Both the parties have not complied with and performed, their reciprocal obligations in time. The delay cannot be attributed to the breaches of reciprocal promises only on the party. The termination, even if accepted, was only with a rider to claim reasonable compensation. If the party, who makes a claim, fails to lead evidence in support of the same, particularly for claiming liquidated damages based upon agreement between the parties, grant of such claim by the Arbitrator, without considering the basic principle of granting such liquidated damages, in our view, is clearly unacceptable and therefore, rightly interfered with by the learned Judge, based upon the facts and the law.
"(g) In Saw Pipes (Supra), the Apex Court has observed that the party who relied upon such clause, may lead evidence to claim more, if the damage/compensation amount is not reasonable. The Court may also direct the parties to lead evidence to confirm that the action of delay amounts to breach of contract and which has caused the damages and therefore, entitled for a reasonable compensation/ amount. The reasonable amount/ compensation cannot be equated with the fixed amount and/or maximum amount as per the liquidated damages clause in question. The observations that other side to prove that the claimant has not suffer any loss or damage itself contemplates necessity of leading evidence by both the parties. The burden is always on the parties who claimed compensation to prove actual loss, even for the reasonable compensation.
IN THE HIGH COURT OF BOMBAY
Appeal No. 11 of 2016 in Arbitration Petition No. 868 of 2014 and Notice of Motion (Stamp) No. 3175 of 2015 in Appeal No. 11 of 2016
Decided On: 31.03.2016
Raheja Universal Pvt. Limited
B.E. Billimoria and Co. Limited
B.E. Billimoria and Co. Limited
Hon'ble Judges/Coram:Anoop V. Mohta and S.C. Gupte, JJ.
Citation:2016(5) MHLJ 229
1. This is an Appeal under Section 37 of the Arbitration and Conciliation Act, 1996 (for short, "the Arbitration Act") filed by the original Respondent-Billimoria & Co., challenging the Judgment of the learned Single Judge dated 27 October 2015 passed in Arbitration Petition filed under Section 34 of the Arbitration Act, whereby, the award passed by the learned Arbitrator dated 27 March 2014 in respect of the claim for wrong deduction of liquidated damages is set aside.
2. Based upon a tender for general building work and civil work in respect of a project called "Raheja Waterfront" on land admeasuring 45 acres situated at Kulai Village, Mangalore, the Respondent submitted its offer. Appellant issued a letter of acceptance on 3 March 2012 and work order on 13 March 2012. The terms and conditions including the reciprocal obligations, were defined. Both the parties acted upon the same accordingly. The parties exchanged various correspondences including e-mails with regard to the various issues relating to the delay in development, non-compliances as well as defective work. The Appellant-Raheja Universal, issued termination notice on 27 December 2012. There was delay of 120 days at the time of termination of the contract. The Respondent replied to the termination notice and filed Arbitration Petition (Lodging) No. 1635 of 2012, on 28 December 2012. On 4 January 2013, an Arbitrator was appointed to adjudicate the disputes between the parties. The contract between the parties was terminated, as the construction could not be completed as per the schedule. That is the case of the Appellant. The Respondent accepted the termination, but reserved its right to make appropriate claims. The parties proceeded before the Arbitrator, based upon the documentary evidence. No oral evidence was led.
3. On 27 March 2014, the award was passed by the Arbitrator holding that the contract was validly terminated and the Appellant is entitled to liquidated damages from the Respondent. The award was modified on 12 July 2014, 15 July 2014 and 31 July 2014. The Respondent, filed Section 34 Petition and challenged the same part of the award.
4. After hearing both the parties and considering the submissions raised, the learned Single Judge, set aside the award. The learned Single Judge, on the issue of termination notice dated 27 December 2012, has recorded in para 26 and 27 as under:-
"26....In the impugned award, the learned arbitrator has not dealt with the validity of the notice period as canvased by the petitioner and simplicitor held the action on the part of the respondent termination valid on the ground that there was gross delay on the part of the petitioner. In my view, the finding of the learned arbitrator is contrary to clause 27 and is perverse."
