Friday, 1 March 2019

Whether principle of quantum meruit is applicable in case of contractual relation?

Having heard the learned counsel for both sides, one neat
question arises before this Court, which is, whether, when parties are governed by contract, a claim in quantum meruit under Section 70 of the Indian Contract Act, 1872 [“Contract Act”] would be permissible.
Section 70 of the Contract Act reads as under:
“70. Obligation of person enjoying benefit of nongratuitous
act.—Where a person lawfully does anything
for another person, or delivers anything to him, not
intending to do so gratuitously, and such other person
enjoys the benefit thereof, the latter is bound to make
compensation to the former in respect of, or to restore,
the thing so done or delivered.”
This Section occurs in Chapter V of the Contract Act, which chapter is
headed, “of certain relations resembling those created by contract”.
There are five sections that are contained in this Chapter. Each of
them is posited on the fact that there is, in fact, no contractual
relationship between the parties claiming under this Chapter. For
example, under Section 68, if a person incapable of entering into a
contract is supplied necessaries by another person, then the person
who has furnished such supplies becomes entitled to be reimbursed
from the property of the person so incapable of entering into the
contract. Section 69 also deals with a case where a person has no
contractual relationship with the other person mentioned therein, but
who is interested in the payment of money which the other person is
bound by law to pay, and who, therefore, pays it on behalf of such
person. Such person is entitled to be reimbursed by the other person.
Under Section 71, again, the finder of goods spoken of is a person
who is fastened with the responsibility of a bailee as there is no
contractual relationship between the finder of goods and the goods
which belong to another person. Equally, under Section 72, a person to
whom money has been paid or anything delivered by mistake or
coercion must repay or return it, or else, such person would be unjustly
enriched. Here again, there is no contractual relationship between the
parties. It is in this setting that Section 70 occurs.

REPORTABLE
IN THE SUPREME COURT OF INDIA
CIVIL APPELLATE JURISDICTION
CIVIL APPEAL NO.1766 OF 2019

MAHANAGAR TELEPHONE NIGAM LTD. Vs  TATA COMMUNICATIONS LTD.

R.F. NARIMAN, J.
Dated:February 27, 2019.

1. The present appeal arises out of a dispute under the Telecom
Regulatory Authority of India Act, 1997. The relief sought through a
petition before the Telecom Disputes Settlement and Appellate
Tribunal, New Delhi [“TDSAT”] by the respondent, Tata Communication
Ltd. against the appellant, Mahanagar Telephone Nigam Ltd., is for a
recovery of a sum of INR 1,10,57,268/- plus interest thereon. The
question that arose between the parties is whether the appellant was

justified in adjusting this amount from the dues payable to the
respondent by deduction from the bills raised by the respondent. Since
the Purchase Order dated 01.10.2008 forms the basis for the claim, it
is important to set out clauses 4 and 8 of the said Purchase Order as
under:
“4. SCOPE OF ORDER

iv. Termination of the bandwidth on STM-1 would be
done at the MTNL sites/locations in Delhi (Kidwai
Bhawan and Nehru Place) and Mumbai (Fountain Head
& Prabha Devi) respectively as per the requirement with
redundancy in last mile connectivity. For this bandwidth
termination purpose, optical/electrical converter, cable
and any other hardware/software etc. required, if any,
would be arranged by the bidder free of cost.”
xxx xxx xxx
“8. DELIVERY SCHEDULE
(i) The physical connectivity for bandwidth should be
completed within two months from the date of place of
Purchase Order.”
The TDSAT, on considering this Purchase Order, held:
“25. At this stage, it falls for consideration as to what
relief the petitioner is entitled to on the basis of strength
of its own case. For this purpose, it is useful to note at
the outset that the petitioner was required to provide the
last mile connectivity as per paragraph 4(iv) of the P.O.
within two months. It is also not in dispute that petitioner
did not provide the required connectivity not only by

