A contractor challenged an arbitral award imposing liquidated damages for delayed construction, alleging absence of proof of actual loss. The court found no patent illegality warranting interference and dismissed the appeal without costs.
This page shows the compact analysis of this judgement. The full analysis — procedural history, issue-by-issue holdings with ratio and obiter, advocates, and paragraph-level evidence for every claim — is being added to the record in batches and will appear here when this judgement has been through it.
FAO-2731-2020(O&M)
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IN�THE�HIGH�COURT�OF�PUNJAB�AND�HARYANA�AT� CHANDIGARH
FAO-2731-2020(O&M) Date�of�Decision:�10.10.2022
M/s.�Amar�Chand�Sharma�Engineers�and�Contractors�and� another ......�Appellant(s) Versus
......�Appellant(s)
The�Registrar�Cooperative�Societies�Punjab,�Chandigarh�and� another�
....�Respondent(s)
CORAM:-���HON'BLE�MRS.�JUSTICE�LISA�GILL
Present: Mr.Naresh Markanda, Senior Advocate with Mr.Rohan Markanda, Advocate for the appellant.
Mr. R.K. Sharma, Advocate for respondent no.2.
LISA�GILL,�J.
Appellant-Contractor has filed this appeal challenging order dated 13.03.2020, passed by learned Additional District Judge, Chandigarh whereby objections under Section 34 of the Arbitration and Conciliation Act, 1996 (for short the Arbitration Act) preferred by it have been dismissed. Appellant also seeks setting aside of the Arbitral award dated 07.04.2006, passed by the Arbitrator.
Brief facts necessary for adjudication of the matter are that agreement dated 04.07.1995 was entered into between the parties for construction of a building for the bank at Sector 34, Chandigarh at an approved value of Rs.4,20,59,151/-, with the work to be completed within 24 months. According to the agreement, contract work was to start from 07.07.1995. As per the claimant-
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bank, the contractor-appellant could not complete the work within the stipulated period, on which time limit for completion of constitution was extended up to 14.10.1997, thereafter to 31.12.1997 and finally up to 31.10.1998. However, work was not completed even during the extended period. Executive Engineer/Incharge of the construction work of the bank vide registered letter dated 15.07.1999 levied 10% penalty of the total estimated cost of the work i.e. Rs.42,00,000/- under Clause 27 of Agreement and asked the contractor to resume work within 10 days, failing which action under clause 31 of the contract agreement it is stated would be taken. Thereafter, letter dated 28.07.1999 was issued noting that though work has been resumed but the progress is very slow and that the work should be completed at the earliest. When the work was still not completed, letter dated 25.09.1999 was issued by the claimant-bank mentioning in detail the communications to the respondent-contractor and the factum of the work not being completed within the stipulated period. Accordingly, action under clause 31(b) and (c) of the contract agreement for execution and completion of the balance work either departmentally or through other agency after re-allotment of the work, it is stated was taken.
As per said clause excess amount incurred over and above the rates as per terms and conditions of the agreement are recoverable from the contractor.
Subsequent to issuance of letter dated 25.09.1999, the contractor i.e. the present appellant filed an appeal seeking waiver of penalty imposed vide memo dated 15.07.1999, which was
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disposed of on 06.03.2000 by the Registrar Cooperative Society, Punjab while observing as under:-
“I tend to agree with the contention of the Bank that in a job of this magnitude, the contractor should have envisaged some difficulties and delays. The Bank has been extremely liberal with him by allowing repeated extensions and opportunities to complete the work. The applicant has not admitted any delay on his part, whereas the Bank has admitted delay of 241 days against which it has allowed extension of 693 days, which I feel are sufficient to enable the applicant to complete the work, despite difficulties. Even after imposing the penalty of Rs.42.00 lakh on 15.7.1999 which the Bank is entitled to as per clause 27 of the agreement of 4.7.1995, the Bank provided him sufficient opportunity to complete the work. It has been admitted by the applicant that he has done work of more than Rs.9.00 lakh after 15.7.1999, but the work is still not complete. In these circumstances, I find no merit in the contention of the applicant that he has been penalized for delay in completion of work which is not his creation. He has not been able to mobilize enough resources to complete the work and as a result, the building is still incomplete. Thus, the penalty of Rs. 42.00 lakh by the Bank vide its letter No.Tech Cell/6645 dated 15.7.1999 as per clause 27 has been rightly imposed and therefore the prayer of applicant to waive of the penalty is rejected being without merit.”
