain   a conveyance. The  claim made by the plaintiff to forfeit the sum  of  Rs. 25,000/-  received  by him from the defendant must  next  be considered.  This sum of Rs. 25,000/- consist of two  items- Rs.1,000/- received on March 21, 1949 and referred to in the agreement  as ’earnest money’ and Rs. 24,000/- agreed to  be paid  by  the  defendant to plaintiff as "out  of  the  sale price"  against  delivery  of possession  and  paid  by  the defendant to the plaintiff on March 25, 1949 when possession of  the  land and building was delivered to  the  defendant. The  plaintiff  submitted  that the  entire  amount  of  Rs, 25,000/- was to be regarded as earnest money, and he claimed to  forfeit it on the defendant’s failure to carry  out  his part of  525 the  contract.  This part of the case Of the  plaintiff  was denied by the defendant. The  Attorney-General appearing on behalf of  the  defendant has  not  challenged the plaintiff’s right  to  forfeit  Rs. 1,000/-  which  were  expressly named and  paid  as  earnest money.   He has, however, contended that the covenant  which gave to the plaintiff the right to forfeit Rs. 24,000/-  out of  the amount paid by the defendant was stipulation in  the nature of penalty, and the plaintiff can retain that  amount or  part thereof only if he establishes that in  consequence of the breach by the defendant, he suffered loss, and in the view  of the Court the amount or part thereof is  reasonable compensation  for  that loss.  We agree with  the  Attorney- General  that  the  amount of Rs. 24,000/- was  not  of  the nature  of earnest money.  The agreement expressly  provided for payment of Rs. 1,000/- as earnest money, and that amount was paid by the defendant.  The amount of Rs. 24,000/was  to be paid when vacant possession of the land and building  was delivered, and it was expressly referred to as "out of  the, sale  price."  If  this amount was also to  be  regarded  as earnest money, there was no reason why the parties would not have so named it in the agreement of sale.  We are unable to agree  with  the  High Court that this amount  was  paid  as Security for due performance of the contract.  No such  case appears to have been made out in the plaint and the  finding of the High Court on that point is based on no evidence.  It cannot  be assumed that because there is a  stipulation  for forfeiture  the  amount paid must bear the  character  of  a deposit for due performance of the contract. The claim made by the plaintiff to forfeit the amount of Rs. 24,000/- may be adjudged in the light of s. 74 of the Indian Contract Act, which in its material part provides :-               "When a contract has been broken, if a sum is               526               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 complaining of the  breach               is  entitled, whether or not actual damage  or               loss is proved to have been caused thereby, to               receive  from  the party who  has  broken  the               contract reasonable compensation not exceeding               the amount so named or, as the case maybe, the               penalty stipulated for." The section is clearly an attempt to eliminate the  somewhat elaborate  refinements made under the English common law  in distinguishing between stipulations providing for payment of liquidated  damages  and  stipulations  in  the  nature   of penalty.   Under  the common law a  genuine  preestimate  of

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damages  by  mutual agreement is regarded as  a  stipulation naming liquidated damages and binding between the parties: a stipulation  in a contract in terrors is a penalty  and  the Court refuses to enforce it, awarding to the aggrieved party only  reasonable compensation.  The Indian  Legislature  has sought to cut across the web of rules and presumptions under the  English  common law, by enacting  a  uniform  principle applicable to all stipulations naming amounts to be paid  in case of breach, and stipulations by way of penalty. The  second clause of the contract provides that if for  any reason  the vender fails to get the sale-deed registered  by the date stipulated, the amount of Rs. 25,000/- (Rs. 1,000/- paid as earnest money and Rs. 24,000/- paid out of the price on  delivery  of possession) shall stand forfeited  and  the agreement shall be deemed cancelled.  The covenant for  for- feiture  of Rs. 24,000/- is manifestly a stipulation by  way of penalty. Section 74 of the Indian Contract Act deals with the measure of damages in two classes of cases  527 (i)  where  the contract names a sum to be paid in  case  of breach  and  ‘ii)  where the  contract  contains  any  other stipulation  by way of penalty.  We are in the present  case not concerned to decide whether a covenant of forfeiture  of deposit  for due performance of a contract falls within  the first  class.  The measure of damages in the case of  breach of  a stipulation by way of penalty is by s.  74  reasonable compensation  not exceeding the penalty stipulated for.   