December 2008 but even by time when it chose to
terminate the contract on 11.01.2011. The defence
pleaded and argued on behalf of petitioner is that it was
neither given access to the buildings/premises of the
respondents nor the permission for affecting the last mile
connectivity. This stand was sought to be justified by
placing reliance on Emails written by the petitioner on
01.06.2010 which is more than a year after grant of
permission by Delhi and Mumbai units around March and
April 2009. On going through the communication dated
01.06.2010, it is evident that the plea that respondents
did not allow entry to the petitioner into their premises in
Mumbai has been raised quite belatedly and does not
appear to be correct and convincing. Hence, we find
petitioner’s case to be weak and unacceptable in so far
as it puts the blame totally upon the respondent for its
inability or failure to provide the last mile connectivity. No
doubt there was some delay by the respondents at the
initial stage but that alone cannot justify or absolve
petitioner’s total failure.
26. If we had reliable materials to find out the exact cost
of providing the last mile connectivity at each of the two
premises in Mumbai and Delhi, we would have reduced
that much amount from the claim of the petitioner and
allowed the rest. That would have served the interest of
justice and prevented unjust enrichment of the petitioner.
However, in absence of such reliable materials as to
actual costs which the petitioner has saved by noncompliance
with the requirements of paragraph 4(iv) of
the P.O., we have looked closely at the case of both the
parties and we find that at best the respondents could
have invoked clause 16 and more particularly, clause
16.2 which provide for liquidated damages in certain
eventualities like failure to deliver the stores/services or
to install and commission the project in whole or in part.
The admitted default on the part of the petitioner can
safely be treated as failure or delay affecting the
installation/commissioning of a part of the project
requiring last mile connectivity. In such a case, as per

clause 16.2(b) of the Agreement (P.O.), liquidated
damages can be levied on the affected part of the
project. As per clause 16.2(c), the liquidated damages
must be limited to a maximum of 12%. In the present
case the full amount billed and receivable by the
petitioner for services rendered is disclosed as
Rs.2,15,25,512/-, hence, on account of limitation of 12%,
the respondents could not have levied and deducted an
amount more than Rs.25,83,181/-. Instead of adopting
this lawful course, the respondents proceeded to
unilaterally impose rentals at their own rate of dark fibre.
Such action of the respondents amounts to adjudicating
a claim in its own favour without any authority for such
unilateral act either under Section 70 of the Contract Act
or under any of the provisions of the Contract(P.O.).
xxx xxx xxx
28. As a result of aforesaid discussion, the claim of the
petitioner is allowed but in part only. The principal
amount which the respondent must refund or pay back to
the petitioner would be Rs.1,10,57,268 – Rs.25,83,181=
Rs.84,74,087/-. Petitioner has also claimed an amount of
Rs.66,33,414/- by way of interest from the date the
amounts became due and upto 15.07.2012. It has
calculated this amount by applying a rate of 18%. The
calculations are in Annexure P-14 which discloses the
dates when the short payments were made after
deductions. We are not persuaded to allow interest @
18% in absence of any such stipulation in the Agreement
(P.O.). Hence, while allowing the principal amount of
Rs.84,74,087/- in favour of the petitioner, we direct
payment of interest at the rate of 9% from the date the
amounts became due upto the date of this
judgment/order.”
2. Having heard the learned counsel for both sides, one neat
question arises before this Court, which is, whether, when parties are governed by contract, a claim in quantum meruit under Section 70 of the Indian Contract Act, 1872 [“Contract Act”] would be permissible.
Section 70 of the Contract Act reads as under:
“70. Obligation of person enjoying benefit of nongratuitous
act.—Where a person lawfully does anything
for another person, or delivers anything to him, not
intending to do so gratuitously, and such other person
enjoys the benefit thereof, the latter is bound to make
compensation to the former in respect of, or to restore,
the thing so done or delivered.”
This Section occurs in Chapter V of the Contract Act, which chapter is
headed, “of certain relations resembling those created by contract”.
There are five sections that are contained in this Chapter. Each of
them is posited on the fact that there is, in fact, no contractual
relationship between the parties claiming under this Chapter. For
example, under Section 68, if a person incapable of entering into a