The bank was held entitled to impose 10% amount of the established cost but in case any amount of the contractor was being retained beyond provisions of Agreement, the contractor would be entitled to receive such amount. In respect to nonscheduled items it was held that as per Clause 17 of the agreement, it was incumbent upon the contractor to undertake such other works
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as may be necessary. The bank and the applicant, it was ordered, would settle the rates thereof and determine final payment and in case payments retained by the bank are over and above the penalty that can be levied on the total amount that can be retained by the Bank, the same also need to be settled. Application of the contractor was thus disposed of accordingly.
In the meantime, after termination of the contract by the claimant-bank on 25.09.1999 the bank allotted the work to other entities for completion of the balance work and claimed that amount of Rs.2,67,233/- and Rs.2,65,799/- was incurred for completion of the balance work left out from being done by the contractor.
A civil suit seeking declaration was filed by the contractor pursuant to passing of order dated 06.03.2000.The bank filed an application under Section 8 of the Arbitration and Conciliation Act, 1996. Learned trial Court directed the parties to approach the Arbitrator - Mr. C.M. Sharma, Punjab, Chandigarh in accordance with the agreement with the bank. Application for rectification of said order dated 08.05.2001, passed by the learned trial Court was moved by the bank pointing out that the name of Mr. C.M. Sharma was a typographical mistake as it is the Registrar Cooperative Society, who was the Arbitrator in terms of the contract agreement. This application was allowed by the learned trial Court on 04.04.2000. Same was challenged by the contractor vide Civil Revision No.3052 of 2003, which was dismissed by this High Court on 28.07.2003 holding that there is no illegality in the order of learned trial Court holding the arbitration to be before the Registrar Cooperative Societies. This order was admittedly upheld by the
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Hon’ble Supreme Court in SLP No.1959/2004, filed by the contractor.
Accordingly, proceedings before the Arbitrator i.e. the Registrar Cooperative Societies were carried on and concluded. Learned Arbitrator concluded that penalty of 10% had been correctly imposed by the bank as sufficient time had been afforded to the contractor to complete the work. In spite of extension of over a year and quarter the contractor, it was concluded, failed to finish the work and furthermore there was nothing on record to indicate that the bank was responsible for the delay. The bank it was held, had established that penalty of Rs.42,00,000/-, which was imposed as a last resort after due consideration was valid and within the ambit of agreement between the parties. The amount of Rs.2,65,799/- raised by the bank on account of bills paid for removal of defects was found to be valid but claim of Rs.2,67,733/on account of completion of balance work was not awarded to the bank. It was noted that as per the bank itself a sum of Rs.31,33,192/was payable to the contractor, therefore, said amount was to be deducted from the amount sought to be recovered by the bank. The Arbitrator thus awarded sum of Rs.13,32,607/- with interest @ 15% per annum from 25.09.1999 till the date of arbitral award i.e. 14.03.2003 and thereafter as per the Act with the details as under:Amount of penalty imposed on respondent Rs.42,00,000/Contractor: Amount of work done at the cost of Contractor:
i) On account of removal of defects by M/s Soni Rs.2,65,799/Construction: Sub Total Rs.44,65,799/-
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Less amount lying with the Bank: Rs.31,33,192/-
Total Rs.13,32,607/-
Objections filed by the contractor under Section 34 of
the Arbitration Act were dismissed by the learned Additional District Judge, Chandigarh vide impugned order dated 13.03.2020 finding no merit therein. Aggrieved therefrom present appeal has been filed.
