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2017 (5) TMI 1843
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....ere part of the appeal file at the time of hearing, of this appeal. 2. Punj Lloyd sued to recover Rs. 29,15,07,084.80/- from the appellant (hereafter "GAIL") The suit amount was deducted towards interim liquidated damages in terms of Clause 57.2 of the Special Conditions of Contract (SCC) to which the present disputants were parties. Punj Lloyd complained that GAIL had withheld amounts on account of the liquidated damages deducted for interim stages delays in the completion of works, in exercise of GAIL's rights under Clause 57.2 of the SCC from Punj Lloyd's bills. 3. GAIL was to lay down gas pipelines for transportation of re-gasified natural gas originating from Petronet LNG Terminal at Dahej in Gujarat and terminating at Vijaipur in Madhya Pradesh. This and other associated facilities was called the DAHEJ-VIJAIPUR Pipeline Project (DVPL Project). It consisted of four parts (called "spreads"). The invitation for bids described the spreads as follows:- SPREAD DETAILS TOTAL LENGTH (IN KMS) I. Dahej to Sherpura 169.9 II. Sherpura to Jhabua 100.8 III. Jhabua to Jagoti 152.3 IV. Jagoti to Vijaipur 193.3 4. Punj Lloyd submit....
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....educted liquidated damages on account of the failure of the plaintiff to complete the works at intermediate dates fixed for the spreads I, II and III of the pipelines laying project. The defendant has not deducted any damages on account of delay caused beyond the final date for commissioning of the work inasmuch as, and as given in detail below, the defendant has given extension to the plaintiff for completion of the project upto 10.4.2004 while simultaneously levying interim liquidated damages as per Clause 57.2 of the SCC for failure of the plaintiff to meet interim deadlines/dates. 8. Punj Lloyd sued GAIL for the amounts deducted, apart from other claims. GAIL, in its written statement, inter alia, argued that: "16. Para 16 of the Plaint is not only incorrect and frivolous, but the same is also an attempt on part of the Plaintiff to mislead this Hon'ble Court on fact. As a matter of fact, as per the records of contract performance maintained at site, there was a big Punch List towards pending works on part of the Plaintiff as on 05.02.2004 and the Plaintiff was attending Electrical/instrumentation/civil works at almost all SV stations during February/March, 2004. Riv....
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.... suspended for the period during which Force Majeure event lasts. The cost and loss sustained by the either party shall be borne by respective parties. The term "Force Majeure‟ as employed herein shall mean acts of God, earthquake, war (declared or undeclared), revolts, riots, fires, floods, rebellions, explosions, hurricane, sabotage civil commotions and acts and regulations of respective Government of the two parties, namely the OWNER and the CONTRACTOR. Upon the occurrence of such cause (s) and upon its termination, the party alleging that it has been rendered unable as aforesaid thereby, shall notify the other party in writing immediately but not later than 72 (Seventy-two) hours of the alleged beginning and ending thereof, giving full particulars and satisfactory evidence in support of its claim. xxxx xxxxx xxxxx 27.0 COMPENSATION FOR DELAY (LIQUIDATED DAMAGES): 27.1 Time is essence of the CONTRACT. In case the CONTRACT fails to complete the WORK within the stipulated period then, unless such failure is due to Force Majeure as defined in Clause 26 here above or due to OWNER's ....
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.... compensation for delay, to be paid by Contractor to Owner, which shall be calculated on the following basis: 1. No compensation for delay shall be payable in case the cumulative progress at the end of month in lowering of pipeline is less upto 5% of corresponding cumulative length as per the above mentioned schedule. 2. For every 1% additional slippage beyond 5% as mentioned above in monthly cumulative scheduled progress, compensation for delay shall be levied @0.5% of contract value subject to maximum of cumulative 10% of contract value. With this provision, the compensation for delay shall get re-adjusted with recovery/improvement in progress by the Contractor in subsequent months, within the contractual completion period. For cumulative slippage resulting to compensation for delay exceeding 10% of contract value, other relevant provisions of contract document shall be applicable. 57.2.2 Intermediate compensation for Delay/Liquidated Damages stated in sub- clause 57.2.1 above shall be in addition to compensation for Delay/Liquidated Damages stated in subclause 57.1.1 of SCC. 57.3 The total liability of the contractor to Owner under su....
