1. SAJJAD AHMAD, J.--This judgment will dispose of Civil Appeals Nos, K-15 of 1969 (filed by Syed Sibte Raza, appel-lant) and K-16 of 1969 (filed by Abdul Mujib, appellant), which involve common questions of law and fact, and which are directed against the judgments of a learned Single Judge of the former High Court of West Pakistan, Karachi, made separately in two Revision Petitions under section 25 of the Small Causes Court Act. The Revisions arose out of two suits filed by the two appellants respectively against the respondent, Habib Bank Limited, for the refund of Rs, 2,000 in each case, which was deposited by them as security at the time of their employment in the Bank.
2. Both the suits were tried by the Small Causes Court at Karachi. The suit of Abdul Mujib (No, 230/63) was decreed by Mr. Moulabaksh G. Lighari, Judge, Small Causes Court, Karachi, on the 23rd of November 1963, while the suit of Syed Sibte Raza (No, 588/63) was dismissed by Mr. A. G.
3. Mohammadally, Juc'ge, Small Causes Court, on the 2nd of August 1965. Syed Sibte Raza filed a revision in the High Court against the dismissal cf his suit, aid the Bank, on the other hand, filed a revision petition against the decree granted to Abdul Mujib in his suit. By two separate orders made on the same day viz. 9th of January 1967, the learned Single Judge dismissed the revision petition of Syed Sibte Raza (No, 141 of 1965), and accepted that of Habib Bank Ltd. against Abdul Mujib (No, 416 of 1963). In the result, the suits filed by each of the two appellants against the respondent-Bank were dismissed.
4. On points of fact, it is only relevant to state that both the appellants took up employment as auditors in the Bank on a higher starting salary than the one advertised by the Bank on account of their experience and ability. A service agreement (Exh. 11) on a printed pro forma was executed by each of them, of which clauses 1, 7 and 8 need to be noticed. According to clause 1, the appellants were to serve the Bank for five years from the date of their respective employments. Clauses 7 and 8 gave powers to the Bank to remove them from service without previous notice on account of misconduct, wilful breach of continuous neglect, of which the Bank was to be the sole judge. In case of refusal on the part of any of the appellants to continue to serve the Bank for the full stipulated period, he was liable, under clause 8 of the agreement, to pay Rs, 2,000 as liquidated damages, which each of them was to deposit with the Bank by way of security, for due performance of the service agreement. Abdul Mujib resigned from service on the 31st of January 1963, due to illness after nearly 18 months' service, and similarly, Syed Sibte Raza also resigned on ground of illness after putting in service for a period of less than two years, much before the completion of the stipulated period of service. This led the Bank to forfeit the security deposits of the appellants in terms of the agreements, giving rise to the two suits filed by the appellants, as referred to above.
5. The sole issue agitated in both the suits was whether the appellants were entitled to the refund of the security deposits in spite of clause 8 of the agreement, mentioned above. This clause reads as follows :- 'In the event of my refusing to continue to serve the Bank at any time in breach of this agreement, I shall pay to the Bank, by way of liquidated damages, the sum of Rs, 2,000 or the aggregate amount of the remuneration, to which I would have been entitled under clause 4 above for the first 12 months of employment, whichever is less."
