Madras High Court
M/S.Spic Smo vs Tamil Nadu Electricity Board on 6 August, 2012
Author: T. Mathivanan
Bench: T. Mathivanan
IN THE HIGH COURT OF JUDICATURE AT MADRAS DATED: 06.08.2012 CORAM: THE HONOURABLE MR.JUSTICE T. MATHIVANAN C.S.No.766 of 2009 M/s.SPIC SMO A division of Southern Petrochemical Industries Corporation Ltd., Chennai-600 032 represented by its Manager-Finance Mr.W.P.Vijaya Raghavan ... Plaintiff Vs. Tamil Nadu Electricity Board Anna Salai, Chennai-600 002 represented by its Chairman ... Defendant Prayer: Suit is filed under Order VII Rule 1 of the Code of Civil Procedure read with Order IV Rule 1 of Madras High Court Original Side Rules, 1956 seeking the following reliefs: a. For granting a Judgment and Decree against the defendant directing to pay a sum of Rs.4,50,16,757/- together with interest at the rate of 24% per annum from the date of plaint till the date of realization; and b. For costs of the suit. For plaintiff : Mr.AR.L.Sundaresan, Senior Counsel for Mr.M.Aravind Subramaniam For defendant : Mr.A.Navaneethakrishnan Advocate General for Mr.V.Viswanathan, Senior Counsel J U D G M E N T
It is settled principle of law that the procedural law cannot fail to provide relief when substantive law gives the right. The Principle hidden under this verbal texture is - there cannot be any wrong without a remedy. In M.V.Elisabeth and others. vs. Harwan Investment & Trading Pvt. Ltd., [1993 Supp.(2) SCC 433], the apex court has observed that where substantive law demands justice for the party aggrieved and the statute has not provided the remedy, it is the duty of the court to devise procedure by drawing analogy from other systems of law and practice.
2. The apex court in Dhanna Lal vs. Kalawatibai and others, [(2002)6 SCC 16], has also envisaged the similar proposition that wrong must not be left un-redeemed and right not left unenforced.
3. In Murlidhar Agarwal and another vs. State of UP and others [(1974(2)SCC 472], while dealing with the concept of public policy, the apex court in para 32 has observed as hereunder:-
"32...The difficulty of discovering what public policy is at any given moment certainly does not absolve the Judges from the duty of doing so. In conducting an enquiry, as already stated, Judges are not hide-bound by precedent. the Judges must look beyond the narrow field of past precedents, though this still leaves open the question, in which direction they must cast their gaze. The Judges are to base their decision on the opinions of men of the world, as distinguished from opinions based on legal learning. In other words, the Judges will have to look beyond the jurisprudence and that in so doing, they must consult nor their own personal standards or predilections but those of the dominant opinion at a given moment, or what has been termed customary morality. The Judges must consider the social consequences of the rule propounded, especially in the light of the factual evidence available as to its probable result... The point is rather that this power must be lodged somewhere and under our Constitution and laws, it has been lodged in the Judges and if they have to fulfil their function as Judges, it could hardly be lodged elsewhere."
4. In the given suit, the defence of the defendant electricity Board hinges around the issue of liquidated damages. It has therefore become imperative on the part of this court to have reference to Chapter VI of the Indian Contract Act 1872. This chapter encompasses, the compensation for loss or damage caused by breach of contract and compensation for breach of contract where penalty stipulated for. With regard to this subject Sections 73 and 74 of Indian Contract Act, 1872 (hereinafter it may be referred to as 'Act') are very much relevant.
5. Section 73. Compensation of loss or damage caused by breach of contract:-
When a contract has been broken, the party who suffers by such breach is entitled to receive, from the party who has broken the contract, compensation for any loss or damage caused to him thereby, which naturally arose in the usual course of things from such breach, or which the parties knew, when they made the contract, to be likely to result from the breach of it.
Such compensation is not to be given for any remote and indirect loss of damage sustained by reason of the breach.
Compensation for failure to discharge obligation resembling those created by contract:
When an obligation resembling those created by contract has been incurred and has not been discharged, any person injured by the failure to discharge it is entitled to receive the same compensation from the party in default, as if such person had contracted to discharge it and had broken his contract.
Explanation: In estimating the loss or damage arising from a breach of contract, the means which existed or remedying the inconvenience caused by the non-performance of the contract must be taken into account.
6. Section 74. Compensation for breach of contract where penalty stipulated for:-
When a contract has been broken, if a sum is named in the contract as the amount to be paid in case of such breach, or if the contract contains any other stipulation by way of penalty, the party complaining of the breach is entitled, whether or not actual damage or loss is proved to have been caused thereby, to receive from the party who has broken the contract reasonable compensation not exceeding the amount so named or, as the case may be, the penalty stipulated for.
Explanation: A stipulation for increased interest from the date of default may be a stipulation by way of penalty.
Explanation: When any person enters into any bail bond, recognisance or other instrument of the same nature or, under the provisions of any law, or under the orders of the Central Government or of any State Government, gives any bond for the performance of any public duty or act in which the public are interested, he shall be liable, upon breach of the condition of any such instrument, to pay the whole sum mentioned therein.
7. In the instant case on hand, in pursuant to the letters of award (Exs.P5 & P6), dated 25.11.1999, the defendant and the plaintiff had entered into two agreements on 10.12.1999(Exs.P7 & P8 respectively). One agreement was for Design fabrication and supply of materials and the other one was for the Erection and Commissioning of the line. Under Ex.P7 & P8, the plaintiff had agreed to supply the materials for a sum of
- Rs.19,77,72,978-00 For Erection and Commissioning - Rs. 5,98,24,015-00 Accordingly, the plaintiff had agreed to complete the entire project at a total cost of - Rs.25,75,96,993-00
8. In the present suit, the plaintiff has claimed a sum of Rs.4,50,16,757-00 from the defendant. The break up calculation has been given as under:-
Total contract price as per the Turn Key Agreement Rs.25,75,96,993/-
Payment received from the Defendant On Account Rs.21,25,80,236/- Balance Amount due towards On Account Invoices Rs. 3,06,39,960/- Amount retained by the Defendant as Liquidated Damages Rs. 1,43,76,797/- ------------------ Balance amount receivable as per the Turn Key Agreement Rs. 4,50,16,757/- ------------------ 9.The defence set out by the defendant:-
The plaintiff has completed the project before 31.10.2001 and submitted their final account based on actual work executed as follows:-
a.For the supply of materials - Rs.17,70,27,263/-
b.For erection of works - Rs. 5,01.40,198/-
---------------------
Total - Rs.22,71,67,461/-
Out of Rs.22,71,67,461/-
the plaintiff was paid a sum of Rs.21,25,80,237/-
Balance is - Rs. 1,45,87,224/-
Out of Rs.1,45,87,224/-
Amount retained by the
Defendant as Liquidated
Damages - Rs. 1,43,76,797/-
Balance - Rs. 2,10,427/-
10. With this calculation the defendant says that they are not liable to pay any amount as claimed by the plaintiff muchless Rs.4,50,16,757/-, excepting Rs.2,10,427/- as mentioned above.
11. On perusal of the averments of the plaint, written statement as well as the evidences, both oral and documentary available on record, the following important question is arisen for the consideration of this court as envisaged under the provisions of Sections 73 and 74 of the Act:
Is not the defendant Electricity Board entitled to claim Liquidated Damages from the Plaintiff ?
