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TMI Blog2018 (5) TMI 2036X X X X Extracts X X X X X X X X Extracts X X X X ..... med 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dvent of new technology the use of handsets was decreasing. Out of a total of 95,000 handsets about 19,000 to 20,000 customers of the respondent were stated to be using the old handsets. It is also the case of the petitioner that on account of the fact that only limited number of handsets was being used, the petitioner sent a proposal dated 11.12.2006 to the respondent proposing that the petitioner would provide repair service through eight service centers on chargeable basis. With dissolution/termination of the AMC's the respondent need not pay a sum of ₹ 70 lacs which was payable to the petitioner as fixed AMC charges and the petitioner in return would benefit by way of waiver, of liquidated damages and release of PBG's of the petitioner. According to the petitioner the respondent by letter dated 30.3.2007 conveyed its acceptance to the proposal. It is also stated that there were no communications from the respondent qua levy of any liquidated damages or penalty on the petitioner till that date. The petitioner state that shockingly vide a demand notice dated 18.5.2007 the respondent levied a penalty of ₹ 2,47,43,500/- on the petitioner for alleged delay in rep ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dissolved w.e.f. 14.2.2007 and that the petitioner was to extend repair facility to the customer of the respondent through its Authorised Service Centers in Delhi on chargeable basis alongwith extended Warranty Support to the customer of the respondent till actual date of expiry of the AMC's. The Award holds that Section 62 of the Contract Act applies to the present case. The entire original contract does not terminate and rather a new alternate contract has come into force. The alteration of the contracts took place w.e.f. 14.2.2007 and therefore, liquidated damages remained leviable by the respondent upto the said date i.e. 14.2.2007. On issues No. 1, 6 and 7 the learned Arbitrator held that on perusal of the supporting documents the claim of the respondent for ₹ 2,47,43,500/- is on account of penalty for late repairing of the handsets for the period upto 14.2.2007. It noted the relevant clause in the AMC'Ss regarding the penalty and concluded that the calculations are proved and the said figure claimed is correct. The Award also held that the said amount claimed is neither vitiated by fraud nor amounts to undue enrichment. On the issue of limitation the lear ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as entitled to the said amount on account of the acts of the petitioner. She has relied upon the judgment of this court in Saisudhir Energy Ltd. vs. NTPC Vidyut Vyapar Nigam Ltd. 7. I will now deal with the pleas of the learned senior counsel for the petitioner. As far as the first plea is concerned, 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. 8. The relevant clause of the contract reads as follows: TERMS CONDITIONS OF THE AGREEMENT: 1. If the contractor fails to repair the faulty WLL terminals (Handheld Type) and deliver the same in the concerned MTNL office within stipulated period of 14 days as mentioned above, the contractor shall be liable to pay penalty for the entire period counted from the date of making over the faulty terminals in his repair center to the actual date of repair and delivered including Saturdays, Sundays, and holidays as under ₹ 100/- per day per terminal. 9. Hence, the terms and conditions of the AMC clearly provides tha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... own principles that are applicable to the law of contract, which are to be found inter alia in Section 73 of the Contract Act. 3. Since Section 74 awards reasonable compensation for damage or loss caused by a breach of contract, damage or loss caused is a sine qua non for the applicability of the Section. 4. The Section applies whether a person is a Plaintiff or a Defendant in a suit. 5. The sum spoken of may already be paid or be payable in future. 6. The expression whether or not actual damage or loss is proved to have been caused thereby means that where it is possible to prove actual damage or loss, such proof is not dispensed with. It is only in cases where damage or loss is difficult or impossible to prove that the liquidated amount named in the contract, if a genuine pre-estimate of damage or loss, can be awarded. 7. Section 74 will apply to cases of forfeiture of earnest money under a contract. Where, however, forfeiture takes place under the terms and conditions of a public auction before agreement is reached, Section 74 would have no application. 