Learned counsel for the appellant raised various arguments but was unable to deny that keeping in view order dated 13.08.2020, passed in this appeal, it is only one question which would remain alive for consideration i.e. whether the bank was liable to prove actual damages, if any, even in the face of a specific clause for liquidated damages in the agreement, in view of the judgment of the Hon’ble Supreme Court in Kailash Nath Associates
Vs. Delhi Development Authority and another, 2015(4), SCC 136 . It was argued that the award suffers from a patent illegality on this account and thus should be set aside.
Learned counsel for respondent no.2 refuted the argument/s raised on behalf of the appellants and sought dismissal of this appeal.
At this stage it is relevant to refer to order dated 13.08.2020, passed by the co-ordinate Bench, which reads as under:-
“Challenge�in�the�present�appeal�has�been� directed�against�order�dated�13.03.2020�passed�by�the� Additional� District� Judge,� Chandigarh� whereby� objections�filed�under�Section�34�of�the�Arbitration�and� Conciliation�Act,�1996�(in�short�'the�Act')�against� award�dated�07.04.2006�(Annexure�A1)�passed�by�the�
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Registrar,� Cooperative� Societies,� Punjab� (Sole� Arbitrator)�have�been�dismissed�and�award�has�been� upheld.��
Counsel�for�the�appellants�has�assailed�the� impugned�order�primarily�on�two�counts.�It�has�been� argued�that�as�per�the�agreement�dated�04.07.1995� entered�between�the�parties�for�construction�of�bank� building�in�Sector�34,�Chandigarh�at�an�approved�value� of�Rs.4,20,59,151/-,�the�work�was�to�be�completed� within�24�months.�The�time�limit�for�completion�of� work�was�extended�upto�14.10.1997�and�then�to� 31.12.1997�and�finally�upto�31.10.1998.�It�is�argued� that�as�the�last�extension�for�completion�of�work� expired�on�31.10.1998,�order�imposing�penalty�of� Rs.42�lakhs�under�Clause�27�of�the�agreement�vide� registered�letter�dated�15.07.1999�cannot�be�allowed�to� sustain.�For�this�purpose,�reliance�has�been�placed�upon� judgment�of�Hon'ble�the�Supreme�Court�JG�Engineers� Private�Ltd.�Vs.�Union�of�India�and�anr.,�2011(5)�SCC� 758.��
The�second�submission�made�by�counsel�for�the� appellants�is�that�even�if�there�was�agreement�for� payment�of�liquidated�damages�(Clause�27),�respondent� No.2�i.e.�the�Punjab�State�Cooperative�Bank�Ltd.� (hereinafter�referred�to�as�'the�bank')�has�to�prove�actual� damages,�if�any,�suffered�by�the�bank�on�account�of� delay�in�execution�of�work�by�the�appellants.�In�support� of�his�contention,�he�has�relied�upon�judgment�of� Hon'ble�the�Supreme�Court�KailashNath�Associates�Vs.� Delhi�Development�Authority�and�anr.,�2015(4)�SCC� 136.�
Indisputably,�delay�in�execution�of�the�work�has� been�attributed�to�the�appellants.�Counsel�for�the� appellants�is�fair�enough�to�concede�that�the�said� factual�finding�is�not�amenable�to�challenge�in�appeal�
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as�the�appeal�can�be�entertained�only�on�legal� questions.��
Counsel�for�the�appellants�has�not�challenged� correctness�of�findings�of�the�Arbitrator�with�regard�to� various�dates,�relevant�in�the�present�context.�The� extended�period�was�from�earlier�date�of�finishing�the� contract�which�is�05.07.1997�upto�31.10.1998.�In�spite� of�extension�of�over�a�year�and�quarter,�the�contractor� failed�to�finish�the�work�contracted�for.�It�took�another� 8½�months�before�letter�dated�15.07.1999�was�issued�to� the�contractor�by�the�bank�imposing�10%�penalty�of�the� estimated�cost�amounting�to�Rs.42�lakhs.�In�spite�of� invoking�penalty�clause,�the�bank�vide�letter�dated� 28.07.1999�still�asked�the�contractor�to�complete�the� work�and�also�issued�him�a�notice�as�per�Clause�31�of� the�agreement.�Getting�no�response�even�after�2�months� of�issuance�of�this�letter,�in�spite�of�a�proper�notice�of� 25.09.1999,�the�bank�finally�determined�that�the� contractor�was�not�willing�to�complete�the�work�and� hence,�invoked�Clause�31(i)(b)&(c)�cancelling�the� contract�and�undertaking�to�get�it�completed�from�other� agencies.��
In�JG�Engineers�Private�Ltd.'s�case�(supra),� Hon'ble�the�Supreme�Court,�in�para�30�of�the�judgment� has�held,�quoted�thus:-��
As�noticed�above,�the�stipulated�date�for� completion�was�9.1.1995.�The�respondents� granted�the�first�extension�upto�31.7.1995� without�levy�of�liquidated�damages,�vide�letter� dated�24.8.1995.�In�fact�the�respondent�had�paid� the�escalation�in�prices�under�clause�10(cc)�upto� June�1995.�The�contractor�was�however� permitted�to�continue�the�work�without�levy�of� any�liquidated�damages,�until�termination�on� 14.3.1996.�It�was�only�on�30.9.1999�after�the� contractor�had�submitted�its�statement�of�claim�
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on�17.4.1997,�the�respondents�chose�to�levy� liquidated�damages�for�the�period�10.01.1995�to� 14.3.1996.�In�view�of�the�finding�of�the� Arbitrator�that�the�contractor�was�not�responsible� for�the�delay,�the�contractor�was�entitled�to� second�extension�from�1.8.1995�also�without� levy�of�penalty.�In�fact,�having�extended�the�time� till�31.7.1995�without�any�levy�of�liquidated� damages,�the�respondents�could�not�have� retrospectively�levied�liquidated�damages�on� 30.9.1999�from�10.1.1995.�Be�that�as�it�may.��
When�the�facts�of�the�referred�authority�are� compared�with�the�aforesaid�facts�noticed�in�the�award� of�the�Arbitrator,�the�appellants�cannot�derive�any� advantage�to�their�contention�from�what�has�been�held� in�para�30�quoted�hereinbefore.�In�the�referred�case,�the� appellant�was�not�held�responsible�for�delay.�On�the� contrary,�the�respondent�had�paid�the�escalation�in� price�under�Clause�10(cc)�upto�June,�1995.�The� contractor�was�permitted�to�continue�the�work�without� levying�any�liquidated�damages�until�termination�on� 14.03.1996.�It�was�only�on�30.09.1999,�the�respondents� chose�to�levy�liquidated�damages�for�the�period� 10.01.1995�to�14.03.1996.�In�the�given�circumstances,� it�was�held�that�having�extended�time�till�31.07.1995� without�levy�of�liquidated�damages,�the�respondents� could�not�have�retrospectively�levied�liquidated� damages�on�30.09.1999�from�10.01.1995.�Counsel�for� the�appellants�has�failed�to�draw�similarity�between� facts�of�the�case�of�referred�authority�vis-a-vis�facts�of� the�case�in�hand�to�convince�this�Court�that�the� judgment�passed�in�JG�Engineers�Private�Ltd.'s�case� (supra)�has�bearing�thereon.� In�this�view�of�the� matter,�first�contention�raised�by�the�appellants�is�
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fallacious�and�accordingly�rejected .�(emphasis� added)��
In�order�to�appreciate�second�contention�in�the� light�of�para�43.6�of�the�judgment�in�Kailash�Nath� Associates's�case�(supra),�it�is�necessary�to�go�through� the�original�records�to�find�out�if�the�appellants�raised�a� factual�dispute�before�the�Arbitrator�and�later�the�Court� that�the�respondent�is�required�to�prove�actual�damage� or�loss�and�it�is�possible�for�the�respondent�to�prove�the� same.�
Let�original�records�of�Arbitration�case�No.483� of�2013�be�sent�for.��
Be�listed�on�06.10.2020.”
