Messrs NIGAH-E-KARIMEE ENTERPRISES through Proprietor and anothers vs TRUST INVESTMENT BANK LIMITED
This Regular First Appeal arises from a judgment and decree passed by the Banking Court-II, Lahore, which decreed a suit for recovery filed by the respondent, Trust Investment Bank Limited, against the appellants, Messrs Nigah-e-Karimee Enterprises, regarding unpaid lease rentals and late payment charges. The appellants challenged the decree, arguing that the late payment charges constituted a penalty under Section 74 of the Contract Act 1872, which could not be recovered without proof of actual loss. Additionally, the appellants contended that their initial down payment should be adjusted against the total rental amount. The Lahore High Court held that the late payment charges, being in the nature of a penalty, were not recoverable by the respondent absent proof of actual loss, thereby modifying the trial court's decree. However, the Court rejected the argument regarding the down payment, clarifying that such payment was a prerequisite at the inception of the lease and already accounted for in the rental calculations. The Court upheld the decree to the extent of the principal amount and cost of funds, while excluding the penalty charges.
- Can late payment charges stipulated in a lease agreement be recovered without proof of actual loss?
- Does a penalty clause in a contract require proof of loss to be enforceable under Section 74 of the Contract Act 1872?
- Is a down payment made at the inception of a lease contract adjustable against the total rental amount if the rental was calculated after deducting such payment?
- Section 74, Contract Act 1872
' MIAN SAQIB NISAR, J.--- The respondent previously was a Leasing Company, but now on account of the amalgamation has converted into Trust Investment Banking Company. In its erstwhile status, the respondent had leased out certain goods to the appellants under an agreement dated 18-5- 1999, for a total rental of Rs.3,11,000, by the appellants to the respondent in 36 equal instalments of Rs.8,700 per month. First instalment was to commence from May, 1999. Admittedly, the appellants have only paid six instalments and remaining 30 instalments were yet due, when the respondent brought a suit for the recovery of the same and late payment charges etc. Against the appellants on 21-1-2002 before the Banking Court-II, Lahore. By refusing the leave application of the appellant the Court has decreed this suit to the extent of Rs.3,49,775 vide judgment and decree, dated 13-4- 2004. Hence this R. F. A
2. Learned counsel for the appellants has argued that the amount of Rs.87,775, charged by the respondent as late payment is the penalty falling within the purview of section 74 of the Contract Act and this could not be imposed and recovered by the appellant, just without the proof of loss, by the respondent, which loss is lacking in this case. It is further argued that at the time of lease, the appellants had contributed Rs.93,300 towards the price of the goods and this amount is adjustable towards the final rental payable to the respondent.
3. We have heard the learned counsel for the parties. So far as the first contention of the learned counsel for the appellants is concerned, obviously, late payment charges have been claimed by virtue of agreement but in the nature of penalty. And in the facts and circumstances of the case, without proving loss, the respondent cannot recover such amount, therefore, to this extent, decree has been erroneously passed by the Court below.
4. As far as the amount of Rs.93,300 is concerned, suffice it to state that this was the down payment which the appellants were supposed to pay at the inception of the lease contract and it is after the deduction of such amount the remaining rental was worked out at Rs.3,11,000 which was payable in 36 equal installments. Resultantly, the contention of the learned counsel for the appellants that such amount should be deducted from Rs.3,11,000 is devoid of force and is hereby repelled.
Therefore, by excluding Rs.87,775 from the decree of learned Court below, the decree to the extent of Rs.2,62,000 with cost of funds, passed by the Court below, is upheld.
5. With the above modification, this appeal is dismissed.
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