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....urther liquidated damages not exceeding 10% on account of the liquidated damages beyond the contract completion final date as per Clause 57.1.1 of the SCC. Clause 57.2.2 of the SCC clarifies that interim compensation and the interim liquidated damages accordingly payable in terms of Clause 57.2.1 would be in addition to the liquidated damages payable as per Clause 57.1.1 of the SCC. Effectively, therefore a total of 10% interim liquidated damages and 10% of overall liquidated damages with respect to the last date fixed for commissioning of the DVPL Project was fixed as per the aforesaid terms of the contract, totaling to the total liquidated damages of 20%. We are in the present case only concerned with the issue as to whether the defendant was entitled to levy the interim liquidated damages of 5.425% of the value of the contract in terms of Clause 57.2 of the SCC." 13. After so holding, the learned single judge discussed the law applicable to damages, under Sections 73 and 74 of the Contract Act and held that only in the event of actual loss can damages be recovered, relying on Fateh Chand v Balkishan Dass AIR 1963 SC 1405. The difference between the grant of damages under Sect....
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....Charge to the plaintiff, Ex. PW2/7. (iv) Letter dated 5.7.2004 by the defendant to the Engineer-in- Charge, Ex. PW2/10. (v) Letter dated 6.7.2004 by the Engineer-in-Charge to the plaintiff, Ex. PW2/11. (vi) Letter dated 16.8.2004 by Engineer-in-Charge to the plaintiff, Ex. PW2/9. (vii) Letter dated 1.8.2005 by the defendant to the plaintiff, Ex. PW2/14." 15. The learned single judge then analyzed the letter dated 21.4.2004 (Ex. PW2/6) of the Engineers India Ltd. The said letter inter alia, said that: "5.0 EXTENSION OF TIME SCHEDULE The work of pipeline laying and commissioning was awarded to PLL under single contract. Though there are separate completion periods for laying of pipeline for spread I, II, III and for overall commissioning of pipeline system, the date of commissioning entire pipeline work, being last activity is considered as contractual date for completion of total work. Accordingly, extension of time schedule has been worked out w.r.t. last activity i.e commissioning of Pipeline System. Although pre-commissioning of Spreads in PLL scope (Spread I, II &III) was delayed by 65 d....
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.... 7.3 Liquidated damage on PLL on account of intermediate delay equivalent to 5.425% of contract value is applicable. xxxxxxxxxxxxxxxx Keeping in view the best effort made by contractor for timely completion in line with project/commissioning requirement of pipeline for his own as well as other's (RNGS) scope of work in spite of various difficulties encountered during execution. And also considering our above recommendation for extension of contract for entire work completion upto 15.04.04 without levying compensation for delay/LD, GAIL may consider to condone the intermediate compensation for delay/liquidated damages as stated in para 7.3 above. While on the subject, it may be appreciated that the purpose of intermediate LD is basically to pressurize the contractor for achieving intermediate milestones which in turn ensures the final completion of job in time. GAIL may further examine the recommendation and take final decision on the issue at the earliest, considering the above and the fact that "Gas-in" as well as commissioning of entire pipe line was not delayed. Thanking you and assuring you of our best services at all times, Very truly yours, Sd/- ....
