Judgment:
P.P. Naolekar, J.
1. Appellant is a registered firm and is registered as B Grade Contractor with the respondent, the Rajasthan State Agriculture Marketing Borard. A suit for permanent injuciton was filed by the appellant claiming the relief that the repondent be restrained form appropriating the amount form the appellant, for satisfaction of its claim for damages for alleged non-performance of the contract. According to the appellant, tenders were invited for the work of construction of road. On 4.12.89 the appellant submitted its tender. Later on, the appellant was informed by issuance of the work order about the acceptance of his tender of construction of the road to be completed within 12 months form 7.3.90. Inspite of the acceptance of his tender, no contract was executed by the respondent inspite of best efforts made in that direction by the appellant. The respondent has given a contract for the signature of the appellant, which was not acceptable to the appellant and, therefore, the appellant has not signed that agreement. Inspite of consistent efforts by the appellant, it was not permitted to execute the work of the contract. Later on fresh tenders were invited by the defendant-respondent and the plaintiff was informed to that effect. It was also informed to the plaintiff that the penalty levied against him under Clauses no. 2 and 3 of the P.W.D. M.F. 107 and the amount of Rs. 2,67,148/- has to be recovered form him and he was advised to deposit that amount within 15 days. The case of the appellant was that he never signed the contract and thus, the amount cannot be recovered from him an particularly exercising the powers under Clauses no.2 and 3. An application for temporary injunction was also moved claiming the ad-interim relief that amount should not be recovered form the appellant.
2. The defendant entered appearance and filed reply. According to the defendatnt-respondent, the tendering contractor/appellant and the Executive Engineer signed special condition of contract and the acceptance of the tender was subject to the special condition of the contract as laid down in P.W.D.M.F. 107 particularly Clauses no. 2 and 3. The execution of the deed of the contract was mere formality and thus contract impliedly came into existence. Under the conditions, the respondent has a power to impose compensation and penalty and recover the same. The appellant had committed a breach of the contract and, therefore, made himself liable for the payment of the amount. The appellant had never started work neither had taken any steps in furtherance of the contract. He has deliberately not started the work and, therefore, under the compulsion the fresh tenders were invited. The amount sought to be recovered is Rs. 1,44,153/- and not Rs. 2,67,148/-. The amount sought to be recovered is the amount spent additionally by respondent and, therefore, the respondent is entitled to recover this amount. The application for temporary injunction was rejected by the trial court and this appeal is filed by the appellant.
3. It is an admitted fact that signed contract was not entered into between the parties and the amount is sought to be recovered as determined by the respondent unilaterally in exercise of the power laid down in P.W.D.M.F. 107, Clause no 2. Clause no.2 of the contract raids as under:
CLAUSE 2. The time allowed for carrying out the work as entered in the Tender Shall be strictly observed by the contractor and shall be reckoned form the 15th day after the date or written order to commence the work is given to the contractor. The work shall throughout the stipulated period of the contract be proceeded with all due diligence, time being deemed to be the essence of the contract on the part of the contractor and the contractor shall pay as compensation an amount equal to one percent or such smaller amount as the Chief Engineer or his authorized Engineer (whose decision shall be final) may decide on the tendered amount for every week that the work remains uncommenced or unfinished after the proper date. And further to ensure good progress during the execution of work, the contractor shall be bound in all cases which the time allowed for any work exceeds one month (save for special jobs) to complete 18 month of the whole of the work before 1/4 of the whole time allowed under the contract has elapsed, 3/8 of the work before 1/2 of such time has elapsed and 3/4 of the work before 3/4 of such time has elapsed. The contractor shall further be found to carry out the work in accordance with the dates and quahtities entered in the Progress Statement attached to this tender.
However, if for any special job, a time schedule has been submitted by the contractor and the same has been accepted by the Engineer-in-charge the contractor shall complete the work within the said time schedule. In the event of the contractor failing to comply with this condition, he shall be liable to pay as compensation an amount equal to one percent or such smaller amount as the Chief Engineer or his authorised Engineer (whose decision in writing shall be final) may decide on the said tendered amount to the whole work for every week the due quantity of work remains incomplete. Provided always that the entire amount of compensation to be paid under the provision of this clause shall not exceed ten percent on the tendered amount as shown in the work order.