12. The facts germine for the disposal of the suit:-
12.1. The plaintiff is a division of M/s.SPIC Ltd., which is a Public Limited Company. The defendant being a statutory corporation viz., Tamil Nadu Electricity Board and a State under Article 12 of the Constitution of India had floated tenders on 28.04.1999 inviting bids for the purpose of erection, testing and commissioning of 230 KVDC Line of Pillaiperumal Nallur from Tiruvarur to Tanjore with LILO of one Circuit at Tiruvarur 230 KV SS of route length of 112 K.MS., including the design, testing, fabrication and supply of 230 KV DC towers and supply of all the required materials on Total Turnkey Basis. The total value of the contract was approximately valued at Rs.30 Crores.
12.2. The plaintiff having accepted the invitation and had forwarded their bid vide proposal letter dated 06.07.1999 to the defendant quoting a competitive price of Rs.27,02,20,043/- for the entire project to be undertaken on a 'Turn Key Basis'.
12.3. Under their letter dated 07.07.1999, the plaintiff had offered their unconditional discounts and had quoted a sum of Rs.19,77,72,978/- for the design, fabrication and supply of materials and a sum of Rs.5,98,24,015/- for the erection and commissioning of the line, and thereby offered to complete the entire project at a total lump sum cost of Rs.25,75,96,993/-.
12.4. The plaintiff's bid was accepted by the defendant and awarded the contract under two letters of award dated 25.11.1999 -
One for supply bearing Ref.No.TNEB/SET/A1/T-854/LOA/SUPPLY D 1295/99, and another for erection and commissioning bearing Ref.No.TNEB/SET/854/LOA/Erection/D1294/99.
12.5. In pursuant to the letters of award, the defendant had entered into two agreements with the plaintiff on 10.12.1999. One agreement was for design, fabrication and supply of materials and another agreement was for erection and commissioning.
12.6. The defendant had entered into the contract on Turnkey Basis and also agreed to pay a lump sum contract price for the entire work contracted. The Turnkey contract differs from a traditionally engineering contract.
12.7. The payments are only 'On Account Payments' and not to the contract price, which is defined in Clause 3.5 of the agreements dated 10.12.1999. Clause 3.5 of the Agreements dated 10.12.1999 reads as under:
"3.5.Contract Price:
Erection and Commissioning:
The total contract price for the entire scope of this contract is Rs.5,98,24,015/- (Rupees five crores ninety eight lakhs twenty four thousand and fifteen only) and the price break up shown in the contract documents is only intended to facilitate 'On Account Payments."
"Design, Fabrication supply of towers and other materials:
The total contract price for the entire scope of this contract is Rs.19,77,72,978/- (Rupees nineteen crores seventy seven lakhs seventy two thousand nine hundred and seventy eight only) and the price break up shown in the documents is only intended to facilitate 'On Account Payments'/and Settling Dues."
12.8. The contract documents defined in Clause 3.5 (contract price) has also been defined in Article 2.0 of the Agreements dated 10.12.1999, which includes the Rates Schedule also.
12.9. As per the Letters of Award dated 25.11.1999, the entire contract was to be completed within a period of nine months from the date of the Award i.e. on or before 24.08.2000. However, the site was handed over by the defendant only on 09.02.2000 and the route survey based on actuals, the route profile approval of scheme was accorded by the defendant on 27.04.2000. Due to this delay by the defendant in handing over the site and approval of the route profile, the plaintiff was able to commence the contracted project only on 31.10.2000.
12.10. Though the erection work was done expeditiously, due to certain unavoidable and unforeseen reasons (as mentioned below) the work was delayed. The reasons are:
i. The payments towards the progressive invoices raised towards 'On Account Payment' were delayed by the defendant, as a result of which the plaintiff was unable to generate funds for the next supply of requisite materials which resulting in delay.
ii. Obstructions by land owners at various locations along the route of erection was another major problem encountered by the plaintiff. The delay on the part of the defendant to obtain clearance on each occasion resulted in delay of the project.
iii. Unwarranted litigations instituted by land owners.
iv. Unprecedented torrential rains during April 2001.
All these factors were never envisaged by the plaintiff at the inception of the Contract.
12.11. On account of the above said major hardships, faced by the plaintiff during the tenure of this project, the plaintiff had requested the defendant for extension of time on three occasions.
12.12. Considering the genuine reasons for the delay, the defendant had accordingly extended the time at the first instance till 31.03.2011, at the second instance till 30.06.2001 and finally till 31.10.2011 for completion of the contract.
12.13. Though the plaintiff had experienced several hurdles during the project, they had managed to complete the work within the extended date i.e. with in 31.10.2001.
12.14. During the tenure of the project, the plaintiff had submitted progressive bills, for receiving 'On Account Payment' amounting to Rs.22,71,67,461/- from the defendant. As against this amount, the defendant had passed for a sum of Rs.22,69,57,033/-. Out of this amount, a sum of Rs.21,25,60,241/- was paid 'On Account', after retaining the retention money as per the agreement.
12.15. The contracted price for the supply was Rs.19,77,72,978/- and the contracted price for the erection was Rs.5,98,24,015/- totaling Rs.25,75,96,993/-. The payments made as against the contracted price was only Rs.22,69,57,033/- on an 'On Account' basis. As on date of submission of the final bill the balance amounts were outstanding as per the contract.
12.16. After completion of the project and after discussing with the officials concerned, the plaintiff had prepared it's final invoice dated 02.01.2002 towards supply contract for Rs.2,08,49,769/- and towards erection for Rs.97,90,191/-, totaling Rs.3,06,39,960/-. For this amount, a final invoice was submitted to the defendant being the balance amounts payable by the defendant.
12.17. In serial No.2 of the invoice, it is mentioned that the amounts indicated in the invoice is not the actual value of material supplied as they had supplied many items of materials, which were not listed in the 'On Account' price schedule and supplied against the Clause No.3.2 of Page No.4 of the agreement and also Clause No.29.1 of the supply agreement.
12.18. After giving credit to the 'On Account Payments' paid by the defendant, a balance amount of Rs.3,06,39,960/- is due under the final invoice and a balance sum of Rs.1,43,76,797/- has been retained by the defendant on previous invoices, towards retention money totaling to Rs.4,50,16,757/- is to be paid to the plaintiff as agreed by the defendant under the 'Turn Key Contract'.
12.19. The plaintiff, thereafter, had sent various requests and representations claiming balance amounts due, which were never considered in the proper perspective. Apart from illegally with holding the sum of Rs.1,43,76,797/- towards liquidated damages, the defendant had also with held the balance amounts due to the plaintiff under the contract.
12.20. The plaintiff understands that the defendant under the guise of calculating liquidated damages had set off this amount against the retention money, which they are liable to pay back to the plaintiff.
12.21. Clause 18.0 of the contract envisages that liquidated damages could be levied only if the handing over of work was delayed beyond the scheduled date or extension there of and such liquidated damages was to be calculated in respect of the unexecuted portion of the contract.
12.22. The defendant could resort to this clause viz., clause 18.0 liquidated damages, only in the event of termination of the contract before completion on account of the contractor delaying the work beyond the schedule date or extension. Only in such circumstances, if any portion of the contract was left unexecuted, upon which the defendant could calculate the liquidated damages.
12.23. The plaintiff had satisfactorily completed the entire project and no portion was left unexecuted. Even assuming, without admitting, the levy of liquidated damages, the calculation based on which the defendant had arrived at the sum of Rs.1,43,76,797/- was never disclosed.