6. The contention raised for the plaintiff-appellants was that the amount of damages named in the agreement was a penalty, which could not be forfeited wholly or in part by the respondent-Bank except as compensation for any proved loss suffered by it on account of breach of agreement on the part of the appellants. Since the Bank had failed to prove that it had suffered any loss or damage on account of the withdrawal of the appellants from the Bank's service before the stipulated period of 5 years, no penalty could be imposed on them. The case for the respondent, on the other hand, was that the appellants being guilty of a breach of the service agreement, the amount of earnest money, which they had deposited for due performance of the conditions of the agreement, was validly forfeited under the terms of the agreement itself, and that, in any case, the amount forfeited represented a reasonable amount of compensation for the breach of agreement committed by the appellants. It was also contended by the respondent Bank that even as regards actual loss, it was proved that a considerable amount of money was spent on the training of the appellants to equip them for the audit work in the Bank, for which it should be compensated. As already stated above, the Small Causes Court has given conflicting judgments in the two cases. Mr. Moulabaksh G. Lighari, Judge Small Causes Court, Karachi, who decided the case of Abdul Mujib, appellant, came to the conclusion that the case fell under section 74 of the Contract Act, and as the defendant-Bank had failed to show what loss it had suffered by breach of agreement on the part of the plaintiff-appellants, it was not entitled to forfeit the security amount wholly or in part. On the contrary, Mr. A. G. Mohammadally, Judge, Small Causes Court, who decided the case of Sibte Raza, appellant, held that section 74 of the Contract Act did not apply, as it was not a case of forfeiture by way of penalty, but it was one of confiscation of the earnest money, which the appellant aforesaid had deposited for the due performance of the conditions of the service agreement executed by him. The learned Singe Judge of the High Court, in disposing of the revisions, upheld the Bank's contention in each case, on the view that it was not a case of recovery of damages as penalty, wherein the Court has no jurisdiction to grant more than what has been suffered by one contracting party on account of breach of agreement by the other party. The learned Single Judge has pointed out that where the amount of damages is stipulated in the contract as a penalty or as liquidated damages, all that is required of the Court is, to consider that the amount so stipulated is not unconscionable or excessive. It has to determine in each case a reasonable amount of compensation to relieve one contracting party against the breach of agreement committed by the other, the outside limit being the amount which is named in the contract itself. The learned Single Judge also held that the cases in hand were entirely different from those of penalty, as they related to forfeiture of security deposits made by the appellants to guarantee due performance of their obligations under their contracts. The parties, at the time of contract, had considered all the relevant circumstances, and fixed the amount of likely damages by way of pre-assessm ent for any loss which either party might suffer on account of the non- performance or breach of the contract by the other. The learned Single Judge further held that the Bank had given to the appellants the necessary training for doing their jobs, and it was unfair on their part to utilise the experience and training thus gained by them at the expense of the Bank to their better advantage by serving elsewhere on higher wages. Support has been derived for this view from a judgment of the Indian Supreme Court cited as Fateh Chand v. Balkrishan Dass , wherein the following observations occur :- "The measure of damages in the case of breach of a stipulation by way of penalty is by section 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 the case. Jurisdiction of Court to award compensation in cases 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 a 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 damage', it 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."
7. The learned Single Judge has observed that the amount of Rs, 2,000 forfeited by the Bank in each of the two cases cannot be considered to be an unreasonable amount of compensation, regard being had to all the relevant circumstances.
8. It is necessary to quote here sections 73 and 74 of the Contract Act, which between themselves provide for consequences of the breach of contracts :-- "73. When a contract has been broken, the party who suffers by such breach is entitled to receive, from the party who has broken the contract, compensation for any loss or damage caused to him thereby, which naturally arose in the usual course of things from such breach, or which the parties knew, when they made the contract, to be likely to result from the breach of it.
9. Such compensation is not to be given for any remote and indirect loss or damage sustained by reason of the breach.
10. When an obligation resembling those created by contract has been incurred and has not been discharged, any person injured by the failure to discharge it is entitled to receive the same compensation from the party in default, as if such person had contracted to discharge it and had broken his contract.
11. Explanation.--In estimating the loss or damages arising from a breach of contract, the means which existed of remedying the inconvenience caused by the non-performance of the contract must be taken into account.
74. When a contract has been broken, if a sum is 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 been1 caused thereby, to receive from the party who has broken the contract reasonable compensation not exceeding the amount so named or, as the case may be, the penalty stipulated for.
12. Explanation.--A stipulation for increased interest from the Ltd. date of default may be a stipulation by way of penalty.
13. Exception.--When any person enters into any bail-bond, recognizance or other instrument of the same nature, or, under the provisions of any law, or under the orders of the Central Government or of any Provincial Government, gives any bond 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.
14. Explanation.--A person who enters into a contract with Government does not necessarily thereby undertake any public duty, or promise to do an act in which the public are interested."
