ORDER
S.V. Maruthi, J
1. The appeal arises out of a suit in OS No.216 of 1984 on the file of the Principal Subordinate Judge, Warangal, filed by the Food Corporation of India (FCI) for recovery of Rs.12.94,853-95 ps., with interest at the rate of 11% p.a., the defendant is M/s. Rajab Ali Sons, Warangal.
2. The plaintiff entered into nine agreements with the defendant for milling of paddy into 'Raw rice/Par boiled rice/ Export quality' purchased by the plaintiff. The agreements are dated 28-3-1980, 14-4-1980, 7-8-1980, 11-8-1980, 19-8-1980,3-11-1980, 8-5-1981, and 11-7-1981, under which the defendant agreed to mill 300 MTs., 2000 MTs., 100 MTs., 7000 MTs., 1000 MTs,, 500 MTs., 500 MTs., 1000 MTs., and 1000 MTs., of paddy respectively.
3. Under the agreements the defendant has to re-deliver the rice within 10 days of the lifting of the paddy with the exclusion of Sundays and Public Holidays and in the event of short fall in delivery of rice, the defendant has to pay two and half times the economic cost of rice for such shortfall; and 150% of the economic cost of rice which remains undelivered by way of liquidated damages. He is also liable to pay interest on the amount claimed from the date of default. Accordingly, the defendant lifted the paddy as under:
Variety of Quantity liftedPaddyi) For Par boiled rice (in MTs.)1) Telia Hamsa - Fine 4675-439-7972) Masoori - Fine 315-494-7323) Chinna Kichidi - Fine 154-214-7554) Gottelu - Common 42-000-0005) RP 4-14 - Super Fine 325-372-9596) Surekha - Super Fine 325-976-7487) C 1235 - Super Fine 43-145-818 ii) For Raw Rice
Masoori - Fine 749-325-072 iii) For export specification: C 1235 67-818-182
However, there was a short delivery of rice lifted by him. The short delivery of rice is as follows: Telia Hamsa 5-375-256 Mts.Masoori -369-668 Mts.Gottelu (Common) 4-284-900 Mts.RP 4-14 0-001-909 Mts.Surekha 0-077-992 Mts.C-1235 (Super fine) 30-633-530 Mts.
4. Since there was a short fall in the re-delivery in the resultant rice, the plaintiff deducted the security deposit lying with them. Since the defendant failed to re-deliver the resultant rice after milling the paddy lifted by him within ten days from the date of lifting, he is liable to pay the liquidated damages as provided under the agreement. The defendant is also liable to return 53,618 gunny bags in which paddy was released and entrusted to him. Therefore, the defendant is liable to pay an amount of Rs. 12,94,8 53-95 ps. with future interest @11% p.a. The cause of action arose on 10-9-1981, 18-11-1981, 1-10-1981, 26-11-1981 and 31-8-1981 on which dates, the defendant failed to re-deliver the rice lifted by him. The plaintiff issued notices on 18-4-1993 and on 7-5-1983 when the bank guarantee was realised. Hence the suit.
5. The defence set up by the defendant is that they admit that they have entered into an agreement with the plaintiff for milling of paddy. The defendant also admitted that the resultant rice after milling the paddy is to be delivered within 10 days of the lifting of the paddy and that the delivery of the next consignment of paddy would be there only after the earlier consignment is fully cleared and settled in all respects including receipt of resultant rice and payment of milling charges etc. In addition, the defendant has challenged the validity of the conditions of agreement under which, two and half times the economic cost of rice for short fall and 150% of the economic cost of rice which remained undelivered by way of liquidated damages and 11% p.a., interest on the short fall of rice as unreasonable and unacceptable and unenforceable. That they have not lifted the quantity of paddy mentioned in the plaint; that there was no delivery of 53,618 gunny bags and that the suit is barred by limitation as all agreements are separate and independent and that thecause of action has not arisen as stated in the plaint.
6. The plaintiff filed as many as eighty four documents, while the defendant filed fourteen documents. On behalf of the plaintiff, PW1, the Assistant Manager of the Food Corporation of India was examined. On behalf of the defendant, DW1, the partner of the defendant firm was examined.