12.24. Like any other contract, in this contract also there was a provision under Clause 41.3 for grant of extension if the delay was on the account of the Board or if the case of delay was due to special circumstances or if it occurred other than through a default of the contractor, to which they may be fairly entitled.
12.25. The defendant, having considered and granted an extension of time for completion of the project, had no basis or justification to with hold the amount particularly when the contracted work was completed to their satisfaction within the extended date of completion and the defendant was enjoying the benefits.
12.26. The defendant has falsely justified their restriction of payment to the actual supply made and work actually executed, by resorting to the Foot note-1 of the Rated Schedule (common for both erection and supply).
12.27. As per the contract, the prices were agreed to be 'Firm'. In principle, this meant that no variation or alteration by the contractor (plaintiff) in the price quoted would be allowed and that it had to be a fixed price.
12.28. Under no stretch of imagination could the reduction in route length or the variation in tower type and the consequential reduced usage of materials (if any), be termed as non-execution or reduction in work contracted, as falsely claimed by the defendant.
12.29. The plaintiff is entitled to receive a sum of Rs.4,50,16,757/- from the defendant, and the break up calculation of which is given hereunder:
Total contract price as per the Turn Key Agreement Rs.25,75,96,993/-
Payment received from the Defendant On Account Rs.21,25,80,236/- Balance Amount due towards On Account Invoices Rs. 3,06,39,960/- Amount retained by the Defendant as Liquidated Damages Rs. 1,43,76,797/- ------------------ Balance amount receivable as per the Turn Key Agreement Rs. 4,50,16,757/- ------------------
12.30. The suit is not barred by limitation, since the letter of refusal was issued on 19.04.2006 and a further communication dated 05.07.2006 of the defendant requesting the plaintiff to come for a discussion which itself has extended the period of limitation.
12.31. The defendant in their written statement has admitted that the suit contract is a total Turnkey contract, which means both supply and erection are to be carried out by one and the same contractor, but contended that the plaintiff has agreed to receive the payment for the actual execution of work as per Foot note-1 of contract agreement executed on 06.07.1999. Based on the above agreement, the plaintiff had executed the work for an amount of Rs.22,71,67,461/- towards both supply and erection and commissioning. Out of Rs.22,71,67,461/-, the plaintiff was paid a sum of Rs.21,25,80,237/- and the balance amount of Rs.1,43,76,797/- had been recovered towards liquidated damages for the delayed execution of work from the retention amount leaving a balance amount of Rs.2,10,427/-, which amount alone is due and payable by the defendant to the plaintiff.
12.32. The defendant has also contended that Contrary to Foot note-1 of the contract i.e., for actual execution of work, the plaintiff demanding Rs.3,06,39,959/- by adjusting the value of actual eligible payment for the actual execution of work at Rs.22,71,67,461/- against the contract value of Rs.25,75,96,993/-, for which the plaintiff is not at all entitled except for a sum of Rs.2,10,427/-.
12.33. It is also the contention of the defendant that for the delayed execution of work, the plaintiff is liable to pay liquidated damages. The conditional time extension by the defendant was given specifically mentioning that liquidated damages will be levied for the delayed completion of work. The plaintiff had also accepted that condition and executed the work. Therefore, the plaintiff is estopped from raising any sort of objection for its liability to pay liquidated damages.
12.34. The total value of the contract is Rs.25.76 Crores merging two contracts that is for supply and erection portion as mentioned below:
a. Supply of materials - Rs.19,77,72,978/-
b. Erection works - Rs. 5,98,24,015/-
-----------------
Total - Rs.25,75,96,993/-
-----------------
12.35. The plaintiff has agreed to complete the entire work within 9 months from the date of award of work i.e., from 25.11.1999. The site was handed over to the plaintiff on 02.12.1999. After route survey by the plaintiff based on actual route length, the profile of the scheme was approved on 27.04.2000 by the defendant/Board.
12.36. But, the plaintiff could complete only the stub setting of towers for 111 Nos. against the total quantity of 428 Nos. within the stipulated date of completion of project i.e., 24.08.2000.
12.37. On the request made by the plaintiff, the time was extended on three occasions, after specifically mentioning that the time is extended without prejudice to levy of liquidated damages from 24.08.2000 (the date on which the work should have been completed) for the extended period.
12.38. The plaintiff in their letter dated 15.06.2001 had requested for final extension of time upto 31.10.2001. The defendant had approved the third extension of time upto 31.10.2001 by the letter dated 30.06.2001 without prejudice to the levy of liquidated damages from 24.08.2000 for the extended contract period.
12.39. The defendant has further contended that the plaintiff had completed the project before 31.10.2001 and submitted their final accounts based on actual works executed to the Superintending Engineer/TNEB/ GCC/Trichy as follows:
a.For the supply of materials - Rs.17,70,27,263/-
b.For erection of works - Rs. 5,01,40,198/-
-----------------
Total - Rs.22,71,67,461/-
-----------------
12.40. Based on the plaintiffs claim for the total completion work, the Superintending Engineer / TNEB / GCC / Trichy had submitted the completion report and detailed final accounts of the project vide his letters dated 15.02.2002 and 18.03.2002.
12.41. The plaintiff had claimed in their letter dated 27.02.2002 that the payment shall be made as per the total contract value and not as per the total value of the work actually carried out.
12.42. It is clearly stated in the price schedule of the specification of the contract under Foot note-1 that the payment is only for the actual quantity of work done and the Foot note-1 is reproduced below;
The quantities indicated are tentative and bidders shall quote for the above quantities, works and material only. However payment will be made to the successful bidders based on the quantities of work actually executed. 12.43. The defendant had adjusted the Liquidated Damages amount of Rs.1,43,76,797/- for the delayed period of execution of work, from the retention amount of Rs.1,89,86,529/- (Supply) available with the Board and the balance amount of Rs.45,89,732/- was paid by SE / TNEB / GCC / TRICHY on 23.12.2002 and received by the plaintiff.
12.44. The balance 10% Retention amount had been adjusted as detailed below:
Balance 10% Retention amount Rs.1,89,86,529/- Liquidated Damages recovery =(-) Rs.1,43,76,797/- Recovery for non submission for CD for drawing =(-) Rs. 20,000/- ---------------- Total = Rs.1,43,96,797/- ---------------- Net amount paid to the plaintiff = Rs. 45,89,732/-
12.45. The sum of Rs.21.25,80,237/- had already been paid to the plaintiff as on account payment and the balance amount of Rs.1,43,76,797/- had been recovered towards Liquidated Damages for the delayed execution of work from the retention amount. The plaintiff is entitled to the balance amount of Rs.2,10,427/- only.
12.46. Though the contract price is Rs.25,75,96,993/-, the contractor is entitled to receive the payment for the quantities actually executed as per the Foot note-1 of the price schedule of the contract agreement and also as per conditions contained in the tender specification.
12.47. The plaintiff is not entitled to receive a sum of Rs.4,50,16,756/- from the defendant as sought for in the plaint and the break up calculation given is also incorrect. The defendant is not liable to pay any amount except Rs.2,10,427/-. The suit is hopelessly barred by limitation.
