MUHAMMAD ARBI vs PROVINCE OF PUNJAB through Collector, Rawalpindi
This civil appeal arose from a contractual dispute between the appellant and the Forest Department regarding the imposition of a penalty for the unauthorized felling of trees. Under the terms of the agreement, the appellant was liable for penalties for illegally cut trees, which the Forest Department assessed at ten times the sale price. The appellant challenged this penalty in a suit for declaration and injunction, arguing that the clause was punitive and unenforceable under Section 74 of the Contract Act 1872. The trial court dismissed the suit, and the first appellate court upheld the decision while reducing the penalty to five times the sale price. The High Court affirmed this judgment. On appeal, the Supreme Court held that the appellant failed to provide evidence regarding actual damages or to demonstrate that the penalty was unreasonable. The Court found that in the absence of evidence to prove actual loss, the courts below had correctly exercised discretion in fixing reasonable compensation. Consequently, the appeal was dismissed, as no substantial point of law was established.
- Is a penalty clause in a contract automatically void if it stipulates a sum significantly higher than the actual loss?
- Does the burden of proof lie on the party challenging a penalty clause to demonstrate that the stipulated amount is not reasonable compensation?
- Can an appellate court reduce a penalty stipulated in a contract if the actual damages are difficult to ascertain?
- Section 74, Contract Act 1872
' ABDUL QADEER CHAUDHRY, J.---This appeal by the leave of the Court is directed against the judgment of the Lahore High Court dated 21-12-1985.
2. The facts, in brief, are that by an agreement dated 1-11-1968 the appellant purchased 2408 chill trees from the Forest Department for a sum of Rs,2,70,681.86. As per clause 17 of the agreement it was undertaken by the appellant that in the event of the purchaser, his agent or his labour accidentally, negligently or deliberately felling a tree to which he is not entitled under the terms of this agreement the purchaser shall be liable to pay the price of the tree calculated in accordance with the sale price plus a penalty not exceeding ten times the price of the tree. The Range Officer found that 34 trees had been cut illegally by the appellant. The Conservator of Forests imposed the penalty 10 times of the rate tendered by the appellant. This penalty was imposed in pursuance of clause 17 of the agreement. The appellant challenged this action of the respondent by instituting a suit for declaration and permanent injunction restraining the respondent from effecting any recovery from the appellant. The learned trial Judge by means of order dated 18-7-1977 dismissed the suit of the appellant. The appellant's first appeal was dismissed by the Additional District Judge on 9-3-1985. However, he reduced the penalty from ten times to five times. The second appeal filed by the appellant was dismissed by the learned High Court.
3. Learned counsel for the appellant submitted that clause 17 of the agreement is in terrorem and hit by section 74 of the Contract Act. This contention has no force. The appellant has not produced any evidence to prove what was the actual damage caused to the respondent by the negligence of the appellant. The Courts below have adverted to the facts of the case and ten times penalty claimed by the respondent was reduced to five times by the Additional District Judge. It was observed that it is difficult to work out the actual damages suffered by the respondent. The learned High Court has agreed with the finding of the first appellate Court. The legal question stressed by the learned counsel for the appellant needs no examination in this case as reasonable compensation has been fixed by the Additional Distict Judge and the High Court. The parties had not produced any evidence to prove the actual or reasonable amount of compensation. The appellant acted in violation of terms of the agreement. The case has been rightly decided by the two Courts and it does not require reappraisal of evidence.
4. No point of law is involved in the appeal and the same is accordingly dismissed. There will be no order as to costs.