7. On the basis of the evidence, the Principal Subordinate Judge, Warangal, framed number of issues and decreed the suit. Aggrieved by the same, the defendant firm is in appeal.
8. The main arguments of Sri Veerabhadraiah, the learned Counsel for the appellant is that the suit is barred by limitation as under the agreement each contract is independent and distinct and the resultant rice is to be delivered to the plaintiff within ten days from the date of lifting of paddy. The period of first six contracts are from 20-3-1980 to 27-6-1980; 14-4-1980 to 12-7-1980; 7-8-1980 to 6-11-1980; 11-8-1980 to 10-6-1981,19-8-1980 to 18-11-1980 and 13-11-1980 to 12-5-1981 and, therefore, the suit filed on 1-8-1984 is barred by limitation. As regards the remaining three contracts, though they are within the period of limitation, since PW1 admitted that he can not give the break-up of all the amounts, the suit in respect of contracts 7, 8 and 9 is also liable to be dismissed on merits. The imposition of penalty of two and half times the economic cost of rice for short fall and 150% of the economic costs of rice which remains undelivered and interest at 11% is unreasonable. In support of his contention, he relied on the judgment of this Court in Brahmtyya v. Gangaraju, AIR 1963 AP 310; and that there is no evidence to show that the defendant failed to redeliver the gunny bags. Hence he is not liable for the cost of the gunny bags.
9. While the learned Counsel for the respondent-plaintiff contended that the suit is within the period of limitation as the time starts running from the date of non delivery of the resultant rice. Though under the agreements lime is stipulated that the resultant rice is to be delivered within ten days of the date of lifting of paddy, neither party strictly adhered to the terms of the agreement. There is evidence to establish that the defendant has lifted the paddy even in 1982 before filing of the suit and redelivered the paddy. Hence time is not the essence of the contract. Therefore, the question of limitation does not arise; That the agreement is neither illegal nor void as the Food Corporation of India is a public body, concerned with the distribution of rice and, therefore, public interest is involved and the conditions imposed viz., two and half times the economic cost of rice for short fall and 150% of the economic cost of rice which remained undelivered and levy of 11% interest is in public interest. In support of his contention, he relied on B.N.Mathur v. Union of India, AIR 1974 Mad. 233.
10. On merits the learned Counsel submitted that the defendant admitted that he has lifted 7000 Mts., of paddy and when once he admitted that he has lifted a particular quantity of paddy, it is for him to explain the non-delivery of rice, as he has accounted only for 5269.513.866 Mts. In view of the above, the Court below is justified in decreeing the suit and the appeal is liable to be dismissed.
11. On the basis of the above arguments, the following points arise for consideration:
1. Whether the suit is barred by limitation?
2. Whether clause E(v) of the agreements is unreasonable? And
3. Whether the defendant is liable to pay the amounts as claimed by the plaintiff?
Point-1:-
12. The undisputed facts are that the respondent entered in to 9 agreements with the appellant for milling of paddy into raw rice/par boiled rice/export quality and the agreements are dated 8-3-1980, 14-4-1980,7-8-1980, 11-8-1980, 19-8-1980, 13-11-1980,8-5-1981, 11-7-1981 respectively. Clause E(v) provides that in case there is short fall in the recovery of rice provided in sub-clause (1), the agents shall pay to the FCI the cost of rice at the rate of 2V, times the economic cost; and by way of liquidated damages, 150% of the economic cost of rice which remains undelivered by the prescribed date. Clause E(v) provides for payment interest at the rate of 11% in the event of short delivery of rice. Clause G(iii) provides that the agent shall complete the lifting of 300 tons of paddy upto 27-6-1980 and deliver the resultant rice obtained out of the paddy entrusted as per the agreed out turn within 10 days of the date of entrustment/Iifting of paddy. It also provides for extension of time in the event of failure to deliver the paddy within 10 days from the date of lifting. Similarly under agreement dated 14-4-1980 the appellant has to lift 2000 Mts. of paddy upto 19-4-1981 and the resultant rice is (o be delivered within 10 days of the date of entrustment/liftiug of paddy. Under agreement dated 7-8-1980, three months period is fixed from 7-8-1980 to 6-11-1980. Under agreement dated 11-8-1980, the appellant has to lift 700 MTs., of paddy upto 15-6-1981 and has to deliver the resultant rice within 10 days from the date of lifting of the paddy. Under agreement dated 19-8-1980, the appellant has to lift 1000 MTs., of paddy upto 18-11-1980. Under agreement dated 13-11-1980, the period of contract is not mentioned and under agreement dated 8-5-1981, theperiod of contract is mentioned as 8-5-1981 to 7-8-1981. Under agreement dated 11-7-1981, the period of contract is mentioned as 11-7-1981 to 10-1-1982.
