FAO(OS)/120/2014 of SH LAKHVINDER SINGH MATHAROO Vs M/S INSTAPOWER LTD

* IN THE HIGH COURT OF DELHI AT NEW DELHI

+FAO(OS) 120/2014

Decided on: 23.11.2015

SH LAKHVINDER SINGH MATHAROOAppellantThrough: Mr Sandeep Sharma, Adv.versus

MIS INSTAPOWER LTD:.... RespondentThrough Mr Aman Panwar andMr MuditGupta, Advs.:

CORAM:HON'BLE MR JUSTICE S RAVINDRA BHAT),HON'BLE MS JUSTICE DE SHARMA

MR JUSTICE S RAVINDRA BHAT (OPEN COURT)

%1.The present appeal is directed against the order of the learnedSingle Judge dated 29.01.2014 dismissing the appellant's objectionsunder Section 34 of the Arbitration and Conciliation Act, 1996(hereinafter referred to as 'the Act').

2.The brief facts are that the appellant was awarded work forconstruction of factory building at Raipur Industrial Area, NearBhagwanpur, Roorki, Jharkhand by the respondent (hereinafterconstruction of factory building at Raipur Industrial Area, NearBhagwanpur, Roorki, Jharkhand by the respondent (hereinafter

Signature Not Verified

Digitally SignedBy:AMULYA

referred to as 'the claimant). The work order was issued on22.05.2008; the date of start of work stipulated was 01.06.2008 andtime for completion of work was seven months, i.e., on or before31.12.2008. The claimant terminated the contract on 18.12.2008levelling various allegations against the appellant and invoking itspowers under clause 5.6.2 (i) and (iii).

3 The parties referred[thir disputes which arose as consequence]of the termination, for arbitration The appellant was arrayed as arespondent and thec1aimanttsOught award of various amounts under 9pHeads of Claims The appellant lso raised counter claims seekingvarious amounts under 7 spec tic heads (As matter of record, theaward of the 'krbitral fribunal dated 31.03'[.2013 allowed claim No 1]for liquidated damag and directed payment of Rs 15,00,000/- on thatscore) Some counter-claims out of the seven Headsof Claim, were also allowed. The main ground for questioning theaward under Section 34 was that the award of Rs.15,00,000/- byinvoking clause 5.5.15 of the agreement/contract was not supportedby law. It was urged in that regard that the Tribunal fell into error byoverlooking the decisions of the Supreme Court on the principles with

respect to the awarding of liquidated damages under the IndianContract Act, 1872. The judgments of Fate/i Chand vs. BalkishanDass (1964) 1 SCR 515, Maula Bux vs. Union of India (1969) 2 SCC554, State of Karnataka vs. Shree Rameshwara Rice Mills (1987) 2SCC 160 were pressed into service. The learned Single Judge rejectedthe submissions of the appellant, after noticing the discussion in theaward, holding that the appellant had agreed to the contract whichspecifically required the completiqn of work within the time agreedupon The learned Single Judge in para 9 noted the relevant dates andalso held that the Tribunal fôund.that the work of project wascompleted only to the extent of35%up to 31.12.2008 and that theclaimant had put the appellant on notice that it had to pay liquidateddamages by notice after which in effect work has been abandoned till06.12.2008.

4. Mr Sharma, learned counsel for the petitioner, relied on para5.5.15 of the contract and submitted that the parties had specificallyagreed that in the event of breach of contract, the employer (theclaimant) would be entitled to claim Rs. 15,00,000/- in totality. It wassubmitted that the principles enunciated by the Supreme Court in its

decision in Fateh Chand (supra) and in subsequent judgments as wellas the letter of Section 74, mandate that the party claiming liquidateddamages has to prove that legal injury, or damage was result of thewrongful conduct of the respondent-defaulting party. It was submittedthat the discussion in the award nowhere discloses that such proof wasforthcoming and consequently on an application of law declared inONGC vs. Saw Pipes Ltd. (2003) 5 SUC 705, the award was liable tobe set aside Therefore, the Single Judg fell into error in not doing so5 The other sUbstantial'argurnent made by the appellant was thatthe award i unreasoned inasmiiêh asj the Arbitral Tribunal merelyrecorded rival submissions and did not care to analyse them andfurnished reasons for the conclusionsas the letter of Section 74, mandate that the party claiming liquidateddamages has to prove that legal injury, or damage was result of thewrongful conduct of the respondent-defaulting party. It was submittedthat the discussion in the award nowhere discloses that such proof wasforthcoming and consequently on an application of law declared inONGC vs. Saw Pipes Ltd. (2003) 5 SUC 705, the award was liable tobe set aside Therefore, the Single Judg fell into error in not doing so5 The other sUbstantial'argurnent made by the appellant was thatthe award i unreasoned inasmiiêh asj the Arbitral Tribunal merelyrecorded rival submissions and did not care to analyse them andfurnished reasons for the conclusions

6. The above discussion-,on facts and on examination of theimpugned judgment reveals t!at the leained Single Judge consideredthe very same submissions made before this Court. The terms ofclause 5.5.15 were also considered in the impugned order. Therelevant clause reads as under:-

"If the contractor fails to compfrte the work within thetime prescribed or within the extended time under thecontract, he shall pay to Employer, on demand, anamount without prejudice to other rights and remedies

the Employer may have, against the Contractor, sumof Rs. 1.5 lacs-per week as liquidated damages whichshall not exceed Rs. 15 lacs."

