AI Drafter 
TaxTMI 
TaxTMI 
TaxTMI 
2016 (1) TMI 1528
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....iod stipulated was 17 months from the date of purchase order and delivery was expected to be completed on or before 26.07.2009. 3. A clause for Price Reduction Schedule (PRS) for delay in delivery was stipulated in the purchase order. As per the PRS, as a consequence of delay in delivery, price was to be reduced by 1% of the total order value per week, subject to maximum of 10% of the total order value. The purchase order stipulated that the General Purchase Conditions (GPC) and other commercial terms and conditions, as sent with the RFQ and amendment thereon, would apply. 4. Clause 12 of the GPC dealing with delayed delivery reads as under:- "12. Delayed Delivery: The time and date of delivery of materials/equipment as stipulated in the Order shall be deemed to be the essence of the contract. In case of delay in execution of the order beyond the date of delivery stipulated in the order or any extensions sanctioned, the Purchaser may at his option either (i) Accept delayed delivery for Criminal items i.e. Refrigeration Package, Reciprocating Compressor, Centrifugal Compressor, Pump Multistage Centrifugal (feed Pump), HP Heat Exchangers (Screw Plug/Breach Loc....
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....abour loss, workers were lured by the local political parties, thereby affecting the works of TEMA as well as other businesses in the area where manufacturing activities were being carried on. 7. TEMA invoked clause 13 of the GPC claiming force majeure by its letter dated 22.12.2009 and reiterated by its letter dated 11.01.2010. The delivery, which was expected on or before 26.07.2009, in fact, happened on 16.04.2010. On 14.05.2010, payment was released by EIL. On 12.08.2010, refund was claimed by EIL on the ground that Price Reduction Clause 12 had been activated on account of delay on the part of TEMA. 8. On the failure of TEMA to refund any amount, arbitration was invoked by EIL. EIL filed its statement of claim seeking to recover the amount paid to TEMA on the ground of Price Reduction Clause (PRS). TEMA raised the defence of force majeure in clause 13 and contended that EIL was not justified in applying the PRS. The learned Arbitrator held that grounds did not exist for invocation of the force majeure provision even in terms of clause 13 of GPC and as such, held that no case for extension of time was made out by TEMA. 9. The next issue considered by the learned Arbitr....
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.... Arbitrator has noted that clause 12 of the GPC was neither in respect of LD nor a penalty. 14. In view of the order above, the learned Single Judge has returned the finding that apart from travelling beyond the scope of the pleadings and holding contrary to the understanding of clause 13 by the parties themselves, the learned Arbitrator appeared to have gone beyond the scope of reference of the arbitration. Under Section 28(3) of the Act, the Arbitrator had to decide in accordance with the terms of the Contract and thus, the Arbitrator had to go by the parties' understanding of the contract clauses unless there was a dispute in that regard. 15. From the pleadings of the parties and the submissions made by the counsel before the Arbitrator, it was noticed that there was no dispute at all as to whether clause 12 provided for liquidated damages and the only question was whether EIL was entitled to such price reduction in terms of the PRS or not? 16. The learned Single Judge has noticed the settled legal position as regards the necessity of appropriate pleadings for a claimant to recover liquidated damages. 17. Reliance is placed on the judgment in the case of Kailash Nath....
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.... plaintiff must first prove the damages that they have suffered to recover simpliciter a sum by way of liquidated damages. 19. The learned Single Judge has noticed that in the present case, there was no averment by EIL that it had, in fact, suffered any loss on account of the delayed delivery of the equipment. He has returned a finding that clause 12 of GPC is not in the nature of a no fault liability clause. It is a clause, which reflects an agreement between the parties as to the consequence of a delayed delivery in monetary terms. It gives an outer limit of 10% of the total value of the contract, which can be sought to be recovered. It does not dispense with the need for the party complaining of the breach i.e. EIL to at least aver that it has suffered some loss on account of such breach. The legal position, as explained in Indian Oil Corporation v. Lloyds Steel Industries Limited : 2007 (4) Arbitration Law Report 84 (Delhi), has also been referred to, wherein it is held that in a particular case where there is a clause of liquidated damages the Court will award to the party aggrieved only reasonable compensation which would not exceed an amount of liquidated damages stipulat....
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....where extent of actual loss or damage is incapable of proof or not proved. That is why Section 74 deliberately states that what is to be awarded is reasonable compensation. In a case when the party complaining of breach of the contract has not suffered legal injury in the sense of sustaining loss or damage, there is nothing to compensate him for; there is nothing to recompense, satisfy, or make amends. Therefore, he will not be entitled to compensation See State of Kerala v. United Shippers and Dredgers Ltd. . Even in Fateh Chand (supra) the Apex Court observed in no uncertain terms that when the section says that an aggrieved party is entitled to compensation whether actual damage is proved to have been caused by the breach or not, it merely dispenses with the proof of 'actual loss or damage'. It does not justify the award of compensation whether a legal injury has resulted in consequence of the breach, because compensation is awarded to make good the 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. If liquidated damages are awarded to the petitioner even when ....