M/s. Megha Engineering & Infrastructures Ltd., a company v. Jharkhand Urja Sanchar Nigam Limited

Judgment

1. 2. Learned counsel for the parties are present. This writ petition has been filed for the following reliefs: - “(i) For the issuance of an appropriate writ/order/direction including a writ in the nature of a declaration declaring that the 2 actions of the Respondents in unilaterally deducting liquidated damages to the tune of Rs. 6,42,84,941 from the invoices raised by the Petitioner is arbitrary, unreasonable and violative of Articles 14 and 19(1)(g) of the Constitution of India, in view of the fact that the factum of breach of the contract due to non-completion within the stipulated time as well as the quantum of liquidated damages, have not been decided by a court of competent court/jurisdiction, but unilaterally by Respondent JUSNL itself.

(ii) For the issuance of an appropriate writ/order/direction including a writ in the nature of a declaration declaring that the delay in completion of the project under the contract cannot be attributed the Petitioner since the same was occasioned by attending facts and circumstances beyond the control of the Petitioner such as delay in forest approvals, non-payment of invoices on time, delay in finalization of gantry location, frequent bandhs, heavy rains, delay in supply of drawings etc. (iii) For the issuance of an appropriate writ/order/direction including a writ in the nature of a mandamus directing that the amount of liquidated damages of Rs. 6,42,84,941 being arbitrarily and unilaterally deducted by the Respondent JUSNL be refunded to the Petitioner along with applicable interest, since the same amounts to unjust enrichment by the Respondent JUSNL.

(iv) For the issuance of any other appropriate writ/order/direction as this Hon’ble Court deems fit and proper in light of the facts and circumstances of the case and in favour of the petitioner.” Arguments of the Petitioner 3. The petitioner had participated in tender notice No. 475/PR/JSEB/1213 (Annexure-1) and as per clause 2.28 of the tender notice, liquidated damages @ 0.50% of the total work value for each week of delay in completion of project beyond schedule date of completion was to be levied, subject to maximum limit of 10% of the order value. The Letter of Intent was issued on 20.12.2012 (Annexure- 2) which had a completion period at clause 3.0 mentioning that the zero date of the subject work will start from the date of issue of LOI and the completion date will fall on 19.06.2014 (i.e.

18 months from the date of issue of LOI). The clause of liquidated damages was reiterated in clause 4 of letter of intent. The purchase order was issued on 07.03.2013 and the period of completion was mentioned at clause 5 thereof which again referred to 18 months from the date of Letter of Intent (20.12.2012). The said period ought to have been taken from the date of issuance of purchase order i.e., 07.03.2013. He has also referred to clause of liquidated damages at clause 13 thereof to submit that there was slight modification in the terms of the liquidated damages. He submits that it was stipulated that if the contractor fails to execute and complete the work within the time as specified in the 3 agreement or within the period of extension granted, except in so far that the delay is on the purchasers account, then the liquidated damages would be imposable by way of penalty @ 0.50% of the total work value for each week of delay in completion of project beyond schedule date of completion will be levied subject to maximum limit

of 10% of the order value. The learned counsel has submitted that the clause of liquidated damages itself indicates that the liquidated damages is excluded for the delay which was attributable to the purchaser’s account. The learned counsel further submits that similar purchase order with a different number, but the same date was issued which is contained at Annexure-3(2), with similar conditions. 4. The learned counsel submits that the petitioner had applied for extension of time within the period of completion and was granted extension up to 30.09.2015 without liquidated damages and without price variation with a direction that if the project will not be completed in time due to firm’s negligence, then penalty will be imposed as per contract. Another extension was granted

31.03.2016 vide letter dated 11.12.2015 without liquidated damages and with price variation with a condition that further time extension if required will be granted with liquidated damages. Further extension was required and ultimately on 02.08.2016, the extension was granted up to 30.09.2016 with liquidated damages and without price variation with a condition that if the work is not completed in the extended period, liquidated damages will be imposed on the entire extended period. 5. The learned counsel submits that against the letter of extension dated 02.08.2016 with the aforesaid condition i.e. with liquidated damages and without price variation, the petitioner duly protested vide letter dated 04.08.2016 stating that the delay was not attributable to the petitioner and therefore, the liquidated damages deducted may be reconsidered and waived off since such deductions will again deprive them of the funds. The learned counsel submits that to this objection, no response was received and further extension was granted vide letter dated 29.11.2016 which was extended up to 28.02.2017 with liquidated damages and without price variation as imposed 4 during third time extension at Special Purchase Committee meeting held on 01.08.2016. The learned counsel has submitted that thereafter also, there has been extension and the last extension was granted vide letter dated 22.05.2017 (Annexure-20), wherein the period was extended up to 31.05.2017 with liquidated damages and without price variation. The learned counsel submits that against the stipulation with liquidated damages and without price variation, the petitioner had protested throughout. 6. The learned counsel has submitted that in the year 2017 and 2020, there was a variation in the quantity of the work to be done and therefore, there was no question of imposition of any liquidated damages. Even the extended work has been done by the petitioner. The learned counsel has referred to para-36 of the writ petition to submit that even the end point of laying down the transmission line was changed in the midst of the work being executed by the petitioner at the instruction of the respondents and therefore, the delay was attributable to the respondents. 7. Learned counsel for the petitioner has advanced his arguments today and has referred to paragraph 50 of the writ petition to submit that the details of the deductions made from the running bills of the petitioner on account of liquidated damages, unilaterally calculated by the respondents, has been given in the said paragraph. He has also referred to paragraph 35 and 41 of the writ petition to submit that the initial contract value was for an amount of Rs. 57,35,88,050 which was initially increased to Rs. 62,75,74,460.90 vide letter dated

