JUDGMENT : P. KRISHNA KUMAR, J. 1. The respondents in this appeal instituted a suit for recovery of money on the basis of a supply contract entered into between them and the appellant herein, the Kerala State Electricity Board. The suit was decreed for Rs.47,63,818/- with interest at 6% per annum from the date of the suit. Aggrieved by the said decree and judgment, the Kerala State Electricity Board Ltd. has preferred this appeal. 2. The parties are hereinafter referred to as they were arrayed in the suit. Pursuant to a tender for the supply of 1,41,000 sets of 4-line cross arms with Clamp, Bolt and Nut (CNB), the defendants (hereinafter referred to as “the defendant”) issued a purchase order dated 05.01.2010 to the plaintiff company, and an agreement was executed between them. As per the delivery schedule under the purchase order, the plaintiff was required to supply 1,41,000 sets of 4-line cross arms with CNB, of which 33,000 sets were to be supplied within 45 days from the date of the purchase order, and the balance at the rate of 36,000 sets every month thereafter. The stipulated period for completion of the supply was 135 days. 3. The plaintiff contended that they supplied a total of 58,927 sets up to 25.10.2011, and thereafter, the defendant issued a letter dated 16.12.2011 (Ext.A16), directing the plaintiff to complete the supply on or before 30.01.2012. At that stage, the plaintiff approached the defendant and represented that, owing to a continuous labour strike in its unit, additional time was required to complete the supply. Upon acceptance of the request, the plaintiff supplied 5,000 sets on 28.01.2012. The plaintiff was again directed to complete the supply on or before 29.02.2012. However, by letter dated 20.04.2012 (Ext.A19), the defendant cancelled the purchase order by terminating the contract. 4. The plaintiff further contended that, towards the supply of 58,927 sets, it was entitled to Rs.1,62,77,108/-, out of which the defendant paid only Rs.1,34,46,034/-. The defendant, by letter dated 13.12.2012 (Ext.A25), claimed that it had sustained loss due to short supply of materials and, accordingly, forfeited the security deposit of Rs.19,46,000/-. The plaintiff also alleged that the defendant illegally deducted Rs.28,19,198/- as penalty. The suit was therefore instituted seeking recovery of the said amounts with interest. 5. The defendant, by letter dated 13.12.2012 (Ext.A25), claimed that it had sustained loss due to short supply of materials and, accordingly, forfeited the security deposit of Rs.19,46,000/-. The plaintiff also alleged that the defendant illegally deducted Rs.28,19,198/- as penalty. The suit was therefore instituted seeking recovery of the said amounts with interest. 5. The defendant contended that the plaintiff was responsible for the breach of contract and was bound by the conditions contained in the purchase order and the agreement, under which the defendant was entitled to forfeit the security deposit. It was further contended that, in terms of the contract, the defendant was entitled to make deductions in payment up to 10% by invoking the penalty clause and also to encash the bank guarantee furnished by the plaintiff. According to the defendant, upon valid termination of the contract at the risk and cost of the plaintiff and upon making deductions in accordance with the terms of the contract, the plaintiff is not entitled to any amount. 6. It was further contended that the defendant had sustained loss and damage due to the non-supply of materials and was compelled to procure the same through alternative means at higher cost. The defendant also asserted that such loss could not be quantified merely in monetary terms, as the inconvenience and hardship caused to the public at large due to the non-supply of materials was of paramount concern. 7. The evidence in this case consists of the oral testimonies of PW1 and DW1, along with Exts. A1 to A28 and B1 to B18. Upon conclusion of the trial, the learned Sub Judge held that the defendant was not entitled to deduct 10% of the bill amount as penalty or to encash the bank guarantee. The court further found that, in the absence of any pleading or proof of actual damage sustained due to the short supply of materials, the defendant was not entitled to claim any amount towards damages. Accordingly, it was held that the plaintiff was entitled to recover the amounts retained by the defendant, together with the security deposit. 8. We have heard Sri B. Premod, the learned Standing Counsel for the defendant/appellant, and Sri A. N. Santhosh and Sri G. Balamuraleedharan, learned counsel for the plaintiff/contesting respondents. 9. Accordingly, it was held that the plaintiff was entitled to recover the amounts retained by the defendant, together with the security deposit. 