15. It is clear that section 73 covers cases of breach of contract where no amount of compensation is stipulated in the agreement itself, and the compensation has to be assessed strictly on the basis A of the loss which has accrued to either of the contracting parties in the usual course of things on account of such breach, or which the parties knew when they made the contract, to be the likely result of the breach. Section 74 provides for cases where a sum is named in the contract itself as the amount to be paid in the case of the breach of the contract, or if the contract contains any other stipulation by way of penalty, the party complaining of the breach has to be compensated, regardless of the proof of any actual damage or loss, and is entitled to receive from the party who has broken the contract reasonable compensation not exceeding the amount so named, or the penalty so stipulated. Since the amount is stipulated in the present cases, by whatever name it may be described, whether liquidated damages, penalty, recompense or earnest money, the respondent-Bank, on breach of contract by the appellants, was entitled to receive reasonable compensation not exceeding the amount of Rs,. 2,000, as provided in the contract. The scope of section 74 of the Contract Act, in relation to recovery of damages for breach of contract, whether as liquidated damages or penalty or otherwise, came in for consideration by this Court in the case of Province of West Pakistan v. Mistri Patel & Co. wherein it was held as follows :-- "Section 74 of the Contract Act does not recognise the difference that exists in the English law between liquidated damages and penalty. Under the Common Law a genuine pre-estimate of damages agreed upon by the parties is regarded as liquidated damages. But a stipulation in a contract in terrorem is a penalty. In the case of liquidated damages the contract is binding upon the parties. In the case of penalty, however, the Court refuses to enforce it and awards to the aggrieved party reasonable compensation. The argument that section 74 of the Contract Act deals only with the right to receive from the party who has broken a contract reasonable compensation and not the right to forfeit what has already been received by the aggrieved Party cannot be accepted in view of the terms of the section. The cases in which such a view has been taken appear to have ignored the expression "the contract contains any other stipulation by way of penalty" in the section. This expression is comprehensive enough to include cases of forfeiture of money or any property already delivered as well as cases of recovery of money or any property on the basis of a promise to pay.
16. It is difficult to see why a contract which contains a covenant for forfeiture of deposit actually made or an amount which is recoverable on failure to perform the contract will not come within the expression "if the contract contains any other stipulation by way of penalty". The award of compensation by the Court under section 74 of the Contract Act will depend upon its finding as to what in the facts and circumstances of the case is reasonable compensation subject to the limit of the amount mentioned in the contract. It is true that the aggrieved party is entitled to recover compensation from the party who is guilty of breach of the contract whether or not actual damage or loss is proved to have been caused thereby."2 These observations fully support the case of the respondent-Bank for a reasonable compensation on account of breach of contract committed by the appellants regardless of any proof of actual loss, but in working out the amount of reasonable compensation, it would certainly be relevant to consider whether any loss has or has not accrued to the party, which has suffered on account of the breach, and the extent of that loss.
17. In the present cases, the appellants' contention that the Bank has suffered no legal injury or loss is without any substance. Evidence was led by the Bank to prove that the training of the plaintiffs had cost the Bank more than the amount of security deposits made by them. In the case of Sibte Raza, Abdul Kadir Assistant Superintendent, appearing for the respondent-Bank, stated as follows :-- "Every Bank trains its employees according to its own system. Plat tiff could not do auditing work without training. It is for one year. He joined in June 1961. We sent him to various branches. We were changing him from every department after 15 days. Like this he went one for one year. We gave instructions to our Managers to use him in every department. He could not do independent work during this period. He was paid full salary and allowances during his training period. We spent Rs, 5,000 on his training."
18. In the case of Abdul Mujib, appellant, Ghulam Ahmad, Senior Superintendent of the Bank, appearing as a witness for the respondent, made the following deposition :-- "The defendants have got their own system of accounting and auditing different from that other banks or organisations.
19. The plaintiff required training before he could effectively do his work. He was to be trained and was with me for months on audit tour. S. H. Kazmi is senior officer of our Ltd bank under whom the plaintiff also went on tour for about -2 months. The plaintiff was paid full salary and allowances, and T. A. during this period. Tour of an officer costs about Rs, 2,000."
20. The appellants did not challenge these statements by way of cross-examination, nor did they lead any evidence to rebut them. This evidence furnished by the Bank has, therefore, gone unchallenged.
21. In view of what has been said above, I am of the opinion that since both the appellants had agreed to pay the sum of Rs, 2,000 each in the event of their leaving the Bank's service before the expiry of 5 years, they were clearly in breach of the agreement for having done so. This breach on their part gave a right to the Bank to claim a reasonable amount of compensation from them regardless of any proof of actual damage suffered by it. The Bank is shown to have spent more than the amount of Rs, 2,000 on the training of each of the appellants to qualify them as trained auditors to discharge their duties. It cannot, therefore, be said that the amount of security deposit viz. Rs, 2,000 forfeited by the Bank in each case is unconscionable or excessive. No exception can thus be taken to the view of the learned Judge of the High Court in dismissing the suits of the appellants for refund of the security deposits. In the result, I would dismiss these appeals, without making any order as to costs.
22. M. R. KHAN, J,--I agree.
23. WAHEEDUDDIN AHMAD, J.--I agree.
24. AIR 1963 SC 1405 PLD 1969 SC 81 1 2