7. Whilst this Court is in complete agreement with the appellant's

submissions that the principles enunciated in Fateh Chand (supra)and subsequent judgments which had followed are binding, at thesame time, it is to be noticed that in Fateh Ch and (supra) itself (asheld even in the latest judgment inKàilash Nath Associates vs. Delhiand subsequent judgments which had followed are binding, at thesame time, it is to be noticed that in Fateh Ch and (supra) itself (asheld even in the latest judgment inKàilash Nath Associates vs. Delhi

Development Authority and Anr. (2015) 4 SCC 136), is an authorityfor the principle that sates that in circumstances where it would beextremely difficult if not entire1yossib1e for the innocent party toestablish damage in the manner of economic loss or damage or injury,proof of actual evidence or damage,. is. dispensed with. In KailashNat/i Associates (supra), to the extent it is relevant, states as follows:-

"43. On conspectus ofthe above authorities, the lawon compensation for breach of contract under Section74 can be stated to be as/ollows:

43.1. Where sum is I named in contract as aliquidated amount payable by way of damages, theparty complaining of breach can receive asreasonable compensation such liquidated amount onlyif it is genuine pre-estimate of damages fixed by bothparties and found to be such by the court. In other

cases, where sum is named in contract as aliquidated amount payable by way of damages, onlyreasonable compensation can be awarded notexceeding the amount so stated. Similarly, in caseswhere the amount fixed is in the nature ofpenalty, onlyreasonable compensation can be awarded notexceeding the peiial1y so stated. In both cases, theliquidated amount or penalty is the upper limit beyondwhich the court cannot grant reasonablecompensation.

43.2. will he fixed on we//-Reasonablecrmpensatlon known pinci,bles that are applicable to the law ofcontract, which arekbe found inter a/ia in Section 73of the Coiract Aêt:TReasonablecrmpensatlon known pinci,bles that are applicable to the law ofcontract, which arekbe found inter a/ia in Section 73of the Coiract Aêt:T

43;3. Since Section',74 awards reasonablecompensation for dciiige or loss caused by breachO[f 'Contract, damagélos caused is sine qua non]for the applicab i/it)! ç)f the section.

43.4. The 'ection applies whether person is plaintiffor defendant ma sikit

43.5. The sum spoken of may already be paid or bepayable in future.

43.6. The expression "whether or not actual damageor loss is proved to have been caused thereby" meansthat where it is possible to prove actual damage orloss, such proof is not dispensed with. It is only incases where damage or loss is difficult or impossible toprove that the liquidated amount named in the

contract, if genuine pre-estimate of damage or loss,can he awarded."

8. Given the limited nature of the jurisdiction (referred to in SawPipes (supra)), the Division Bench has to consider as to whether thelearned Single Judge fell into order in overlooking the patent illegalityin award. The discussion in the impugned order, we notice, is• elaborate on the specific issue as to the applicability of Section 74 ofthe Contract Act Learned Single Judge relied upon previousDivision Bench judgment in Indian—Oil—Corporation vs Lloyds SteelIndustries Ltd. 2007(4) Arb. LR84 : (De1). In Lloyds Steel IndustriesLtd. (supra), the Court stated thathere may be cases where theactual loss or damage is incapable of proof facts may be socomplicated acts may be so complicatd that it may be difficult for theparty to pro re actual extent of the loss or -damage.Section 74 exemptshim from such responsibility and enables him to claim compensationin spite of his failure to prove the actual extent of the loss ordamage." The discussion in the impugned award—after noticing therival submissions—directs the appellant to pay Rs.15,00,000/- whichis as follows:-

• elaborate on the specific issue as to the applicability of Section 74 of

"44 (iii) From beginning of the work, the Respondentdid not show adequate progress of the work andClaimant wrote many letters regarding poor progress,poor workmanship etc. Vide letter dated 04.12.2008the attention of the Respondent was drawn to Clause5.5.15 of the Agreement under which Respondentrendered himself liable for liquidated damage as hisprogress of work was 35% only. The date ofcompletion as per Agreement was 31.12.2008 and asper this rate ofprogress, the work could be completedby 30.08.2009. The Respondent was not able toestablish the delay* account of Claimant 's failureduring the currency of the work. Thus, liquidateddamages imposed on Respondent by Claimantamounting . to Rs. 15.00 lacs as per provision of theagreehient and justfleJ Hence the liquidated damageis jiaya'ble to theCJaimant by the RespondentTherefore, Respondent should pay Rs 15 00 lacs toClaimant on account bliquidated damages."9.This Court is of the opinion that in the light of the abovediscussion, having regardto the tems of the award, the learned SingleJudge did not err4Iapp11cation of legal principles There was nopatent illegality requiring interferëflce with the award. The appellant'scounter-claims with respect to rival termination on account of delayhad failed and no amounts were awarded on that score.discussion, having regardto the tems of the award, the learned SingleJudge did not err4Iapp11cation of legal principles There was nopatent illegality requiring interferëflce with the award. The appellant'scounter-claims with respect to rival termination on account of delayhad failed and no amounts were awarded on that score.

10.For the above reasons, the appeal has to fail and the same isaccordingly dismissed. In the facts and circumstances of the case, theaccordingly dismissed. In the facts and circumstances of the case, the

appellant shall pay cost to the respondent quantified to Rs. 75000/-.

S. RAVINDRA BHAT(JUDGE)

NOVEMBER 23, 2015BG

DEEPA SHARMA(JUDGE)