2019 (2) TMI 2091 - SC - Indian Laws

Permission for claim in quantum meruit under Section 70 of the Indian Contract Act 1872 when parties are governed by contract - whether the appellant was justified in adjusting this amount from the dues payable to the respondent by deduction from the bills raised by the respondent? - HELD THAT - In Alopi Parshad and Sons Ltd. v. Union of India 1960 (1) TMI 41 - SUPREME COURT this Court dealt with an arbitration award which inter alia awarded certain amount on the basis of quantum meruit. In setting aside the Award on the ground of error apparent on the face of the record this Court held Compensation quantum meruit is awarded for work done or services rendered when the price thereof is not fixed by a contract. For work done or services rendered pursuant to the terms of a contract compensation quantum meruit cannot be awarded where the contract provides for the consideration payable in that behalf. Quantum meruit is but reasonable compensation awarded on implication of a contract to remunerate and an express stipulation governing the relations between the parties under a contract cannot be displaced by assuming that the stipulation is not reasonable. In Mulamchand v. State of M.P. 1968 (2) TMI 116 - SUPREME COURT this Court held that the provisions of Section 175(3) of the Government of India Act are mandatory in character and based on public policy. Therefore the formalities that are stipulated when contracts are entered into on behalf of the Government cannot be waived or dispensed with. As has been correctly held by the impugned judgment a maximum of 12% can be levied as liquidated damages under the contract which sum would amount to a sum of INR 25 lakh. Since this clause governs the relations between the parties obviously a higher figure contractually speaking cannot be awarded as liquidated damages which are to be considered as final and not challengeable by the supplier. This being the case the appellant can claim only this sum. Anything claimed above this sum would have to be refunded to the respondent. The impugned judgment of the TDSAT upheld - appeal dismissed.

Issues Involved:
1. Justification of appellant's adjustment of dues.
2. Applicability of Section 70 of the Indian Contract Act, 1872.
3. Claim for liquidated damages under contractual terms.
4. Calculation and entitlement to interest on the principal amount.

Issue-wise Detailed Analysis:

1. Justification of appellant's adjustment of dues:
The dispute arose under the Telecom Regulatory Authority of India Act, 1997, where the respondent sought recovery of INR 1,10,57,268/- plus interest from the appellant. The core issue was whether the appellant was justified in adjusting this amount from the dues payable by deducting from the respondent's bills. The TDSAT examined the Purchase Order dated 01.10.2008, particularly clauses 4 and 8, which outlined the scope of order and delivery schedule. It was found that the respondent failed to provide the required last mile connectivity within the stipulated time and even by the time the contract was terminated on 11.01.2011. The TDSAT concluded that the respondent's failure could not be entirely blamed on the appellant, and thus, the appellant's unilateral deduction was not justified.

2. Applicability of Section 70 of the Indian Contract Act, 1872:
The court considered whether a claim in quantum meruit under Section 70 of the Indian Contract Act, 1872, was permissible when parties are governed by a contract. Section 70, which deals with obligations arising from non-gratuitous acts, applies when there is no contractual relationship between the parties. The court referred to various judgments, including Moselle Solomon v. Martin & Co., Kanhayalal Bisandayal Bhiwapurkar v. Indarchandji Hamirmalji Sisodia, and Mulamchand v. State of M.P., to establish that Section 70 cannot be invoked when an express contract exists between the parties. The court concluded that since there was a contract governing the relationship, Section 70 was not applicable.

3. Claim for liquidated damages under contractual terms:
The TDSAT examined clauses 16.2 to 16.4 of the Purchase Order, which stipulated the conditions for liquidated damages. Clause 16.2(b) allowed for liquidated damages in case of failure to install and commission the project, limited to a maximum of 12% of the purchase order value. The TDSAT determined that the appellant could levy liquidated damages amounting to INR 25,83,181/- but not more. The appellant's action of imposing rentals unilaterally was found to be without authority under the contract or Section 70 of the Contract Act.

4. Calculation and entitlement to interest on the principal amount:
The TDSAT allowed the respondent's claim but only in part. The principal amount payable after deducting the permissible liquidated damages was calculated as INR 84,74,087/-. The respondent's claim for interest at 18% was not upheld due to the absence of such a stipulation in the contract. Instead, the TDSAT directed payment of interest at the rate of 9% from the date the amounts became due until the date of the judgment.

Conclusion:
The Supreme Court upheld the TDSAT's judgment, confirming that the appellant was entitled to deduct only INR 25,83,181/- as liquidated damages, and the remaining amount of INR 84,74,087/- plus interest at 9% was to be paid to the respondent. The appeal was dismissed, affirming that claims under Section 70 of the Contract Act were not permissible when governed by an express contract.

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