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TMI Blog2025 (2) TMI 586X X X X Extracts X X X X X X X X Extracts X X X X ..... to, the existing yield in their factory was 245 litres per metric tonne of Molasses. Under the agreement, the plant and machinery were to be supplied within a period of five and half months from the effective date of the agreement, i.e., by 15th May 1993, for a total consideration of Rs.93.20 lakhs. 2. According to the appellant, there was a delay of about 24 weeks in the delivery of the machinery. The appellant's case was that four trial runs were conducted on the machinery supplied by the respondent. The yield was much less than the guaranteed yield of 280 litres per metric tonne of Molasses. The maximum yield in trial runs was 237.68 litres per metric tonne of Molasses. Therefore, on 19th October 1994, the appellant issued a legal notice to the respondent claiming a sum of Rs. 237.83 lakhs as damages. As expected, the respondent disputed the said claim. That is how the appellant invoked the arbitration clause by appointing its nominee arbitrator. 3. According to the appellant's case, a memorandum of understanding dated 24th July 1995 (for short, 'the MOU') was executed by and between the parties without prejudice to their rights and contentions. It provided for conduct ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aim for liquidated damages for the delay in delivery of Rs.2.09 lakhs, compensation for actual loss suffered in the yield of alcohol of Rs.21.42 lakhs, and arbitration cost of Rs.1.5 lakhs. 7. The appellant filed an appeal before this Court against the judgment of the High Court. By a judgment and order dated 7th May 2002, this Court set aside the order of the High Court and restored the order of the Civil Court. This Court held that the claim of Rs.107.54 lakhs and interest raised by the appellant was certainly arbitrable before the Arbitral Tribunal and was not beyond the scope of reference. In short, the order of remand passed by the Civil Court was restored by this Court. 8. The award after remand (for short, 'the second award') was made on 24th November 2002 by the Arbitral Tribunal. The second award accepted the following claims: a) Rs.2.09 lakhs as liquidated damages for delay in supply of machinery; b) Rs.18.64 lakhs as damages for actual loss suffered in the yield of alcohol during five performance trials; c) Rs.68.15 lakhs as damages for loss suffered due to nonperforming machinery and equipment; and d) Rs.10.63 lakhs being the past interest leviable on damages ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he learned senior counsel, therefore, submitted that the appellant's claim, to the extent of Rs.68.15 lakhs, deserved to be accepted. 14. Shri Chander Uday Singh, learned senior counsel appearing for the respondent, has also made detailed submissions. The learned senior counsel appearing for the respondent submitted that the finding on the issue of the entitlement of the appellant to the sum of Rs.68.15 lakhs has been correctly recorded by the High Court. The learned senior counsel submitted that Section 74 of the Indian Contract Act, 1872 (for short, 'the Contract Act') makes it clear that where a contract contains a clause stipulating liquidated damages, and the contract is broken, the party complaining of the breach is entitled to receive such sum, not exceeding the mentioned amount. The learned senior counsel also urged that in view of Clause 21 of the agreement, the claim made by the appellant that they were unable to use the machinery cannot be accepted. The learned senior counsel submitted that the High Court had already concluded the issue of the grant of the claim of Rs.107.54 lakhs in the earlier round. He stated that no interference is called for in the view taken b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rated capacities and efficiencies fermentation efficiency minimum 90% yielding 280 litres of alcohol/ton of molasses (47% F.S) and with performance specified in annexure B and D." 17. Clause 15 provided for the penalties and liquidated damages. a. It provided that if the respondent fails to deliver the machinery and equipment within a stipulated time, the respondent shall pay the liquidated damages equal to 0.25% of the contract price for every completed week of delay subject to a maximum of 5% of the contract price for delay in delivery; b. Rs.1 lakh as liquidated damages for every one litre less production of alcohol than guaranteed figures as specified in Annexure B; c. 1% of the contract price, which is equivalent to Rs.93,200/- for every 0.1 kg/1 litre more steam consumption at any stage than guaranteed figures subject to a maximum of 3% of the contract price. d. Rupees 1,39,000/- equivalent to 1.5% of the contract price will be payable as liquidated damages for every 10 kwh more power consumption at any stage than guaranteed figures subject to a maximum of 2% of the contract price. e. The penalties/liquidated damages payable against nonperformance of fermentation ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t of the continuous fermentation plant and machinery under this clause the provisions of the first paragraph of this clause shall apply to the parts of the machinery and equipment so replaced or renewed until the expiration of one month from the date of such replacement or renewal, or until the end of the aforesaid maintenance period of twelve months whichever is later. 21.3 The rectification or new parts will be delivered for purchasers distillery site. The seller shall also bear the cost of rectification / replacement carried out on their behalf by the purchaser as mentioned above at the continuous fermentation plant site. At the end of the maintenance period, seller liability shall case. first paragraph of this clause, the purchaser shall be entitled to benefit of any guarantee given to the seller by the original supplier or the manufacturer of such plant and machinery. 21.4 The responsibility of the seller for rectification replacement under this clause shall extend to the actual cost of rectification / replacement of the defective items of the continuous fermentation plant and machinery and shall not in any way be deemed to be limited to the amount of the performance gua ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that the claim for damages of Rs.107.54 has been concluded against the respondent. The High Court rightly observed that if that were so, this Court would not have confirmed the order of remand to the Arbitral Tribunal even on the said issue. 24. We have already quoted the relevant part of the agreement, particularly clause 8, which contains performance guarantees. Clause 15 is regarding penalties/liquidated damages. Penalties/liquidated damages were stipulated for the delay in delivering machinery and plant, failure to give the guaranteed performance of continuous fermentation plant, failure to provide a guaranteed performance with respect to steam, and failure to give a guaranteed performance with respect to power. Even the rates of liquidated damages have been laid down. 25. Then comes clause 21. Clause 21.1 provided that on the failure of the respondent to replace the defective or underrated equipment within a reasonable time, the appellant had the option to replace the same at the respondent's cost. Under clause 21, it was provided that the responsibility of the seller for rectification/replacement shall extend to the actual cost of rectification/replacement of defective ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f such breach, or if the contract contains any other stipulation by way of penalty, the party complaining of the breach is entitled, whether or not actual damage or loss is proved to have been caused thereby, to receive from the party who has broken the contract reasonable compensation not exceeding the amount so named or, as the case may be, the penalty stipulated for. Explanation.-A stipulation for increased interest from the date of default may be a stipulation by way of penalty. Exception.-When any person enters into any bailbond, recognizance or other instrument of the same nature, or, under the provisions of any law, or under the orders of the Central Government or of any State Government, gives any bond for the performance of any public duty or act in which the public are interested, he shall be liable, upon breach of the condition of any such instrument, to pay the whole sum mentioned therein. Explanation.-A person who enters into a contract with Government does not necessarily thereby undertake any public duty, or promise to do an act in which the public are interested." ( emphasis added ) 29. The appellant got liquidated damages as provided in the agreement ..... X X X X Extracts X X X X X X X X Extracts X X X X
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