In assessing damages the Court has, subject to the limit of the penalty stipulated, jurisdiction to award such  compensation as   it   deems  reasonable  having  regard   to   all   the circumstances  of  tile case. jurisdiction of the  Court  to award  compensation  in  case  of  breach  of  contract   is unqualified  except  as  to  the  maximum  stipulated;   but compensation has to be reasonable, and that imposes upon the Court  duty  to  award compensation  according,  to  settled principles.  The section undoubtedly says that the aggrieved party is entitled to receive compensation from the party who has  broken  the contract, whether or not actual  damage  or loss  is proved to have been caused by the breach.   Thereby it merely dispenses with proof of "actual loss or  damages"; t  does  not  justify  the award  of  compensation  when  in consequence  of  the  breach  no legal  injury  at  all  has resulted, because compensation for breach of contract can be awarded to make good loss or damage which naturally arose in the  usual course of things, or which the parties knew  when they  made  the contract, to be likely to  result  from  the breach. Before turning to the question about the compensation  which may be awarded to the plaintiff, it is necessary to consider whether  s.  74 applies to stipulations  for  forfeiture  of amounts deposited or paid under the contract.  It was  urged that  the section deals in terms with the right  to  receive from  the  party  who has  broken  the  contract  reasonable compensation and not the right to forfeit what has 528 already  been  received by the party  aggrieved.   There  is however  no warrant for the assumption made by some  of  the High Courts in India, that s. 74 applies only to cases where the  aggrieved  party is seeking to receive some  amount  on breach  of  contract and not to cases where upon  breach  of contract an amount received under the contract is sought  to be forfeited.  In our judgment the expression "the  contract contains any other stipulation by way of penalty" comprehen- sively applies to every covenant involving a penalty whether

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it is for payment on breach of contract of money or delivery of  property in future, or for forfeiture of right to  money or  other property already delivered.  Duty not  to  enforce the penalty clause but only to award reasonable compensation is statutorily imposed upon courts by s. 74.  In all  cases, therefore,  where  there is a stipulation in the  nature  of penalty  for forfeiture of an amount deposited  pursuant  to the  terms of contract which expressly provides for  forfei- ture, the court has " jurisdiction to award such sum only as it  considers  reasonable,  but  not  exceeding  the  amount specified  in the contract as liable to forfeiture.  We  may briefly  refer to certain illustrative cases decided by  the High Courts in India which have expressed a different view. In  Abdul Gani & Co. v. Trustees of the Port of Bombay  (1), the Bombay High Court observed as follows :-               "It  will  be noticed that the  sum  which  is               named in the contract either as penalty or  as               liquidated  damages  is a sum  which  has  not               already been paid but is to be paid in case of               a breach of the contract.  With regard to  the               stipulation by way of penalty, the Legislature               has  chosen , to qualify "stipulation’ as  any               other   stipulation’.  indicating   that   the               stipulation must be of the nature of an amount               to be paid and not an amount already               (1)   I.L.R. 1952 Bom. 747.                529               paid  prior  to  the  entering  into  of   the               contract.  The section further provides that a               party  complaining of a breach is entitled  to               receive  from  the party who  has  broken  the               contract reasonable compensation not exceeding               the amount so named or the penalty  stipulated               for.     Therefore,   the   section    clearly               contemplates  that the party aggrieved has  to               receive from the party ’in default some amount               or  something in the nature of a penalty :  it               clearly  rules  out  the  possibility  of  the               amount which has already been received or  the               penalty which has already been provided for." In  Natesa  Aiyar v. Appavu Padeyschi (1), the  Madras  High Court  seems to have held that s. 74 applies where a sum  is named as penalty to be paid in future in case of breach, and not  to cases where a sum is already paid and by a  covenant in the contract it is liable to forfeiture. In  these cases the High Courts appear to have  concentrated upon  the words "to be paid in case of such breach"  in  the first condition in s. 74 and did not consider the import  of the expression "the contract contains any other  stipulation by way of penalty", which is the second condition  mentioned in the section.  The words "’to be paid" which appear in the first condition do not qualify the second condition relating to  stipulation by way of penalty.  The expression  "if  the contract  contains any other stipulation by way of  penalty" widens  the  operation  of  the section so  as  to  make  it applicable  to all stipulations by way of  penalty,  whether the  stipulation  is  to pay an amount of money,  or  is  of another character, as, for example, providing for forfeiture of  money already paid.  There is nothing in the  expression which implies that the stipulation must be one for rendering something after the contract is broken.  There is no  ground for holding that the expression "contract contains any (1)  (1913) I.L.R. 38 Mad. 178. 530 other stipulation by way of penalty" is limited to cases  of