27.06.2017 which was by way of quantity variation/extra work and the same was further increased to a value of Rs. 64,28,49,413 vide letter dated 25.03.2020 which was on account of 2nd quantity variation. 8. The learned counsel submits that under the same agreement, the petitioner continued to execute the work with respect to the quantity variations also, but the respondents continued to levy liquidated damages by stating that the petitioner had executed the work beyond the time fixed under the contract. He has relied upon the judgement passed by the Hon’ble Calcutta High Court reported in 2022 SCC OnLine Calcutta 3343 (Tata Chemicals Limited Vs. Kshitish 5 Bardhan Chunilal Nath and Ors.) (Para 94) to submit that it has been held that the damages as per the contract only gives a right to the party aggrieved by the breach of contract to sue for damages. He submits that the damages are required to be adjudicated and quantified and it cannot be imposed just as a default clause. 9. The learned counsel for the petitioner has also relied upon a judgment passed by the Hon’ble Supreme Court reported in (2015) 4 SCC 136 (Kailash Nath Associates Vs. Delhi Development Authority and Anr.) and submits that the earlier judgments passed by the Hon’ble Supreme Court including the case of Maula Bux and Fateh Chand has been considered and the law in connection with damages has been crystalized in paragraph 43 of the said judgment. He has also submitted that the quantum of loss is required to be adjudicated. 10. The learned counsel has also submitted that the cause of action for filing the present writ petition arose when the respondents deducted the liquidated damages unilaterally from their bills. It is not in dispute that the work has been completed. The learned counsel submits that the imposition of liquidated damages was subject to the condition as to whether the petitioner or the respondents were at fault. He also submits that without any adjudication, the liquidated damages could not be deducted by the respondents and therefore, the present writ petition has been filed. 11. The learned counsel for the petitioner has relied upon the following judgments: - (i) (ii) (iii) (iv) (v) State of Karnataka v. Shree Rameshwara Rice Mills, Thirthahalli (1987) 2 SCC 160 Bharat Sanchar Nigam Limited & Anr. V. Motorola India Private Limited (2009) 2 SCC 337 J.G. Engineers Private Limited v. Union of India & Anr. (2011) 5 SCC 758 Tulsi Narayan Garg & Others v. M. P. Road Development Authority & Others 2019 SCC Online SC 1158 (M/s NCC Ltd. Vs. The State of Bihar) (2013) SCC OnLine Patna 945 (vi) M/s Inox Air Products Ltd. v. SAIL & Ors. 2015 SCC Online Jhar 3278 Arguments of the Respondents 6

12. Learned counsel appearing on behalf of the respondents has submitted as follows: - (i) Liquidated damaged @ 0.50% of the work value for each week of delay in completion of the project beyond stipulated date of completion has been prescribed in the contract document. (ii) Liquidated damage is a pre-estimated amount agreed between the parties and provided for in the contract document. (iii) There is no dispute that the work was completed much beyond the scheduled completion date. Hence, liquidated damages have been levied at prescribed rate subject to a ceiling of 10%. (iv) The principle of estoppel and waiver will apply against the petitioner. The petitioner was well aware that the extension of time is being granted subject to liquidated damages and without price variation. The said condition was never challenged by the petitioner. The petitioner kept on executing the work after getting extension as per request made by the petitioner. (v) The onus to prove that the respondent suffered no loss or the loss suffered by the respondent was less than the amount of liquidated damages mentioned in the contract, is on the petitioner.

