O.M.P. 299/2003. Case: Mahanagar Telephone Nigam Limited Vs Haryana Telecom Limited. High Court of Delhi (India)
| Case Number | O.M.P. 299/2003 |
| Counsel | For Appellant: Mr. Raman Kapur, Senior Advocate with Mr. Vivek Malik & Mr. Mukul Thakur, Advocates and For Respondents: Mr. Narendra Mohan Sharma, Mr. Abhishek Sharma & Ms. Suman Rastogi, Advocates |
| Judges | S. Muralidhar, J. |
| Issue | Arbitration & Conciliation Act, 1996 - Section 34; Indian Contract Act, 1872 - Sections 55, 73, 74 |
| Judgement Date | April 21, 2017 |
| Court | High Court of Delhi (India) |
Judgment:
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Mahanagar Telephone Nigam Limited (''MTNL'') has filed this petition under Section 34 of the Arbitration & Conciliation Act, 1996 (''Act'') challenging an Award dated 12th March, 2003 passed by the Arbitral Tribunal (''AT'') in the disputes between MTNL and the Respondent, Haryana Telecom Limited (''HTL'').
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The background facts are that MTNL floated a tender dated 4th March, 1994 for procurement of 55 LCKM of underground Jelly Filled Telephone Cables ranging between 10 to 2400 pairs. Pursuant to the above tender, HTL submitted an offer which was accepted by MTNL. Pursuant issued the following Purchase Orders (''POs'') to HTL:
(a) 20-80(527)/94-MM/HTL/94-95/56 dated 16-8-1994.
(b) 20-80(527)/94-MM/HTL/94-95/89 dated 21-9-1994.
(c) 20-80(527)/94-MM/HTL/94-95/91 dated 29-9-1994.
(d) 20-80(527)/94-MM/HTL/94-95/108 dated 18-10-1994.
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The relevant clauses in the Contract pertaining to delays in the supplier''s performance and levy of liquidated damages (''LD'') read as under:
"15. Delays in the supplier's performance
15.1 Delivery of the goods and performance of services shall be made by the supplier in accordance with the time schedule specified by the purchaser in its purchase order.
15.2 Delay by the supplier in the performance of its delivery obligations shall render the supplier liable to any or all of the following sanctions; forfeiture of its performance security, imposition of liquidated damages and/or termination of the contract for default.
15.3 If at any time during performance of the contract, the supplier or its subcontractor(s) should encounter conditions impending timely delivery of the goods and performance of service, the supplier shall promptly notify the purchaser in writing of the fact of delay, its likely duration and its cause(s). As soon as practicable after receipt of the supplier's notice, the purchaser shall evaluate the situation and may at its discretion extend the discussion with the supplier.
15.4 In case of delayed supplies period, the advantage of after delivery reduction of taxes/duties shall be passed on to the purchaser i.e. MTNL and no benefit of increase will be permitted to the suppliers.
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Liquidated damages
16.1 The date of delivery of the stores stipulated in the acceptance of tender should be deemed to be the essence of the contract and delivery must be specified completed not later than the therein. Extension will dates not be given except in exceptional circumstances. Should, however, deliveries be made after expiry of the contract delivery period, without prior concurrence of the Purchaser, and be accepted by the consignee, such deliveries will not deprive the purchaser of his right to recover liquidated damages under clause 16.2 below. However, when supply is made within 21 days of the contracted original delivery period, the consignee may accept the stores and in such cases the provision of clause 16.2 will not apply. The grace period of 21 days shall be applicable only "for delivery of stores and not for inspection.
16.2 Should the tenderer fail to deliver the stores or any consignment thereof within the period prescribed for delivery the Chairman and Managing Director, MTNL shall be entitled to recover 1/2% of the value of the delayed supply for each week of delay or part thereof, subject to maximum of 10% of the value of the delayed supply, provided that delayed portion of the supply does not in any way hamper the commissioning of the system. Where the delayed portion of the supply material hampers installation and commissioning of the system, liquidated damages (not as a penalty) shall be levied as above on the total value of the contract."
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It is stated that HTL failed to adhere to the delivery schedule. There was a delay of about 1 to 8 months in making the supplies. It is stated that at the request of HTL, MTNL granted extension letters/amendments to the POs from time to time subject to conditions regarding deduction of LD charges. Clause 9 of the Contract dated 16th August, 1994 was amended on 13th March, 1995 whereby it was provided that the delivery period would be extended up to 26th March, 1995 "with application of liquidated damages."
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MTNL deducted a sum of Rs.1,03,20,763 from the payments made to HTL by invoking Clause 16.2. This gave rise to disputes between the parties which were referred to the three-member AT.
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The sole question formulated by the AT for determination was:
"Whether the first part of clause 16.2 which provides for recovery of ½% of the value of the delayed supply for each week of delay or part thereof, subject to maximum of 10% of the value of the delayed supply, is a genuine pre-estimate of damages or is a clause in the nature of a penalty or terrorem."
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The above question was answered by the AT by holding that since MTNL failed to prove the actual loss or damage on account of delayed delivery of goods and since mere delay in supplies was unlikely to cause damages, the question of even fixing a reasonable compensation under Section 74 of the Indian Contract Act, 1872 (''ICA'') did not arise. The conclusions of the AT were as under:
"1. The Clause is penal in nature;
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The first part of clause 16.2 is enforceable only to the extent of the loss proved to have been suffered by reason of late delivery, and in no case for more than the amount named as a penalty. This is the effect of Section 74;
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Forfeiture of part of price is out of all proportion to the damage;
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It is unconscionable for the purchaser to retain and withhold part of the price; and 5. That no loss or injury has been proved on the record."
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Consequently, MTNL was asked to refund HTL the aforementioned sum of Rs. 1,03,20,763 together with interest @ 12% from the date of Award till the date of payment.
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Earlier, a learned Single Judge of this Court by a judgment dated 18th March, 2010 allowed the present petition and set aside the impugned Award dated 12th March, 2003. It was held that the AT had proceeded on a wrong interpretation of Section 74 of the ICA, which was in the teeth of the decision of the Supreme Court in ONGC v. Saw Pipes Limited (2003) 5 SCC 705. It was held that the interpretation of sub-clause 16.2 by the AT was perverse since it linked the fact situation in the present case to the latter part of sub-clause 16.2 whereas the earlier part was to apply.
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Aggrieved by the above decision, HTL filed FAO (OS) No. 446/2010 before the Division Bench (''DB'') of this Court. By the order dated...
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