8. We have heard Sri B. Premod, the learned Standing Counsel for the defendant/appellant, and Sri A. N. Santhosh and Sri G. Balamuraleedharan, learned counsel for the plaintiff/contesting respondents. 9. Having regard to the rival contentions, the following points arise for determination in this appeal: (1) Whether the defendant is entitled to forfeit the security deposit made by the plaintiff? Whether the defendant is entitled to deduct 10% from the price of the materials supplied towards the alleged damages suffered by the defendant, in terms of the conditions of the contract? (2) Whether the clauses in the Purchase Order/Agreement enabling the defendant to forfeit such amounts, represent a genuine pre-estimate of the damages likely to be suffered by the defendant in the event of a breach of contract by the plaintiff; and, if not, whether those clauses are penal in nature? (3) Whether the defendant has sustained any damage on account of the delay and short supply of materials by the plaintiff? 10. The learned Standing Counsel for the defendant raised a preliminary contention that the suit is not maintainable on the ground that the plaintiff failed to implead the Kerala State Electricity Board Ltd., which succeeded the erstwhile Kerala State Electricity Board, the defendant. According to him, the Kerala State Electricity Board Ltd. is not bound by the liabilities of the erstwhile Kerala State Electricity Board. 11. In response to the said contention, the learned counsel for the plaintiff invited our attention to the decision of this Court in Kerala State Electricity Board v. M/s. C.K. Thomas and Co. 2022 (2) KHC 52 . In the said case, an application was filed seeking substitution of the Kerala State Electricity Board Ltd. in place of the appellant, Kerala State Electricity Board. The Board contended before the Court that the Kerala State Electricity Board Ltd. had come into existence as its successor-in-interest and, therefore, such substitution was liable to be allowed. The attention of the court was invited to Clause No.8 of G.O.(P)No.46/2013/PD dated 31.10.2013, wherein it is stated as follows: “8. Pending suits, proceedings, etc. The Board contended before the Court that the Kerala State Electricity Board Ltd. had come into existence as its successor-in-interest and, therefore, such substitution was liable to be allowed. The attention of the court was invited to Clause No.8 of G.O.(P)No.46/2013/PD dated 31.10.2013, wherein it is stated as follows: “8. Pending suits, proceedings, etc. (1) All proceedings of whatever nature by or against the erstwhile Board or the Kerala State Electricity Board pending on the date of the transfer shall not abate or discontinue or otherwise in any way prejudicially affected by reason of the transfer under this Scheme and the proceedings shall be continued, prosecuted and enforced by or against the Transferee; (2) The proceedings covered under sub-clause (1) above shall be continued in the same manner and to the same extent as it would or might have been continued, prosecuted and enforced by or against the erstwhile Board or Kerala State Electricity Board as if the transfer specified in this Scheme had not been made.” Accepting the said contention, this Court held that the Kerala State Electricity Board Ltd. is the successor establishment in which all the functions, properties, interests, rights, obligations, and liabilities of the erstwhile Kerala State Electricity Board stand vested. In the light of the said decision, we reject the preliminary objection raised by the defendant. 12. Coming to the other disputed questions, it is to be noted at the outset that the defendant has not disputed the allegation that it paid only Rs.1,34,46,034/- out of Rs.1,62,77,108/-, which is the amount due towards the supply of a total quantity of 58,927 sets of cross arms. The case of the defendant is only that it is entitled to adjust the remaining amount towards the damages allegedly suffered by it, by invoking Clause 15 of Ext. A5 purchase order and Clause 13 of Ext. A6 agreement. The relevant portions of the said clauses relied on by the defendant read as follows: “15. Damages for delayed supply:- xx xx xx xx If the delivery schedule as per this order is not maintained, penalty at the rate of one percent for every month of delay on the all-inclusive order rate minus taxes and duties (i.e., ex- works rate + F&I), subject to a maximum of ten percent, will be levied on the value of the materials supplied belatedly.” “13. In cases where a successful tenderer, after having made partial supplies, fails to fulfil the contract in full, all or any of the materials not supplied may, at the discretion of the purchasing officer, be procured through another tender/quotation or by negotiation from the next higher tenderer who had already offered to supply, and the loss, if any, caused to the Board thereby, together with such sums as may be fixed by the Board towards damages, shall be recovered from the defaulting tenderer.” In view of the said conditions, the defendant contends that it is entitled to impose a penalty up to a maximum of 10% on the value of the materials supplied and also to recover damages for the loss allegedly sustained by it, together with such sums as may be fixed by the Board, from the defaulting tenderer. 