Decided on April 16,1970

The Special Officer, Amaravathi Co-Operative Sugar Mills,The Special Officer, Amaravathi Co -Operative Sugar Mills Appellant
D.V. Thirumalaswamy And Ors. Respondents


M.M. Ismail, J. - (1.) The petitioner herein is the Special Officer of the Amaravathi Cooperative Sugar Mills, Krishnapuram, Coimbatore District, a society registered under the Madras Co -operative Societies Act, 1932. The first respondent herein is a member of the society. On the allegation that the first respondent herein failed to supply to the petitioner -society sugarcane as required by Bye -law No. 39 of the bye -laws of the society and therefore he was liable to pay to the society a sum of Rs. 25 per tonne for 360 tonnes, which he was bound to supply, the petitioner -society filed a claim against the first respondent under Sec. 73 of the Madras Co -operative Societies Act, 1961, before the Co -operative Sub -Registrar, the third respondent herein. The said Co -operative Sub -Registrar, by his order dated 8th December, 1967, decreed the claim of the petitioner herein against the first respondent. It appears that the petitioner preferred similar claims against several other members and all those claims were also decreed. The first respondent as well as the other members preferred appeals under Sec. 96 of the Madras Co -operative Societies Act 1961, to the Tribunal (District Judge) constituted as appellate authority under Sec. 95 of the said Act. Before the appellate authority several objections were taken to the claim of the petitioner herein, some of them being of procedural nature and some of them being objections relating to the validity and interpretation of Bye -law No. 39. The Tribunal namely, the second respondent herein, by its order dated 24th August, 1968, allowed the appeals and remanded the matter to the Co -operative Sub -Registrar. The Tribunal rejected all the contentions advanced by the first respondent herein against the procedure followed before the Co -operative Sub -Registrar as well as against the validity of Bye -law No. 39 except in one respect, namely, that Bye -law No. 39 was not in conformity with Sec. 74 of the Indian Contract Act. On this basis, the Tribunal took the view that before the petitioner can claim any amount from the first respondent, it must prove before the Co -operative Sub -Registrar that it had actually suffered damages, as a result of the breach on the part of the first respondent herein and also prove the quantum of damages and it can recover only the quantum of damages so proved. The Tribunal was of the opinion that the amount fixed in the Bye -law No. 39 itself as being the amount payable on the breach committed by a member was a penalty and the clause itself was in terrarium and therefore it could not be enforced. For the purpose of understanding the reasoning of the Tribunal, it is necessary to refer to the said bye -law itself. The said Bye -law No. 39 is as follows: Every cane grower member shall grow or cause to grow sugarcane every year on at least 2/3 acre of land for every share held by him and supply to the society the entire cane grown thereon or such quantities as may be prescribed by the Board. If any grower member fails to supply sugarcane accordingly, the Board shall have power to fine him at the rate of Rs. 25 per every tonne of sugarcane not supplied by him, besides recovering a non -refundable share deposit of Rs. 3 -50 per every tonne of cane not supplied by him. All fines imposed under this bye -law shall be recoverable as debts due to the society. With regard to this bye -law and the argument referred to above, the Tribunal pointed out: ' Though I have disagreed, with the several contentions raised by the appellants, I have to concede as far as one contention of theirs is concerned, viz., that Bye -law No.39 is not in conformity with Sec. 74 of the Contract Act. It is well -known that if one of the contracting parties institutes proceedings against the other for damages or compensation, the aggrieved party must factually prove that he had sustained damages due to the breach by the other party. In addition, he must also prove the quantum of damages suffered by him. Unless these things are proved, a party cannot seek damages from the defaulting party. The Tribunal again stated: The Counsel appearing for the appellants contended that the stipulation for damages provided in Bye -law N0.39, is nothing but a clause in terrorem and that as such it is not enforceable, while the Counsel for the respondent would contend that the damages stipulated in Bye -law No. 39 is a genuine pre -estimate of damages. On a consideration of all factors, I have to concur on this aspect of the case with the arguments of the appellant's Counsel. The respondent is said to pay only about Rs. 55 per tonne of sugarcane supplied by its members. On the other hand, the respondent claims as a penalty of Rs. 28 -50 from its members for every tonne of sugarcane not supplied by them. The penalty levied works out to about 50 per cent. of the cost of sugarcane. In the very nature of things, it would appear that the stipulation for penalty is more a clause in terrorem than a genuine pre -estimate of damages. In fact, the wording that has been used in By -law No. 39 is that the sum of Rs. 28 -50 shall be imposed as fines and recovered from the members. The sum is therefore Intended to be demanded by way of penalty and not as mere compensation for loss or damages suffered by the respondent. If the stipulation is a clause in terrorem, it is needless to say that it cannot be legally upheld. The conclusion of the Tribunal is: Even for argument's sake that the provision for damages stipulated in Bye -law No. 39 is not a clause in terrorem and penal in nature the respondent (petitioner herein) would still not be entitled automatically to a decree in its favour for the sums claimed against the several appellants, (one of whom is the first respondent herein). By virtue of a provision having been made in the by -laws for damages being paid by the defaulting members, it is open (sic) to the respondent (petitioner herein) to straight away ask for damages from the defaulting members. However, the respondent (petitioner herein) will not be entitled to a decree in its favour unless it proves that it has suffered damages as a matter of fact and in addition, it must also prove the ?extent of damage suffered. The respondent (petitioner herein) must show that the Mill did not get the required