' On 28-5-1981, Award was given in respect of several claims between the parties pertaining to the export of rice which has come up before this Court in a proceedings under section 42 of the Arbitration Act, 1940 read with rule 282 of the Sindh Chief Court Rules (O.S.).
2. It is not denied that the plaintiff agreed to purchase for export from Pakistan 10,000 tonnes of rice at a price of US $333 per matric ton which offer was accepted by the defendant namely Rice Export Corporation of Pakistan Ltd. (hereinafter referred to as RECP). Due to some subsequent events, the plaintiff was not able to purchase rice from defendant as a result of which the defendant cancelled the contract and forfeited the advance payment of US $83,250. This resulted in dispute between the parties and by consent Mr. Nisarun Nabi was appointed as sole arbitrator. Both the parties filed their claims before the said arbitrator which are summarised as below: "A. Claims of M/s Transocean Asia Limited against M/s Rice Export Corporation of Pakistan Limited:-
(i) Refund of earnest moneyUS$00,83,250
(ii) Profit on 10,000 mertic tons of rice at the rate of US $30 per metric tonUS$3,00,000
(iii) Damages for retaining earnest money.US$00,66,750 Total Claim US$4,50,000 They have also claimed cost of the arbitration proceedings and interest at 14 % per annum on US$4,50,000 from 10-5-1979 to the date of payment.
B. Claims of M/s Rice Export Corporation of Pakistan Limited against M/s Transocean Asia Limited:-
(i) Retention of earnest moneyUS$83,250
(ii) Difference between the contracted price and resale price of rice.US$9,80,000 Total US$10,63,250 ' They have also claimed cost of arbitration proceedings, interest at the rate of 11% per annum on the total F.O.B. Value of the rice and storage charges at the rate of Rs,20 per metric ton per month from 15-2-1978, (the date on which the shipment was to be made under the Contract) to 31-7-1979 (the date on which shipment was made on resale of the rice)."
3. Both the parties have also produced three witness and documentary evidence before the arbitrator. As a result of claims and counter-claims, by consent of the parties following ten issues were framed:-
(1) Whether Messrs Transocean Limited opened an acceptable Letter of Credit in time and in accordance with the terms and conditions of the Contract?
(2) Whether Messrs Transocean Asia Ltd. Were entitled to extention in the shipping period without complying with the conditions precedent laid down in the Contract?
(3) Which of the parties committed breach of the terms and conditions of the Contract?
(4) Whether Messrs Rice Export Corporation of Pakistan Limited legally terminated the Contract?
(5) Whether Messrs Transocean Asia Limited are entitled to recover alleged loss of profit amounting to US $ 300,000 with interest @ 14% per annum from Messrs Rice Export Corporation of Pakistan Limited?
(6) Whether Messrs Transocean Asia Limited are entitled to recover alleged damages of US $ 66,750 with interest @ 14% per annum from Messrs Rice Export Corporation of Pakistan Limited?
(7) Whether Messrs Rice Export Corporation of Pakistan Ltd. Are entitled to forfeit the amount of security deposit of US $ 83,250?
(8) Whether Messrs Rice Export Corporation of Pakistan Limited are entitled to storage charges @ Rs,20 per month per metric ton as claimed by them?
(9) Whether Messrs Rice Export Corporation of Pakistan Ltd. Are entitled to recover the alleged loss of US $ 9,80,000 with interest thereon from Messrs Transocean Asia Limited?
(10) Which of the parties is entitled to what relief and against whom?
4. All the claims filed by the parties except claim of defendant R.E.C.P.To the extent of forfeiture of earnest amount, were rejected. The operative portion of the Award reads as follows: ' "M/s. Rice Export Corporation of Pakistan are entitled to retain the earnest money/security deposit of U.S. $ 83,25. No other relief is dur to any of the parties."