13. Based on the pleadings of the parties to the suit and material proposition of fact, the following issues have been formulated for the better adjudication of the suit:
1. Whether the suit is liable to be dismissed as not maintainable?
2. Whether the payments made by the defendant were on account basis or towards the quantity of work actually done?
3. Whether the footnote in the Rate Schedule would override the contract itself?
4. Whether time for completion of project by the plaintiff was extended by the defendant without prejudice to the right of the defendant to levy liquidated damages for the delayed completion of project as per Clause 18 of the General Condition of Contract?
5. Whether the defendant can levy liquidated damages contrary to Clause 18 of the Contract?
6. Whether the suit claim excepting Rs.2,10,427/- is unsustainable and barred by limitation?
7. Whether the plaintiff is entitled to a balance of Rs.2,10,427/- alone and not as claimed in the plaint?
8. To what other relief the plaintiff is entitled to?
14. In order to substantiate their respective cases, the parties to the suit were directed to face the trial. Accordingly, one W.P.Vijayraghavan, who has been functioning as the Senior Manager Finance in the plaintiffs company has been examined as PW 1. During the course of his examination Ex.P1 to P22 were marked. On the other hand, one Mr.E.Dinakaran, who has been functioning as the Assistant Executive Engineer in the defendant board viz., Tamilnadu Electricity Board has been examined as DW1. During the course of his examination Exs.D1 to D4 were marked.
15. As observed in the opening paragraph, though as nearly as eight issues have been formulated, issue Nos.2, 3, 4 and 5 assume more importance, as the claims of the plaintiff and the defendant are based on liquidated damages.
16. As the claim of the plaintiff and the denial of the defendant is mainly based on the theory of liquidated damages, it has become imperative on the part of this court to deal with these issues at first.
17. Issue Nos.2, 3, 4 and 5:-
It is more significant to note here that under the general conditions of contract, there is a provision for liquidated damages, which gives entitlement to the defendant to claim liquidated damages under the circumstance specified therein.
18. Clause 18.0 of General Condition of the contract explains this circumstance under which the defendant can claim liquidated damages from the plaintiff. It reads as under:-
18.0: LIQUIDATED DAMAGES:-
If the handing over of the work fully completed in all respects is delayed beyond the scheduled date or extension thereof for commissioning as given under the contract, the contractor shall pay to the Board an amount calculated at the rate of half of one percent per completed week of delay of the value of the contract price as liquidated damages subject to a maximum of 10% on unexecuted portion of the contract.
19. As it reveals from Clause 18.0 of the General Conditions of the contract, the contractor shall pay an amount calculated at the rate of half of one percent per completed week of delay, subject to a maximum of 10% of the value of the contract price, if the handing over of the work fully completed in all respects is delayed:-
a) beyond the scheduled date or
b) extension thereof for commissioning as given under the contract.
The liquidated damages shall be calculated at the rate of half of one percent of the value of the contract per completed week of delay subject to a maximum of 10% on unexecuted portion of the contract.
20. Before we could enter into the merits of the case, it may be very essential to note here that neither the supply of materials nor the erection work was left uncompleted.
21. Mr.AR.L.Sundaresan, learned senior counsel, while advancing his arguments has maintained that the defendant could resort to the claim of liquidated damages only in the event of termination of contract. But, no notice was given to the plaintiff putting him under notice that the contract was terminated. He has also maintained that it was an admitted fact that the project was not able to be completed on or before 28.04.2000, as stipulated in the letter of award under Exs.P5 and P6 respectively and that the delay was due to various reasons, which was beyond the control of the plaintiff and for which, the plaintiff could not be held responsible.
22. He has also continued that the delay in every event was immediately brought to the notice of the defendant by the plaintiff and the plaintiff had also sent requisition for the extension of time for the completion of the project.
23. He has also adverted to that on considering the justifiable reasons assigned by the plaintiff, the defendant was convinced that the cause of the delay was not on account of the default of the plaintiff, but due to various constraints, which was beyond the control of the plaintiff and only thereafter, the defendant Board had given extension of time on 09.10.2000, 27.03.2001 and finally on 02.07.2001 and thereby, the date of completion of the contract was finally fixed as 31.10.2001.
24. He has also made reference to Exs.P9, Ex.P10 and P11. Ex.P9 is the letter sent by the defendant Board to the plaintiff extending the time for the completion of the contract project upto 31.03.2001. In this letter, the defendant has stated that "your request for extension of the contracted completion period upto 31.03.2001 is conceded as a special case without prejudice to the levy of liquidated damages as per the contractual provisions for the extended delivery period beyond 24.08.2000.
25. Ex.P10 is the another letter dated 27.03.2001 sent by the defendant Board to the plaintiff, wherein it is stated that "Turnkey Project should have been completed by 24.08.2000. But in view of the difficulties explained by you, your request for extension of contract period upto 30.06.2001 is granted as a special case, vide reference (3).
26. In para 2 and 3 of Ex.P10 letter, the defendant Board has stated as follows:-
..In your letters under reference (8) & (9), you have stated that due to various constraints faced by you like unscheduled rain in P.P.Nallur area, which had appreciably increased ground water table, the right of way and litigation problem etc., you could not achieve target within 31.03.2001 and requested to extend the due date of completion of project upto 30.06.2001. Considering the difficulties expressed by you, your request for extension of period of contract upto 30.06.2001 is accepted as a special case without prejudice to the levy of L.D. from the scheduled date of completion of contract i.e. from 24.08.2000.
27. Ex.P11 is the another letter, dated 02.07.2001, sent by the defendant Board to the plaintiff company. From the face of this letter, it appears that on 15.06.2001, the plaintiff company had addressed a letter to the defendant Board requesting to extend the period of completion of contract upto 31.10.2001. On receipt of that letter, the defendant had replied in Ex.P11 as under:-
In your letter under reference (11), you have stated that due to unseasonal rains, right of way problem etc, the work could not be completed within the second extended period of upto 30.06.2001. Hence, you have requested to extend the due date of completion of the entire project upto 31.10.2001. Taking the above facts with sympathetic consideration your request for extension of completion period of contract upto 31.10.2001 is accepted as a special case without prejudice to the levy of liquidated damages from scheduled date of completion of contract from 24.08.2000.
28. It is admitted by both sides that as per Exs.P5 and P6,the letters of award dated 25.11.1999, the schedule date for the completion of the contract is 24.08.2000.
29. It is also admitted by both sides that the contracted project was not able to be completed on or before 24.08.2000.
30. However, the plaintiff had explained the following circumstances, under which the contracted project was not able to be completed within the stipulated date of 24.08.2000. The unavoidable and unforeseen reasons have already been specified in para 12.10 of this judgment. However, this court finds that it may be more relevant to reiterate the same in this place to qualify the determination of these issues.
i. The payments towards the progressive invoices raised towards 'On Account Payment' were delayed by the defendant, as a result of which the plaintiff was unable to generate funds for the next supply of requisite materials thereby resulting in delay.
ii. Obstructions by land owners at various locations along with the route of erection was another major problem encountered by the plaintiff. The delay on the part of the defendant to obtain clearance on each occasion resulted in delay of the project.
iii. Unwarranted litigations instituted by land owners.
iv. Unprecedented torrential rains during April 2001.
31. According to the learned Senior counsel appearing for the plaintiff, all the above factors were never expected at the time of entering into the contract with the defendant Board.