13. Sri B. Premod, the learned Standing Counsel for the Kerala Electricity Board, referred to the following decisions to substantiate his contention that the defendant is entitled to adjust the amount claimed in the plaint against the value of the materials supplied and the security deposit, on the ground that the contract provides for liquidated damages based on a genuine pre-estimate of the loss that would be suffered by the defendant in the event of breach: (i) Fateh Chand v. Balkishan Dass, AIR 1963 SC 1405 , (ii) Maula Bux v. Union of India, AIR 1970 SC 1955 , (iii) Kailash Nath Associates M/s. v. Delhi Development Authority and Another, (2015) 4 SCC 136 , (iv) BSNL v. Reliance Communication Ltd. (2011) 1 SCC 394 , (v) Oil and Natural Gas Corporation Ltd. v. SAW Pipes Ltd., AIR 2003 SC 2629 , (vi) Hind Construction Contractors (M/s) v. State of Maharashtra, AIR 1979 SC 720 . 14. The law relating to the effect of a clause in the nature referred to above is well settled. The term “compensation” denotes something that constitutes an equivalent or recompense and, therefore, can be awarded only where there is a legal injury, namely, loss or damage. Compensation can be given not because the terms of contract permits it, but for the damage caused to the party claiming it. The term “compensation” denotes something that constitutes an equivalent or recompense and, therefore, can be awarded only where there is a legal injury, namely, loss or damage. Compensation can be given not because the terms of contract permits it, but for the damage caused to the party claiming it. Section 74 of the Indian Contract Act, 1872 (for short, “the Act”) provides that, whether or not a sum is named in the contract as the amount payable in case of breach, or the contract contains a stipulation by way of penalty, the party complaining of the breach is entitled to receive from the party in breach reasonable compensation not exceeding the amount so named or the penalty stipulated. Even where liquidated damages are provided for in the agreement, the court is bound to award only reasonable compensation, not exceeding the amount stipulated. Nevertheless, if it is impossible or difficult to prove the actual loss or damage suffered by the nature of the subject matter of the contract, the court may award the amount stipulated in the contract, provided it represents a genuine pre-estimate of the damages likely to have been caused. 15. Chapter VI of the Act, comprising Sections 73 to 75, deals with compensation for breach of contract resulting in loss or damage, and not for breach simpliciter. Section 74 must therefore be read in conjunction with and 75. The expression “whether or not actual damage is proved” occurring in does not entirely dispense with the requirement of establishing that some loss or damage has been suffered. What is dispensed with is proof of the precise extent of damage, not the existence of damage itself, and that too only in cases where such proof is inherently difficult or impossible, depending on the nature of the loss claimed. In cases of breach involving a stipulation by way of penalty, the measure of damages is confined to reasonable compensation, which shall not exceed the amount stipulated as penalty. 16. The scope of Section 74 has been considered in several decisions of the Apex Court. In Fateh Chand v. Balkishan Dass (supra), a Constitution Bench of five Judges examined the true import and ambit of of the Act. The Court concluded as follows: “....The measure of damages in the case of breach of a stipulation by way of penalty is by S. 74 reasonable compensation not exceeding the penalty stipulated for. In Fateh Chand v. Balkishan Dass (supra), a Constitution Bench of five Judges examined the true import and ambit of of the Act. The Court concluded as follows: “....The measure of damages in the case of breach of a stipulation by way of penalty is by S. 74 reasonable compensation not exceeding the penalty stipulated for. In assessing damages the Court has, subject to the limit of the penalty stipulated, jurisdiction to award such compensation as it deems reasonable having regard to all the circumstances of the case. Jurisdiction of the Court to award compensation in case of breach of contract is unqualified except as to the maximum stipulated, but compensation has to be reasonable, and that imposes upon the Court duty