13. The learned counsel has further submitted that the argument of the petitioner that the work allocated to the petitioner was beyond the contract by way of quantity variation, has no basis. He submits that if there was additional work to be done, then additional work order was required to be issued. The learned counsel submits that the very concept of quantity variation is not extra work, but it is only to adjust the work done on the basis of actuals. He has referred to page 307 of the writ petition to demonstrate as to how the quantity variation is done based on actuals. 14. The learned counsel submits that twice time extension was given without liquidated damages and with price variation and at the time of second time extension, it was clearly stipulated that in case of further time extension, liquidated damages will be imposed. The learned counsel submits that consequently when further extension was given, it was given with a condition with liquidated 7 damages and without price variation. The learned counsel has further submitted that the work which was being executed was of public importance and delay in execution of the work by itself caused loss to the State. 15. While referring to the judgments, which has been relied upon by the learned counsel for the petitioner, the learned counsel for the respondents has submitted that each judgment has to be seen with reference to the clause of liquidated damages. He submits that in the present case, there has been a pre-estimated damages and it is for the petitioner to prove that the respondents have not suffered any damages. He submits that the onus is upon the petitioner to prove and therefore, if the petitioner has to challenge the levy of liquidated damages which has been done in the present case by retention of a portion of the bill amount, it is for the petitioner to establish the same before a competent court while claiming the balance amount of bill. 16. The learned counsel, in particular, has referred to the judgment passed by this Court as has been relied upon by the learned counsel for the petitioner in the case of M/s Inox Air Products Ltd. vs. SAIL & Others reported in 2015 SCC Online Jhar 3278, to submit that the circumstances under which damages were claimed were totally different and it arose in the peculiar facts and circumstances of this case which has no parallel facts in the present case. He submits that the case was primarily relating to risk purchase action. 17. The learned counsel has referred to the various paragraphs of the counter affidavit particularly paragraph 42 and 44 to 49 to submit that the delay was totally attributable to the petitioner. He has also submitted that the petitioner has not taken appropriate steps at the relevant point of time for seeking forest clearance and some explanation was also sought for from the petitioner as has been mentioned in the counter affidavit. Rejoinder submissions on behalf of the Petitioner 18. The learned counsel for the petitioner by way of rejoinder has referred to Annexure-22 of the writ petition to submit that there was a clear variation in the obligation of the petitioner, in as much as, the end location of transmission line itself was changed beyond what was 8 mentioned in the agreement and therefore, the arguments of the respondents that it was only by way of price adjustment or based on actual work executed on the spot, is not correct. The learned counsel submits that variation was done in the year 2017 and thereafter in the year 2020. The work was ultimately completed on 18.10.2021. 19. The learned counsel has further referred to the judgment passed by the Hon’ble Supreme Court in the case of Fateh Chand which has been quoted in the case of Kailash Nath Associates vs. Delhi Development Authority & Another in the judgment reported in (2015) 4 SCC 136 at para 34. The learned counsel, in particular, has referred to the interpretation given by the judgment of Fateh Chand with respect to Section 74 of the Contract Act to submit that irrespective of whether the compensation is pre-determined or by way of penalty, the party who suffers the breach is entitled for the compensation to be assessed by the Court. The learned counsel submits that it was not open to the respondents to unilaterally calculate the liquidated damages and deduct it from the running bills of the petitioner. The learned counsel has also submitted that the court has to determine the breach and then the consequence of the breach. Both the aspects of the matter require adjudication. The learned counsel has also referred to the judgment passed in the case relied upon by the learned counsel for the respondents in the case of ONGC vs. Saw Pipes Limited reported in (2003) 5 SCC 705 and has referred to paragraph 68(3) and 68(4) of the said judgment. Findings of this Court 20. Before proceeding to decide the case, it would be useful to refer to the judicial pronouncements in connection with breach of contract having a clause of liquidated damages, consequence flowing from such breach by way of liquidated damages and assessment of the quantum of such damages and who can be the plaintiff or defendant in such a dispute. 21. In the judgement passed by the Hon’ble Supreme Court reported in (1987) 2 SCC 160 (State of Karnataka Vs. Shree Rameshwara Rice Mills), it has been held that the power of State under an agreement entered with private party providing for 9 assessment of damages for breach of conditions and recovery of damages will stand confined only to those cases where the breach of condition is admitted or it is not disputed. It has also been held that a right to adjudicate upon an issue relating to a breach of condition of contract does not flow from a right conferred to assess the damage arising from a breach of condition. It has also been held that the interest of justice and equity requires that where a party to a contract disputes the committing of any breach of condition, the adjudication should be done by an independent person. It has been further held that the position would be different where there is no dispute or there is consensus between the contracting parties regarding breach of condition. 22. In the judgement passed by the Hon’ble Supreme Court reported in (2009) 2 SCC 337 (Bharat Sanchar Nigam Limited and Another Vs. Motorola India Private Limited), the respondent had failed to complete the project within the scheduled time and therefore, the liquidated damages were imposed in terms of the clause in the contract and the quantification of which was beyond the purview of the arbitration agreement. In the said case, there was denial of the allegation of delay and objection was raised to the levy of liquidated damages. Arbitration clause was invoked with respect to liquidated damages and an objection was raised that the clause of liquidated damages was an excepted matter. The Hon’ble Supreme Court was of the view that the decision which was contemplated under the relevant clause of the agreement was the decision regarding quantification of liquidated damages and not any decision regarding fixing the liability of the supplier and in this background, it was held that it is necessary, as a condition precedent, to find out there has been a delay on the part of the supplier in discharging its obligation for delivery under the agreement and that the High Court had correctly held that the question of holding a person liable for liquidated damages and the question of quantifying the amount by way of liquidated damages are entirely different. Fixing of liability is primary while quantification is secondary which comes later. The aforesaid judgement passed in the case of Bharat Sanchar Nigam Limited and Another Vs. Motorola 10 India Private Limited (Supra) has been considered in paragraph 27 as follows: “27. The abovestated position can be ascertained through the judgment of this Court in State of Karnataka v. Shree Rameshwara Rice Mills. This Court in the said case, made a clear distinction between adjudicating upon an issue relating to a breach of condition of contract and the right to assess damages arising from a breach of condition. It was held that the right conferred to assess damages arising from a breach of condition does not include a right to adjudicate upon a dispute relating to the very breach of conditions and that the power to assess damages is a subsidiary and consequential power and not the primary power.” With regard to unilateral right to determine liquidated damages, it was argued by the appellants of the case that even if such quantification is exorbitant, it would be final and cannot be challenged. Such contention was rejected by the Hon’ble Supreme Court by holding that the same would be in violation of Section 28 and 74 of the Contract Act. It was also held that provision of Clause of the contract that quantification of the liquidated damage shall be final and cannot be challenged by the supplier was clearly in restraint of the legal proceeding under Section 28 of the Contract Act and such provision to this effect was held to be bad. 23. In the judgement passed by the Hon’ble Supreme Court reported in (2011) 5 SCC 758 (J. G. Engineers Private Limited Vs. Union of India and Another) there was termination of contract as the progress was slow and the dispute was decided through arbitration before whom claim as well as counter-claim and counter claim included liquidated damages levied under the clause of the agreement. The learned Arbitrator had rejected the counter claims. The Hon’ble Supreme Court recorded in paragraph 30 that the Union of India granted 1st extension without levy of liquidated damages and had also paid escalation in prices in terms of the agreement. The contractor was however permitted to continue the work without levy of any liquidated damages until termination. Subsequently the contractor had submitted its statement of claim, the respondent chose to levy liquidated damages for the entire delayed period of execution of contract. The learned Arbitrator had recorded that the contractor was not responsible for the delay and the contractor was entitled to 2nd extension also without levy of penalty and in fact, the extension 11 having been given without levy of liquidated damages, respondents could not have been retrospectively levied liquidated damages. With regard to the clause of the contract regarding liquidated damage, it was held that what was held to be conclusive and final was not the decision of any authority on the issue whether the contractor was responsible for the delay or the department was responsible the delay or on the question whether termination/rescission was valid or illegal. What was made final was the decision on consequential issue relating to quantification. If there was no dispute as to who committed the breach, i.e., if the contractor admits that he is in breach or if the Arbitrator finds that the contractor is in breach by being responsible for the delay, the decision of the authority would be final with regard to two issues; 1st the percentage of the value of work that was to be levied as liquidated damage per day and 2nd is the determination of the actual excess cost in getting the work completed through an alternative agency. It has been held that the decision as to who was responsible for the delay in execution and who committed the breach was not made subject matter of any decision of the respondent or his officers nor can be said to be an excepted matter. It has been held that the question, whether the other party committed breach, cannot be decided by the party alleging breach. A contract cannot provide that one party will be the arbiter to decide whether he committed breach or the other party committed breach. Such question can be decided by only an adjudicatory forum i.e. a court or an arbitral tribunal. Paragraph 18 and 19 of the said judgement are quoted as under: “18. Thus what is made final and conclusive by Clauses (2) and (3) of the agreement, is not the decision of any authority on the issue whether the contractor was responsible for the delay or the Department was question whether responsible termination/rescission is valid or illegal. What is made final, is the decisions on consequential issues relating to quantification, if there is no dispute as to who committed breach. That is, if the contractor admits that he is in breach, or if the arbitrator finds that the contractor is in breach by being responsible for the delay, the decision of the Superintending Engineer will be final in regard to two issues. The first is the percentage (whether it should be 1% or less) of the value of the work that is to be levied as liquidated damages per day. The second is the determination of the actual excess cost in getting the work completed through an alternative agency. The decision as to who is responsible for the delay in execution and who committed breach is not made subject to any decision 12 of the respondents or its officers, nor excepted from arbitration under any provision of the contract. 19. In fact the question whether the other party committed breach cannot be decided by the party alleging breach. A contract cannot provide that one party will be the arbiter to decide whether he committed breach or the other party committed breach. That question can only be decided by only an adjudicatory forum, that is, a court or an Arbitral Tribunal.”

