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2024 (7) TMI 1249 - HC - Indian LawsDismissal of appellant s petition preferred under Section 34 of the Arbitration and Conciliation Act, 1996 - levy of liquidated damages on account of failure to plead and demonstrate legal injury - HELD THAT - The learned Arbitrator has rightly concluded that there was no legal justification for the levy of liquidated damages on account of failure to plead and demonstrate legal injury. Liquidated damages, in law, are no different from unliquidated damages that an aggrieved party may claim. In both instances, the aggrieved party is required to demonstrate legal injury. Liquidated damages, as agreed to between the disputants, represents the maximum amount that can be paid to an aggrieved party. Since damages for breach of contract is paid as compensation, the law requires the defaulting party to pay, even under Section 74 of the Contract Act, reasonable compensation - no interference is called for with the judgment of the learned Single Judge. Since there are no pleadings on record concerning the imposition of liquidated damages by NTPC, no leave can be granted at the second stage of scrutiny. The appeal is dismissed. Costs are quantified at Rs. 20,000/-.
Issues Involved:
1. Legality of the arbitral award dated 29.03.2022, specifically concerning the refund of liquidated damages. 2. Appellant's failure to demonstrate injury/loss due to the delay in supply of transformers. 3. Propriety of the Single Judge's dismissal of the petition under Section 34 of the Arbitration and Conciliation Act, 1996. Detailed Analysis: 1. Legality of the Arbitral Award: The appeal was directed against the judgment dated 01.09.2023, which dismissed the appellant's petition under Section 34 of the Arbitration and Conciliation Act, 1996, confirming the arbitral award dated 29.03.2022. The Arbitrator awarded Rs. 1,28,52,203/- to the respondent, including interest if the amount was not paid within 60 days. 2. Appellant's Failure to Demonstrate Injury/Loss: The Arbitrator ruled in favor of the respondent on claim 1(i) concerning liquidated damages, stating that the appellant did not suffer any loss/injury due to the delay in supply. The Arbitrator also awarded Rs. 1,62,138/- for unpaid spares and Rs. 1,30,000/- for demurrage charges. The appellant argued that since the respondent was a contractor for a large EPC project, it was axiomatic that losses were suffered due to delays. However, both the Arbitrator and the Single Judge found no evidence of such losses. The Arbitrator noted that only 8 out of 46 transformers were commissioned 27 months after delivery, indicating no urgency or loss due to delayed supply. The Arbitrator relied on precedents such as Kailash Nath Associates v. DDA and Indian Oil Corpn. v. Lloyds Steel Industries Ltd. to support the conclusion that no legal injury was suffered. 3. Propriety of the Single Judge's Dismissal: The Single Judge dismissed the petition under Section 34, agreeing with the Arbitrator's findings. The appellant's argument that NTPC imposed liquidated damages on them was not pleaded or argued before the Arbitrator or the Single Judge, and thus could not be introduced at the appeal stage. The Arbitrator's decision was based on the principle that liquidated damages require proof of legal injury, as per Section 74 of the Indian Contract Act, 1872. The Arbitrator found the appellant's pleadings vague and lacking specific details of the alleged injury/loss. The Arbitrator and the Single Judge concluded that the appellant failed to justify the retention of liquidated damages, as there was no proportionate reduction for timely delivered transformers, and no counter-claim or specific injury/loss was demonstrated. Conclusion: The court dismissed the appeal, stating that the Arbitrator's conclusions were based on a proper appreciation of evidence and fell within the Arbitrator's purview. The appellant's failure to demonstrate legal injury justified the Arbitrator's decision to order a refund of liquidated damages. The court emphasized that liquidated damages require proof of loss or injury, and mere delay without demonstrated loss does not warrant such damages. The appeal was dismissed with costs of Rs. 20,000/- to be deposited with the Delhi High Court Legal Services Committee. The Registry was directed to release the awarded amount to the respondent with accrued interest within one week.
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