11. Hence, where a sum is named in a contract as liquidated amount payable by way of damages, the par ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... amed in the contract is by way of penalty, consideration would be different and the party is only entitled to reasonable compensation for the loss suffered. But if the compensation named in the contract for such breach is genuine pre-estimate of loss which the parties knew when they made the contract to be likely to result from the breach of it, there is no question of proving such loss or such party is not required to lead evidence to prove actual loss suffered by him. Burden is on the other party to lead evidence for proving that no loss is likely to occur by such breach. Take for illustration: if the parties have agreed to purchase cotton bales and the same were only to be kept as a stock-in-trade. Such bales are not delivered on the due date and thereafter the bales are delivered beyond the stipulated time, hence there is breach of the contract. Question which would arise for consideration is--whether by such breach party has suffered any loss. If the price of cotton bales fluctuated during that time, loss or gain could easily be proved. But if cotton bales are to be purchased for manufacturing yarn, consideration would be different. 13. Hence, where compensation named in t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... any compensation to any of its customers for the alleged delay in handing over of the handsets? A: I do not know because the compensation, if any, might have been given by the service department of the MTNL. (Vol.) However, MTNL suffered loss for the period the customer remained deprived of the telephone service because of delay by the respondent. Q100: I put it to you that you have not filed any documents to show that MTNL had paid any compensation to its customers for the alleged delay in handing over of handsets. A: It is correct. We have not filed any such document. 18. A perusal of the above 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed to lead evidence to prove actual loss suffered by him. Burden is on the other party to lead evidence for proving that no loss is likely to occur by such breach. Take for illustration: if the parties have agreed to purchase cotton bales and the same were only to be kept as a stock-in-trade. Such bales are not delivered on the due date and thereafter the bales are delivered beyond the stipulated time, hence there is breach of the contract. The question which would arise for consideration is -- whether by such breach the party has suffered any loss. If the price of cotton bales fluctuated during that time, loss or gain could easily be proved. But if cotton bales are to be purchased for manufacturing yarn, consideration would be different . 66. In Maula Bux case the Court has specifically held that it is true that in every case of breach of contract the person aggrieved by the breach is not required to prove actual loss or damage suffered by him before he can claim a decree and the court is competent to award reasonable compensation in a case of breach even if no actual damage is proved to have been suffered in consequence of the breach of contract. The Court has also s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion in case of breach even if no actual damage is proved to have been suffered in consequence of the breach of a contract. (4) In some contracts, it would be impossible for the court to assess the compensation arising from breach and if the compensation contemplated is not by way of penalty or unreasonable, the court can award the same if it is genuine pre-estimate by the parties as the measure of reasonable compensation............ 20. In my opinion, 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. 21. Quantification of damages by an Arbitrator would be within the realm of the learned Arbitrator. Reference may be had to the judgment of Supreme Court in the case of McDermott International Inc. vs. Burn Standard Co. Ltd. and Ors. (2006) 11 SCC 181, where the Court held as follow ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tock Brokers (P) Ltd. v. B.H.H. Securities (P) Ltd. [(2012) 1 SCC 594: (2012) 1 SCC (Civ) 342], this Court held: (SCC pp. 601-02, para 21) 21. A court does not sit in appeal over the award of an Arbitral Tribunal by reassessing or reappreciating the evidence. An award can be challenged only under the grounds mentioned in Section 34(2) of the Act. The Arbitral Tribunal has examined the facts and held that both the second respondent and the appellant are liable. The case as put forward by the first respondent has been accepted. Even the minority view was that the second respondent was liable as claimed by the first respondent, but the appellant was not liable only on the ground that the arbitrators appointed by the Stock Exchange under Bye-law 248, in a claim against a non-member, had no jurisdiction to decide a claim against another member. The finding of the majority is that the appellant did the transaction in the name of the second respondent and is therefore, liable along with the second respondent. Therefore, in the absence of any ground under Section 34(2) of the Act, it is not possible to re-examine the facts to find out whether a different decision can be arrived at. ..... X X X X Extracts X X X X X X X X Extracts X X X X
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