"27.....I am not inclined to accept the submission of the learned counsel for the respondent that since the petitioner was already issued several notices in past for showing progress of work, separate 15 days notice again for performance of the contract was not warranted or in the alternative that the said notice dated 27th December, 2012 was a 15 days notice as contemplated under section 27. This court cannot permit a party to supplement the reasons rendered by the learned arbitrator by relying upon the pleadings and documents which are not considered by the arbitrator and cannot probe into the mind of an arbitrator and assume that the learned arbitrator must have considered such pleadings, documents and submissions of parties which are not reflected in the award."
5. Both the learned counsel read and referred the award and the reasons given by the learned Judge, apart from the documents placed on record and supporting Judgments. We have noted that once the termination of the contract was held to be not contrary to Clause 27 of the Contract, there was no question of claiming any liquidated damages. Admittedly, the contract was terminated prior to the stipulated date of completion. The Resondent-Billimoria's application for extension of time was not granted by the Petitioner-Raheja Universal.
6. The learned Arbitrator has allowed the claim of liquidated damages, by observing that the same could be claimed even at the interim stage of the work. Admittedly, Raheja Universal has not led any evidence to prove the actual loss suffered due to alleged delay on the part of Respondent-Billimoria. The learned Judge by referring to clauses 7, 4.7, 4.8, 13.10.4 of the General Conditions of contract and the Special Conditions of contract rightly held that liquidated damages could be claimed only if extension was granted for causing delay i.e. @ 0.5% of the contract value per week for delay in completion of the work subject to a maximum of 5% of the contract value. The learned Judge is also right in holding that "the computation and claim for liquidated damages thus could be only for the period of delay beyond the original stipulated date of completion and not for any alleged delay caused to the period by the contractor within the contractual period". We are in agreement after going through those clauses that liquidated damages could not have been claimed phasewise during the extension of the work and before termination of contract. The award of liquidated damages, therefore, has been rightly held to be impermissible. The learned Judge has observed that the Petitioner-Raheja Universal has not challenged any part of the impugned award, including the rejection of the claim for compensation under various other heads, arising out of the stated delay on the part of the Petitioner and therefore, there is no question to decide the validity of that part of the award. Merely because those claims were rejected under other heads, that itself is not sufficient to award the claim for damages for causing alleged delay in the contractual period. The reliance on Indian Drugs and Pharmaceuticals Ltd. Hyderabad vs. Industrial Oxygen Co. Ltd. Poona and Anr. MANU/MH/0207/1985 : AIR 1985 Bombay 186, was therefore, rightly considered as not supporting the Appellant's case. The facts and circumstances were distinct and distinguishable. We are in agreement with the reasoning given by the learned Judge in paras 36 and 37.
7. Both the parties have not complied with and performed, their reciprocal obligations in time. The delay cannot be attributed to the breaches of reciprocal promises only on the party. The termination, even if accepted, was only with a rider to claim reasonable compensation. If the party, who makes a claim, fails to lead evidence in support of the same, particularly for claiming liquidated damages based upon agreement between the parties, grant of such claim by the Arbitrator, without considering the basic principle of granting such liquidated damages, in our view, is clearly unacceptable and therefore, rightly interfered with by the learned Judge, based upon the facts and the law.
