The main legal point established in the judgment is that the application of liquidated damages must be in accordance with the terms of the contract and the principles of the Indian Contract Act, 1872. A reasonable pre-estimate of damages, which is not a penalty, as stipulated in the contract, would not fall foul of Section 73 or 74 of the Contract Act.

Prathiba M. Singh, J.

1. The present petition has been preferred challenging the award dated 29th January, 2009 passed by the Learned Sole Arbitrator Justice N.N. Goswami (Retired). The brief facts are that the Petitioner–GAIL, awarded a contract to the Respondent, for laying of the pipeline and corporate work of K.G. Basin-II. The arbitration clause was contained in clause 107 of the contract. The laying of pipeline and corporate work was for a length of 9.82 Kms in District Rajamundri, Andhra Pradesh. The Respondent was awarded the contract being the lowest bidder. The letter of acceptance was issued on 26th June, 2001 and the total value of the contract was Rs.2,46,76,104/- which was subsequently reduced to Rs.1.85 crores.

2. The date of commencement of work was 1st June, 2001 and the date of completion was four months i.e., 30th September, 2001. The factual aspects i.e. in respect of various extensions taken by the Respondent and the actual completion having been achieved only on 26th December, 2002, are not in dispute between the parties.

3. However, disputes arose in respect of the various deductions made by GAIL and the Respondent raised various claims. The Arbitral Tribunal came to the conclusion, after reviewing the entire documentary evidence on record, that there was no reason attributable to GAIL for the delay in the execution of the contract. Out of several claims made by the Respondent, Claims A, E and F were partially allowed by the Ld. Arbitrator. The same are under challenge before this Court by GAIL. The award, in respect of the claims that have been disallowed, has been accepted by the Respondent and no challenge has been raised by the Respondent.

Claim A: Award of liquidated damages

4. This claim was raised by the Respondent on the ground that GAIL had incorrectly deducted sums on account of liquidated damages. The Tribunal after perusing the evidence on record held that the total delay by the Respondent was only to the extent of five weeks and accordingly, by applying the formula for Liquidated damages, as contained in the contract, upheld the deduction in respect of five weeks delay. The discussion of the Arbitral Tribunal is clear to the effect that GAIL was not responsible for the delay. However, vide letter dated 6th November, 2002, extension was given by GAIL for completion of contract by 15th November, 2002. Thus, the Tribunal considered the period between 15th November, 2002 and 26th December, 2002 as the period of delay. The Tribunal thereafter upheld the deduction by GAIL of liquidated damages to the extent of 1/2 % for a period of five weeks i.e., Rs.4,63,319/-. The Respondent was refunded a sum of Rs.13,89,958/-.

5. Mr. Nitesh Jain Ld. counsel appearing for GAIL challenges this portion of the award on two counts:-

(i) that the contract contains a ‘No Waiver’ clause which in effect means that even if the extension is being given, GAIL had the right to levy liquidated damages. Thus, the entire period from 30th September, 2001 till 26th December, 2002 should be counted as the period of delay and liquidated damages are leviable for the entire period.

(ii) the second ground of challenge is that the Arbitral Tribunal went by clause 27 which prescribe 1/2% per week as the minimum levy and 10% as the maximum for levy of liquidated damages. However, the Tribunal failed to consider the General Conditions of Contract which had amended the said clause. As per the said clause, the minimum Liquidated damages leviable was 1% and not ½%.

He relies upon Oil & Natural Gas Corporation Ltd. v. Saw Pipes Ltd. (2003) 5 SCC 705 (hereinafter known as ‘ONGC’) to argue that in the case of liquidated damages unlike penalty, actual loss need not to be proved.

6. On the other hand, Mr. Vivek Chib, Ld. Counsel appearing for the Respondent submits that under Section 55 of the Indian Contract Act, 1872 if a contract is voidable on account of any delay by a contractor, and if the person awarding the work has accepted to extend