32. On coming to Exs.P9, P10 and P11 whereby the contract period was extended on three occasions and finally upto 31.10.2001, the defendant Board has considered the reasons elucidated by the plaintiff for the delay in completion of the contract. The defendant Board while granting extension of contract period has stated that due to various constraints faced by you like unscheduled rain in P.P.Nallur area, which had appreciably increased ground water table, the right of way and litigation problem etc., were considered sympathetically as a special case and the request for the extension of time for the completion of contract upto 31.10.2001 was accepted without prejudice to the levy of liquidated damages from 24.08.2000, which is the original completion of contract.
33. It is pertinent to note here that in Exs.P9,P10 and P11 while extending the completion period of contract, the defendant Board has expressed the term without prejudice to the levy of liquidated damages.
34. From this context, a vital question arises as to whether the mere mentioning of the word 'without prejudice to the levy of liquidated damages' will give entitlement to the defendant Board to claim liquidated damages from the plaintiff, when the contract project was completed even prior to the extended date of 31.10.2001. This question finds answer in Para No.90 of this Judgment.
35. Once again, it is necessitated for this court to seek the assistance of clause 18.0 of the general condition of the contract. Class 18.0 needs pragmatic approach to determine the right of the defendant Board to claim the liquidated damages. Clause 18.0 contains two circumstances.
(i) If the handing over of the work fully completed in all respects is delayed beyond the schedule date or
(ii) Extension there of for commissioning as given in the contract.
36. On coming to the instant case on hand, admittedly there was a delay, but the reason for the delay which was brought to the notice of the defendant Board was sympathetically considered and the period of time was extended on the first instance upto 31.03.2001 under Ex.P9, on the second instance upto 30.06.2001 under Ex.P10 and on the third instance, finally, it was extended upto 31.10.2001 under Ex.P11.
37. In his proof affidavit, DW1 has admitted these facts saying that as contemplated under clause 18.0 of the general clause of the contract that if the handing over of the work fully completed in all respects is delayed beyond the schedule date or extension of time thereof for commissioning as given under the contract, the contractor shall pay to the Board an amount calculated at the rate of half of one percent per completed week of delay of the value of the contract price as liquidated damages subject to a maximum of 10% on unexecuted portion of the contract.
38. At the time of granting the first extension upto 31.03.2001 under Ex.P9, D.W.1, as it appear in his proof affidavit, has stated that the plaintiff could complete only 44% of the foundation work for towers and 31.5% of tower erection. But while granting extension of time under Exs.P9 to P11, the defendant Board had never given the details of percentage of completed work by the plaintiff. Even in his proof affidavit in para No.11, DW1 has admitted that the plaintiff had completed the project before 31.10.2001. It shows that the plaintiff had handed over the work fully completed in all respects before 31.10.2001, which is the date of final extension granted by the defendant Board as per Ex.P11.
39. Clause 41.3 of General Conditions deals with extension of time for completion. In this connection, the learned senior counsel has pointed out that in all engineering projects, delays due to extraneous reasons beyond the control of contractor were common and in all such justifiable situations, extension of time were granted by the purchasers. Likewise, even in this contract there was a provision viz., clause 41.3 for grant of extension, if the delay was on the account of the Board or if the cause of delay was due to special circumstances or if it occurred other than through a default of the contractor, to which they may be fairly entitled.
40. He has also maintained that the defendant Board, having considered and granted extension of time for completion of the project, had no basis or justification to claim damages for the delay particularly when the contracted work was completed to their satisfaction within the extended date of completion and the defendant was enjoying the benefits.
41. He has also argued that the restriction of payment to the actual supply made and work actually executed was absolutely false and that the defendant Board had no right to reduce the lump sum payment. In the final invoice (Ex.P12) in Serial No.2 the plaintiff has claimed the total value based on 'on account invoice' with reference to Annexure-B.
42. The learned senior counsel has also adverted to that as per the contract the prices were agreed to be 'Firm'. In principle, this meant that no variation or alteration by the contractor (plaintiff) in the price quoted would be allowed and that it had to be a fixed price. The supply market had undergone a severe escalation and many works not specified in the schedule had to be executed due to the field conditions, as a result of which the plaintiff had incurred huge additional costs in procurement of materials and for execution. Though the actual cost had exceeded the agreed price, since there was a Turnkey Contract, the plaintiff, as contractors, were forced to absorb such losses and had raised invoices only for the contracted price.
43. He has also added that similarly the defendant had no right to reduce the lump sum contract price agreed to be paid in order to suit it's whims and fancies, which was a clear breach of the terms of the contract. In fact, the doctrine of purposeful construction of the clauses in the agreement would clearly indicate that the entire price would have to be paid.
44. In support of his contention, he has placed reliance upon the decision in Oil and Natural Gas Corporation Ltd., vs. Saw Pipes Ltd., reported in (2003) 5 SCC 703.
45. In this case, the appellant Oil and Natural Gas Corporation Ltd., which is a Public Sector Undertaking, has challenged the arbitral award dated 02.05.1999 by filing Arbitration Petition No.917 of 1999 before the High Court of Bombay. The learned Single Judge has dismissed the same. The appeal, had therefore preferred in Appeal No.256 of 2000 before the Division Bench of the High Court was also dismissed. Hence, the appeal was presented before the Hon'ble Apex Court of India.
46. In the above cited case, in response to a tender, respondent-Company, which is engaged in the business of supplying equipment for Offshore Oil exploration and maintenance by its letter dated 27.12.1995 on agreed terms and conditions, offered to supply to the appellant 26 diameter and 30 diameter casing pipes. The appellant by letter of intent dated 03.06.1996 followed by a detailed order accepted the offer of the respondent-Company. As per terms and conditions, the goods were required to be supplied on or before 14.11.1996.
47. It was the contention of the respondent that as per clause (18) of the agreement, the raw material were required to be procured from the reputed and proven manufactures/suppliers approved by the respondent. By letter dated 08.08.1996, the respondent had placed an order for supply of steel plates, that is, the raw material required for manufacturing the pipes with Liva Laminati, Piani S.P.A., Italian suppliers stipulated that material is to be shipped latest by the end of September 1996 as timely delivery was of the essence of the order. It is also their case that all over Europe including Italy there was a general strike of the steel mill workers during September/October 1996. The respondent had therefore by its letter dated 28.10.1996 conveyed to the appellant that Italian Suppliers had faced labour problems and was unable to deliver the material as per agreed schedule.
48. The respondent had therefore requested for an extension of 45 days time for execution of the order in view of the reasons beyond its control. By letter dated 04.12.1996, the time for delivery of the pipes was extended with a specific statement inter alia that the amount equivalent to liquidated damages for delay in supply of pipes would be recovered from the respondent.
49. It is the contention of the respondent that the appellant made payment of the goods supplied after wrongfully deducted an amount of US $3,04,970.20 and Rs.15,75,559/- as the liquidated damages. The deduction was disputed by the respondent and, therefore, dispute was referred to the arbitral tribunal. The arbitral tribunal had arrived at the conclusion that strikes affecting the supply of raw material to the climate are not within the definition of 'Force Majeure' and hence, on that ground, it can not be said that the amount of liquidated damages was wrongfully withheld by the appellant.
50. The arbitral tribunal after considering the various decisions has held that the appellant has failed to establish it's case that it has suffered any loss in terms of money because of delay the supply of goods under the contract. Hence, the arbitral tribunal held that the appellant has wrongfully withheld the agreed amount of US $ 3,04,970.20 and Rs.15,75,559/- on account of customs duty, sales tax, freight charges deducted by way of liquidated damages.
