Liquidated Damages Clauses Cannot Be Regarded As Pre-Estimate Of Losses Without Actual Proof Of Losses
The Bombay Excessive Court docket reiterated that the liquidated damages clauses would by no means be considered a pre-estimate of losses with out precise proof of losses.
The Court docket reiterated thus in a Business Arbitration Petition most popular below Part 34 of the Arbitration and Conciliation Act, 1996 (A&C Act), difficult an Arbitral Award handed by an Arbitral Tribunal.
A Single Bench of Justice Somasekhar Sundaresan elucidated, “It is just in circumstances the place injury or loss is tough or not possible to show that the liquidated quantity named within the contract, if a real pre estimate of injury or loss, could be awarded. Kailash Nath was pressed into service by either side. A view was canvassed that Kailash Nath has rendered an absolute customary that liquidated damages clauses would by no means be considered a pre-estimate of losses with out precise proof of losses. I’ve finished my greatest to look at if the Impugned Award could be immune from interference allowing for Part 34 of the Act.”
The Bench referred to the Judgment of the Supreme Court docket within the case of Kailash Nath Associates v. DDA (2015), which was rendered within the context of a forfeiture of earnest cash in an public sale of land by the Delhi Growth Authority (DDA) in relation to 1 occasion that was inconsistent with the therapy given to different events.
Senior Advocate Zal Andhyarujina appeared for the Petitioner whereas Senior Advocate Haresh Jagtiani appeared for the Respondent.
Factual Background
Hindustan Petroleum Company Ltd. (HPCL) i.e., the Petitioner invited bids and awarded G.R. Engineering Non-public Restricted (GRE) i.e., the Respondent a contract to assemble twelve “mounded bullets” to retailer liquified petroleum gasoline at HPCL’s refinery at Mahul (Challenge). Particular parts of the mounded bullets have been to evolve to the utilization of strengthened cement concrete (RCC) of “M30 grade”. The Challenge was to be accomplished by December 5, 2007 however was accomplished on February 2, 2010. Disputes and variations between the events arose out of HPCL computing liquidated damages within the funds due on invoices raised by GRE.
HPCL additionally withheld varied different quantities on the funds made to GRE, which led to the arbitration proceedings. The Arbitral Tribunal held that the quantity withheld by HPCL on account of Civil Works (Rs. 1,99,07,227); under-insurance (Rs. 25,64,026); Customs Obligation variation (Rs. 86,38,491.50); Service Tax (Rs. 3,08,85,583); normalising ‘Dished Ends’ (Rs. 5,00,000); and liquidated damages (Rs. 5,83,67,973) ought to not have been withheld. The Tribunal’s award directed the cost of such sums by HPCL to GRE. It additionally awarded curiosity on the charge of seven% every year from the date of submitting of the declare (September 6, 2012) till the date of precise cost.
Reasoning
The Excessive Court docket after listening to the arguments from either side, famous, “In Kailash Nath, the Supreme Court docket famous that the forfeiture of earnest cash happened lengthy after the settlement to promote that land to a different occasion at a better value was reached. In that context, it was additionally seen as a forfeiture with none loss being proven.”
The Court docket remarked that one would have anticipated the Arbitral Tribunal to cope with whether or not it’s tough or not possible to show the loss on this case and one would have anticipated it to then cope with whether or not the quantity of 0.5% per week of delay, which is capped at 5% of the contract worth, is cheap, whether it is tough to show the loss.
“Certainly, there is no such thing as a consideration in any way on the causation of delay and which occasion was liable for the delay – the matter seems to have been argued merely on the premise of the contractual provision and implications of the legislation declared in, amongst others, Kailash Nath. The Discovered Arbitral Tribunal has analysed not one of the case legislation. The Discovered Arbitral Tribunal has certainly held that some loss on funding is certain to happen as a result of delay, however has not handled whether or not it was tough or not possible to show such loss”, it added.
The Court docket was of the view that the perceived absence of concreteness may very well be a pointer to the difficultly in proving the exact loss arising out of a delay of over two years.
“The first dispute between the events is HPCL’s stance that the extra responsibility has no monetary implication for GRE since it will get credit score for the corresponding quantity below the Central Worth Added Tax. The Discovered Arbitral Tribunal has examined the matter and are available to the view that the contract didn’t present for inspecting any corresponding advantages which may be obtainable from the imposition of extra taxes after the bottom date. That is an eminently believable view”, it additional famous.
The Court docket additionally emphasised that it’s a affordable and believable view that when decoding the contract one should look to the language of the contract and never extrapolate different hypothetical penalties outdoors of the contract.
“Due to this fact, I’ve no purpose to intrude with the believable view taken by the Discovered Arbitral Tribunal. It could be not possible to carry that these findings are perverse or opposite to the basic coverage of Indian legislation. … The Discovered Arbitral Tribunal has left the precise exact computation of economic implications below Customs Obligation for the events to compute primarily based on the declaration made within the Impugned Award”, it concluded.
Accordingly, the Excessive Court docket disposed of the Petition, refused to intrude with the impugned award besides insofar because it pertains to the component of liquidated damages, which was quashed.
Trigger Title- Hindustan Petroleum Company Restricted v. G. R. Engineering Non-public Restricted (Impartial Quotation: 2025:BHC-OS:8905)
Look:
Petitioner: Senior Advocate Zal Andhyarujina, Advocates Vijay Purohit, Ishani Khanwilkar, Nitika Bangera, and Niyati Bogayta.
Respondent: Senior Advocate Haresh Jagtiani, Advocates Suprabh Jain, Pushpvijay Kanoji, and Pranay Kamdar.