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..... The total liability under sub clause 57.1.1 of SCC on Compensation for Delay/Liquidated Damages and sub clause 57.2 of SCC on intermediate Compensation for Delay/Liquidated Damages has been restricted to 5.425% of contract value as per the provisions of the contract. Thanking you, Very truly yours, Sd/- 18. According to the learned single judge, a cumulative reading of the said portions of the letters Ex. PW2/6, PW2/10, PW2/11 and PW2/9 showed two aspects: one, that no liquidated damages were imposed with respect to overall completion of the project/works and two liquidated damages were only imposed in terms of Clause 57.2 of the SCC towards intermediate compensation for delay, and being restricted to 5.425% of the contract value. He then rendered his findings as follows: "22. The facts of the present case are very peculiar with respect to the issue as to whether or not legally, the liquidated damages being the interim liquidated damages for interim delays, ought or ought not to be imposed i.e whether such damages are legally allowable or not legally allowable as per Section 74 of the Indian Contract Act. In order to answer this issue, it is required to be noted that ....
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....letion of works inasmuch as the final date of completion stands extended to 10.4.2004, and the case of the defendant is only of interim compensation for delays in not meeting interim timelines. This stand of the defendant becomes abundantly clear from paras 6 and 7 of Ex. PW2/9 dated 16.8.2004 of the Engineer-in-Charge to the plaintiff and para 16 of the written statement of the defendant. Thus two aspects emerge of firstly of the damage amount claimed by the defendant from the plaintiff being 5.425% of the contract and secondly that this is the figure of interim liquidated damages in terms of the written statement and the documents Ex. PW2/6, Ex. PW2/10, Ex. PW2/11 and Ex. PW2/9. Therefore, the only claim of the defendant is towards interim liquidated damages but interim breaches of contract in the facts of the case have not caused any monetary loss to the defendant and therefore for the defendant to claim interim liquidated damages from the plaintiff. 23. In view of the above, issue nos. 3 to 5 are decided in favour of the plaintiff and against the defendant and it is held that since no monetary loss was caused to the defendant by any delay caused by the plaintiff for fa....
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....tting breach had to pay that amount and the party complaining of the breach was not under an obligation to prove actual loss. It was argued that the learned Single Judge failed to appreciate that the extension time of the entire contract, particularly the commissioning contract was conditioned upon payment of interim liquidated damages at 5.425% of the contract value in terms of the provisions, i.e. Clause 57.2. Furthermore, importantly, the EIL's letter dated 06.07.2004 and the letter dated 16.08.2004 (by GAIL) also pointed to a qualified extension with the imposition of levy of intermediate liquidated damages. Significantly, the levy of such intermediate liquidated damages was never disputed at the time it was granted in August, 2004. 20. GAIL urges that the impugned judgment is in error of law in holding that, "no loss had occurred due to intermediate delays when though the parties had expressly and unambiguously agreed that the intermediate delay in lowering of pipelines would result in losses and that 1/2% of the contract value per week or part thereof (subject to a maximum of 10%) was a genuine pre-estimate of such losses and that the said stipulation was not a penalty....
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.... assess compensation arising from the breach while in other cases, compensation can be calculated in accordance with established rules. Where the Court is unable to assess the compensation, the sum named by the parties, if it be recorded as a genuine pre-estimate may be taken into consideration as a measure of reasonable compensation. But not if the sum named is in the nature of a penalty. Learned counsel also relied upon H.M. Kamaluddin Ansari and Co. v. Union of India 1983(4) SCC 417, to say that in a contract such as the present, it was open to GAIL to appropriate any sum payable to contractors. Learned ASG also relied upon the ruling in Construction and Design Services v. Delhi Development Authority 2015 (14) SCC 263). The Court observed as follows: "14. There is no dispute that the appellant failed to execute the work of construction of sewerage pumping station within the 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....