24. In the judgement reported in (2019) SCC OnLine SC 1158 (Tulsi Narayan Garg Vs. M.P. Road Development Authority, Bhopal), the dispute regarding termination of agreement and consequential liquidated damages were pending adjudication before arbitral tribunal and in the midst of such pendency, the respondent- initiated recovery proceedings without awaiting the outcome of the arbitral proceedings. It has been held the respondent cannot become an arbiter of its own cause and unless the dispute is settled by a procedure prescribed under law, the respondents were not justified in initiating recovery proceeding invoking the procedure under the Land Revenue Act. 25. In another judgement passed by the Hon’ble Patna High Court reported in (2013) SCC OnLine Patna 945 (M/s NCC Ltd. Vs. The State of Bihar) the aforesaid view of the Hon’ble Supreme Court has been reiterated in paragraph 26 as under: “26. ……………………. The Apex Court has clearly held that the question whether the other party has committed a breach cannot be decided by the party which alleges the breach nor the contract can provide that one party to the contract can decide whether they committed the breach or the other party committed the breach, which question can only be decided by a judicial forum, i.e. a court or an Arbitral Tribunal.” In the case of ONGC vs. Saw Pipes Limited reported in (2003)

26. 5 SCC 705, it has been in para 68 as follows: - “68. From the aforesaid discussions, it can be held that: (1) Terms of the contract are required to be taken into consideration before arriving at the conclusion whether the party claiming damages is entitled to the same. (2) If the terms are clear and unambiguous stipulating the liquidated damages in case of the breach of the contract unless it is held that such estimate of damages/compensation is unreasonable or is by way of penalty, party who has committed the breach is required to pay such compensation and that is what is provided in Section 73 of the Contract Act. (3) Section 74 is to be read along with Section 73 and, therefore, in every case of breach of contract, the person aggrieved by the breach is not required to prove actual loss or damage suffered by him before he can claim a decree. The court is competent to award reasonable compensation in case of breach even if no actual damage is proved to have been suffered in consequence of the breach of a contract. 13 (4) In some contracts, it would be impossible for the court to assess the compensation arising from breach and if the compensation contemplated is not by way of penalty or unreasonable, the court can award the same if it is genuine pre-estimate by the parties as the measure of reasonable compensation.”