to award compensation according to settled principles. The section undoubtedly says that the aggrieved party is entitled to receive compensation from the party who has broken the contract whether or not actual damage or loss is proved to have been caused by the breach. Thereby it merely dispenses with proof of "actual loss or damage"; it does not justify the award of compensation when in consequence of the breach no legal injury at all has resulted because compensation for breach of contract can be awarded to make good loss or damage which naturally arose in the usual course of things, or which the parties knew when they made the contract, to be likely to result from the breach. xxxxxx Duty not to enforce the penalty clause but only to award reasonable compensation is statutorily imposed upon Courts by S. 74. In all cases, therefore, where there is a stipulation in the nature of penalty for forfeiture of an amount deposited pursuant to the terms of contract which expressly provides for forfeiture, the Court has jurisdiction to award such sum only as it considers reasonable, but not exceeding the amount specified in the contact as liable to forfeiture. We may briefly refer to certain illustrative cases decided by the High Courts in India which have expressed a different view. xxxxxx S.74 declares the law as to liability upon breach of contract where compensation is by agreement of the parties predetermined, or where there is a stipulation by way of penalty. But the application of enactment is not restricted to cases where the aggrieved party claims relief as a plaintiff. xxxxxx S.74 declares the law as to liability upon breach of contract where compensation is by agreement of the parties predetermined, or where there is a stipulation by way of penalty. But the application of enactment is not restricted to cases where the aggrieved party claims relief as a plaintiff. The section does not confer a special benefit upon any party, it merely declares the law that notwithstanding any term in the contract predetermining damages or providing for forfeiture of any property by way of penalty, the Court will award to the party aggrieved only reasonable compensation not exceeding the amount named or penalty stipulated. The jurisdiction of the Court is not determined by the accidental circumstance of the party in default being a plaintiff or a defendant in a suit. Use of the expression "to receive from the party who has broken the contract" does not predicate that the jurisdiction of the Court to adjust amounts which have been paid by the party in default cannot be exercised in dealing with the claim of the party complaining of breach of contract.” Following the aforesaid decision, a three-Judge Bench of the Apex Court in Maula Bux v. Union of India (supra) further elucidated the legal position, particularly with reference to whether the provision applies to stipulations for forfeiture of security deposit or amount paid under a contract. In the said case, the plaintiff had entered into a contract with the Government of India for the supply of potatoes to the Military Headquarters and had deposited a sum of Rs.10,000/- as security for the due performance of the contract. Upon the plaintiff’s default in effecting regular supply, the Government of India rescinded the contract and forfeited the security deposit. The learned counsel for the Union contended that the security deposit represented a genuine pre-estimate of the damages likely to be suffered by the Union as a result of the breach and, therefore, the plaintiff was not entitled to any relief against forfeiture in view of Section 74 of the Act. In support of the said contention, reliance was placed on the expression in that “the party complaining of the breach is entitled, whether or not actual damage or loss is proved to have been caused thereby, to receive from the party who has broken the contract reasonable compensation.” In that context, the Court held as follows: “6. In support of the said contention, reliance was placed on the expression in that “the party complaining of the breach is entitled, whether or not actual damage or loss is proved to have been caused thereby, to receive from the party who has broken the contract reasonable compensation.” In that context, the Court held as follows: “6. Counsel for the Union, however, urged that in the present case Rs. 10,000/- in respect of the potato contract and Rs. 8,500/- in respect of the poultry contract were genuine preestimates of damages which the Union was likely to suffer as a result of breach of contract, and the plaintiff was not entitled to any relief against forfeiture. Reliance in support of this contention was placed upon the expression (used in S.74 of the Contract Act), "the party complaining of the breach is entitled, whether or not actual damage or