8. The Apex Court in Kailash Nath Associates Vs. Delhi Development Authority MANU/SC/0019/2015 : (2015) 4 SCC 136 after dealing with similar contentions as those raised by the learned counsel appearing for the Appellant based upon the various judgments, including ONGC Vs. Saw Pipes Ltd. MANU/SC/0314/2003 : (2003) 5 SCC 705, and Sections 47, 63, 73 and 74 of the Contract Act held as under:-
"43. On a conspectus of the above authorities, the law on compensation for breach of contract under Section 74 can be stated to be as follows:
43.1 Where a sum is named in a contract as a liquidated amount payable by way of damages, the party complaining of a breach can receive as reasonable compensation such liquidated amount only if it is a genuine pre-estimate of damages fixed by both parties and found to be such by the court. In other cases, where a sum is named in a contract as a liquidated amount payable by way of damages, only reasonable compensation can be awarded not exceeding the amount so stated. Similarly, in cases where the amount fixed is in the nature of penalty, only reasonable compensation can be awarded not exceeding the penalty so stated. In both cases, the liquidated amount or penalty is the upper limit beyond which the Court cannot grant reasonable compensation.
43.2 Reasonable compensation will be fixed on well-known principles that are applicable to the law of contract, which are to be found inter alia in Section 73 of the Contract Act.
43.3 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.
43.4 The section applies whether a person is a plaintiff or a defendant in a suit.
43.5 The sum spoken of may already be paid or be payable in future.
43.6 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.
43.7 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."
9. This Court in Hindustan Petroleum Corporation Limited vs. Offshore Infrastructure Limited MANU/MH/1754/2015 : 2015 (6) Mh.L.J. 287 held as under:-
"28. This Court in case of Continental Transport Organisation Pvt. Ltd. v. Oil & Natural Gas Corporation Ltd., decided on 21st April, 2015 in Arbitration Petition No. 372 of 2013 has after adverting to the judgment of the Supreme Court in case of Kailash Nath Associates v. Delhi Development Authority, decided on 9th January, 2015 in Civil Appeal No. 193 of 2015 has held that unless loss is pleaded and proved, it cannot be recovered. There cannot be any windfall in favour of the respondent to recover liquidated damages even if no loss is suffered or proved."
10. Additional factors are also noted by this Court (Coram:-Anoop V. Mohta, J.) in Oil and Natural Gas Corporation Limited, New Delhi Vs. Oil Country Tubular Limited, Hyderabad MANU/MH/0462/2011 : 2011 Vol. 113 (3) L.R. 1417 while dealing with the similar circumstances has observed as under:-
"(g) In Saw Pipes (Supra), the Apex Court has observed that the party who relied upon such clause, may lead evidence to claim more, if the damage/compensation amount is not reasonable. The Court may also direct the parties to lead evidence to confirm that the action of delay amounts to breach of contract and which has caused the damages and therefore, entitled for a reasonable compensation/ amount. The reasonable amount/ compensation cannot be equated with the fixed amount and/or maximum amount as per the liquidated damages clause in question. The observations that other side to prove that the claimant has not suffer any loss or damage itself contemplates necessity of leading evidence by both the parties. The burden is always on the parties who claimed compensation to prove actual loss, even for the reasonable compensation. The other doctrines; "Mitigation of loss", "Burden of Proof", "Onus of proof" and "Shift of burden" just cannot be overlooked by the Court or the Arbitrator, while determining the reasonable compensation."
11. We are inclined to observe that the conclusions of the Hon'ble Supreme Court indicated above in Kailash Nath Associates (supra), concludes the issue in support of the Judgment passed by the learned Judge. We are, therefore, not dealing with the other cases cited by the Appellant, even on other issues.
12. Considering the totality of the matter, including the material placed on record and the interpretation given by the learned Judge after considering the Judgments of the Apex Court and the High Court, we are in agreement with the view expressed by the learned Judge. The impugned order/Judgment of the learned Judge of setting aside the claim of liquidated damages, in the facts and circumstances, and in view of the settled position of law recorded above, and as the same is within the framework of law and the record, is maintained.
13. The Appeal is, therefore, dismissed. There shall be no order to costs.
14. In view of the dismissal of the Appeal, nothing survives in the Notice of Motion and the same is also disposed of accordingly.
15. The learned counsel appearing for the Appellant requested for continuation of status-quo, which is already granted by this Court on 19 November 2015. Considering the submission already made, the status-quo to continue for four weeks from today.