2007 Supreme(Del) 1786

IN THE HIGH COURT OF DELHI
Honble Judges: A.K. Sikri, J.
Indian Oil Corporation - Appellants
Vs.
Lloyds Steel Industries Ltd. - Respondent
OMP No. 341 of 2003
Decided On: 31.08.2007

The court held that the petitioner cannot claim the damages only because in the contract there is a stipulation regarding liquidated damages.

Headnote:

Arbitration - Liquidated Damages - Time of Essence - Extension of Time - Loss Suffered - Section 74 of the Indian Contract Act - ONGC v. Saw Pipes - Arosan Enterprises Ltd. v. Union of India - Fateh Chand v. Balkishan Das - Maula Bux v. Union of India - Union of India v. Raman Iron Foundry - State of Kerala v. United Shippers and Dredgers Ltd. - State of Rajasthan v. Nav Bharat Construction Co.

Fact of the Case:

The petitioner awarded certain contracts to the respondent for designing, detailed engineering, procurement, supply, fabrication, erection, testing and commissioning of Petroleum Product Terminal Depots along the Kandla-Bhatinda Pipe Line (KBPL) at Jodhpur. The respondent executed the work but there was delay in the execution of the contract. The petitioner recovered the maximum liquidated damages as provided, i.e. 10% of the contract value, from the respondents last running account bill. The respondent agitated as according to it no such liquidated damages were payable. The contract provided arbitration clause, which was invoked by the respondent. The learned arbitrator went into this question and has rendered his impugned award dated 28.4.2003 holding that the imposition of liquidated damages by the petitioner was not justified. The present petition is filed by the petitioner challenging this award.

Finding of the Court:

The court held that the learned arbitrator was right in holding that the purported delay has not resulted in any loss to the petitioner as the pipeline up to Jodhpur had not completed, in the absence whereof, there is no question of suffering any other loss by the petitioner and award on this aspect does not call for any interference.

Issues: 1. Whether time was of the essence of the contract as an operating condition throughout the execution of the contract? 2. Whether the delay, if any, in the execution of the project is attributable to the Claimant or the Respondent? 3. Whether the imposition of liquidated damages by the Respondent is justified? 4. Whether the Claimant was forced and coerced by the respondent as alleged in the Statement of Claim, to enter into the two supplementary contracts with respect to "Drinking Water System" and "Internal Painting" project? If so, to what effect? 5. Whether the execution of the aforesaid two Supplementary Contracts was responsible for the delay, if any, occasioned in the execution of the principal Contract by the Claimant? 6. Whether extensions of time by the Respondent and/or Engineers India Ltd. constitute a waiver of the rights of the Respondent under the Contract? 7. Whether the Respondent suffered any injury or wrong justifying the imposition of liquidated damages, and in any event whether the liquidated damages imposed by the Respondent were reasonable? 8. Whether the Claimant is entitled to interest by reason of the delay, if any, in clearing the running account bills, and if so, whether the claim to such interest is covered within the scope of this arbitration? 9. Whether the Respondent was entitled to retain monies after the completion of the Contract? 10. Whether the Respondent is obliged to refund the monies retained by it after completion of the Contract, and whether the Claimant is entitled to refund of those monies along with interest as claimed by it? 11. To what relief, if any, is the Claimant entitled? 12. Whether the Counter-claim filed by the Respondent is barred by limitation? 13. Whether the Respondent suffered any loss on account of the delay in execution of the Contract by reason of its own conduct vis-à-vis the Claimant? 14. If it is found that the delay in execution of the Contract is attributable to the Claimant, whether the losses claimed in the Counterclaim by the Respondent can be said to have had direct or immediate proximity with such delay in the contemplation of the parties at the time of entering into the Contract? 15. To what relief, if any, is the Respondent entitled?

Ratio Decidendi: 1. The court held that the learned arbitrator was right in holding that the purported delay has not resulted in any loss to the petitioner as the pipeline up to Jodhpur had not completed, in the absence whereof, there is no question of suffering any other loss by the petitioner and award on this aspect does not call for any interference. 2. The court held that the petitioner has not suffered any loss, as the terminal could not be put to commercial use before August 1996 and much before that the respondent had successfully commissioned the terminal. 3. The court held that the petitioner cannot claim the damages only because in the contract there is a stipulation regarding liquidated damages. 4. The court held that the clause of liquidated damages would operate when loss is suffered but it may normally be difficult to estimate the damages and, thereforee, the genesis of providing such a clause is that the damages are pre-estimated. 5. The court held that the discretion of the Court in the matter of reducing the amount of damages agreed upon is left unqualified by any specific limitation. The guiding principle is reasonable compensation.

Final Decision: The petition is partly allowed reducing the interest in the aforesaid manner and challenge to the award is rejected.