quantity of sugarcane for crushing every day or that the Mills had to be closed in advance of the usual period of operation for want of sugarcane. If sugarcane had been purchased from third parties and for higher rates, the respondent (petitioner herein) must show that such sugarcane had been purchased and that thereby the respondent (petitioner herein) had to incur losses. Without adducing proof of any of those things. It is not open to the respondent (petitioner herein) to ask for decrees or awards against the appellants (before the Tribunal) merely on the ground that they had not honoured their commitments as per the by -laws and merely on the ground that the bye -laws provide a certain amount as penalty leviable on the defaulting members. The respondent (petitioner herein) would contend that the Government of Madras, the Industrial Investment Corporation and some banks have advanced huge amounts to the Sugar Mills and that unless all the members contribute their due quota of sugarcane to enable the Mill to work regularly year after year, the Mill will not be able to discharge its liabilities. I do not for a moment, dispute the reasonableness of this contention. However, these factors cannot be deemed adequate consideration for the respondent (petitioner herein) failing to adduce proof of sustainment of loss by it, if it seeks to recover damages or compensation from the defaulting members. In this view of the matter, I think the appeals have to be remanded to the Arbitrator for fresh consideration. The respondent (petitioner herein) will have to adduce proof of sustainment of damages by it and the quantum of damages suffered by it. Several of the Counsel for the appellants (before the Tribunal) pleaded that the matter need not be remanded and that this Court itself can fix some reasonable compensation. I am afraid, this request cannot be complied with. In the absence of any details, I would be acting purely in the realm of conjecture if I were to fix any figure as damages or compensation payable by the appellants (before the Tribunal). No doubt it would involve a lot of time and energy for the parties and the Arbitrator if evidence is to be recorded regarding the quantum of damages suffered by the respondent (petitioner herein) on account of the default by the appellants (before the Tribunal) and like members. This however cannot be helped. Large sums are claimed as compensation from several of the appellants. Their rights as well as the rights of the respondent (petitioner herein) have to be protected in these proceedings, which have to be decided according to principles of law, justice and equity. As such, any consideration of involvement of time and energy cannot be a factor to give a go -by to established principles of law and legal procedure. It is to quash this order of the second respondent -Tribunal the present writ petition under Article 226 of the Constitution of India has been filed.
(2.) Mr. K. K. Venugopal, learned Counsel for the petitioner, contended in the first place that the Co -operative Sub -Registrar (third respondent) as well as the Tribunal (second respondent) are creatures of the statute, namely, the Madras Co -operative Societies Act, 1961, and therefore they had no jurisdiction to go into the validity of a particular bye -law and their duty is simply to enforce the bye -laws as they stand and consequently the second respondent Tribunal exceeded its jurisdiction in coming to the conclusion that By -law No 39 providing for payment of a fine is in terrorem and therefore not enforceable. The second contention of the learned Counsel for the petitioner is that so long as the bye -laws remain registered, a member of the Society like the first respondent cannot question the validity of the by -laws before the second respondent. The argument is that under Sec. 9(1) of the Madras Co -operative Societies Act, 1961, the Registrar registers the bye -laws if he is satisfied that the proposed bye -laws are not contrary to the Act or the Rules of the Co -operatives Societies or to co -operative principles and on such satisfaction when the Registrar has registered the by -laws, the only remedy open to a member of the Society aggrieved by such registration is to prefer an appeal against the order of registration, under Sec. 96(2) of that Act or to apply to have the bye -law amended and the amendment registered as provided for in Sec. 11 of the aid Act or to move the Registrar himself to call upon the Society to amend the bye -law as contemplated by Sec. 12 of the said Act. The third contention of the learned Counsel for the petitioner is that Sec. 74 of the Indian Contract Act cannot be invoked in the present case, since the bye -law in question cannot be said to be a contract entered into under the provisions of the Indian Contract Act. The fourth contention is that in any event, the conclusion of the second respondent that the provision for payment of Rs. 25 per tonne is a clause in terrorem and is a penalty is unwarranted.
(3.) Mr. M. S. Venkatarama Iyer, learned Counsel for the first respondent, countered these arguments by contending that what the second respondent did was not to go into the validity of the bye -law but merely to construe the bye -law for the purpose of finding out whether the amount of Rs. 25 per tonne mentioned therein was a genuine pre -estimate of damages or was in the nature of penalty and the second respondent was competent to do so. The next contention of the learned Counsel for the first respondent is that a clause in a contract providing for penalty is not enforced by Courts on grounds of public policy and therefore even though the Co -operative Sub -Registrar and the Tribunal are functioning under the Madras Co -operative Societies Act, 1961, they are equally bound by the principle of public policy and consequently the second respondent was justified in coming to the conclusion that the clause in question was not enforceable. Mr. Venkatarama Iyer, further contended that the amount of Rs. 25 per tonne was definitely in the nature of penalty and the second respondent was right in coming to the said conclusion and the fact that the bye -law in question itself describes the amount as a fine, prima facie shows that it was intended to be a penalty and therefore the burden is on the petitioner to show that though called a fine, it is not a penalty but only a genuine pre -estimate of damages.;

Click here to view full judgement.
Copyright © Regent Computronics Pvt.Ltd.