Perusal of the file reveals that notice of motion was issued by another co-ordinate bench on 07.01.2021 while noting the contention of learned Senior Counsel for the appellants that even though, there was a clause regarding liquidated damages in the contract the respondents were bound to prove the actual loss suffered on account of delay and that this matter has been ignored by the learned Court/the Arbitrator.
It is pertinent to note that the scope of interference in a petition under Section 37 of the Arbitration Act is limited. Admittedly, an award can be set aside under Sections 34/37 of the Arbitration Act on the limited grounds as are provided in the Act.
Section 34(1), (2) and (2A) of the Arbitration Act read as under:-
“34�Application�for�setting�aside�arbitral�award.�—� (1)�Recourse�to�a�Court�against�an�arbitral�award�may�be� made�only�by�an�application�for�setting�aside�such�award�in� accordance�with�sub-section�(2)�and�sub-section�(3).�
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(2)�An�arbitral�award�may�be�set�aside�by�the�Court�only�if—�
(i)�a�party�was�under�some�incapacity,�or�
(iii)�the�party�making�the�application�was�not�given� proper�notice�of�the�appointment�of�an�arbitrator�or�of� the�arbitral�proceedings�or�was�otherwise�unable�to� present�his�case;�or�
(iv)�the�arbitral�award�deals�with�a�dispute�not� contemplated�by�or�not�falling�within�the�terms�of�the� submission�to�arbitration,�or�it�contains�decisions�on� matters�beyond�the�scope�of�the�submission�to� arbitration:�
Provided�that,�if�the�decisions�on�matters�submitted�to� arbitration�can�be�separated�from�those�not�so� submitted,�only�that�part�of�the�arbitral�award�which� contains�decisions�on�matters�not�submitted�to� arbitration�may�be�set�aside;�or�
(v)�the�composition�of�the�arbitral�tribunal�or�the� arbitral�procedure�was�not�in�accordance�with�the� agreement�of�the�parties,�unless�such�agreement�was�in� conflict�with�a�provision�of�this�Part�from�which�the� parties�cannot�derogate,�or,�failing�such�agreement,�was� not�in�accordance�with�this�Part;�or”�
�����(b)�the�Court�finds�that—��
(i)�the�subject-matter�of�the�dispute�is�not�capable�of� settlement�by�arbitration�under�the�law�for�the�time�being�in� force,�or��
(ii)�the�arbitral�award�is�in�conflict�with�the�public�policy�of� India.���
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[Explanation�1.—For�the�avoidance�of�any�doubt,�it�is� clarified�that�an�award�is�in�conflict�with�the�public�policy�of� India,�only�if,—��
(i)�the�making�of�the�award�was�induced�or�affected�by� fraud�or�corruption�or�was�in�violation�of�section�75�or� section�81;�or��
(ii)�it�is�in�contravention�with�the�fundamental�policy�of� Indian�law;�or��
(iii)�it�is�in�conflict�with�the�most�basic�notions�of� morality�or�justice.��
Explanation�2.—For�the�avoidance�of�doubt,�the�test�as�to� whether�there�is�a�contravention�with�the�fundamental�policy� of�Indian�law�shall�not�entail�a�review�on�the�merits�of�the� dispute.]���
[(2A)�An�arbitral�award�arising�out�of�arbitrations�other�than� international�commercial�arbitrations,�may�also�be�set�aside� by�the�Court,�if�the�Court�finds�that�the�award�is�vitiated�by� patent�illegality�appearing�on�the�face�of�the�award:��
Provided�that�an�award�shall�not�be�set�aside�merely�on�the� ground�of�an�erroneous�application�of�the�law�or�by� reappreciation�of�evidence.]�
It is specifically provided in Explanation 2 of Section 34(2) of the Arbitration Act, that the test as to whether there is contravention of fundamental policy of Indian law shall not entail a review on the merits of the dispute. In this regard reference can be made to a recent judgment of the Hon’ble Supreme Court in
Haryana Tourism Limited Vs. M/s Kandhari Beverages Ltd., 2022(3) SCC 237 .