13. From the terms of the agreement it is clear that the time for lifting the paddy and delivering the resultant rice after milling is prescribed. The quantity of the paddy to be lifted is also mentioned in the contract. The appellant has to lift the paddy on or before a particular date and redeliver the resultant rice after milling the paddy within 10 days from the date of lifting of paddy. A perusal of the agreements indicates that different varieties of paddy is supplied to the appellant for the purpose of milling under each agreement.
14. The argument of the learned Standing Counsel for the respondent-FCI is though the agreements prescribe a contract period, lifting of paddy within that contract period and delivery of resultant rice within 10 days from the date of lifting of paddy, the parties have not adhered to the terms of the agreements as the appellant lifted the paddy even after the period prescribed under the agreements and, therefore, time is not the essence of the contract. Whereas the learned Counsel for the appellant contended that in view of the period of contract mentioned in the agreements, time starts running after the expiry of the period for redclivery of resultant rice mentioned in the agreements. In this context, we may refer to the evidence of PW1, the Assistant Manager of the FCI. According to him, the parties to the agreements acted strictly according to the terms and conditions of the agreement under Exs.Al to A9 and that no extension is granted by the respondent with regard to the stipulated contract period under Exs.Al to A9 and as per clause of the agreements under Exs.Al to A9, the contract is to be treated as independent from one another and that the last delivery of thepaddy was made on 16-11-1981 to the extent of 27.858.394 MTs., but he cannot say under which agreement.
15. From the evidence of PW1 and the terms of the contract, it appears that the intention of the parties is to treat each contract as an independent contract and the appellant has to lift the paddy within the time prescribed under each contract and deliver the resultant rice within 10 days from the date of lifting of the paddy. Therefore, time starts running from the date on which appellant failed to deliver the resultant rice after milting. In our view, the relevant Article that is applicable is Article 27 of the Limitation Act which provides that the period of limitation for compensation for breach of promise to do anything at a specific time, or upon the happening of a specified contingency is 3 years when the time specified arrives or the contingency happens. In the instant case, after the expiry of 10 days prescribed under the agreements from the date of lifting of paddy, the time starts running. The time for lifting of the paddy prescribed under the agreements is 3 months from the date of the agreement. Therefore, within 3 months from the date of the agreement, the appellant has to lift the paddy and deliver the resultant rice within 10 days from that date and the time starts running from the date on which the appellant failed to deliver the resultant rice.
16. It is true DW1, a partner of the defendant-firm, in his evidence says that he has taken delivery of last load of paddy of 20 MTs., in July, 1982. From this evidence, no inference can be drawn that the parties have not adhered to the terms of the agreement. The evidence of DW1 that he has lifted the last load in July, 1982 may relate to the last agreement dated 11-7-1981 where the period of contract prescribed expires on 1-1-1982. Further, PW1 has stated that the last delivery of paddy wasmade on 16-11-1981. From the evidence ofPWl and DW1, no inference can be drawn that the delivery of paddy or lifting of paddy relate to any particular agreement and that the parties to the agreement did not adhere to the terms of the agreement.