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stipulation  in the nature of an agreement to pay  money  or deliver property on breach and does not comprehend covenants under  which  amounts paid or property delivered  under  the contract which by the terms of the contract expressly or  by clear implication are liable to be forfeited. Section  74 declares the law as to liability upon breach  of contract  where compensation is by agreement of the  parties predetermined,  or  where there is a stipulation by  way  of penalty.   But  the  application of  the  enactment  is  not restricted to cases where the aggrieved party claims relief’ as  a  plaintiff.   The section does not  confer  a  special benefit  upon  any party; it merely declares  the  law  that notwithstanding  any  term in  the  contract  predetermining damages  or providing for forfeiture of any property by  way of penalty, the court will award to the party aggrieved only reasonable  compensation not exceeding the amount  named  or penalty  stipulated.  The jurisdiction of the court, is  not determined  by the accidental circumstance of the  party  in default being a plaintiff or a defendant in a suit.  Use  of the expression "to receive from the party who has broken the contract"  does not predicate that the jurisdiction  of  the court to adjust amounts which have been paid by the party in default cannot be exercised in dealing with the claim of the party  complaining of breach of contract.  The court has  to adjudge  in every case reasonable compensation to which  the plaintiff  is entitled from the defendant on breach  of  the contract.   Such compensation has to be  ascertained  having regard to the conditions existing on the date of the breach. There  is  no  evidence that any loss was  suffered  by  the plaintiff  in  consequence of the default by  the  defendant save  as  to the loss suffered by him by being kept  out  of possession of the property.  531 There  is no evidence that the property had  depreciated  in value since the date of the contract; nor wag there evidence that  any other special damage had resulted.   The  contract provided  for forfeiture of Rs. 25,000/- consisting  of  Rs. 1000/-paid as earnest money and Rs. 24,000/- paid as part of the  purchase  price.  The defendant has conceded  that  the plaintiff was entitled to forfeit the amount of Rs.  1,000/- which  was paid as earnest money.  We cannot  however  agree with  the  High Court that 10 per cent of the price  may  be regarded as reasonable compensation in relation to the value of  the  contract  as a whole, as that  in  our  opinion  is assessed  on arbitrary assumption.  The plaintiff failed  to prove the loss suffered by him in consequence of the  breach of  the  contract  committed by the defendant,  and  we  are unable to find any principle on which compensation equal  to ten  percent  of the agreed price could be  awarded  to  the plaintiff.  The plaintiff has been allowed Rs.  1,000/-which was  the earnest money as part of the damages.   Besides  he had  use  of the remaining sum of Rs. 24,000/-, and  we  can rightly  presume that lie must have been deriving  advantage from  that  amount throughout this period.  In  the  absence therefore of any proof of damage arising from the breach  of the  contract  we  are of opinion that  the  amount  of  Rs. 1,000/-  (earnest money) which has been forfeited,  and  the advantage  that  the plaintiff must have  derived  from  the possession  of the remaining sum of Rs.  24,000/-during  all this period would be sufficient compensation to him.  It may be  added  that the plaintiff has separately  claimed  mesne profits  for being kept out of possession for which  he  has got  a decree and therefore the fact that the plaintiff  was out   of  possession  cannot  be  taken  into   account   in determining damages for this purpose.’ The decree passed  by