5. I have heard Mr. I.H. Zaidi and Mr. Javed Faruqui, Advocates and have also perused the record of the proceedings of arbitration. Mr. Javed Faruqui has whole heartedly supported the Award while it was vigorously opposed by Mr. I.H. Zaidi. His first ground is that the finding of learned Arbitrator is mutually destructive inasmuch as he has disallowed the claim of defendant R.E.C.P. For damages but at the same time, he had permitted forfeiture of the amount of earnest money. It was argued that once the Arbitrator has come to a conclusion that no case for damages was made out by R.E.C.P., he could not have ordered for such forfeiture. It was also argued that mere mentioning of any penalty in an agreement will not authorise a party for forfeiture of earnest money. Reliance was placed on section 74 of the Contract Act and on the case of Province of West Pakistan v.
Messrs Mistri Patel & Co. And another (PLD 1969 SC 80). Mr. Javed Faruqi, as against this, has cited cases of Syed Sibte Raza and another v. Habib Bank. (PLD 1971 SC 743) and Messrs Aslam Saeed & Co. v. Messrs Trading Corporation of Pakistan Ltd. (PLD 1985 SC 69). In the case of Mistri Patel & Co.
(supra), a suit was filed before this Court claiming for the recovery of Rs,72,405.3.0 being the earnest money which was dismissed mainly on the ground that the plaintiff was not entitled to sue for the recovery of some promised amount of earnest money. The Letters patent appeal filed against the order of a learned Single Judge was dismissed with cost. In that case, no cash amount was deposited as earnest money but an unconditional Bank Guarantee was furnished with the Government of Sindh with the stipulation that on the failure of the firm to fulfil its obligation, the agreed earnest amount will be paid by the said bank. It was held by the Hon'ble Supreme Court, while interpreting section 74 of the Contract Act that it deals only with the right to receive a reasonable compensation from the party who has broken a contract and not the right to forfeit what has already been received by the aggrieved party. It was further held that the award of compensation by the Court under section 74 of the Contract Act will depend upon this 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. The appeal was dismissed with cost on the ground that the plaintiff was held not entitled to any part of its claim as the plaintiff failed to show any loss. In fact, the plaintiff gained a profit of Rs,10,500. At the same time, it was held that, "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".
6. In the case of Syed Sibt-e-Raza (supra) reference was again made to the case of Province of West Pakistan v. Messrs Mistri Patel & Co. In reference to the scope of section 74 of the Contract Act.
In that case two appellants deposited Rs,2,000 each with the respondent bank as security at the time of their employment in the bank. Since the appellants resigned before expiry of the period agreed by them to serve in the bank, the amount of security was forfeited against which they filed a suit which was also dismissed. The Revision Applicant filed against such dismissal of suit was dismissed by this Court as a result of which they filed appeal before the Hon'ble Supreme Court. It was held that section 73 covers cases of breach of contract where no amount of compensation is stipulated in the agreement itself and the compensation is to be assessed strictly on the basis of loss which has occurred to either of the contracting parties. While section 74 provides for cases where a sum is named in the contract itself as the amount to be paid in case of breach of contract or if the contract contains another stipulation by way of penalty. The appeals were dismissed with the view that since both the appellants had agreed to pay a sum of Rs,2,000 each in the event of their leaving the bank service before the expiry of five years, they were clearly in breach of the agreement for having done so. Again in the case of M/s Aslam Saeed (supra), both the cases as discussed hereinabove were considered. Facts of that cases are quite similar to the facts of the instant suit. In that case also the respondent Trading Corporation of Pakistan and the appellant entered into a contract for purchase of 30,000 tons of Basmati Rice for the purpose of export.
However, appellants failed to purchase the whole consignment and only lifted a certain quantity.
As a result, respondent T.C.P. Sold the balance quantity of rice. By consent of the parties, matter was referred to an arbitrator who gave his Award on 28-8-1970 through which a certain amount was awarded to the respondent Corporation which was lying with respondent with the direction to appropriate the same. The said Award was made rule of the Court by this Court against which appeal was partly accepted by the Hon'ble Supreme Court with the following modifications:- "31. The upshot of the above discussion is that the respondents are entitled to the encashment of the C.D.Rs, and appropriate the amount of the said receipts which were held by them at the time of the termination of the contract and their claim, therefore, is restricted to a sum of Rs,3,42,900. As regards the interest the respondents will be paid the same from the date of the decree up to the date of encashment of C.D. Rs, because if they have already cashed the same earlier, the question of payment of any interest does not arise. The decree, therefore, shall stand varied as stated above and as to any other benefits the parties can have recourse to restitution under section 144 of the Code of Civil Procedure."