17. As regards the agreement under Exs.7, 8 and 9 the question of limitation does not arise as the agreements are dated 8-5-1981, 11-7-1981 and 11-9-1981 and the period for performing the contract is from 11-7-1981 to 10-1-1982 and 8-5-1981 to 7-8-1981 respectively. However, as regards the agreements under Exs.Al to A6, there is no evidence as to when the appellant has actually lifted the paddy and when he failed to redeliver the resultant rice after milling. In the absence of evidence, there is no other alternative except to rely on the terms of the agreement. The argument of the learned Counsel that Article 1 of the Limitation Act is applicable as it is a mutual, current account and 3 years starts running from the close of the year in which the last item admitted or proved is entered in the account cannot be accepted, the reason being that each agreement is an independent transaction and the time stipulated for lifting the paddy is three months from the date of agreement and delivering the same is 10 days under each agreement. The averments in Paragraph 15 of the plaint that the cause of action arose on 10-9-1981, 18-11-1981, 1-1-1981, 26-11-1981 and 31-8-1981 have not been explained as to how these dates are relevant though it is mentioned that they relate to the date of non supply of the resultant rice. Neither any document evidence is produced nor any oral evidence is adduced to explain these dates. Further the appellant in his written statement categorically denied that the suit is barred by limitation on the ground that each agreement is a separate and independent and that the cause of action arose only when there is a failure on the part of theappellant deliver the resultant rice as prescribed under the agreements after lifting of the paddy.
18. The argument of the learnedStanding Counsel for the respondent is that the paddy is supplied for various varieties of rice and not on contract basis and that in the plaint it is categorically mentioned that all the agreements are treated as one for the purpose of bank guarantee and, therefore, all the agreements should be treated as one cannot be accepted as we find from the agreements that under each agreement different varieties of paddy are supplied. Secondly, the averment in the plaint is for the purpose of bank guarantee and furnishing security which cannot be a reason for holding that all the 9 agreements will be treated as one agreement. We are, therefore, of the view that the suit is barred by limitation under Article 27 of the Limitation Act.
Point 2:
19. Under the agreements if there is a shortfall in the recovery of rice, the defendant is liable to pay to the FCI the cost of rice at the rate of 21/2 times the economic cost of that rice and by way of liquidated damages 150% of the economic cost of rice and 11% interest on the amount claimed from the date of default. There is no evidence as to what is the meaning of 'economic cost'. If there is a shortfall in the delivery of the resultant rice, the FCI can recover the cost of the said shortfall of resultant rice. We are unable to appreciate on what basis the appellant has to pay at the rate 'of 2 1/2 times the economic cost in addition to 150% of economic cost as liquidated damages and 11% interest on the amount claimed. The Standing Counsel for the respondent could not explain the basis for collecting the cost of rice at 2 1/2 times and liquidated damages at 150% of the economic cost and interest at the rate 11%.The argument that the respondent as well as the appellant have equal bargaining capacity and, therefore, since the appellant had agreed to pay the said amount, he cannot now complain that sub-clauses (v) and (vi) of clause (E) of the agreements are unreasonable. The Counsel also submitted that the FCI is a public authority and it has to distribute the rice to the public, and, therefore, it cannot be said that the said clause is unfair, and the appellant had entered into the contract out of his free will and volition, he cannot 'now go back and contend that in the absence of actual damage, the respondent is not entitled for recovering the amount mentioned in the relevant clauses.
20. The Counsel for the respondent relied on S.N. Mathur's case (supra) and Section 74 of the Indian Contract Act read with explanation 2 under the said section. Under Section 74 of the Contract Act, a claimant will be entitled to reasonable compensation irrespective of the fact whether actual damage is proved to have been caused to him or not, provided if in the contract a sum has been named as the amount to be paid in case of breach or if the contract contain any other stipulation by way of penalty. Explanation 2 under the said section is an explanation to clause (1) of Section 74.
21. Interpreting the scope of Section 74, the Madras High Court in B.N. Mathur's case (supra), held that:
'.... it is the duty of the Court to assess and arrive at a reasonable compensation and if the reasonable compensation so arrived at exceeds the sum named in the contract or the penally stipulated for, the successful party will be entitled only to the sum so named or the penalty stipulated for. On the other hand, if the reasonable compensation arrived at by the Court is less than the sum so named in the contract or the penalty stipulatedfor, the successful party will be entitled to the amount assessed by the Court'.
It was also held that:
'... having regard to the express language contained in Section 74 of the Indian Contract Act, and the various decisions of the Courts referred to above in a case to which Section 74 of the Indian Contract Act applies, the party claiming compensation need not prove that he has actually suffered any loss or damages, and he is entitled to claim reasonable compensation solely because breach of the contract has been committed by the other party and the parties themselves have agreed to the payment of a particular sum, whether it is called 'damage' or 'penalty' in the event of a breach and that the only restriction which the law imposes is that the reasonable compensation to be assessed or computed by the Court cannot exceed the amount agreed to by the parties, whether by way of damages or by way of penalty.'