loss is proved to have been caused thereby, to receive from the party who has broken the contract reasonable compensation". It is true that in every case of breach of contract the person aggrieved by the breach is not required to prove actual loss or damage suffered by him before he can claim a decree, and the Court is competent to award reasonable compensation in case of breach even if no actual damage is proved to have been suffered in consequence of the breach of contract. But the expression "whether or not actual damage or loss is proved to have been caused thereby" is intended to cover different classes of contracts which come before the Courts. In case of breach of some contracts it may be impossible for the Court to assess compensation arising from breach, while in other cases compensation can be calculated in accordance with established rules. Where the Court is unable to assess the compensation, the sum named by the parties if it be regarded as a genuine pre-estimate may be taken into consideration as the measure of reasonable compensation, but not if the sum named is in the nature of a penalty. Where loss in terms of money can be determined, the party claiming compensation must prove the loss suffered by him. 7. Where loss in terms of money can be determined, the party claiming compensation must prove the loss suffered by him. 7. In the present case, it was possible for the Government of India to lead evidence to prove the rates at which potatoes, poultry, eggs and fish were purchased by them when the plaintiff failed to deliver "regularly and fully" the quantities stipulated under the terms of the contracts and after the contracts were terminated. They could have proved the rates at which they had to be purchased and also the other incidental charges incurred by them in procuring the goods contracted for. But no such attempt was made.” (Emphasis added) It is relevant to note that the Apex Court considered the expression employed in Section 74 , namely, “whether or not actual damage or loss is proved to have been caused,” and observed that the purpose of the said expression is to encompass different classes of contracts that may come before the Court. The principle that emerges from the law laid down by the Apex Court is that, where it is impossible for the Court to assess the compensation arising from the breach, the Court must consider whether the sum named by the parties in the contract represents a genuine pre-estimate of the damages likely to be suffered in the event of breach; and if so, the Court may adopt it as the measure of reasonable compensation. However, where it is not impossible to assess such compensation, and the quantum of loss is capable of proof, the sum named would partake the character of a penalty. In other words, where the loss is determinable in monetary terms, the party claiming compensation must prove the loss actually suffered and cannot rely solely on the stipulations contained in the contract. 17. Following the principles laid down in Fateh Chand v. Balkishan Dass and Maula Bux v. Union of India, a Division Bench of this Court in State of Kerala v. United Shipper & Dredgers , 1982 KLT 738 held that compensation cannot be claimed in the absence of a legal injury. 17. Following the principles laid down in Fateh Chand v. Balkishan Dass and Maula Bux v. Union of India, a Division Bench of this Court in State of Kerala v. United Shipper & Dredgers , 1982 KLT 738 held that compensation cannot be claimed in the absence of a legal injury. The Court undertook an elaborate consideration of the scheme of Chapter VII of the Act, comprising Sections 73 , 74, and 75, as well as the heading of the Chapter, namely, “Of the consequences of breach of contract.” The Court also examined the meaning of the term “actual” in Section 74 and the phrase “whether or not actual damage or loss is proved to have been caused thereby” in the historical context of the law relating to compensation for breach of contract, and further held as follows: “12. When the parties agreed that in case one party shall do a stipulated act or omit to do it, the other party shall receive just reasonable and conventional damages for loss sustained by such act or omission, in such cases. Courts of equity would not interfere to grant relief. But where the provision assumes the character of gross extravagance or of wanton and unreasonable disproportion to the nature or extent of the injury, courts of equity would regard the provision as in terrorem and refuse to enforce it. However in those cases also reasonable compensation would be awarded The law has been pithily summarised in Cheshire and Fifoot's Law of Contract at page 556 in the following manner: "Firstly, it may be a genuine pre-estimate of the loss that will be caused to one party if the contract is broken by the