51. The arbitral tribunal further held that the respondent was entitled to recover the said amount with interest at the rate of 12% per annum from 01.04.1997 till the date of filing of statement of claim and thereafter having regard to the commercial nature of the transaction at the rate of 18% per annum pendente lite till payment is made.
52. In the above case, Mr.Dushyant Dave, learned senior counsel, who was arguing on behalf of the respondent had submitted that it was settled law that for the breach of contract provisions of Section 74 of the Contract Act would be applicable and compensation/damages could be awarded only if the loss was suffered by breach of contract.
53. In support of his contention, he had also quoted the decision in Bhai Panna Singh and others Vs. Bhai Arjun Singh and others, reported in AIR 1929 PC 179, wherein the Privy Council has observed thus:
The effect of Section 74, Contract Act of 1872, is to disentitle the plaintiff to recover simplicitor the sum of Rs.10,000/- whether penalty or liquidated damages. The plaintiff must prove the damages they have suffered.
54. On behalf of the appellant viz., Oil and Natural Gas Corporation Ltd., it was argued by Mr.Ashok Desai, after referring the decision in Delta International Ltd., vs. Shyam Sundar Ganeriwalla and another, reported in (1999) 4 SCC 545, that for the purpose of construction of contracts, the intention of the parties is to be gathered from the words they have used and there is no intention independent of that meaning.
55. After striking a balance between the submissions made on behalf of both sides, the Hon'ble MR.JUSTICE M.B.SHAH, who has spoken on behalf of the Division Bench has observed that:
It cannot be disputed that for construction of the contract, it is settled law that the intention of the parties is to be gathered from the words used in the agreement. If words are unambiguous and are used after full understanding of their meaning by experts, it would be difficult to gather their intention different from the language used in the agreement. If upon a reading of the document as a whole, it can fairly be deduced from the words actually used therein that the parties had agreed on a particular term, there is nothing in law which prevents them from setting up that term (Reference is made to Modi & Co., vs. Union of India, reported in 1968 2 SCR 565). Further, in construing a contract, the Court must look at the words used in the contract unless they are such that one may suspect that they do not convey the intention correctly. If the words are clear, there is very little the court can do about it (Reference is made to Provash Chandra Dalui and another vs. Biswanath Banerjee and another, reported in 1989 Supp (1) SCC 487).
56. With regard to Section 74 of the Contract Act, His Lordship has also observed, after referring Fateh Chand vs. Balkishan Das, reported in (1964) 1 SCR 515 that 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.
57. It is obvious to note here that the claim made in the above cited case viz., Oil and Natural Gas Corporation Ltd., vs. Saw Pipes Ltd., reported in (2003) 5 SCC 703, is one for damage for breach of contract between the parties. After considering various decisions of the Apex Court and on considering the submissions made on either side, the Division Bench of the Apex Court has allowed the appeal after setting aside the impugned Award.
58. Mr.A.Navaneethakrishnan, learned Advocate General has argued on behalf of the defendant Electricity Board saying that the time was the essence of the contract and that the plaintiff had not chosen to execute the contract within the stipulated date viz., 24.08.2000. He has also submitted that on the request made by the plaintiff, the defendant had extended the time on three occasions without prejudice to the right of the defendant to levy the liquidated damages from 24.08.2000.
59. He would submit further that as per the contract, the plaintiff was liable to pay to the defendant a sum of Rs.1,43,76,798/- towards the liquidated damages for the delayed completion of work as the plaintiff had failed to complete the work within the period of nine months from the date of award of contract.
60. He has also added that only under this circumstance, the defendant had rightly adjusted the liquidated damages to the tune of Rs.1,43,76,797/- for the delayed period of execution of work from the retention amount of Rs.1,89,86,529 and thereafter the balance amount of Rs.45,89,732/- was paid to the plaintiff on 23.12.2002.
61. He has also argued that the plaintiff was the lowest tenderer offered to complete the work as per the scheduled quantities within the contract value of Rs.27,02,20,043/-. After negotiation, the plaintiff had agreed to complete the said project within the total scope of contract value of Rs.25,75,97,993/- as specified in Ex.P4 discount proposal. As per the foot note No.1 of the contract agreement (Ex.P4), the plaintiff had agreed to receive the payment for the actual execution of work and based on the above agreement he had executed the work for an amount of Rs.22,71,67,461/- towards both supply and erection and commissioning of work.
Out of Rs.22,71,67,461/-
the plaintiff was paid a sum of Rs.21,25,80,237/- Balance is - Rs. 1,45,87,224/- Out of Rs.1,45,87,224/- the amount retained by the Defendant as Liquidated Damages - Rs. 1,43,76,797/- Balance - Rs. 2,10,427/-, which alone the plaintiff is entitled to get.
62. Further, he has contended that as contemplated under Section 74 of the Contract Act, since the plaintiff had committed breach of contract, having been failed to execute the contract within the stipulated date of 24.08.2000, the defendant was entitled to claim the liquidated damages and therefore they had rightly recovered a sum of Rs.1,43,76,797/- towards liquidated damages for the delayed execution of work from the retention of amount and hence there was no justification in the claim made by the plaintiff and therefore he has urged to dismiss the suit.
63. He has also argued that the suit was hopelessly barred by limitation and on that ground also the suit is liable to be dismissed.
64. Countering the argument advanced by the learned Advocate General, Mr.AR.L.Sundaresan, learned senior counsel appearing for the plaintiff has submitted that no evidence was adduced as to how the amount of Rs.2,10,427/- was arrived at and no notice was given by the defendant Board that they were going to levy the liquidated damages.
65. He has also argued that the defendant Board having entered into an agreement on Turnkey basis could not resort to the payment method as followed in Unit Rate Contracts, which was against the terms of the contract.
66. The learned senior counsel has also submitted that it was the basic rule of Interpretation that usage was the best interpreter of things and hence there had been a consensus by both the parties on the usage of the work 'Turn Key'.
67. He would submit further that the defendant, instead of making the balance payment of Rs.4,50,16,757/- had arbitrarily and illegally retained the entire amount citing unacceptable reasons, which were contrary to the terms of the contract.
68. He has also added that the ratio of calculating liquidated damages was at the rate of half of one percent per completed week of delay of the value of the contract price as liquidated damages subject to a maximum of 10% on unexecuted portion of contract and he therefore urged before this Court that a sum of Rs.1,43,76,797/- was not the pre-estimated genuine claim and as such the defendant Board was not entitled to retain this amount towards the liquidated damages.
69. As observed in the opening paragraph of this Judgment, the whole claim is revolving around the centre point of liquidated damages. Admittedly, the plaintiff should have completed the work within a period of nine months from the date of the Award i.e., on or before 24.08.2000. As observed in the earlier paragraphs, as per Exs.P9, P10 and P11, the defendant Board had extended upto 27.03.2001, 30.06.2001 and finally till 31.10.2001. The defendant Board has also admitted that the plaintiff had completed the work within the extended date i.e., 31.10.2001. It is also admitted fact that there were no complaints regarding the quality of work done.
70. It may be more relevant to note here that even in the proof affidavit filed by D.W.1, in paragraph No.11 he has admitted that the plaintiff had completed the project before 31.10.2001. As per the contention of the defendant, the payment would be made to the plaintiff being the successful bidder based on the quantities of work actually executed. But, according to the plaintiff, the amount has to be paid on total turnkey basis and that the defendant had also agreed to pay a lumpsum contract price for the entire work contracted as per the original agreement entered into between the plaintiff and the defendant on 10.12.1999 under Exs.P7 and P8 respectively.