The Hon’ble Supreme Court in State of Chhatisgarh and another Vs. M/s. Sal Udyog Private Limited, 2021 AIR (SC) 5503 has observed that the law on interference in matters of Awards
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under the Arbitration Act has been circumscribed with the object of minimizing interference by courts in arbitration matters. While observing that an award may be set aside on the ground of “patent illegality”, it was held as under:-
“What�would�constitute�"patent�illegality"�has�been� elaborated�in� Associate�Builders�v.�Delhi�Development� Authority,�[2015]�3�SCC�49 ,�where�"patent�illegality"�that� broadly�falls�under�the�head�of�"Public�Policy",�has�been� divided�into�three�sub-heads�in�the�following�words:-�
"...42.�In�the�1996�Act,�this�principle�is�substituted�by�the� "patent�illegality"�principle�which,�in�turn,�contains�three� subheads:�42.1.�(a)�A�contravention�of�the�substantive�law�of� India�would�result�in�the�death�knell�of�an�Arbitral�Award.� This�must�be�understood�in�the�sense�that�such�illegality�must� go�to�the�root�of�the�matter�and�cannot�be�of�a�trivial�nature.� This�again�is�really�a�contravention�of�Section�28(1)(a)�of�the� Act,�which�reads�as�under:��
"28.�Rules�applicable�to�substance�of�dispute. �-�(1)�Where� the�place�of�arbitration�is�situated�in�India-�(a)�In�an� arbitration�other�than�an�international�commercial�arbitration,� the�Arbitral�Tribunal�shall�decide�the�dispute�submitted�to� arbitration�in�accordance�with�the�substantive�law�for�the�time� being�in�force�in�India;"�42.2.�(b)�A�contravention�of�the� Arbitration�Act�itself�would�be�regarded�as�a�patent�illegality� -�for�example�if�an�arbitrator�gives�no�reasons�for�an�award�in� contravention�of�Section�31(3)�of�the�Act,�such�award�will�be� liable�to�be�set�aside.�42.3.�(c)�Equally,�the�third�subhead�of� patent�illegality�is�really�a�contravention�of�Section�28(3)�of� the�Arbitration�Act,�which�reads�as�under:��
"28.�Rules�applicable�to�substance�of�dispute .�-�(1)�-�(2)� ***�(3)�In�all�cases,�the�Arbitral�Tribunal�shall�decide�in� accordance�with�the�terms�of�the�contract�and�shall�take�into� account�the�usages�of�the�trade�applicable�to�the�transaction."� This�last�contravention�must�be�understood�with�a�caveat.�An�
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Arbitral�Tribunal�must�decide�in�accordance�with�the�terms�of� the�contract,�but�if�an�arbitrator�construes�a�term�of�the� contract�in�a�reasonable�manner,�it�will�not�mean�that�the� award�can�be�set�aside�on�this�ground.�Construction�of�the� terms�of�a�contract�is�primarily�for�an�arbitrator�to�decide� unless�the�arbitrator�construes�the�contract�in�such�a�way�that� it�could�be�said�to�be�something�that�no�fair-minded�or� reasonable�person�could�do."�(emphasis�added)
Reference has been made in the abovesaid case to the earlier decision of the Hon’ble Supreme Court in Ssangyong Engineering and Construction Company Ltd. Vs. National Highways Authority of India (NHAI), [2019] 15 SCC 131 as
under:-
“14. In Ssangyong Engineering and Construction
Company Ltd. Vs. National Highways Authority of India
(NHAI), [2019] 15 SCC 131 , speaking for the Bench, Justice R.F. Nariman has spelt out the contours of the limited scope of judicial interference in reviewing the Arbitral Awards under the 1996 Act and observed thus:
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34(2)(b)(ii) and Explanation 2 to Section 48(2)(b)(ii) was added by the Amendment Act only so that Western Geco [ ONGC v. Western Geco International Ltd., (2014) 9 SCC 263 (2014) 5 SCC (Civ) 12 ], as understood in Associate Builders [ Associate Builders v. DDA (2015) 3 SCC 49: (2015) 2 SCC (Civ) 204 ], and paras 28 and 29 in particular, is now done away with.