contract is supplied necessaries by another person, then the person
who has furnished such supplies becomes entitled to be reimbursed
from the property of the person so incapable of entering into the
contract. Section 69 also deals with a case where a person has no
contractual relationship with the other person mentioned therein, but
who is interested in the payment of money which the other person is
bound by law to pay, and who, therefore, pays it on behalf of such
person. Such person is entitled to be reimbursed by the other person.
Under Section 71, again, the finder of goods spoken of is a person
who is fastened with the responsibility of a bailee as there is no
contractual relationship between the finder of goods and the goods
which belong to another person. Equally, under Section 72, a person to
whom money has been paid or anything delivered by mistake or
coercion must repay or return it, or else, such person would be unjustly
enriched. Here again, there is no contractual relationship between the
parties. It is in this setting that Section 70 occurs.
3. An early judgment reported as Moselle Solomon v. Martin &
Co., ILR (1935) 62 Cal 612 resulted in a split verdict between the two
judges on the point of whether Section 70 of the Contract Act can
apply when there is, in fact, a contract between the parties. Lort-
Williams, J. held:
“There remains to be decided the question whether the
second defendant is liable under section 70 of the Indian
Contract Act and to what extent. The remedy provided by
this section is not dependent upon the law relating to the
liabilities of principal and agent. It is an independent
remedy, which is based upon a different cause of action,
namely, upon whether a person has lawfully done
anything for another or has delivered anything to him not
intending to do so gratuitously, and such other person
has enjoyed the benefit thereof. If so, he must either
make compensation in respect of, or restore the thing so
done or delivered.”
(at page 619)
On the other hand, Jack, J. held:
“As regards the appeal, it is clear that the second
defendant cannot be held liable under section 70 of the
Contract Act, in as much as this is a case of contract
and, where there is an express contract, section 70 has
no application, as shown by the heading of Chapter V of
the Act, in which the section finds a place. It is headed
“Of Certain Relations Resembling Those Created by
Contract”, evidently excluding relations actually created
by contract, as in this case. The Contract Act is,
however, not exhaustive.”
(at page 623)
4. In Kanhayalal Bisandayal Bhiwapurkar (Dr.) v. Indarchandji
Hamirmalji Sisodia, AIR 1947 Nag 84, a learned Single Judge of the
High Court was dealing with an application by an eye-specialist of
repute who wished to recover an amount of INR 188/- as the price of
professional work, i.e., getting a cataract removed in accordance with
an agreement with one Mt. Laxmibai and her son-in-law, Mohan Lal,
by which agreement, the said operation was to be performed. An
appeal to Sections 68 and 70 of the Contract Act was turned down in
the following terms:
7
“10. In the course of the argument, an appeal was made
to the principles underlying Ss. 68 and 70, Contract Act,
for making the husband liable. Indeed S. 68, deals with
the supply of necessaries but that is in respect of a
person incapable of entering into a contract or “any one
whom he is legally bound to support”, i.e. the dependent
of a person incompetent to contract. Indarchandji was
not incompetent to contract and this section is
inapplicable to him. As to S. 70, it must be observed that
this section cannot be availed of by a person who relies
on an express contract as the plaintiff alleged to have
entered into with Mt. Laxmibai in this case. The husband
never entered into the picture when the plaintiff settled
the terms with her. Nor is there anything to show how the
husband received any benefit. It is only actual benefit
which will famish a ground of action. If the wife had been
cured of her ailment completely, perhaps that
circumstance might be material; but there is no evidence
on the point.”
5. In Alopi Parshad and Sons Ltd. v. Union of India, (1960) 2
SCR 793, this Court dealt with an arbitration award which, inter alia,
awarded certain amount on the basis of quantum meruit. In setting
aside the Award on the ground of error apparent on the face of the
record, this Court held:
“…… Ghee having been supplied by the Agents under
the terms of the contract, the right of the Agents was to
receive remuneration under the terms of that contract. It
is difficult to appreciate the argument advanced by Mr.
Chatterjee that the Agents were entitled to claim
remuneration at rates substantially different from the
terms stipulated, on the basis of quantum meruit.
Compensation quantum meruit is awarded for work done