27. In the judgement passed by the Hon’ble Supreme Court in the case of Kailash Nath Associates Vs. Delhi Development Authority and Anr. (2015) 4 SCC 136, the ratio of the law laid down in the earlier case of Fateh Chand v. Balkishan Dass AIR 1963 SC 1405, dealing with liquidated damages has been mentioned in para 34 as follows:- “34. In Fateh Chand v. Balkishan Dass, this Court held: “The section is clearly an attempt to eliminate the somewhat elaborate refinements made under the English common law in distinguishing between stipulations providing for payment of liquidated damages and stipulations in the nature of penalty. Under the common law a genuine pre-estimate of damages by mutual agreement is regarded as a stipulation naming liquidated damages and binding between the parties: a stipulation in a contract in terrorem is a penalty and the Court refuses to enforce it, awarding to the aggrieved party only reasonable compensation. The Indian Legislature has sought to cut across the web of rules and presumptions under the English common law, by enacting a uniform principle applicable to all stipulations naming amounts to be paid in case of breach, and stipulations by way of penalty…. Section 74 of the Contract Act deals with the measure of damages in two classes of cases (i) where the contract names a sum to be paid in case of breach and (ii) where the contract contains any other stipulation by way of penalty. We are in the present case not concerned to decide whether a covenant of forfeiture of deposit for due performance of a contract falls within the first class. The measure of damages in the case of breach of a stipulation by way of penalty is by Section 74 reasonable compensation not exceeding the penalty stipulated for. In assessing damages the Court has, subject to the limit of the penalty stipulated, jurisdiction to award such compensation as circumstances of to award compensation in case of breach of contract is unqualified except as to the maximum stipulated; but compensation has to be reasonable, and that imposes upon the Court duty to award compensation according to settled principles. The section undoubtedly says that the aggrieved party is entitled to receive compensation from the party who has broken the contract, whether or not actual damage or loss is proved to have been caused by the breach. Thereby it merely dispenses with proof of ‘actual loss or damages’; it does not justify the award of compensation when in consequence of the breach no legal injury at all has resulted, because compensation for breach of contract can be awarded to make good loss or damage which naturally arose in the usual course of things, or which the parties knew when they made the contract, to be likely to result from the breach. Section 74 declares the law as to liability upon breach of contract where compensation is by agreement of the parties pre-determined, or where there is a stipulation by way of penalty. But the application of the enactment is not restricted to cases where the aggrieved party claims relief as a plaintiff. The section does not confer a special benefit upon any party; it merely declares the law that notwithstanding any term in the contract pre-determining damages or providing for forfeiture of any property by way of penalty, the court will award to the party aggrieved only it deems reasonable having regard the case. Jurisdiction of the Court to all 14 reasonable compensation not exceeding the amount named or penalty stipulated. The jurisdiction of the court is not determined by the accidental circumstance of the party in default being a plaintiff or a defendant in a suit. Use of the expression ‘to receive from the party who has broken the contract’ does not predicate that the jurisdiction of the court to adjust amounts which have been paid by the party in default cannot be exercised in dealing with the claim of the party complaining of breach of contract. The court has to adjudge in every case reasonable compensation to which the plaintiff is entitled from the defendant on breach of the contract. Such compensation has to be ascertained having regard to the conditions existing on the date of the breach.”

28. The law has been summarized in para 43 of Kailash Nath Associates (supra) as follows:- “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: 43.1. 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, in cases where the amount fixed is in the nature of penalty, only reasonable compensation can be awarded not exceeding the penalty so stated. In both cases, the liquidated amount or penalty is the upper limit beyond which the court cannot grant reasonable compensation. 43.2. Reasonable compensation will be fixed on well-known principles that are applicable to the law of contract, which are to be found inter alia in Section 73 of the Contract Act. 43.3. Since Section 74 awards reasonable compensation for damage or loss caused by a breach of contract, damage or loss caused is a sine qua non for the applicability of the section. 43.4. The section applies whether a person is a plaintiff or a defendant in a suit. 43.5. The sum spoken of may already be paid or be payable in future. 43.6. The expression “whether or not actual damage or loss is proved to have been caused thereby” means that where it is possible to prove actual damage or loss, such proof is not dispensed with. It is only in cases where damage or loss is difficult or impossible to prove that the liquidated amount named in the contract, if a genuine pre-estimate of damage or loss, can be awarded. 43.7. Section 74 will apply to cases of forfeiture of earnest money under a contract. Where, however, forfeiture takes place under the terms and conditions of a public auction before agreement is reached, Section 74 would have no application.”

