Contract Act, 1872 – ss. 74 and 70 – Compensation for breach of contract where penalty stipulated for – Claim in quantum meruit u/s. 70 when parties governed by contract – Permissibility of – Purchase Order wherein respondent was to provide last mile connectivity at two places of the appellant and levy of liquidated damages were to be limited to a maximum of 12% – Bills raised by the respondent for the services rendered amounting to Rs. 2,15,25,512/- – On account of limitation of 12%, the appellants could not have levied and deducted an amount more than Rs. 25,83,181/-, however, the appellant proceeded to unilaterally impose rentals at their own rate of dark fibre – Appellant adjusted the amount from dues payable to the respondent by deduction from the bill raised by the respondent – Respondent filed petition before the tribunal against the appellant for recovery of Rs.1,10,57,268/plus interest thereon – Tribunal held that the principal amount to be paid back to the respondent by the appellant would be Rs.84,74,087/- with 9% interest thereon after deducting Rs.25,83,181/- (12% liquidated damages) from Rs. 1,10,57,268/- – On appeal, held: Instant case is covered by s. 74 – Tribunal rightly held that a maximum of 12% can be levied as liquidated damages under the contract, which would amount to Rs. 25 lakh – Since this clause governs the relations between the parties, contractually speaking a higher figure, cannot be awarded as liquidated damages, which is to be considered as final – Appellant can claim only this sum – Thus, the order of the tribunal upheld – Telecom Regulatory Authority of India Act, 1997.
Dismissing the appeal, the Court
HELD: 1.1 Section 70 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. [Para 2] [890-F-H; 891-A-B]
1.2 The instant 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”. [Para 10] [895-B]
1.3 The impugned judgment of TDSAT rightly held that 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. The impugned judgment of the TDSAT is upheld. [Paras 13, 14] [897-G-H; 898-A-B] Moselle Solomon v. Martin & Co. ILR (1935) 62 Cal 612; Kanhayalal Bisandayal Bhiwapurkar (Dr.) v. Indarchandji Hamirmalji Sisodia AIR 1947 Nag 84; Alopi Parshad and Sons Ltd. v. Union of India [1960] 2 SCR 793; Mulamchand v. State of M.P. [1968]
3 SCR 214; Orissa Industrial Infrastructure
Development Corpn. v. Mesco Kalinga Steel Ltd. (2017)
5 SCC 86; Kailash Nath Associates v. DDA (2015) 4 SCC 136 : [2015] 1 SCR 627 – referred to
As published in the Supreme Court Reports, Supreme Court of India. Text from the Indian Supreme Court Judgments open data set (Dattam Labs), CC BY 4.0.
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