7. In the reasonings of the Award, the learned arbitrator has discussed all objections which at the relevant time were raised by the buyer/plaintiff under issues Nos.3 and 4. It has held that it was the buyer/plaintiff who committed breach of the contract and that the defendant R.E.C.P. Was entitled in law to terminate the said contract. No misreading of evidence was pointed by Mr. I.H. Zaidi to upset these findings. Under the issue No,7, he has elaborately discussed the question of forfeiture which reads as follows:- "17. Clause 6(b) of the Contract which deals with earnest money provides inter alia, that if the earnest money equivalent to 2/1-2% of the total purchase price of rice deposited with the Sellers alongwith the Tender, is not forfeited under clauses (7) and (8) of the Agreement by the Sellers it shall be refunded to the Buyers on completion of the Contract and after the final settlement of accounts. Clause (7) of the Contract besides providing for the levy of interest and storage charges in certain circumstances, makes it known to the Buyers that if they fail to observe stipulations as to the time for opening of letter of credit or for making of payment or as to procuring of ships and/or shipping space or as to taking delivery and/or making of exports, the Sellers may forfeit the earnest money/Security Deposit without prejudice to their rights and remedies under the Contract. Clause
(8) provides that if the Buyers fail to observe the stipulations as to time or fail to observe or commit a breach of any of the terms & conditions, the Sellers shall be entitled to recover the price or such part of it as remains to be paid, alongwith and together with costs, charges, expense and interest. It further provides that the Sellers shall have and may at any time exercise the right to resale and in such event the Sellers shall be entitled to recover the difference between the contract price and the resale price alongwith costs, charges, expenses and interest. This clause further stipulates that the Sellers shall have lien and charge upon the deposit and may forfeit the same or may appropriate the same in so far as the same extends towards price and/or payments due to them under the Contract and recover balance from the Buyers. The provisions in clause 6, 7 and 8 make it clear that in the event of default on the part of the Buyers the Sellers would be within their rights to forfeit Security Deposit and to exercise their right to resale in which even the Security Deposit may be adjusted towards the sale price and other cost and expenses and the 1 balance recovered from the Buyers.
18. It has been separately held while answering the other issues that the Buyers committed breach of the Contract. The Sellers were, therefore, entitled under the term of the Contract to forfeit the Security Deposit/Earnest Money held by them. The Sellers terminated that Contract for the default on the part of the Buyers and forfeited the Security Deposit of US $ 83,250 under intimation to the Buyers vide their telex dated 4-3-1978. As it has been held that the Buyers were in default in performing the Contract, the forfeiture of Security Deposit by the Sellers was legally justified. A point has been raised that the amount forfeited which constitutes damage for breach of Contract should not be unreasonably high. Considering the total sale price of rice involved, the attitude and behaviour of the Buyers, the importance of the export of rice for the Sellers and other circumstances of the case I hold that the amount of US $ 83,250 forfeited by the Sellers was not unreasonable."
8. I have gone through the findings of the learned arbitrators. It was held that the plaintiff has committed breach of contract and the defendants R.E.C.P. Was justified in law to terminate the contract for such default. However, the other claims of plaintiff and the defendants for claiming damages against each other and for loss of business were disallowed. Under issue No,10, it was held by the learned arbitrator that since no justification was proved for violation of terms and conditions of the agreed contract, the defendant was entitled to forfeiture of earnest money. The rule laid down by the Hon'ble Supreme Court in the case of Mistri Patel & Co. Is not attracted. On the contrary, rule laid down in the case of Syed Sibte Raza and Trading Corporation of Pakistan v.
Aslam Saeed (supra) are attracted where the Hon'ble Supreme Court has held forfeiture of earnest money to be lawful regardless of the fact whether plaintiff has proved any loss or damage.
9. The upshot of the above discussion is that the Award dated 28-5-1981 is made rule of the Court.