29. Thus, it has been held in the case of Fateh Chand v. Balkishan Dass, and relied upon in the case of Kailash Nath Associates that Section 74 declares the law as to liability upon breach of contract where compensation is pre-determined by agreement of the parties, or where there is a stipulation by way of penalty. It has also been held that the application of the enactment is not restricted to cases where the aggrieved party claims relief as a plaintiff. The section does not confer a special benefit upon any party; it merely declares the law that 15 notwithstanding any term in the contract pre-determining damages or providing for forfeiture of any property by way of penalty, the court will award to the party aggrieved only reasonable compensation not exceeding the amount named or penalty stipulated. The jurisdiction of the court is not determined by the accidental circumstance of the party in default being a plaintiff or a defendant in a suit. Use of the expression ‘to receive from the party who has broken the contract’ does not predicate that the jurisdiction of the court to adjust amounts which have been paid by the party in default cannot be exercised in dealing with the claim of the party complaining of breach of contract. The court has to adjudge in every case reasonable compensation to which the plaintiff is entitled from the defendant on breach of the contract. Such compensation has to be ascertained having regard to the conditions existing on the date of the breach. 30. Now coming to the facts of this case, the foundational facts are not in dispute. The contract was for erection, testing, constructing, engineering and commissioning of Chatra – Latehar transmission line on Turnkey basis for which NIT was issued in the year 2012 (Annexure – 1). The period of completion was stated as 18 months from the date of issuance of Letter of Intent. There was delay in issuance of the work order. However, twice extension of time was granted without liquidated damages and with price variation. The 2nd extension was till 31.03.2016 vide letter dated 11.12.2015 without liquidated damages and with price variation but with a condition that further time extension if required will be granted with liquidated damages. 31. 3rd extension was requested by the petitioner and ultimately on

02.08.2016, the extension was granted up to 30.09.2016 with liquidated damages and without price variation with a further condition that if the work is not completed in the extended period, liquidated damages will be imposed on the entire extended period. The 4th and 5th extensions were also granted to the petitioner for completion of the work till 28.02.2017 and then till 31.05.2017 referring to the same condition as mentioned in the 3rd extension letter. All the extension letters were issued upon the request of the petitioner. 16

32. Right from the issuance of 3rd extension letter dated 02.08.2016, the petitioner has been protesting against imposition of liquidated damages and has been praying for a waiver of the liquidated damages, but none of the letters were responded by the respondents, but on each occasion, the respondents issued extension letter with the same terms as the 3rd extension letter. 33. The petitioner has been attributing delay in completion of work to the respondents and also for reasons beyond control of the petitioner, which included delay in forest clearances, issues relating to right of way, delay in release of payment, non-issuance of Form C under sales tax law etc. At the same time, the petitioner did not take any legal recourse to the conditional extension of time i.e with liquidated damages and without price variation with a further condition that if the work is not completed in the extended period, liquidated damages will be imposed on the entire extended period and continued with the work with their protest letters to the said condition on each occasion till the 5th extension. In the meantime, the respondent went on deducting the liquidated damages as per the stipulation in the 3rd extension letter up till the maximum limit of liquidated damages i.e 10% of the order value. Total liquidated damages deducted from running bills is Rs.6,42,84,941/- which is 10% of the final Agreement Value i.e 64.28 crores and odd, after taking into account the quantity variation of work. 34. Even thereafter, the petitioner had written numerous letters for further extension of time for completion of work, last one being

18.10.2021 (Annexure-30) seeking extension till 31.01.2022 but there is no letter of extension on record beyond 31.05.2017. The petitioner claims that the work was completed on 18.10.2021, but the completion certificate is also not on record. However, even in the arguments of the respondents, it has come that the work was completed. The exact date of completion of work is not clear in view of the fact that the petitioner had requested for extension of time till 31.01.2022 vide letter dated 18.10.2021 where in it has been mentioned – “we need to carry out some works related to forest department and making of corridor for the successful operation of the line. So it is our kind 17 request to kindly provide us with time extension till 31.01.2022 to complete the work in full shape” 35. In another letter dated 22.02.2022, a request was made for issuance of provisional acceptance letter for the erection work and to process and release retention amount which was deducted against 15% of the contract value of Rs.2.0 crore. The letter also indicate that some portion of the work was still to be done. In the said letter itself, it was mentioned that the electricity line was commissioned on 01.10.2021. 36. The writ petition was filed on 04.03.2022 with a prayer to release the amount retained by the respondents from the running bills of the petitioner on account of liquidated damages and also for a declaration that delay in completion of project was attributable to the respondents. 37. It is also important to note that it is neither the case of the petitioner that the respondents did not suffer any losses on account of delay in execution of work nor it is their case that any exorbitant amount, over and above the actual loss, has been retained by the respondents. It has been argued that that delay was attributable to the respondents and not to the petitioner and therefore the respondents were in breach of the contract and therefore the petitioner is not liable to pay liquidated damages. 38. The point raised by the petitioner is that, the Court has to first determine the breach of contract and then the consequence of such breach and both the aspects of the matter require adjudication. It is their case that in absence of any adjudication, there could not have been any unilateral determination by respondents and consequently the amount has been wrongly deducted and retained by the respondents from their running bills in the name of liquidated damages. It has also been argued that the delay was not attributable to the petitioner but was attributable to the respondents who were allegedly in breach of their contractual obligations. 39. However, it is not clear from the arguments of the petitioner as to which particular clause or clauses of the contract have been breached by the respondents. Their argument is primarily, that the 18 delay in work was attributable to the respondents and on account of reasons which were beyond the control of the petitioner. 40. In order to claim the amount back through this writ petition, the learned counsel for the petitioner has heavily relied upon the judgement passed by this Court in the case reported in (2015) SCC OnLine Jhar 3278 [M/s. Inox Air Products Limited Vs. Steel Authority of India Limited (SAIL) and Another]. 41. In the judgement passed by this Court in the case of M/s. Inox Air Products Limited (supra) arising out of a contract, initially a letter was under challenge wherein the respondent-SAIL had demanded certain amount and threatened that on account of non-payment, it will be deducted from the other bills which was required to be paid by respondent-SAIL to the writ petitioner. During the pendency of the writ petition, the respondent-SAIL deducted the amount from the running bill of another contract between the same parties and such action was challenged through amendment. In the aforesaid background, this Court held that the question, whether the petitioner was responsible or the respondent was responsible for committing breach of contract, was required to be adjudicated by a court or arbitral tribunal and the same could not be decided by respondent who alleged that the petitioner had committed any breach. It was held that since the dispute relating to breach of contract was not yet decided, therefore, the petitioner could not be held liable to pay the damages. The Court further went on to decide that even assuming that the petitioner had committed breach of the terms and conditions, then also the respondent-SAIL had illegally forfeited security amount and deducted the amount from bill of another contract of the petitioner. In the aforesaid background, this Court directed for refund of the amount; directed the respondent to refer the dispute to an independent arbitrator for adjudication. While passing the order for refund, this Court also kept in mind that the petitioner had ongoing contract with the respondent-SAIL and if ultimately the respondent succeeded in arbitral proceeding, it can deduct damages from future bills of the petitioner and observed that such order of refund will not cause any prejudice to the respondent. 19