or services rendered, when the price thereof is not fixed
by a contract. For work done or services rendered
pursuant to the terms of a contract,
compensation quantum meruit cannot be awarded where
the contract provides for the consideration payable in
that behalf. Quantum meruit is but reasonable
compensation awarded on implication of a contract to
remunerate, and an express stipulation governing the
relations between the parties under a contract, cannot be
displaced by assuming that the stipulation is not
reasonable……”
(at page 809)
6. In Mulamchand v. State of M.P., (1968) 3 SCR 214, this Court
held that the provisions of Section 175(3) of the Government of India
Act are mandatory in character and based on public policy. Therefore,
the formalities that are stipulated when contracts are entered into on
behalf of the Government cannot be waived or dispensed with. In
dealing with a claim made under Section 70 of the Contract Act, this
Court then went on to hold:
“…… In other words, if the conditions imposed by
Section 70 of the Indian Contract Act are satisfied then
the provisions of that section can be invoked by the
aggrieved party to the void contract. The first condition is
that a person should lawfully do something for another
person or deliver something to him; the second condition
is that doing the said thing or delivering the said thing he
must not intend to act gratuitously; and the third
condition is that the other person for whom something is
done or to whom something is delivered must enjoy the
benefit thereof. If these conditions are satisfied, Section

70 imposes upon the latter person the liability to make
compensation to the former in respect of, or to restore,
the thing so done or delivered. The important point to
notice is that in a case falling under Section 70 the
person doing something for another or delivering
something to another cannot sue for the specific
performance of the contract, nor ask for damages for the
breach of the contract, for the simple reason that there is
no contract between him and the other person for whom
he does something or to whom he delivers something.
So where a claim for compensation is made by one
person against another under Section 70, it is not on the
basis of any subsisting contract between the parties but
on a different kind of obligation. The juristic basis of the
obligation in such a case is not founded upon any
contract or tort but upon a third category of law, namely,
quasi-contract or restitution……”
(at pp. 221-222)
7. This judgment has been recently referred to and followed in
Orissa Industrial Infrastructure Development Corpn. v. Mesco
Kalinga Steel Ltd., (2017) 5 SCC 86 at paragraph 21.
8. Indeed, the aforesaid position in law is made clearer by Section
73 of the Contract Act. Section 73 reads as follows:
“73. Compensation for loss or damage caused by
breach of contract.— When a contract has been
broken, the party who suffers by such breach is entitled
to receive, from the party who has broken the contract,
compensation for any loss or damage caused to him
thereby, which naturally arose in the usual course of
things from such breach, or which the parties knew,

when they made the contract, to be likely to result from
the breach of it.
Such compensation is not to be given for any remote
and indirect loss or damage sustained by reason of the
breach.
Compensation for failure to discharge obligation
resembling those created by contract.—When an
obligation resembling those created by contract has
been incurred and has not been discharged, any person
injured by the failure to discharge it is entitled to receive
the same compensation from the party in default, as if
such person had contracted to discharge it and had
broken his contract.
Explanation.—In estimating the loss or damage arising
from a breach of contract, the means which existed of
remedying the inconvenience caused by the nonperformance
of the contract must be taken into account.”
9. This Section makes it clear that damages arising out of a
breach of contract is treated separately from damages resulting from
obligations resembling those created by contract. When a contract has
been broken, damages are recoverable under paragraph 1 of Section
73. When, however, a claim for damages arises from obligations
resembling those created by contract, this would be covered by
paragraph 3 of Section 73.
10. Indeed, the present case is really covered by Section 74 of the
Contract Act, which occurs in Chapter VI, which is headed, “of the
consequences of breach of contract”. Section 74 states:
11
“74. Compensation for breach of contract where
penalty stipulated for.— 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, 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 any 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.”
11. In Kailash Nath Associates v. DDA, (2015) 4 SCC 136, after
considering the case law on Section 74, this Court held:
“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 wellknown
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.”

12. In the present case, clauses 16.2 to 16.4 are relevant, and are
set out as under:
“16.2 (a) FOR DELIVERY OF STORES:
Should the supplier fail to deliver the
store/services or any consignment thereof
within the period prescribed for delivery, the
purchaser shall be entitled to recover 0.5% of
the value of the delayed supply for each week
of delay or part thereof for a period up to 10
(TEN) weeks and thereafter at the rate of 0.7%
of the value of the delayed supply for each
week of delay or part thereof for another TEN
weeks of delay. In the case of package supply
where the delayed portion of the supply
materially hampers installation and
commissioning of the systems, L/D charges
shall be levied as above on the total value of
the concerned package of the Purchase Order.
However, when supply is made within 21 days
of QA clearance in the extended delivery
period, the consignee may accept the stores
and in such cases the LD shall be levied upto
the date of QA clearance.
16.2 (b) FOR INSTALLATION & COMMISSIONING
Should the supplier fail to install and
commission the project within the stipulated
time the purchaser shall be entitled to recover
0.5% of the value of the purchase order for
each week of delay or part thereof for a period
upto 10 (TEN) weeks and thereafter @ 0.7% of
the value of purchase order for each week of
delay or part thereof for another 10 (TEN)
weeks of delay. In cases, where the delay
affects installation/commissioning of part of the

project and part of the equipment is already in
commercial use, then in such cases, LD shall
be levied on the affected part of the project.
16.2 (c). The Liquidated Damages, as per Clause 16.2
(a) and 16.2 (b) above shall be limited to a maximum of
12%, even in case the DP extension is given beyond 20
weeks.
16.3. Provisions contained in Clause 16.2(a) shall not be
applicable for durations (periods) which attract L.D.
against clause 16.2(b) above.
16.4. Quantum of liquidated damages assessed and
levied by the purchaser shall be final and not
challengeable by the supplier.”
13. As has been correctly held by the impugned judgment, a
maximum of 12% can be levied as liquidated damages under the
contract, which sum would amount to a sum of INR 25 lakh. Since this
clause governs the relations between the parties, obviously, a higher
figure, contractually speaking, cannot be awarded as liquidated
damages, which are to be considered as final and not challengeable
by the supplier. This being the case, the appellant can claim only this
sum. Anything claimed above this sum would have to be refunded to
the respondent.
15
14. In this view of the matter, we uphold the impugned judgment of
the TDSAT and dismiss the present appeal.
…………………………..J.
(R.F. NARIMAN)
.…………………………..J.
(VINEET SARAN)
New Delhi;
February 27, 2019.

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