22. It was also held that the person who entered into the contract upon breach of the condition of the contract, shall be liable to pay the whole of the sum mentioned in the agreement.
23. In other words, according to the Madras High Court under Section 74 of the Contract Act, the party need not prove that he sustained the actual loss in the case of breach of contract and he is entitled to claim as damages the amount indicated in the contract, provided the amount is reasonable and it is the duty of the Court to assess and arrive at a reasonable compensation and if the reasonable compensation so arrived at exceeds the sum named in the contract, then the successful party would be entitled only to the sum so named. On the other hand, if the reasonable compensation arrived at bythe Court is less than the sum indicated in the contract, then the successful party would be entitled to the sum thus assessed and arrived at by the Court. In other words, the successful party, on account of breach of contract, would be entitled to a compensation which should be reasonable.
24. As against the judgment of Madras High Court, there is a judgment of our Court reported in Brahmayya v. Gangarajn (supra). A Bench consisting of P. Chandra Reddy, CJL, and Chandrasekhara Sastry, J., after referring to the judgment ofPrivy Council in Bhai Parma Si ugh v. Bhai Arjim Singh, AIR 1929 PC 179 (V.I6), and the judgments of the Calcutta, Patna and Bombay High Courts held that:
'The effect of Section 74 is to disentitle the plaintiff to recover simpliciler the sum fixed in the contract whether as penalty or liquidated damages. The plaintiff must prove the damages he has suffered. No doubt Section 74 says that where a sum is stated in the contract as payable to a party if a breach thereof is caused by the other party the Court has power to grant compensation to the party even though actual loss or damage is not proved. But that does not mean that compensation can be awarded even though no loss whatsoever has been caused. For the very concept of award of compensation is bound up with loss or damage that results from a breach of contract. All that Section 74 permits is award of compensation even where the extent of the actual loss or damage is not proved and gives discretion to the Court to fix the amount. Where no loss or damage has ensued there can be no question of awarding compensation.'
25. In other words, though under Section 74, if a sum is named in the contractas payable to a party if there is a breach of contract by the other party, the Court has power to grant compensation to the party even though actual loss or damage is not proved. I lowever, that does not mean that even if no loss is caused, compensation should be awarded. Section 74 gives discretion to the Court to award damages even if the extent of actual loss sustained is not proved and where no loss or damage has ensued, there shall be no question of awarding compensation. Since the judgment in Brahmayya's case (supra) is from this Court, we prefer to follow the judgment of our High Court and, therefore, the respondent has to prove the loss sustained as it has not adduced any evidence to prove as to the actual cost of the resultant rice. On the other hand, the terms of the agreements say that he would be liable to pay 21/2 times the economic cost plus ISO times of the economic cost plus 11% interest in the event of short delivery of rice and the respondent could not explain the basis for claiming damages at those rates. In the absence of explanation of the basis on which these damages are claimed the respondent is not entitled for these damages.
26. The argument of the learned Counsel for the respondent is that in view of Explanation 2 to Section 74(1), the appellant is liable to pay, without any demur, the amount mentioned in the contract. It is true under Explanation 2 when any person enters into any instrument under the provisions of any law, or under the orders of the Central Government or of any State Government, gives any instrument for the performance of any public duty or act in which the public are interested, he shall be liable, upon breach of the condition of any such instrument, to pay the whole sum mentioned therein. The Explanation speaks of an instrument executed under the orders of the Central Government or of any Provisional Government. The FCI cannot be said to be either a Central Government or a Provisional Government.It is a statutory authority constituted under the Food Corporation of India Act and it cannot be conferred with the status of either Central Government or a Provisional Government, though it may be a 'State' for the purpose of Article 12 of the Constitution of India. Therefore, the Explanation 2 to Section 74 of the Indian Contract Act cannot come (o the rescue of the respondent. Consequently, the respondent cannot claim as damages for the non delivery of the resultant rice under clauses E(v) and (vi) of the contract.
