ESSBAN PAINTS PRIVATE LIMITED Vs. UNION OF INDIA

JUDGEMENT

(1.) By means of this application objections have been filed by the respondent under Section 30 and 33 of the Arbitration Act, 1940 against the Award dated 31-10-1996 passed by Shri Ram Bahadur, Sole Arbitrator. Objections are only in respect of Claim No. 1. This claim was preferred by the petitioner for refund of Security Deposit amounting to Rs. 75,000/ The learned .Arbitrator in the Award, while allowing this claim gave the following reasons: 1. Security amount cannot be forfeited as penalty. 2. It is admitted by Union of India in para (3) of counter-claim-that Bank Guarantee was submitted, 3. Late submission of Bank Guarantee was condoned by Union of India.

(2.) Learned counsel for the objector has submitted that the Arbitrator took wrong view in holding that the forfeiture of security deposit by the respondent was in the nature of penalty. He relies upon following observations from the judgment of Supreme Court in the case of Maula Bux Vs. Union of India 1970 S.C.R. (1)928 = AIR 1970 SC 1955:

(3.) ' White there is no quarrel about the aforesaid proposition, what is to be examined in each case is as to whether forfeiture of earnest money is a reasonable pre-estimation of loss in the event of breach or it is in the nature of penalty. In the instant case it is not the case of the objector that the petitioner completely failed to perform the contract which lead the respondent-objector to forfeit the money. As per the averments of the respondent, petitioner had partly performed the contract but since he did not complete the execution of the contract, the contract was cancelled and security deposit which was in the form of bank guarantee was forfeited. In the same judgment Supreme Court has held that if a party alleges loss because of breach of contract on the part of other party, it has to prove the said loss. Here, in the objections itself the case of the objector is that the petitioner had committed breach of contract because of which the respondent suffered loss. According to the respondent-objector the petitioner did not perform the contract fully. This is borne out from the counter-claims filed by the respondent before the Arbitrator also. When that is the case it.. was the respondent's obligation to prove the extent of damages suffered because of the alleged breach. The security was furnished by the petitioner for due fulfillment of the contract. If the contract was not performed and there was breach thereof by the petitioner, it was for the respondent to prove the loss/damage suffered because of such breach and to forfeit the security only to the extent of the loss. By failing the same to prove, the petitioner could not justify withholding/forfeiting the security amount. This is the consistent view taken in various cases including in the case of Maula Bux Vs. Union of India (supra) as well as in the case of State of U.P. Vs. Chander Gupta & Co., AIR 1977 Allahabad 28.1, therefore, do not find any merit in the objections. This application is accordingly dismissed. Judgment in terms of the Award is pronounced. The Award of the Arbitrator is made a rule of the Court. If the amount as awarded is not paid within three months from today, the petitioner shall also be entitled to interest from the date of decree at the rate of 12% P.A. Decree-sheet be prepared accordingly.