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....offloaded work of other contractor, M/s. RNGS who failed miserably. This in turn resulted in timely completion/commissioning of DVPL pipeline and commitments made by GAIL to M/s. Petronet LNG could be honoured. Keeping in view the best effort made by contractor for timely completion in line with project/commissioning requirements of pipeline for his own as well as other's (RNGS) scope of work in spite of various difficulties encountered during execution. And also considering our above recommendation for extension of contract for entire work completion upto 15.04.04 without levying compensation for delay/LD, GAIL may consider to condone the intermediate compensation for delay/liquidated damages as stated in para 7.3 above. While on the subject, it may be appreciated that the purpose of intermediate LD is basically to pressurize the contractor for achieving intermediate milestones which in turn ensures the final completion of job in time." 25. Learned counsel contrasted the language of clause 27.1 of the General Conditions of Contract which specifically talked about time being of essence of the contract and also stipulated compensation "not as a penalty a sum....
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....ts that the suit filed was for recovery of US$ 779536.21 and the amount sought for in final relief was in Indian Rupees solely for the purpose of calculating court fees. It was urged that the learned Single Judge while decreeing the suit should have applied the exchange rate for payment of US$ and not the rates prevailing at the time of the suit. It was also argued importantly, that the learned single judge accepted the plaintiff's contentions but did not grant any pre-suit interest which has been specifically sought @ 12%. In this regard, it was submitted that the suit had claimed Rs. 29,15,07,084.80 together with interest @ 18% per annum from 04.07.2004, i.e. from the date of cause of action when the amounts were deducted on the assumption of liability. In the absence of any reasons, learned Single Judge could not have refused the grant of any interest for the pre-suit period. That the decree granted pendente lite and future interest only highlighted the learned Single Judge's awareness that withholding of sums due could result in severe economic consequences. The omission to adduce any reasons for refusing to grant interest on a substantial amount for three years, i.e. t....
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....f may already be paid or be payable in future. 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. 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. In ONGC (supra), after noticing Maula Bax (supra) the Supreme Court held that in certain eventualities parties may contemplate payment of damages or compensation to cater to specific situations because the quantification of such damages by evidence is impossible or impracticable. The Court observed as follows: "Under Section 73, when a contract has been broken, the party who suffers by such breach is entitled to receive compensation for any loss caused to him which the parties knew when they ....
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....ensation contemplated was, in any way, unreasonable. There was no reason for the Tribunal not to rely upon the clear and unambiguous terms of agreement stipulating pre-estimate damages because of delay in supply of goods. Further, while extending the time for delivery of the goods, the respondent was informed that it would be required to pay stipulated damages." 30. Again, in Bharat Sanchar Nigam Ltd v Reliance Communication Ltd 2011 (1) SCC 394, it was observed by the court, that: "17. According to Chitty on Contracts "whether a provision is to be treated as a penalty is a matter of construction to be resolved by asking whether at the time the contract was entered into the predominant contractual function of the provision was to deter a party from breaking the contract or to compensate the innocent party for breach. The question to be always asked is whether the alleged penalty clause can pass muster as a genuine pre-estimate of loss". (See para 26-126 of Chitty on Contracts, 30th edition) The fact that damage is difficult to assess with precision strengthens the presumption that a sum agreed between the parties represents a genuine attempt to estimate it and to overco....
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.... were adhered to. For instance, if one spread were completed in time and the other not completed in time, there could potentially be an adverse impact on the commissioning/overall pipeline laying schedule. Furthermore, at the time when the delays occurred, the final picture was unknown. The nuanced nature of the condition, introduced as an amendment meant that the parties were alive to these details and voluntarily agreed that such compensation was recoverable. The court finds insubstantial the argument of Punj Lloyd that omission to the reference to the liquidated damages from the later condition, agreed to by the parties, meant that necessarily GAIL had to prove actual damage, to recover the amounts agreed. It is well settled that the nature of a condition does not depend on its nomenclature, but on its effect having regard to the overall circumstances of the case. 33. Punj Lloyd's position that certain events (excessive rainfall, delayed forest clearance and hold up on account of villagers' ire) being the reason for delays, in the opinion of the court, are not sufficient to absolve its liability. When it accepted the contract, it was aware of the possibility of rainfall in th....