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Builders v. DDA (2015) 3 SCC 49: (2015) 2 SCC (Civ) 204), however, would remain, for if an arbitrator gives no reasons for an award and contravenes Section 31(3) of the 1996 Act, that would certainly amount to a patent illegality on the face of the award.
It is further observed by the Hon’ble Supreme Court in para 15 of the judgment of M/s. Sal Udyog Private Limited (supra) , as under:-
"26. Patent illegality should be illegality which goes to the root of the matter. In other words, every error of law committed by the Arbitral Tribunal would not fall within the expression patent illegality'. Likewise, erroneous application of law cannot be categorised as patent illegality. In addition, contravention of law not linked to public policy or public interest is beyond the scope of the expression patent illegality'. What is prohibited is for courts to re-appreciate evidence to conclude that the award suffers from patent illegality appearing on the face of the award, as courts do not sit in appeal against the Arbitral Award. The permissible grounds for interference with a domestic award under Section 34(2-A) on the ground of patent illegality is when the arbitrator takes a view which is not even a possible one, or
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interprets a clause in the contract in such a manner which no fair-minded or reasonable person would, or if the arbitrator commits an error of jurisdiction by wandering outside the contract and dealing with matters not allotted to them. An Arbitral Award stating no reasons for its findings would make itself susceptible to challenge on this account. The conclusions of the arbitrator which are based on no evidence or have been arrived at by ignoring vital evidence are perverse and can be set aside on the ground of patent illegality. Also, consideration of documents which are not supplied to the other party is a facet of perversity falling within the expression patent illegality."
It has also been held by the Hon’ble Supreme Court in
NTPC Ltd. Vs. M/s. Deconar Services Pvt. Ltd., 2021 AIR (Supreme Court) 2588 that to merely show existence of another reasonable interpretation or view on the basis of material on the record is not sufficient to allow for interference.
In context of the present matter, it is relevant to refer to
Clause 27 of the Agreement, which is reproduced as here under:-
27. LIQUIDATED DAMAGES :
The time allowed for carrying out the work as entered in the tender shall be strictly observed by the contractor and shall be reckoned from the 10th date on which the order to commence work is given to the contractor. The work shall throughout the stipulated period of the contract be proceeded with all due diligence (time being deemed to be of the essence of the contraction the part of the contractor) and the contractor shall pay as compensation and amount equal to one percent, or which the Ex. Engineer/EIC may levy on the
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amount of the estimated cost of the whole work as shown for every day that the work remains uncommenced or unfinished after the proper dates and further, to ensure good progress during the execution of the work, the contractor shall be bound in all cases in which the time allowed for any work exceeds one month, to complete one fourth of the whole of the work before one fourth of the whole time allowed under the contract has elapsed, one half of the work before one half of such time has elapsed, and three-fourths of the work before three-fourth of such time has elapsed, in the event of the contractor failing to comply with this condition he shall be liable to pay as compensation an amount equal to one percent or which the Ex-Engineer may levy on the said estimated cost of the whole work for every day that the due quantity or work remains incomplete. Provided always that the entire amount of compensation to be paid under the provisions of this clause will not exceed ten percent on the estimated cost of work as shown in the tender. The RCS may on representation from a contractor reduce the amount of compensation and his decision in writing shall be final.”
Clause 30 provides for termination of the contract and Clause 31 enables the Bank to have the incomplete work concluded through another agency and recover the expense thereof from the contractor.