42. This Court is of the considered view that order of refund was passed by the writ Court in the case of Inox Air (supra) under peculiar circumstances where the amount was realized from the bill of a different contract between the same parties and refund would not have caused prejudice to the respondent-SAIL as there were other ongoing contracts between the parties and the amount upon adjudication could be realized from the bills of another contract. In the said case, a demand was raised on account of claim of damages allegedly suffered by the respondent-SAIL. 43. There is no such corresponding fact in the present case. Rather, in the present case deductions were made on account of claim of liquidated damages as per the clause in the contract and also stipulated in the letter of extension of time i.e with liquidated damages and without price variation; the petitioner objected to the condition and also the deductions on account of liquidated damages from the running bills of the same contract citing reasons for delay, some of them alleged on account of the respondents. 44. Thereafter, the petitioner filed this writ petition seeking release of the retained amount on account of liquidated damages coupled with a prayer seeking declaration that the respondents were in breach of contract. Neither the delay in execution of contract nor the loss suffered by the respondents on account of delay, are in dispute. It is not even alleged that the amount of liquidated damages are exorbitant and much more than the actual loss which was contemplated in terms of the pre-estimated liquidated damages. It is also not in dispute that the project of laying down electricity lines was of public importance and the work which was initially to be completed in 18 months, took more than a decade and the date of completion of the work is also not on record. 45. However, it is the case of the petitioner that unless the breach is adjudicated and quantum of damage is determined, the money cannot be deducted from the bills in the name of liquidated damages. 46. In fact, the relief of release of the balance bill amount relating to retention on account of liquidated damage is a relief consequential 20 to the relief relating to a declaration that the respondents were in breach of contract. 47. The determination as to who was in breach of contract is a disputed fact in the present case and it requires adducing evidence by both parties, apparently, both oral and documentary and such disputed questions cannot be decided in a writ application. Had the petitioner filed a suit for release of the remaining bill amount, the respondents could have asked for a set-off/counter claim in connection with the claim of liquidated damages. It is important to note that it is not the case of the petitioner that the respondents did not suffer any loss/damages on account of delay in completion of the work which was initially to be completed within a period of 18 months and continued for more than a decade and still completion certificate is not on record. 48. Once it has been found that apparently the respondents had retained the amount from the bills on account of liquidated damages, such deducted amount can be released only upon adjudication on the point as to who was in breach of contract so as to disentitle the respondents from claiming liquidated damages. 49. The liquidated damages were leviable on account of delay in execution of contract. The delay in execution of the contract is admitted, but in order to come out of the levy of liquidated damages, the petitioner is alleging breach of contract by the respondents and/or citing delay on account of reasons beyond their control. On the other hand, the respondents, in order to retain the deducted amount are attributing delay/breach of contract on account of the petitioner. 50. In the judgement relied upon by the respondents reported in (2015) 14 SCC 263 (Construction and Design Services Vs. Delhi Development Authority), contract only envisaged the upper limit of damages to be determined by the Superintending Engineer in the case of delay in completion. The High Court nullified the compensation on the ground that time was not considered as the essence of contract and was extended on several occasions and that levying of maximum compensation stipulated in the contract without determination of actual loss will amount to penalty. The Division Bench of the High 21 Court reversed the judgement passed by the learned Single Judge holding that delay in a contract of construction of a public utility service could itself be a ground for compensation without proving actual loss. The appellant before the Hon’ble Supreme Court contended that the maximum amount stipulated in the contract would not be reasonable compensation without determining the actual loss. In the said case, there was no dispute that the appellant failed to execute the work within stipulated / extended time and that the work was of public utility. Delay also resulted in loss of interest on blocked capital. It was held that in aforesaid circumstances, loss should be assumed even without proof and the burden was on the appellant, who committed breach, to show that no loss was caused by delay or that the amount stipulated as damage for breach of contract was in the nature of penalty. It was also held that once it is found that even in absence of specific evidence, the respondents could be held to have suffered loss on account of breach of contract and it is entitled for compensation to the extent of loss suffered, it is for the appellant to show that the stipulated damages are by way of penalty. The party complaining the breach can certainly be allowed reasonable compensation out of the said amount, if not the entire amount. If the entire amount stipulated is a genuine pre-estimate of loss, actual loss need not be proved. The burden of proof that no loss was likely to be suffered, is on the party committing breach. In the said case, the facts indicated above show that there was no dispute that the appellant before the Hon’ble Supreme Court was in breach and issue was as to whether any amount of stipulated damages could be paid even if there was absence of specific evidence. In that background, it was held that it was for the appellant to show that the stipulated damages were by way of penalty and even in absence of any specific evidence, it was held that the contract being a contract of public utility, the delay in completion could be a ground for levying compensation. Paragraphs 14, 15 and 17 of the aforesaid judgement are quoted as under: “14. There is no dispute that the appellant failed to execute the work of construction of sewerage pumping station within the 22 stipulated or extended time. The said pumping station certainly was of public utility to maintain and preserve clean environment, absence of which could result in environmental degradation by stagnation of water in low lying areas. Delay also resulted in loss of interest on blocked capital as rightly observed in para 7 of the impugned judgment of the High Court. In these circumstances, loss could be assumed, even without proof and burden was on the appellant who committed breach to show that no loss was caused by delay or that the amount stipulated as damages for breach of contract was in the nature of penalty. Even if technically the time was not of essence, it could not be presumed that delay was of no consequence. Thus, even if there is no specific evidence of loss suffered by the respondent-plaintiff, the observations in the order of the Division Bench that the project being a public utility project, the delay itself can be taken to have resulted in loss in the form of environmental degradation and loss of interest on the capital are not without any basis. 15. Once it is held that even in the absence of specific evidence, the respondent could be held to have suffered loss on account of breach of contract, and it is entitled to compensation to the extent of loss suffered, it is for the appellant to show that stipulated damages are by way of penalty. In a given case, when the highest limit is stipulated instead of a fixed sum, in the absence of evidence of loss, part of it can be held to be reasonable compensation and the remaining by way of penalty. The party complaining of breach can certainly be allowed reasonable compensation out of the said amount if not the entire amount. If the entire amount stipulated is genuine pre-estimate of loss, the actual loss need not be proved. Burden to prove that no loss was likely to be suffered is on the party committing breach, as already observed. 16… 17. Applying the above principle to the present case, it could certainly be presumed that delay in executing the work resulted in to reasonable the respondent was entitled compensation. Evidence of precise amount of loss may not be possible but in the absence of any evidence by the party committing breach that no loss was suffered by the party complaining of breach, the court has to proceed on guesswork as to the quantum of compensation to be allowed in the given circumstances. Since the respondent also could have led evidence to show the extent of higher amount paid for the work got done or produce any other specific material but it did not do so, we are of the view that it will be fair to award half of the amount claimed as reasonable compensation.” for which