Under Clause 2, the time for completion of the work as entered in the tender is the essence of the contract. It is to be reckoned form the 15th day after the date or written order to commence the work as given to the contractor. The contractor was made liabel to pay as compensation an amount equal to 1% or such smaller amount as the chief Engineer may determine on the tendered amount for every week that the work remains uncommenced or unfinished after the proper date. The Chief Engineer or his authorised Engineer was permitted to levy the compensation which is to be maximum amount equal to 1% of the tender amount.
4. The claim made by the respondent is admittedly for damage for breach or the contract between the parties. The claim as it is made by the respondent is for ligaidated damages i.e. under the Common Law a genuine per-estimate of compensation agreed by mutual agreement between the parties and binding between them. Section 74 of the Contract Act eliminates fine distinction between a stipulation providing for payment of liquidated damages and stipulation in the nature of penalty. Stipulation in a contract in terrorem is a penalty and the court shall not enforce it, but award a party only a reasonable compensation. The stipulation in the contract in the nature of penalty or stipulation in the nature of liquidated damages, the party complaining of the breach of the contract is only entitled to receive the reasonable compensation for the injury sustained, the stipulated amount being merely an outside limit. The claim for damages does, not mean a debt unless the liability is adjudicated and damages ascertained by the orders of the court of by adjudicatory authority. in Maula Bux v. Union of India : [1970]1SCR928 , the Supreme Court observed as under:...the party complaining of the breach is entitled to, 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.' It is true that in every case of breach of contract the person aggrieved by the breach is not required to prove actual loss or damage suffered by him before he can claim a decree and the Court is competent to award reasonable compensation in case of breach even if no actual damage is proved to have been suffered in consequence of the breach of contract. But the expression 'whether or not actual damage or loss is proved to have been caused thereby' is intended to cover different classes of contracts which come before the Courts. In case of breach of some contracts it may be impossible for the Court to assess compensation arising form breach, while in other cases compensation can be calculated in accordance with established rules. Where the Court is unable to assess the compensation, the sum named by the parties if it be regarded as a genuine per- estimate may be taken into consideration as the measure of reasonable compensation but not if the sum name is in the nature of a penalty. When loss in terms of money can be determined the party claiming compensation must prove the loss suffered by him.
5. In the present case, there is no adjudication of the loss suffered by the repondent although it is capable of determination. The amount sought to be recovered is the amount named in the contract as damages to the maximum limit named under Clause 2. A bare perusal of Clause 2 shows that the Chief Engineer or an authorised Engineer can impose a compensation to a smaller amount than 1% of the tender amount penalty and recover the same. The appellant had of compensation, itself, indicates that, that power should be exercised after hearing other side. Admittedly, no hearing has been given on the measure of compensation neithers the compensation has been determined by the Court or by the adjudicatory body. The recovery of the fixed sum of the amount mentioned in the contract being in the nature of penalty, it cannot be permitted to be recovered for assumed breach of contract.
6. Further the appellant has denied entering into contract with the respondent to carry out work. Duty to commence work and on its failure, liability to pay compensation as determined by the Chief Engineer or his authorised Engineer, is under the contract. The power of the respondent to determine compensation and recover it from the appellant is confined only to the cases where contract, and thereby terms of the contract are admitted. A right to adjudicate upon an issue of late commencement of the work of non-completion of the work within the stipulated period, relates to a breach of condition of contract and cannot be said to flow from the right to assess the damages. The power to assess damages is a subsidiary and consequential power based on contract, which is the source of that power. The question whether the parties have entered into contract or not has to be determined by competent court before power under the terms of the contract can be exercised.
7. The plaintiff-appellant has a prima facie case and balance of convenience is in its favour. It shall suffer irreparable injury if the amount is recovered without adjudication. The question whether there was a written contract entered between the parties, and the plaintiff-appellant is bound by the cerms of the contract are still to be determined by the court by the court but presently as the facts emerge, the respondent is not entitled to recover the amount named in Clause 2 of the condition of P.W.D.M.F. 107
8. Consequently the appeal is allowed. The order of the court is set aside. The respondent its officers are restrained form recovering the amount under P.W.D.M.F. No. 107 till the disposal the suit. The parties shall bear their own costs.