In the present case indisputably the appellant has not raised the question of the respondent being obligated to have proved actual damage either before the Arbitrator or before the learned Additional District Judge, Chandigarh. Record has been perused with the assistance of learned Senior counsel for the appellants, who is unable to point out such a plea having been raised. Be that as it may, reliance by learned counsel on the decision of Hon’ble
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Supreme Court in Kailash Nath’s case (supra) is of no avail to the appellants. It is to be noted that Hon’ble Supreme Court in Kailash Nath’s case was considering the matter of forfeiture of earnest money deposited by the auction purchaser when there was no breach of contract or loss caused to DDA. It is in this respect that it was observed by the Hon’ble Supreme Court 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:-��
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.��
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.�� 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�
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before�agreement�is�reached,�Section�74�would�have�no� application.
Learned senior counsel for the appellants had argued
that at best the loss suffered by the bank could be the rent for that period which the bank would have had to pay for the extended period i.e. for the period during which the building in question was not erected in Sector 34, Chandigarh. It is to be noticed that there is nothing on record to indicate that rent of the entire building of the dimensions as are specified, in Sector 34, Chandigarh, for the period in question would in any case be less than the liquidated amount, neither was learned counsel for the appellants able to assert so. Plea that such factual aspect would have been addressed by the appellants and be subject to adjudication only if the Bank had tried to prove ‘reasonable compensation’ and that the impugned award should be set aside, at best with liberty to the Bank to agitate for reasonable compensation is meritless in the given factual matrix. Judgment of the Hon’ble Supreme Court in Kailash Nath’s case (supra) is not applicable in the facts and circumstances of this case.
In the given facts and circumstances, it cannot be said that the Arbitrator has construed the contract in a manner which no fair minded or reasonable person would. It cannot be said that there is any patent illegality appearing on the face of the Award, which goes to the root of the matter.
Learned Senior counsel for the appellant is unable to point out any ground whatsoever, which calls for interference by this Court for setting aside order dated 13.03.2020, passed by
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learned Additional District Judge, Chandigarh and the Arbitral award dated 07.04.2006, passed by the Arbitrator.
No other argument was addressed.
Appeal is accordingly dismissed with no order as to
costs. Pending applications, if any, are disposed of accordingly.
10.10.2022
Sunil
Whether�speaking/reasoned:�Yes/No�� Whether�reportable:�� Yes/No
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1 issue framed by the court
Was the liquidated-damages award liable to be set aside for patent illegality because the bank had not proved actual loss from delayed construction?
Colour shows how this judgement treated each authority
Kailash Nath Associates Vs. Delhi Development Authority and anotherDistinguished¶160
2015(4), SCC 136 · Who else cites this
Haryana Tourism Limited Vs. M/s Kandhari Beverages Ltd.Relied on¶107
Haryana Tourism Limited Vs. M/s Kandhari Beverages Ltd., 2022(3) SCC 237 · Who else cites this
State of Chhatisgarh and another Vs. M/s. Sal Udyog Private LimitedRelied on¶108
State of Chhatisgarh and another Vs. M/s. Sal Udyog Private Limited, 2021 AIR (SC) 5503 · Who else cites this
Ssangyong Engineering and Construction Company Ltd. Vs. National Highways Authority of India (NHAI)Relied on¶121
Ssangyong Engineering and Construction Company Ltd. Vs. National Highways Authority of India (NHAI), [2019] 15 SCC 131 · Who else cites this
NTPC Ltd. Vs. M/s. Deconar Services Pvt. Ltd.Relied on¶146
NTPC Ltd. Vs. M/s. Deconar Services Pvt. Ltd., 2021 AIR (Supreme Court) 2588 · Who else cites this
2 provisions across 1 enactments
M/s. Amar Chand Sharma Engineers and Contractors
The Registrar Cooperative Societies Punjab, Chandigarh
the Punjab State Cooperative Bank Ltd.
LISA GILL
As recorded by the court registry
Judgements on the same questions, provisions and authorities, from every court
