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2009 Supreme(Del) 1263
IN THE HIGH COURT OF DELHI AT NEW DELHI
MR. JUSTICE S. RAVINDRA BHAT, J.
DELHI DEVELOPMENT AUTHORITY - Plaintiff
Versus
M/S CONSTRUCTION & DESIGN SERVICES U.P. JAL NIGAM - Defendant
PRONOUNCED ON: 20.11.2009
Decided on : CS(OS) No.1311/2002
Through :Mr. Anil Garg, Advocate.
Through : Nemo.
The main legal point established in the judgment is that penal clauses in agreements are unenforceable, and the amount of damages must be a genuine pre-estimate and not a penalty.
Headnote:
Contract - Delayed Execution - Indian Contract Act, Section 73, Section 74 - The court discussed the provisions of Section 73 and Section 74 of the Indian Contract Act, which outline the principles for the award of damages for breach of contracts. The court emphasized the difference between the two provisions and highlighted that Section 74 enables the court to award reasonable compensation without the need to prove actual loss or damage, while Section 73 requires the injured party to prove the breach and the value of the goods or services contracted for. The court also referred to previous rulings to establish the legal position on the award of damages for breach of contract, emphasizing that penal clauses in agreements are unenforceable and that the amount of damages must be a genuine pre-estimate and not a penalty.
Fact of the Case:
The plaintiff filed a suit for recovery against the defendant for delayed execution of a construction project. The plaintiff alleged that the defendant failed to honor its obligations under the agreement, resulting in rescission of the contract and a claim for compensation for delay in execution of the project.
Finding of the Court:
The court found that the plaintiff treated the condition for compensation as a penal clause and failed to provide a basis for levying the maximum compensation claimed. The court also noted that the plaintiff extended the time for performance on several occasions, indicating that time was not of the essence of the contract. As a result, the court dismissed the suit, as the relief sought could not be granted.
Issues: The issues involved in the case included the interpretation of the provisions of the Indian Contract Act, specifically Section 73 and Section 74, and the determination of whether the plaintiff's claim for compensation for delayed execution of the project was justified.
Ratio Decidendi: The court's decision was based on the finding that the plaintiff treated the condition for compensation as a penal clause and failed to provide a basis for levying the maximum compensation claimed. Additionally, the court considered the extension of time for performance on several occasions, indicating that time was not of the essence of the contract.
Final Decision: The court dismissed the suit, without any order as to costs, as the relief sought by the plaintiff could not be granted.
S.RAVINDRA BHAT, J.
1. This suit for recovery was filed by the plaintiff (hereafter “DDA”) against the defendant seeking recovery of a sum of Rs. 20,86,446/-along with interest at the rate of 24% per annum from the date of filing of the suit till the date of realization.
2. According to the suit averments the plaintiff, being desirous of constructing a sewerage pumping station at CGHS area at Kondli Gharoli, invited tenders. The defendant applied and was awarded the said contract by letter, dated 28.09.1995 (Ex. PW-1/2) and a written agreement, dated 04.10.1995 (Ex. PW-1/3) was entered into between the parties. The plaintiff alleges that the defendant was never prepared to honour its obligation under the agreement as from the very beginning the work proceeded at a very slow pace and even after several reminders to speed up the pace, the defendant was unable to complete the job in time. It is the case of the plaintiff that the defendant was not able to complete the work assigned even after several reminders and show-cause notices and finally the contract was rescinded (by the plaintiff) on 17.09.1999.
3. The defendant was proceeded ex-parte by order dated 16.04.2009, as there was no appearance on its behalf since March 21, 2007 nor any written statement was filed. Further, by the same order of the Court, the plaintiff was directed to file its evidence on affidavit alongwith original documents or certified copies of the same.
4. In its evidence by way of affidavit the plaintiff points out to letters dated 08.02.1996 and 20.03.1996 (Ex. PW-1/4) issued to the defendant requesting to speed up the work. It is stated that on 17.07.1996 its Chief Engineer inspected the work site and found only excavation work was done at the site, the same was brought to the notice of the defendant by letter, dated 23.07.1996 (Ex. PW-1/5) and again a letter was issued to the defendant to expedite the work on 06.02.1997 (Ex. PW-1/6). The defendant was also given permission to work round-the-clock, as the Supreme Court was monitoring the whole project. Again a letter citing similar grievances was written to the defendant on 18.02.1997 (Ex. PW-1/7). Then on 03.03.1997, it is stated, that the defendant stopped the work suddenly and the plaintiff wrote a letter, dated 05.03.1997 (Ex. PW-1/8) (to the defendant) requesting to start the work but the defendant paid no heed. Therefore, a show-cause notice, dated 14.05.1997 was issued to the defendant (Ex. PW-1/9) in response to which, the latter by its letter, dated 01.07.1997 cited some strike by the DDA Engineers, as the reason for stopping the work, which the plaintiff claims to be falsehood, as the actual reason was that the defendant was unable to mobilize the labour for execution of the work. By a letter, dated 10.07.1997 (Ex. PW-1/10) the defendant was called upon to take up the work immediately and get it completed at the earliest. It is stated that on 09.03.1997 the defendant had submitted a revised programme and target dates, but the same was not adhered to. A letter, dated 11.09.1997, was again issued by the plaintiff requesting the defendant to expedite the work (Ex. PW-1/11). On the same day the plaintiff’s Superintending Engineer inspected the project site in presence of the defendant’s Project Manager where the progress of the work was found to be unsatisfactory. On 30.09.1997 the Project Manager of the defendant informed the plaintiff, by a letter (Ex. PW-1/12), that they were not able to execute the work on account of some internal problems and financial constraints. Taking note of the negligible progress and highly unsatisfactory quality of work, the plaintiff held two meetings at the site and issued two letters, dated 29.09.1997 (Ex. PW-1/14) and 13.10.1997 (Ex. PW-1/13) drawing the defendant’s attention to the issue and with a direction to expedite the work. On 21.11.1997 the plaintiff cautioned the defendant that if the project is not completed within the target time then necessary