other. In this case it is called liquidated damages and it constitutes the amount, no more and no less, that the plaintiff is entitled to recover in the event of breach without being required to prove actual damage. Secondly, it may in the nature of a threat held over the other party in terrorem a security to the promisee that the contract will be performed. A sum of this nature is called a penalty and it has long been subject to equitable jurisdiction. Secondly, it may in the nature of a threat held over the other party in terrorem a security to the promisee that the contract will be performed. A sum of this nature is called a penalty and it has long been subject to equitable jurisdiction. Courts of equity have taken the view that, since the penalty is designed as mere security for the performance of the contract, the promisee is sufficiently compensated by being indemnified for his actual loss, and that he acts unconscionably if he demands a sum which, though certainly fixed by agreement, may well be disproportionate to the injury. The rule, therefore, is that a plaintiff who brings an action for the enforcement of a penalty can recover compensation only for the damage that he has in fact suffered. He is not entitled to recover the sum stated in the contract if he has not in fact suffered so much loss." (Emphasis supplied) This was how the expression "actual loss" or "loss suffered in fact" gained currency in English common Law. These expressions have been used to distinguish between cases of liquidated damages with genuine pre-estimate of the loss made in the contract and cases of penalties. A provision for liquidated damages is specifically enforceable in English Courts, whatever be the extent of the loss suffered actually or in fact. In such a case the court would not make an assessment of the actual loss or damage, but would enforce the provision. In the case of provision for penalty, however, since it is not enforceable as such, the court has to determine the loss or damage suffered in fact, in reality or actually and assess compensation on that basis. 13. The Indian Legislature in giving shape to S.74 of the Act resolved to do away with two significant features of English Common Law. One is the distinction between liquidated damages enforceable in court of law and penalties against which relief would be given. Both these situations have been brought together in S.74 of the Act thus doing away with the distinction between the two maintained by the English Common Law. Under S.74 of the Act, whether it is a case of liquidated damages or penalty, what the party faced with the breach gets is only reasonable compensation, subject to the limit of the amount stipulated in the contract itself. Under S.74 of the Act, whether it is a case of liquidated damages or penalty, what the party faced with the breach gets is only reasonable compensation, subject to the limit of the amount stipulated in the contract itself. The second point of departure is that while in English Common Law penalty clause has to be completely ignored and the party claiming compensation has to prove the extent of loss or damage suffered in fact or actually, and obtain compensation on that basis. S.74 dispenses with such proof of the extent of real or actual loss or damage, but provides for grant of reasonable compensation, subject to the condition that it shall not exceed the sum stipulated as penalty in the contract. The proof of the extent of loss or damage suffered in fact, i. e. proof of extent of actual damage or loss suffered h sought to be dispensed with in S.74 of the Act. It is only in this light that the expression "whether or not actual damage or loss is proved to have been caused thereby" has been introduced in S.74 of the Act. This historical background of the provision would explain the purport of S.74 of the Act. 14. The phrase referred to above finding a place in S.74 only means that unlike in England, a party faced with breach of contract in India is not compelled to prove the extent of the loss or damage suffered by him in fact or actually. He need not prove in an exact manner the extent of the real loss or damage suffered by him or the loss or damage suffered by him in fact. However, if he proves it, that will certainly help the court to arrive at the proper compensation. Even if he fails to prove it, court cannot throw out his case on that ground, but must proceed to assess reasonable compensation which is to be awarded to him, on the materials before the court and subject to the limit of the amount stipulated in the contract. Viewed in this light it is not possible to accept the contention of the appellants that what S.74 dispenses with is the basic condition of the breach resulting in any loss or damage which can be called "legal injury" . Viewed in this light it is not possible