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1973 Supreme(Cal) 174
HIGH COURT OF CALCUTTA
Ramendra Mohan Datta
ANAND CONSTRUCTION WORKS - Appellant
Versus
STATE OF BIHAR - Respondent
Commercial Cause Suit 3034 Of 1947
Decided On : JUNE 12, 1973
SINHA
The liquidated damages provision in a contract is enforceable if it is a genuine pre-estimate of damages. Actual loss or damage does not need to be proved, but legal injury suffered must be proven.
Headnote:
Indian Contract Act - Section 74 - Liquidated damages provision in a contract is enforceable if it is a genuine pre-estimate of damages. The party claiming damages must prove legal injury suffered, but actual loss or damage does not need to be proved. The amount mentioned in the contract can be considered as evidence of reasonable compensation.
Fact of the Case:
The plaintiff entered into a contract with the defendant to supply materials for construction. The contract specified a due date for delivery, and liquidated damages would be imposed for non-performance. The plaintiff claimed that the defendant induced them to continue performing the contract after the due date, and therefore, the time for completion was extended. The defendant deducted a sum of money from the plaintiff's bill as liquidated damages. The plaintiff argued that the liquidated damages were unenforceable and sought compensation under Section 70 of the Indian Contract Act. The defendant denied liability and claimed that the plaintiff agreed to the deduction of liquidated damages.
Finding of the Court:
The court found that there was no valid extension of time as the conditions for extension were not met. The court also held that the provision for liquidated damages was enforceable and not a penalty. The court considered the evidence of legal injury suffered by the defendant and concluded that the amount mentioned in the contract was a genuine pre-estimate of damages. Therefore, the defendant was entitled to deduct the sum as liquidated damages.
Ratio Decidendi: The court held that the liquidated damages provision in the contract was enforceable and not a penalty. The defendant was entitled to deduct the sum as liquidated damages based on the genuine pre-estimate of damages mentioned in the contract.
Result: The court dismissed the plaintiff's suit and held that the defendant was entitled to deduct the sum as liquidated damages. Each party was ordered to bear its own costs.
( 1 ) THIS is a suit for the recovery of a sum of Rs. 10,977/- which has been deducted by the then Province of Bihar from the plaintiff's bill in accordance with the conditions of a tender for the supply of stones, stone metals and gravel to the defendant for the purpose of repair and construction of certain portions of Grant Trunk Road. The tender was accepted by the Public Works Department of the then province of Bihar.
( 2 ) THE said tender, inter alia, provided the following clauses in the conditions of contract:"2. The contractor is to deliver the materials on or before the dates mentioned in the Tender, failing which he shall be subject to pay or allow one per cent. On the total amount of the contract for every day not exceeding ten days that he shall exceed his time as liquidated damages. 3. In every case in which the payment or allowances mentioned in Clause 2 shall have been incurred for ten consecutive days, the Executive Engineer shall have power either to annul the contract altogether, or to have the supply completed without further notice at the contractor's risk and expense as he may deem best suited to the interests of Government, and the contractor shall have no claim to compensation for any loss that he may incur in any way. 4. If the contractor shall be hindered in the supply of the materials so as to necessitate an extension of the time allowed in this Tender, he shall apply in writing to the Executive Engineer, who shall grant it in writing if reasonable grounds be shown for it and without such written authority of the Executive Engineer, the Contractor shall not claim exemption from the damages leviable under Clause 2. "
( 3 ) THE materials were to be delivered on or before June 30, 1946 under the said contract. Sometime prior to the expiry of the said date of delivery the plaintiff applied in writing for extension on the ground that there were hindrances in the supply of the materials because of want of transport. The plaintiff states that the defendant allowed the time for delivery to expire but did not grant any extension in writing. The defendant by its conduct induced the plaintiff to effect delivery of the materials on the assurance of extending the time for such delivery. By a letter dated November 21, 1944 the plaintiff was informed that the Additional Chief Engineer had refused to grant the plaintiff any extension of time. By another letter dated November 25, 1944 the previous letter dated November 21. 1944 was cancelled. The plaintiff continued performance of the agreement on the basis that the time for the completion of the works thereunder had not expired and the defendant accepted the benefit of such performance of the agreement by the plaintiff.
( 4 ) THE plaintiff states that the failure of the Executive Engineer to extend time is wrongful, arbitrary and ineffective and that the agreement between the parties with all its terms and conditions excepting the time for completion of the work thereunder remained in force and subsisting. The plaintiff has pleaded that the defendant is estopped from denying that the time for completion of works under the contract has not been extended. In any event the plaintiff states that such time has been extended by mutual agreement which has to be inferred from the conduct and course of dealings between the parties. The plaintiff states further that the provision for deducting one per cent, of the total amount of the contract for every day not exceeding 10 days, is by way of penalty and is not enforceable in law. Accordingly, deductions from the plaintiff's bill to the extent of Rs. 10,977/- as such liquidated damages is wrongful. The defendant has refused to pay or to return the said amount to the plaintiff.
( 5 ) THE plaintiff has pleaded an alterative case to the effect that should the Court hold that there was valid termination or annulment of the contract by the defendant as from 30th June, 1944, the plaintiff will contend tha
