2018 (5) TMI 2036 - HC - Indian Laws

Demand for liquidated damages after dissolution of AMC - plea of the petitioner is that the respondent suffered no damages due to delay in delivery of the handsets and hence the respondent is not entitled to any damages/penalty - fraud and unjust enrichment or not? - Whether the Claimant is entitled to claim no. 1? - HELD THAT - It is clear that the same is absolutely without merits. It is a fact recorded by the learned Arbitrator based on the agreement and documents placed on record that a sum of ₹ 2,47,43,500/- became payable on account of the delays by the petitioner - the terms and conditions of the AMC clearly provides that if the petitioner fails to deliver the repaired handsets within the stipulated period of 14 days the petitioner shall be liable to pay a penalty @ ₹ 100/- per day per terminal. In view of the specific clause merely because there was a delay in raising of the bill would not do away the liability of the petitioner under the said clause. Whether the claim no. 1 or any part thereof is barred by limitation? - HELD THAT - Where a sum is named in a contract as liquidated amount payable by way of damages, the party complaining of a breach can receive such amount only if the amount is a genuine pre-estimate of damages fixed by both the parties and found to be such by the Court. In other cases where a sum is named in the contract as liquidated amount payable by way of damages, only reasonable compensation can be awarded not exceeding the amount, so stated. Reasonable compensation is to be fixed on well known principles that are applicable to the law of contract. Damage/loss caused is a sine qua non for applicability of the section. A perusal of the cross-examination of Shri Ramesh Singh shows that he has clearly pointed out that the customers of the respondent had to suffer as there was delay in return of the handsets. It is manifest that the reputation of the respondent suffered. In an industry disgruntled customers do not help in expansion of business. It is quite clear that when a manufacturer of mobile telephones is unable to speedily repair defective telephones supplied to its customers it is bound to cause a loss of reputation/image. Such loss of reputation/image would lead to loss of revenue. Such damages/loss of revenue cannot easily be quantified as is sought to be argued - this was clearly a case where the respondent had suffered damages. The nature of damages suffered would be such where it would not be easy to lead evidence to assess the nature of damages suffered. The damages quantified in the contract can be said to be a genuine pre-estimate of the damages. The learned Arbitrator rightly concluded that award of the said damages as stipulated in the contract does not lead to unjust enrichment of the respondent. It is not for this Court to reassess the evidence to negate the findings of fact recorded by the learned arbitrator - Further, the learned Arbitrator on account of the fact that part of the claim of the respondent was barred by limitation only awarded about 50% of the amount claimed by the respondent as damages for late repairing of the handsets. The above is in any case a reasonable compensation for damages suffered by the respondent and cannot be said to be contrary to Section 74 of the Contract Act. Petition dismissed.

Summary

Issues Involved:
1. Validity of the claim for liquidated damages.
2. Bar of limitation on the claim.
3. Novation of the Annual Maintenance Contracts (AMCs).
4. Estoppel from raising a claim of liquidated damages.
5. Claim vitiated by fraud and unjust enrichment.
6. Entitlement to litigation expenses and interest.

Detailed Analysis:

1. Validity of the Claim for Liquidated Damages:
The petitioner contested the claim for liquidated damages, arguing that the AMCs were dissolved by mutual agreement on 30.3.2007, and no demand for liquidated damages was made prior to this date. The respondent, however, maintained that the petitioner had failed to repair the handsets within the stipulated period, as per the AMC terms, which warranted the penalty. The court upheld the respondent's claim, citing the specific clause in the AMC that stipulated a penalty of ?100 per day per terminal for delays in repair. The court referenced the Supreme Court's judgment in Kailash Nath Associates vs. DDA, emphasizing that liquidated damages could be awarded if they were a genuine pre-estimate of loss, even if actual loss was not proved.

2. Bar of Limitation on the Claim:
The learned Arbitrator determined that part of the respondent's claim was barred by limitation, specifically the amount exceeding ?1,13,99,500/-. Consequently, the award was limited to this amount. The court supported this finding, noting that the claim for the remaining amount was time-barred under the Limitation Act.

3. Novation of the Annual Maintenance Contracts (AMCs):
The petitioner argued that the AMCs were novated following the respondent's acceptance of the proposal on 30.3.2007, which should nullify any claims for liquidated damages. The Arbitrator, however, concluded that the original AMCs were dissolved effective from 14.2.2007, and the petitioner was liable for liquidated damages up to this date. The court agreed, applying Section 62 of the Contract Act, which allows for the alteration of contracts without terminating the original agreement entirely.

4. Estoppel from Raising a Claim of Liquidated Damages:
The petitioner contended that the respondent was estopped from claiming liquidated damages after the novation of the AMCs. The Arbitrator and the court found no merit in this argument, as the liability for liquidated damages was established up to the date of novation (14.2.2007).

5. Claim Vitiated by Fraud and Unjust Enrichment:
The petitioner alleged that the respondent's claim was vitiated by fraud and unjust enrichment. The Arbitrator reviewed the supporting documents and concluded that the claim for ?2,47,43,500/- was neither fraudulent nor amounted to unjust enrichment. The court upheld this finding, noting that the stipulated penalty was a genuine pre-estimate of the damages.

6. Entitlement to Litigation Expenses and Interest:
The Arbitrator did not specifically address the issue of litigation expenses and interest in detail. The court's judgment primarily focused on the validity and limitation of the claim for liquidated damages.

Conclusion:
The court dismissed the petition, upholding the Arbitrator's award of ?1,13,99,500/- to the respondent as liquidated damages for the delay in repairing handsets. The court affirmed that the stipulated penalty was a genuine pre-estimate of damages and that the claim was not barred by limitation up to the awarded amount. The petitioner's arguments regarding the novation of the AMCs and estoppel were found to be without merit. The court emphasized that the Arbitrator's findings on facts and the quantification of damages were within their jurisdiction and not subject to reassessment by the court.