to accept the contention of the appellants that what S.74 dispenses with is the basic condition of the breach resulting in any loss or damage which can be called "legal injury" . The interpretation canvassed by the appellants would go against the legislative purpose in using the word "compensation" in all the three sections, viz., S.73, 74 and 75 of Chapter VI of the Act. One cannot compensate a person, who has not suffered any loss or damage. There may be cases where the actual loss or damage is incapable of proof; facts may be so complicated that it may be difficult for the party to prove actual extent of the loss or damage. S.74 of the Act exempts him from such responsibility and enables him to claim compensation in spite of his failure to prove the actual extent of the loss or damage provided of course he establishes the basic requirement for award of "compensation" viz., the fact that he has suffered some loss or damage. The proof of this basic requirement is not dispensed with by S.74 of the Act .” (Emphasis added) 18. In Kailash Nath Associates v. Delhi Development Authority and Another (supra), the Apex Court, after surveying a catena of its earlier decisions on the subject, restated the legal position and ultimately summarised the governing principles as follows: “43. On a conspectus of the above authorities, the law on compensation for breach of contract under S.74 can be stated to be as follows: - 1. Where a sum is named in a contract as a liquidated amount payable by way of damages, the party complaining of a breach can receive as reasonable compensation such liquidated amount only if it is a genuine pre - estimate of damages fixed by both parties and found to be such by the Court. In other cases, where a sum is named in a contract as a liquidated amount payable by way of damages, only reasonable compensation can be awarded not exceeding the amount so stated. Similarly, in cases where the amount fixed is in the nature of penalty, only reasonable compensation can be awarded not exceeding the penalty so stated. In both cases, the liquidated amount or penalty is the upper limit beyond which the Court cannot grant reasonable compensation. 2. Similarly, in cases where the amount fixed is in the nature of penalty, only reasonable compensation can be awarded not exceeding the penalty so stated. In both cases, the liquidated amount or penalty is the upper limit beyond which the Court cannot grant reasonable compensation. 2. Reasonable compensation will be fixed on well known principles that are applicable to the law of contract, which are to be found inter alia in S.73 of the Contract Act. 3. Since S.74 awards reasonable compensation for damage or loss caused by a breach of contract, damage or loss caused is a sine qua non for the applicability of the Section. 4. The Section applies whether a person is a plaintiff or a defendant in a suit. 5. The sum spoken of may already be paid or be payable in future. 6. The expression "whether or not actual damage or loss is proved to have been caused thereby" means that where it is possible to prove actual damage or loss, such proof is not dispensed with. It is only in cases where damage or loss is difficult or impossible to prove that the liquidated amount named in the contract, if a genuine pre - estimate of damage or loss, can be awarded 7. S.74 will apply to cases of forfeiture of earnest money under a contract. Where, however, forfeiture takes place under the terms and conditions of a public auction before agreement is reached, S.74 would have no application.” 44. The Division Bench has gone wrong in principle. As has been pointed out above, there has been no breach of contract by the appellant. Further, we cannot accept the view of the Division Bench that the fact that the DDA made a profit from re - auction is irrelevant, as that would fly in the face of the most basic principle on the award of damages - namely, that compensation can only be given for damage or loss suffered. If damage or loss is not suffered, the law does not provide for a windfall .” (Emphasis added) 19. Similar to the facts of Maula Bux case (supra), the agreement between the plaintiff and the defendant was for the supply of 4-line cross arms, and it stands established that the contract was breached by the plaintiff due to its failure to supply the agreed quantity. Similar to the facts of Maula Bux case (supra), the agreement between the plaintiff and the defendant was for the supply of 4-line cross arms, and it stands established that the contract was breached by the plaintiff due to its failure to supply the agreed quantity. The defendant pleaded in the written statement that it had incurred substantial expenditure in procuring the required materials from alternative sources at higher rates. Despite contending that materials were procured from M/s. Sona Sales Corporation to meet the shortfall, the defendant did not make any earnest attempt to substantiate the said claim. Though Exts. B3 to B7 letters, purportedly issued by M/s. Sona Sales Corporation, were produced, the trial court declined to accept them in evidence, as they were merely photocopies and their marking was objected to by the plaintiff. It was also pointed out at the time of hearing that, in any event, the quantity of materials allegedly procured under Exts. B3 to B7 would not justify the extent of the amount retained by the defendant as unpaid. 