Karam Chand Thapar and Bros. (P) Ltd. vs H.H. Jethanandani

Amiya Kumar Mookerji, J.—This appeal is by the plaintiff. It arises out of a suit for recovery of Rs. 2634/- and odd, as liquidated damages for breach of a service contract. The plaintiff - a private limited company - carries on business mainly of managing agency of different companies. The plaintiff runs a scheme to train up engineers fresh from the Universities in the line of manufacture of sugar. By an agreement in writing dated 28.8.1952 between the plaintiff and the defendant, the plaintiff agreed to appoint the defendant as an engineer apprentice in the mills managed by the plaintiff company for a period of 11 years from June 13, 1952, inclusive of apprentice period of 3 years. The defendant was confirmed with effect from 13.6.1955 at a salary of Rs. 350/- per month, which was subsequently raised to Rs. 400/- in June, 1958, in terms of the said agreement. On 21st January, 1957, the defendant sent the plaintiff a letter of resignation requesting the plaintiff to terminate his service with effect from 20.2.1957. The plaintiff did not accept the resignation but the defendant left the plaintiff''s service and joined Nangal Fertilizers and Chemicals Ltd. The plaintiff claimed half of the salary of the apprentice period drawn by the defendant by way of liquidated damages in terms of clause 9 of the agreement, less the security deposit made by the defendant. The defendant in his written statement contended that the plaintiff could not enforce the contract as it was guilty of breach itself. It was further contended that the terms as to employment for 11 years and as to dismissal within that period at the whim of the plaintiff entailing payment of half the salary drawn by the defendant is in restraint of trade and therefore void and, not enforceable in law.

The trial court dismissed the plaintiff''s suit upon the view that the plaintiff being guilty of violation of contract, should not be permitted to enforce the agreement in terms of the plaint but observed at the same time that could the plaintiff recover the damages in terms of Ext. 2, viz., the agreement, a decree for that amount mentioned in the plaint would have been passed in its favour.

It is stated in the plaint that the plaintiff runs a scheme to train up engineers in the line of manufacture of sugar. On or about March 25, 1952, the defendant being taken in as an apprentice under the said scheme. On 28.8.1952, an agreement was executed between the plaintiff and the defendant; in terms of clause 1 of the said Agreement, the plaintiff could employ the defendant at any of the mills or Factories of the company wherever situate. The defendant was appointed as an apprentice engineer in Ballarpore Paper & Straw Board Mills Ltd. He was trained in the manufacturing process of paper. He served the plaintiff''s company from June 1952 to March 1957. During that period, it appears from his evidence, that he did not complain to the plaintiff regarding his training. The plaintiff claimed damages for violation of the clause 9 of the Agreement. The material portion of the said clause reads as follows:

The engineer apprentice in the event of his leaving the service of the company without the written consent of the company or the Managing Director of the company before the agreement period of 11 years agrees to pay forthwith to the compasy a sum equivalent half the salary of the apprentice period which shall have been drawn by the engineer apprentice by way of liquidated damages, and not penalty and in the event of the engineer apprentice failing to pay the same, the company shall be entitled to deduct the amount from the engineer apprentice''s security deposit.

Plaintiff''s specific case in the plaint was, on account of the breach of the aforesaid agreement, the defendant was liable to pay to the plaintiff a sum of Rs. 4950/- and after giving credit to the defendant his security deposit and the interests accrued thereon a balance of Rs. 2634/- and odd was due and owing to the plaintiff from the defendant. The plaintiff prayed a decree for the said amount. In paragraph 8 of the plaint it is stated that the defendant was given special training in the manufacture of ''sugar'' but the word ''sugar'' obviously was a mistake when the said paragraph is read as a whole. P.W. 2�the Manager of the Paper Mills, said in his evidence that the defendant was not given any training in ''sugar'' manufacture and any word ''sugar'' appearing in the plaint must have been a case of typographical error. The defendant himself has said in his cross-examination that in the Agreement there was no reference to any particular training. The trial court dismissed the plaintiffs suit upon the findings that the defendant was selected for training in the line of manufacture of ''sugar'' but in violation of that, he was posted to a paper mill and after he had worked there for some time and thereafter the agreement Ext. 2 was taken from him. So, although selected for the training in sugar, the defendant was not given any such training and in violation of agreement between the parties he was taken in the paper mills and as such, the plaintiff having violated the contract itself, it should not be permitted to recover damages in terms of the said agreement.