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the  High  Court  awarding Rs. 11,250/- as  damages  to  the plaintiff must therefore be set aside. 532 The other question which remains to be determined relates to the amount of mesne profits which the plaintiff is  entitled to receive from the defendant who kept the plaintiff out  of the  property after the bargain had fallen through.   It  is common  ground  that the defendant is liable  for  retaining possession to  pay  compensation from June 1, 1949 till  the date of   the suit and thereafter under O. 20, r. 12 (c)  C. P. Code till the date on which the possession was delivered. The  trial  Court assessed compensation at the rate  of  Rs. 140/-  per mensem.  The High Court awarded  compensation  at the  rate of Rs. 265/-per mensem.  In arriving at this  rate the High Court adopted a highly artificial method.  The High Court  observed that even though-the agreement for  sale  of the  property  was for a consideration of  Rs.  1,12,500/the plaintiff  had  purchased  the  property  in  1947  for  Rs. 63,000/- and that at the date of the suit that amount  could be  regarded as "the value for which the property  could  be sold  at  any time." The High Court then  thought  that  the -proper  rate of compensation for use and occupation of  the house by the defendant when he rufused to give up possession after  failing  to complete the contract  should  have  some relation  to the value of the property and not to the  price agreed  as  sale price between the  parties,  and  computing damages  at  the rate of five per cent on the value  of  the property  they  held that Rs. 3,150/- was  the  annual  loss suffered  by the plaintiff by being kept out of  possession, and on that footing awarded mesne profits at the rate of Rs. 265/-per   mensem  prior  to  the  date  of  the  suit   and thereafter.  The plaintiff is undoubtedly entitled to  mesne profits from the defendant and ’mesne profits’ as defined in s.  2 (12) of the Code of Civil Procedure are profits  which the  person  in  wrongful possession  of  property  actually received  or  might with ordinary  diligence  have  received therefrom,  together with interest on such profits,  but  do not  include profits due to improvements made by the  person in wrongful  533 possession.    The  normal  measure  of  mesne  profits   is therefore  the  value of the user of land to the  person  in wrongful possession.  The assessment made by the High  Court of  compensation at the rate of five per cent of  what  they regarded  as the fair value of the property is based not  on the  value  of the user, but on an estimated return  on  the value  of the property, cannot be sustained.  The  Attorney- General  contended  that the premises were governed  by  the Delhi  &  Ajmer-Merwara  Rent Control Act XIX  of  1947  and nothing  more  than  the ’standard  rent’  of  the  property assessed under that Act could be awarded to the plaintiff as damages.   Normally  a  person  in  wrongful  possession  of immovable  property has to pay compensation computed on  the basis  of  profits  he actually received  or  with  ordinary diligence  might  have  received.  It is  not  necessary  to consider in the present case whether mesne profits at a rate exceeding  the  rate of standard rent of the  house  may  be awarded,  for there is no evidence as to what the  ’standard rent’ of the house was.  From the evidence on the record  it appears  that  a tenant was in occupation for  a  long  time before  1947  of  the house in dispute in  this  appeal  and another  house  for  an aggregate rent  of  Rs.   150/-  per mensem,  and that after the house in dispute was  sold,  the plaintiff received rent from that tenant at the rate of  Rs. 80/-  per mensem, and to the vendor of the plaintiff at  the

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rate  of  Rs. 106/per mensem.  But this is not  evidence  of standard  rent  within the meaning of the Delhi  and  Ajmer- Merwara Rent Control Act, XIX of 1947. The  Subordinate judge awarded mesne profits at the rate  of Rs. 140/- per mensem and unless it is shown by the defendant that was excessive we would not be justified in  interfering with the amount awarded by the Subordinate judge.  A  slight modification,  however, needs to be made.  The plaintiff  is not only entitled to mesne profits at the monthly rate fixed by the Trial Court, but is also entitled to 534 interest on such profits vide s. 2(12) of the Code of  Civil Procedure.  We, therefore, direct that the mesne profits  be computed at the rate of Rs. 140/per mensem from June 1, 1949 till  the  date  on which possession was  delivered  to  the plaintiff  (such period not exceeding three years  from  the date  of decree) together with interest at the rate  of  six percent on the amount accruing due month after month. The  decree  passed  by the High  Court  will  therefore  be modified.   It is ordered that the plaintiff is entitled  to retain out of Rs. 25,000/- only Rs. 1,000/received by him as earnest  money, and that he is entitled to  compensation  at the rate of Rs. 140/- per mensem and interest on that sum at the rate of six percent as it accrues due month after  month from June 1, 1949, till the date of delivery of  possession, subject to the  restriction prescribed by O,20 r. 12 (i) (c) of  the Code of Civil Procedure.  Subject to these  s,  this appeal  will be dismissed.  In view of the divided  success, we direct that the parties will bear their own costs in this Court.                                          Decree modified.                                          Appeal dismissed.  535