51. The said judgement does not fully apply to the facts and circumstances of the present case at this stage as the petitioner as well as the respondents are claiming that the delay in execution of the work was attributable to the other party and accordingly, the other party was in breach of the contract. However, at the same time, it is not the case of the petitioner that the stipulated pre-estimated damages by way of liquidated damages was excessive or that the respondents did not suffer any loss at all on account of delay in execution of the work. 23

52. In the aforesaid circumstances and considering the ratio of the aforesaid judgement reported in (2015) 14 SCC 263 (supra), in order to deny liability from payment of liquidated damages, the petitioner will have to prove that the breach of the contract was on account of the respondents and upon such adjudication only, the petitioner can claim the release of the retained bill amount. This Court is of the considered view that the claim of balance amount of bills and the claim of liquidated damages are essentially in the nature of claim and counter claim/set-off and both are required to be adjudicated and essentially, this would depend upon the adjudication as to who is in breach of the contract and to what extent and consequences flowing out of such breach, if any. This Court has already expressed its inability to adjudicate upon alleged breach of the agreement by one or the other party as it requires evidence and cannot be adjudicated in writ jurisdiction. Consequently, this Court is of the considered view that the prayer of the petitioner to release the balance amount of the bill cannot be allowed at this stage. The matter requires adjudication by civil court of competent jurisdiction. It is observed that the petitioner is at liberty to get its grievances adjudicated through a competent court of civil jurisdiction. However, the civil court shall determine the rival issues between the parties on the basis of the materials to be placed before the court and will not be influenced by any observations made in this judgement. 53. This writ petition is accordingly disposed of. 54. Pending interlocutory application, if any, stands closed. (Anubha Rawat Choudhary, J.) Saurav/ AFR/