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TMI Blog2012 (10) TMI 1165X X X X Extracts X X X X X X X X Extracts X X X X ..... er. Allotment letters dated 02.03.2009 were accordingly issued. On 16.03.2009, the petitioner submitted the performance security in the form of bank guarantees in respect of each of the said projects. These bank guarantees were in the sum of ₹ 33,73,959/- and ₹ 76,23,609/- respectively. The respondent No. 2 instructed the petitioner on 19.03.2009 to proceed with the execution of the work. However, in May 2009, all mining operations and quarries were closed in the State of Haryana because of which work was held up and the petitioner communicated this fact to the respondent No. 3 - Executive Engineer, Provincial Division, Department of Public Works (B R) Branch, Jind on 11.05.2009. The respondent No. 3, however, asked the petitioner to complete the work within stipulated period. It was followed by various communications threatening the petitioner that the petitioner would be liable for the liquidated damages in case the work is not completed. Ultimately, the respondents rescinded the contracts on 19.12.2011 and 30.12.2011 respectively, alleging breach/non-performance on the part of the petitioner. The petitioner filed writ petitions challenging the termination. However, t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ter the completion of works or after termination, abandonment or breach of the contract, it shall, in the first instance, be referred for settlement to the competent authority, described alongwith their powers in the contract data. The competent authority shall within a period of forty-five days after being requested in writing by the contractor to do so, convey his decision to the contractor. Such decision in respect of every matter so referred shall, subject to the review as hereinafter provided, be final and binding upon the Contractor. In case, the work is already in progress, the contractor shall proceed with the execution of works, thereof pending receipt of the decision of the competent authority as aforesaid, with all due diligence. 24.2 Either party will have the right of appeal, the decision of the competent authority, to the Standing Empowered Committee if the amount appealed against exceeds rupees one lakh. 24.3 The composition of the Empowered Standing Committee will be:- (i) One official member, Chairman of the Standing Empowered Committee, not below the rank of Additional Secretary to State Government. (ii) One official member not below the rank of Chief ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... make the contract to be likely the result of the breach of contract. This provision makes it clear that such compensation is not to be given for any remote or indirect loss or damage sustained by reason of the breach. The underlying principle enshrined in this Section is that a mere breach of contract by a defaulting party would not entitle other side to claim damages unless the said party has in fact suffered damages because of such breach. Loss or damage which is actually suffered as a result of breach has to be proved and the plaintiff is to be compensated to the extent of actual loss or damage suffered. When there is a breach of contract, the party who commits the breach does not eo instant i.e. at the instant incur any pecuniary obligation, nor does the party complaining of the breach becomes entitled to a debt due from the other party. The only right which the party aggrieved by the breach of the contract has is the right to sue for damages. No pecuniary liability thus arises till the Court has determined that the party complaining of the breach is entitled to damages. The Court in the first place must decide that the defendant is liable and then it should proceed to assess w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... im the same from the person who has broken the contract and actual loss suffered can be claimed, on the other hand, Section 74 of the Act entitles a party to claim reasonable compensation from the party who has broken the contract which compensation can be pre-determined compensation stipulated at the time of entering into the contract itself. Thus, this section provides for pre-estimate of the damage or loss which a party is likely to suffer if the other party breaks the contract entered into between the two of them. If the sum named in the contract is found to be reasonable compensation, the party is entitled to receive that sum from the party who has broken the contract. Interpreting this provision, the Courts have held that such liquidated damages must be the result of a genuine pre-estimate of damages . If they are penal in nature, then a penal stipulation cannot be enforced, that is, it should not be a sum fixed in terrarium or interrarium. This action, therefore, merely dispenses with proof of actual loss or damage . However, it does not justify the award of compensation when in consequence of breach, no legal injury at all has resulted, because compensation for breach of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... catory authority. When there is a breach of contract, the party who commits the breach does not eo instanti incur any pecuniary obligation, nor does the party complaining of the breach becomes entitled to a debt due From the other party. The only right which the party aggrieved by the breach of the contract has is the right to sue for damages. That is not an actionable claim and this position is made amply clear by the amendment in Section 6(e) of the Transfer of Property Act, which provides that a mere right to sue for damages cannot be transferred. This has always been the law in England and as far back as 1858 we find it stated by Wightman, J., in Jones v. Thompson [1858] 27 L.J.Q.B. 234 Exparte Charles and several other cases decide that the amount of a verdict in an action for unliquidated damages is not a debt till judgment has been signed . It was held in this case that a claim for damages does not become a debt even after the jury has returned a verdict in favour of the plaintiff till the judgment is actually delivered. So also in O'Driscoll v. Manchester Insurance Committee [1915] 3 K. B. 499, Swinfen Eady, L.J., said in reference to cases where the claim was for unli ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lause only where the claim for payment of a sum of money is either admitted by the contractor, or in case of dispute, adjudicated upon by a court or other adjudicatory authority. We must, therefore, hold that the appellant had no right or authority under Clause 18 to appropriate the amount of other pending bills of the respondent in or towards satisfaction of its claim for damages against the respondent and the learned Judge was justified in issuing an interim injunction restraining the appellant from doing so. 10. In that case, Clause 18 of the contract entered into between the parties provide that whenever any claim for the payment of a sum of money arises out of or under the contract against the contractor, the purchaser shall be entitled to recover such sum by appropriating in whole or in part, the security, if any, deposited by the contractor. The purchaser/Union of India, invoking this clause, wanted to recover and adjust liquidated damages in terms of clause 14 of the contract. As is seen from the aforesaid extracted portion, the Court held that a claim for liquidated damages does not give rise to a debt until the liability is adjudicated and damages assessed by a decree ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... characteristics of a debt: Standing alone, the word 'debt' is as applicable to a sum of money which has been promised at a future day as to a sum now due and payable. If we wish to distinguish between the two, we say of the former that it is a debt owing, and of the latter that it is debt due. 12. The Supreme Court in the matter of ONGC Ltd. Vs Saw Pipes Ltd., AIR 2003 SC 2629, in para 65 has discussed provisions of Section 73 and 74 of the Indian Contract Act and held as under: Under Section 73, when a contract has been broken, the party who suffers by such breach is entitled to receive compensation for any loss caused to him which the parties knew when they made the contract to be likely to result from the breach of it. This Section is to be read with Section 74, which deals with penalty stipulated in the contract, inter alia [relevant for the present case] provides that when a contract has been broken, if a sum is named in the contract as the amount to be paid in case of such breach, the party complaining of breach is entitled, whether or not actual loss is proved to have been caused, thereby to receive from the party who has broken the contract reasonable com ..... X X X X Extracts X X X X X X X X Extracts X X X X
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