20. In the present case, the legal position summarised in Kailash Nath Associates v. Delhi Development Authority and Another (supra), particularly clauses 6 and 7 thereof, assumes considerable relevance. Here it was possible to prove actual damage or loss, and thus the need for such proof cannot be dispensed with. As the damage or loss is not difficult or impossible to prove, there is no reason for permitting the defendant to adjust the amount as a genuine pre - estimate of damage or loss. 21. Reliance was placed by the learned Standing Counsel for the defendant on Oil and Natural Gas Corporation Ltd. v. SAW Pipes Ltd. (supra) to contend that it would be wholly unjust to hold that a party committing breach of contract is not liable to pay compensation. In that case, on an analysis of the facts, the Apex Court found that it was difficult to prove the exact loss or damage suffered on account of the breach. It was also found that the parties had pre-estimated such loss in the contract after clear understanding. However, the factual situation in the present case is materially different. There is nothing on record to indicate that the amount mentioned in clause 15 is a genuine pre-estimation of loss or damages by both sides. It was also found that the parties had pre-estimated such loss in the contract after clear understanding. However, the factual situation in the present case is materially different. There is nothing on record to indicate that the amount mentioned in clause 15 is a genuine pre-estimation of loss or damages by both sides. In BSNL v. Reliance Communication Ltd. (supra), it was observed that the description of a sum payable upon breach as “penalty” or “liquidated damages” in the contract is relevant, though not conclusive. Significantly, Clause 15 of Ext. A5 itself describes the stipulation as a “penalty” (“penalty at the rate of one percent for every month of delay… subject to a maximum of ten percent”). From all the circumstances mentioned above, we could consider the said clause only as a penalty, and not otherwise. 22. Sri B. Premod, the learned Standing Counsel for the defendant, further contended that, since the Kerala State Electricity Board would not be able to assess or prove the actual damage caused to the public due to short supply and delay, Clause 15 of Ext. A5 ought to be treated as a genuine pre-estimate of damages likely to be suffered by the defendant in the event of breach. We are not in a position to accept this contention for several reasons. First, the Board is not entitled to claim compensation from the plaintiff for any alleged inconvenience or hardship caused to the public. Secondly, Clause 15, on a plain reading, appears to be intended to secure due performance of the contract rather than to represent a fair and genuine pre-estimate of damages agreed upon by the parties. As already noted, the loss allegedly sustained by the defendant due to short supply of materials is capable of being proved; hence, there was no occasion to invoke the principle applicable to genuine pre-estimates of damages in cases where proof is impossible or inherently difficult. 23. Where the loss is capable of proof, a clause of the above nature, which provides for forfeiture calculated on the value of materials supplied, can only be regarded as a penalty within the meaning of Section 74 of the Act. Consequently, the defendant can forfeit the security deposit only to the extent that it establishes actual damages. 23. Where the loss is capable of proof, a clause of the above nature, which provides for forfeiture calculated on the value of materials supplied, can only be regarded as a penalty within the meaning of Section 74 of the Act. Consequently, the defendant can forfeit the security deposit only to the extent that it establishes actual damages. Significantly, there is no pleading that the stipulation in question was intended as a genuine pre-estimate of damages arising from delay in supply, particularly on the footing that the consequences of such delay on production and supply of electricity are incapable of precise proof. For the aforesaid reasons, we find no infirmity in the impugned judgment. The appeal is thus liable to be dismissed. In the result, the appeal is dismissed.