71. Exs.P5 and P6 are the letters of award dated 25.11.1999. In the letters of award, the Chief Engineer/Transmission, who has signed on behalf of the Tamil Nadu Electricity Board (the defendant herein), has accepted the offer of the plaintiff for work portion indicated in Schedule-A1 of the Specification and their offers consisting the design of towers, fabrication of protos, testing of protos and erection, testing and commissioning of Pillaiperumal Nallur Thiruvarur Thanjavur 230 KV DC Line on total turnkey basis at the discounted value of Rs.19,77,72,978/- and Rs.5,98,24,015/- respectively on Firm basis.
72. It is also obvious to note here that the contract, which was entered into between the plaintiff and the defendant was on a lumpsum total turnkey basis and the turnkey contract also known as 'design-build' contract covers the design, constructing, equipping and complete preparation of a facility for operation. It differs from a traditional engineering construction contract in two major aspects.
73. In order to substantiate this fact, Mr.AR.L.Sundaresan, learned senior counsel has argued that as a general rule, turnkey contractors could not be expected to provide interim financing for an owner/purchaser's project and that the progress payments and in some cases a percentage advance payment paid into escrow would be required in the contract. Normally, this was done in order to facilitate the contractors to overcome cash flow problems instead of making the Contractors to wait till the end of the project to realize the payment.
74. P.W.1 in his cross-examination has also admitted that it is correct to state that the turnkey contract was for supply and erection. P.W.1, in his cross-examination has also admitted that there is a note in Page No.265 of Ex.P4 that 'quantities indicated are tentative and bidders shall quote above quantities, works and materials only and however, payment will be made to the successful bidder based on the quantities of work executed.
75. He has also indicated that as per the same note No.2, it is also stated that the rates quoted for works/materials shall be firm and he has also specified that in the very same note it is mentioned that if variable prices is not mentioned, rates will be taken as Firm prices only.
76. With regard to the foot note, in Ex.P4, dated 07.07.1999, in his re-examination, P.W.1 has stated that it is correct to state that the plaintiff has given certain discounts after negotiating with the defendant. In that very same document, we have given a discount of 6.85% for Item Nos.2, 3, 4, 6 and 7 supply of major items. After the discount, both the parties arrived at the contracted value of Rs.25,75,96,993/-. There is no specific clause in Exs.P7 and P8 agreements, which speak about the rider regarding Note Nos.1, 2 and 3 in Ex.P4. He has also deposed that the said note was not specifically indicated only because of the Clause 3.2 in Exs.P7 and P8. According to P.W.1, the liquidated damages was not calculated as per the Clause 18.0 of the general conditions of the contract.
77. With regard to the rider find a place in Ex.P4 (foot note), D.W.1 in his cross-examination has deposed that Ex.P4 was signed by both the parties on 07.07.1999. He has also admitted that Ex.P4 was executed even prior to the letter of award Ex.P5. He has also admitted that they have not incorporated the notes mentioned at the last page of Ex.P4 (foot note) in Ex.P5. The word mentioned in Ex.P5 turnkey contract means the entire work should be done by the contractor for price. The price mentioned in the letter of award indicates the price for the entire contract. The quantities quoted tentatively means approximately. The quantities mentioned in Ex.P4 are only tentative. He has also admitted that the defendant had not stated either in their written statement or in their proof affidavit that the plaintiff is eligible to get plus or minus than the contracted price.
78. D.W.1 has also admitted that in Para No.2.5 of their written statement, they have stated that a sum of Rs.21,25,80,237/- has been paid to the plaintiff on account payment only. He has also admitted that the defendant is claiming liquidated damages as per Clause 18 in Ex.P22. The liquidated damages has been specified in Para No.9 of the written statement. But, they have not mentioned the basis of working details in the written statement about the calculation of liquidated damages.
79. D.W.1 has admitted that they would not issue completion certificates for incomplete projects. The completion certificate will be given for fully executed projects even with a delay. Ex.P24 is the original letter dated 17.06.2002 annexed with the completion certificate issued by the defendant to the plaintiff. In which, it is stated that:
M/s.SPIC/SMO has completed the works on 31.10.2001 satisfactorily with a delay of 14 months. The line was energized on 16.11.2001 and taken over by T.N.E.B., The guarantee period for the line expires on 16.11.2002.
80. In this connection, D.W.1 has admitted in his cross-examination that the defendant had not mentioned the exact number of days delayed in Exs.P9, P10 and P11 respectively and equally he has admitted that the defendant had not given any legal notice mentioning the amount of liquidated damages since it is necessary as per the tender clause and conditions and he has also admitted that the defendant had not given any notice prior to adjusting of liquidated damages from the retention amount and they had not also mentioned about the above fact in the written statement as well as in the proof affidavit.
81. He has also admitted that the defendant had not issued any notice to the plaintiff about the actual loss incurred by the defendant.
82. It is pertinent to note here that D.W.1 has specifically admitted in his cross-examination that the liquidated damages is levied from the due date to the actually completion of the work and there is no unexecuted portion.
83. It is apparent from the cross-examination of D.W.1 that the defendant had not mentioned the working details in levying the liquidated damages in Ex.D3. But, there is no pleadings in the written statement with regard to the issuance of letters with regard to Exs.D3 and D4 respectively.
84. Section 73 of the Indian Contract Act, 1872 shall be read in harmonious with Section 74 of the Act. It contemplates that:
When a contract has been broken, the party who suffers by such breach is entitled to receive, from the party who has broken the contract, compensation for any loss or damage caused to him thereby, which naturally arose in the usual course of things from such breach, or which the parties knew, when they made the contract, to be likely to result from the breach of it.
Such compensation is not to be given for any remote and indirect loss of damage sustained by reason of the breach.
85. Section 74 of the Indian Contract Act, 1872 contemplates that:
When a contract has been broken, if a sum is named in the contract as the amount to be paid in case of such breach, or if the contract contains any other stipulation by way of penalty, the party complaining of the breach is entitled, whether or not actual damage or loss is proved to have been caused thereby, to receive from the party who has broken the contract reasonable compensation not exceeding the amount so named or, as the case may be, the penalty stipulated for.
86. It is significant to note here that the provisions of Sections 73 and 74 are relating to a contract, which has been broken. Both the sections would be made applicable when a contract is broken by any one of the parties to the contract.
87. On coming to the instant case on hand, it is not the case of the defendant that the plaintiff has committed breach of the contract. It may also be more relevant to place it on record that if the contract is actually broken by the conduct of the plaintiff in not completing the contract within the stipulated period of 24.08.2000, the defendant would not have extended the contracted period.
88. In Ex.P24, completion certificate, the defendant has stated that M/s.SPIC/SMO has completed the works on 31.10.2001 satisfactorily with the delay of 14 months. But, the alleged delay of 14 months has not been mentioned anywhere either in the written statement or in the proof affidavit of D.W.1. For the first time, they have stated in Ex.P24 completion certificate that there was a delay of 14 months.
89. It may also be relevant to refer Exs.P9, P10 and P11, time extension letters issued by the defendant Board. In Ex.P9, the defendant has stated that:
...your request for extension of the contract completion period upto 31.03.2001 is conceded as a special case.... In Ex.P10 also, the defendant has stated that:
...the Turnkey Project should have been completed by 24.08.2000. But, in view of the difficulties explained by you, your request for extension of contract period upto 31.03.2001 was granted as a special case. Further, it is also stated that:
In your letter under reference (8) & (9) you have stated that various constraints faced by you like unscheduled rain in P.P.Nallur area which had appreciably increased ground water table, the right of way and litigation problem etc., you could not achieve target within 31.03.2001 and requested to extend the due date of completion of project upto 30.06.2001.