Point 3:
27. Coming to the merits of the case, the suit is filed on the basis of Exs.All to A13. Ex.All is the statement of paddy supplied to the defendant; Ex.A12 is the statement of paddy supplied and the resultant rice delivered; and Ex.A13 is the abstract of the claim made in the plaint. PWI in his evidence says that Ex.Al I is the statement of the particulars of the paddy lifted date wise by the defendant firm, Ex,A12 is the statement showing the particulars of the paddy lifted, rice delivered and excess and short deliveries and holding charges in each case and Ex.Al3 is the abstract of their claim made through the plaint. In his cross-examination he says that:
'.... After entering into agreements, release order of paddy is issued. Whatever the quantity of paddy is lifted by the miller is recorded on the reverse of the respective release order. When the quantities are loaded into lorries as per release orders, the truck chits are prepared and issued against each lorry. In my presence the truck chit and the entries on the released and acknowledgment of the miller were not done in my presence, because these operations are done in godown'.
He further says that:
'... The truck chits filed before the Ilon'ble Court do not represent the total quantity lifted by the defendant mill as those are voluminous bulk in number. It is not true to suggest that we did not deliver paddy as claimed in the suit. Truck chits contain the number and date of the release order against which the paddy is issued. I have filed 'custom milling charges' bills which are office copies. The original of such milling charges bills are sent to audit section. The customs milling charges are sent to audit section. The customs milling charges bills filed by me in the suit is the full and final settlement of all the matters pertaining to that particular consignment of paddy. Nothing remains to be settled under that particular consignment of paddy claimed in the bill. Each and every 'custom milling charges' bill is prepared and submitted by the defendant duly signed even on the annexure..... It is not possible for me to give the break-up figures of the paddy lifted by the defendants and the rice delivered agreement wise. I cannot also give the claims made by the plaintiff agreement wise .... Exhibits All to A14 were prepared at the time of filing of the suit based on office record.'
28. It is true under Ex.65, 420 quintals of paddy was delivered to the appellant. Similarly under Ex.A67, 85 quintals of paddy was delivered and under Ex.A83, 420 quintals of paddy was released to the appellant. Exs.58, A59, A60, A61 and A64 are truck chits evidencing delivery of paddy to the appellant by the transporter. These documents do not indicate what is the quantity of rice short delivered as they indicate only the paddy delivered lo the appellant. Ex.A45 gives particulars of short delivery of paddy of boiled rice as 6,369.668. Ex.A53 indicates short delivery of Gottulu rice as 4.284.900. Ex.A55 indicates short delivery of Paddy C.12.35 as 30.633.530. Itis true that the defendant did not dispute the said particulars of short delivery in these three documents. However, in the notice issued under Ex.BS there is no reference to the boiled rice. Similarly, the shortage of Gottelu rice is mentioned as 4.204.900 tonnes under Ex.BS, whereas under Ex.53 it is mentioned as 4.284.900 tonnes. As regards C.1235 rice, the shortage mentioned in Ex.BS is 23-730-199 tonnes whereas under Ex.A55, the shortage is mentioned as 30.633.530. In other words, there is no consistency between the notice issued under Ex.BS 'and the documents filed. Further, none of the employees of the respondent-Organisation were examined to prove these documents. Therefore, we cannot arrive at a finding as to the actual shortage of the resultant rice to be delivered by the appellant.
29. The respondents also filed Exs.A12, A13 and A14 indicating the total quantity of rice delivered by him and the shortage in the resultant rice to be delivered. However, according to the evidence of PW1, these documents were prepared on the date of filing of the suit and the person who prepared them was not examined. Therefore, 110 inference can be drawn from these documents that so much quantity of paddy was delivered and the appellant failed to deliver so much quantity of the resultant rice.
30. Coming to the issue of gunny bags, there is absolutely no evidence as to how many gunny bags were delivered to the appellant and what is the shortage of gunny bags in redelivering the same by the appellant. The only evidence as regards gunny bags is that PW1 in his evidence denies the suggestion that the claim for return of S3 thousand and odd gunny bags as claimed by him is incorrect. In view of lack of evidence, the respondent is not entitled for any relief on this count.
31. We therefore, are of the view that the suit is barred by limitation andthe respondent failed to prove the actual loss sustained by it and that there is no evidence as to the quantity of resultant ricenot delivered by the appellant.
32. In view of the above, the appeal is allowed. No costs.