MAULA BUX vs UNION OF INDIA case falls under the Indian Contract Act, 1872. The case falls under the concept i.e. ‘Breach of Contract’. There must be proof of any actual damage or loss for claiming the damages for breach of contract under the Indian Contract Act, 1872.

BENCH

Honorable Justice J.C. Shah

Hon’ble Justice Vaidyanathier Ramaswami

Honorable Justice A.N. Grover

RELEVANT SECTIONS

Section 74 of the Indian Contract Act, 1872

FACTS OF THE CASE

• The petitioner, i.e. Maula Bux, entered a contract no. C/74 with the Govt. of India on 20^th February 1947 for the supply of potatoes at Military Headquarters, U.P. Area.
• He deposited an amount of Rs.10,000(Ten Thousand) as security for due performance of contract. On 4^thMarch, 1947 another contract no. C/120 was made by him with the Govt of India for supply of poultry, eggs and fish at the same place stated above for one year and deposited another sum of Rs.8500(Eighty-Five Hundred) for due performance of contract.
• The Plaintiff failed to supply the regular commodities as agreed by him to the Govt. of India. Therefore Govt. of India rescinds the first contract on 23^rd November 1947 and second 2^nd December 1947 and gives up the amount deposited by plaintiff.

ISSUES PRESENTED BEFORE COURT

• Whether the Deposited money by the contractor to be treated as the Earnest money in the contract?

• Whether the amount given up by Govt. of India comes under the actual damage or loss?

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RATIO DECENDI OF THE CASE

By the decree in favor of the plaintiff held that there was no sufficient evidence that proves the actual damage or loss to the other party in consequence of the default by the plaintiff.

The High Court was of the view that earnest money deposited as the security for the due performance of a contract does not make up any penalty under section 74 of the Indian Contract Act, 1872. Even security deposited in this case by stipulation of penalty, Govt. of India was entitled to receive reasonable compensation from plaintiff not exceeding that amount whether actual damage or loss has been proved or not and that even in the absence of evidence to prove that actual damage or loss has been caused.

Further, the High Court observed that the contract was for the supply of large quantities of potato, eggs, poultry, and fish which would not easily be available in the market during the year 1947-48 which cause great inconvenience and takes judicial notice about the fact that it was the year when prices were rising and it would not be easy to buy the supply rates as contracted for. Therefore, High Court stated it would not be unfair if we consider an amount of Rs.18,500 through damages not unreasonable. The High Court observed deposits made by the plaintiff may be treated as earnest Money.

As observed by the Judicial Committee in Kunwar Chiranjit Singh vs Har Swarup

“Earnest money is part of the purchase price when the transaction goes forward: it is given up when the transaction falls through by fault or failure of vendee”.

Therefore, the plaintiff had deposited the amounts claimed as for security for guaranteeing the due performance of contracts. Such deposits cannot be treated as earnest money.

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DECISION

The Trial was of the view that there was no sufficient evidence which proves that any loss or damage has been suffered by the Govt. of India in default by the plaintiff and on that account decrees in favor of the plaintiff and security was not held liable to be given up. Further, the decision of the High Court in appeal by the Union of India it was decided that they consider an amount of Rs. 18,500 /- through damages received by Govt. of India was not unreasonable.

SPECIAL LEAVE APPEAL

There was a special leave filed by the petitioner against the decision of the High Court. The Honorable Supreme Court also observed that Union has failed to establish any evidence that they suffered any damage or loss which arose out of the default committed by the plaintiff. In this view, High Court was in error disallowing the plaintiff’s case. Therefore, we set aside the decree passed by the High Court and substitute the following decree. The Union of India pays to the plaintiff the amount of Rs. 18,500/- with an interest rate of 3% per annum from suit till payment. The plaintiff was also guilty of a breach of contract and they are of the view that each party bears its own cost throughout.