The main legal point established is the application of the principles of liquidated damages and the requirement to prove loss or damage suffered in cases of breach of contract.

SANJIV KHANNA, J.

CM No. 28598/2018

Exemption application is allowed, subject to all just exceptions.

FAO(OS) (COMM) No. 148/2018

XL Energy Limited in the present appeal under Section 13 of the Commercial Courts, Commercial Division and Commercial Appellate Division of High Courts Act, 2015 read with Section 37(1)(c) of the Arbitration and Conciliation Act, 1996 (A&C Act, for short) has challenged order dated 7th May, 2018 passed by the single Judge in O.M.P. (COMM.) No. 339/2017, XL Energy Limited versus Mahanagar Telephone Nigam Limited.

2. Impugned order dismisses objections filed by the appellant under Section 34 of the A&C Act and upholds the Arbitral Award dated 3rd June, 2017.

3. Respondent, a telecom service provider, had purchased 60,000 (Sixty Thousand) CDMA phones from the appellant vide three purchase orders dated 27th March, 2003 , 23rd May, 2003 and 7th August, 2004. Respondent had sold/transferred these phones to their subscribers. Respondent had also entered into three Annual Maintenance Contracts ('AMCs') with the appellant dated 5th June, 2004, 24th November, 2004 and 3rd November, 2005 for repair of the phones. Respondent had paid fixed consideration as per the AMC agreements to the appellant. In terms of these AMC agreements, the appellant had furnished performance guarantee for three years amounting to Rs.1,13,99,500/-.

4. Respondent on account of delay in repair and delivery of faulty phones/handsets by the appellant to the concerned MTNL offices within the stipulated period of 14 days, as per the AMC agreement had raised a claim a of Rs.2,47,43,500/-. Consequent to the delay, customers/ subscribers were denied and deprived of their phones for the said period. The respondent had relied upon the following clause of the AMC agreements:-

“TERMS AND CONDITIONS OF THE AGREEMENT:

1. If the contractor fails to repair the faulty WLL terminals (Handheld Type) and deliver the same in the concerned MTNL office within stipulated period of 14 days as mentioned above, the contractor shall be liable to pay penalty for the entire period counted from the date of making over the faulty terminals in his repair center to the actual date of repair and delivered including Saturdays, Sundays, and holidays as under Rs.100/- per day per terminal.”

5. Arbitral award dated 3rd June, 2017 partly accepts the claim and the appellant has been held liable to pay to the respondent Rs.1,13,99,500/-. with interest @ 9% per annum from the date of filing of the claim on 3rd November, 2011. Balance claim of Rs. 1,33,44,000 was held to be barred by limitation.

6. Appellant do accept and admit their failure to repair and deliver faulty phones/handsets within the stipulated period of fourteen days. Computation of damages @ Rs. 100 per day per terminal is not questioned. Facts and calculations are not disputed.

7. Appellant submits that the clause stipulating damages @ Rs. 100 per day per terminal was a penalty clause and not a clause prescribing liquidated damages. Further, the respondent was unable to prove and establish any loss for failure to repair and rectify faulty phones within 14 days. Therefore, the respondent was not entitled to damages as awarded. Reliance is placed on Kailash Nath Associates versus Delhi Development Authority and Another, (2015) 4 SCC 136.

8. In Kailash Nath Associates (supra), the principles summarized read :-

“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