Considering the pleadings, evidence and the Agreement in the present case, I am unable to accept the above findings of the trial Judge. In my opinion, the learned trial Judge fell into an error in holding that there was a breach of Agreement by the plaintiff itself as the defendant was not given training in sugar.

Mr. Roy Choudhury, appearing on behalf of the respondent, contended that clause 6 of the Agreement was in restraint of trade, as such it was void u/s 27 of the Indian Contract Act, and as the main purpose of contract being unalterable and unseverable, the entire agreement was bad. Mr. Roy Choudhury further contended that a similar clause in a similar Agreement was declared void by this Court in (1) Shree Gopal Paper Mills Ltd. Vs. Surendra K. Ganeshdas Malhotra, .

The plaintiff prayed for an injunction restraining the defendant from serving or working or being employed by any person or persons other than the plaintiff until the time when the said agreement dated 2.8.8.1952 should have been determined by eflux of time. Presumably the respondent made such prayer in pursuance to clause 6 of the Agreement, which imposes restriction upon the defendant during the continuance of his employment for 11 years not to give his services or advice to any other person or company.

The trial court found that as there was no restraint on the defendant''s serving elsewhere after the contract period, the agreement was not hit u/s 27 of the Indian Contract Act.

In the case reported in (1) Shree Gopal Paper Mills Ltd. Vs. Surendra K. Ganeshdas Malhotra, the period of contract there was as much as 20 years. In the present case the period is 11 years, except the said difference of period, the other provisions in clause 6 of the Agreement are the same. In (2) Niranjan Shankar Golikari Vs. The Century Spinning and Mfg. Co. Ltd., , the Supreme Court considered the above case reported in Shree Gopal Paper Mills Ltd. Vs. Surendra K. Ganeshdas Malhotra, and observed that as the period of contract there was as much as 20 years and the contract gave the employer an arbitrary power to terminate the service without notice if the employer decided not to retain the employee during the three years of apprenticeship or thereafter if the employee failed to perform his duties to the satisfaction of the employer who had absolute discretion to decide whether the employee did so, such a contract would clearly fall in the class of contracts held void as being one sided. But the Supreme Court held, at the same time, that negative covenants operative during the period of contract of employment when the employee is bound to serve his employer exclusively are generally not regarded as restraint of trade and therefore do not fall u/s 27 of the Contract Act. The Bombay High Court distinguished the above Calcutta case and that was approved by the Supreme Court in (2) Niranjan Shankar Golikari Vs. The Century Spinning and Mfg. Co. Ltd., . So, under these circumstances, I am unable to accept the contentions of Mr. Roy Choudhury that the decision of the Calcutta High Court as referred above, has been approved by the Supreme Court. Moreover, as I have already said that in that case a long period of 20 years might be regarded as unconscionable or excessively harsh but in the instant case as it appears from the terms of clause 6 of the contract that during the continuance of the employment if the apprentice engineer gives his services to any other person or company whomsoever, the company or its managing director shall be entitled to terminate his service without notice before the expiry of the Agreement period of 11 years. So, in my opinion, the appellant cannot ask for an injunction but it can terminate the service of the defendant in terms of the said Agreement. I hold that the clause 6 of the Agreement was not in restraint of the trade u/s 27 of the Indian Contract Act and, as such, the said contract is not bad.

Mr. Mukherjee, appearing on behalf of the appellant, contended that u/s 74 of the Indian Contract Act the appellant is entitled to recover the specified amount in the contract as liquidated damages.

The parties to a contract may at the time of entering into it provide, that in a case of any breach, the party in default shall pay to the other a certain specified sum. That sum may be liquidated damages. In such case it is not to be interfered with by the Court. It is well settled that the essence of liquidated damages is a genuine covenanted pre-estimate of damage. u/s 74 of the Indian Contract Act, when liquidated damages are entered in a contract itself as payable in the event of a breach, then damages payable when a breach occurs, are to be assessed in the ordinary way subject to that fixed amount as a maximum; and it is for the plaintiff to prove the exact amount of damages which he suffered and that amount only could be awarded. The gain derived by the defendant by a breach, should be taken to be the loss suffered by the plaintiff. The sum named in the contract itself, however, is not the conclusive evidence. The plaintiff shall have to prove his damages irrespective of the specified amount in the contract. Therefore it follows, the plaintiff cannot get a decree for damages unless he proves that he has suffered loss or damages. In the instant case as the plaintiff has failed to prove that he has suffered any damage, he is not entitled to get a decree for damages. So the plaintiff''s suit must be dismissed.

In the result, this appeal fails and it is dismissed with costs hearing fee being assessed at 6 gold mohurs.