Considering the difficulties expressed by you, your request for extension of period of contract upto 30.06.2001 is accepted as a special case. In Ex.P11 also, the defendant has stated that:
Taking the above facts with sympathetic consideration your request for extension of completion period of contract upto 31.10.2001 is accepted as a special case without prejudice to the levy of liquidated damages from scheduled date of completion of contract from 24.08.2000. 89a. With regard to the non-execution of the turnkey project within the stipulated date viz.,24.08.2000, this Court would like to place it on record that the circumstances narrated and accepted by the defendant Board under Exs.P9, P10 and P11 would definitely come under the definition of Force Majeure or vis major (Latin) 'superior force' also known as forca major (Catalan), fuerza mayor (Spanish), cas fortuit (French) or casus fortuitus (Latin) 'chance occurrence, unavoidable accident', is a common clause in contracts that essentially frees both parties from liability or obligation when an extraordinary event or circumstance beyond the control of the parties, prevents one or both parties from fulfilling their obligations under the contract.
89b. Ofcourse, in practice, most force majeure clauses do not excuse a party's non-performance entirely, but only suspends it for the duration of the force majeure.
89c. Force majeure is generally intended to include risks beyond the reasonable control of a party, incurred not as a product or result of the negligence or malfeasance of a party, which have a materially adverse effect on the ability of such party to perform its obligations, as where non-performance is caused by the usual and natural consequences of external forces or where the intervening circumstances are specifically contemplated.
89d. The understanding of force majeure in French law is similar to that of international law and vis major as defined above. For a party to a contract to invoke force majeure in French law, the event proposed as force majeure must pass three tests:
(i) Externality:
The party, who claims to be absolved, must have nothing to do with the event's happening.
(ii) Unpredictability:
If the event could be foreseen, the default party is obligated to have prepared for it. Being unprepared for a foreseeable event leaves him culpable. This standard is very strictly applied.
(iii) Irresistibility:
The consequences of the event must have been unpreventable.
89e. As contemplated under Section 56 of the Indian Contract Act, 1872 promises and reciprocal promises under a contract come to an end when force majeure conditions occur. Force majeure, or Act of God, occurs when:
1. The cause is not created by the defaulting party's fault;
2. The cause must be inevitable and unforeseeable; and
3. The cause must make execution of the contract wholly impossible.
89f. In Ram Kumar vs. P.C.Roy & Co., reported in AIR (39) 1952 Calcutta 335 (C.N.87), the Hon'ble Single Judge of the Calcutta High Court, in paragraph No.20, has observed that:
"20. Frustration depends on what has actually happened & its effect on the possibility of performing the contract. Where one party claims that there has been frustration & the other party contests it, the Court has got to decide the issue 'ex post facto' on the actual circumstances of the case.
'The data for decision are, on the one hand, the terms and construction of the contract, read in the light of the then existing circumstances, and on the other hand the events which have occurred. It is the court which has to decide what is the true position between the parties."
89g. In Md. Serajuddin vs. State of Orissa, reported in AIR 1969 Orissa 152 (V56 C53), the Division Bench headed by the Hon'ble Mr.JUSTICE S.BARMAN, Chief Justice of Orissa High Court, as he then was, has observed in paragraph No.31 as follows:
"...The rulings and literature on the subject show that where reference is made to 'force-majeure', the intention to save the performing party from the consequences of anything of the nature stated above or over which he has no control."
89h. In the present case on hand, the circumstances explained under Exs.P9, P10 and P11 could be brought under the purview of Section 56 of the Indian Contract Act, 1872 and the delay in completion of the contracted project within the scheduled date i.e., 24.08.2000 can be excused, as it has been considered by the defendant Board.
90. The mere mentioning of the word i.e., "without prejudice to the levy of liquidated damages" will not confer any right to the defendant to levy the liquidated damages after having extended on three occasions the time to complete the contract accepting the reasons given by the plaintiff.
91. With regard to the foot notes in Ex.P4, this Court would like to place it on record that there is no specific clause in Exs.P7 and P8 agreements, which talks about the rider viz., notes 1, 2 and 3 in Ex.P4.
92. As admitted by D.W.1 Ex.P4 was signed by both the parties on 07.07.1999 i.e., even prior to the execution of letter of award Ex.P5. The foot notes specified in Ex.P4 have not been incorporated in Ex.P5 and therefore the rider in Ex.P4 (foot note) has not over ridden the contract as it has become pale into insignificance in view of Exs.P7 and P8 as well as Ex.P5.
93. On meticulous analysis of Clause 18.0 of the General Conditions of contract with regard to the liquidated damages the defendant can claim the liquidated damages only on the following two circumstances:
(i) If the handing over of the work fully completed in all respects is delayed beyond the schedule date or
(ii) Extension there of for commissioning as given under the contract.
94. As per Clause 18.0 of General Conditions of the contract, two options are given to the plaintiff to complete the work in all respects. One is the work shall be completed within the scheduled date or the work shall be completed within the extended period.
95. Here, as stated by the defendant in Exs.P9, P10 and P11, after getting satisfied about the reasons stated by the plaintiff, the period of contract was extended on three occasions and finally on 31.10.2001. As per Ex.P24 contract has been fully completed in all respects as admitted by the defendant.
96. Having mentioned the word that the period is extended subject to the levy of liquidated damages will not in anyway confer the right to claim the liquidated damages for the simple reason that the liquidated damages could be claimed subject to a maximum of 10% of unexecuted portion of contract.
97. Here, D.W.1 himself had admitted that no portion of the work was left unexecuted and therefore this Court finds that the defendant is not entitled to claim the liquidated damages to the tune of Rs.1,43,76,797/-.
98. The plaintiff claims that he is entitled to get a sum of Rs.4,50,16,757/- from the defendant. The break up calculation of which is given hereunder:-
Total Contract Price as per the Turnkey Agreement Rs.25,75,96,993/-
Payment received from the defendant 'On Account' Rs.21,25,80,236/-
Balance amounts due towards 'On Account' invoices Rs. 3,06,39,960/-
Amount retained by the defendants as liquidated damages Rs. 1,43,76,797/-
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Balance amount receivable as per the Turnkey Agreement Rs. 4,50,17,757/-
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99. This Court, on considering the related facts and circumstances and also on evaluating the evidences both oral and documentary, finds that the plaintiff is entitled to the suit claim as prayed for.
100. Accordingly, the foot notes find beneath Ex.P4 are not having over reading effect as against the contract entered into between the plaintiff and the defendant and therefore it has become pale into insignificance. Hence, Issue Nos.2, 3, 4 and 5 are answered in favour of the plaintiff.
101. Issue Nos.7 and 8:
In view of the observations made in Issue Nos.2, 3, 4 and 5, this Court finds that the payments made by the defendant were on account basis and not on the quantity of work actually done. Accordingly, the Issue Nos.7 and 8 are answered in favour of the plaintiff.
102. Issue No.6:
Amongst 8 issues based on the material proposition of fact, issue No.6 reads as follows;
"Issue No.6 Whether the suit claim except of Rs.2,10,427/- is unsustainable and barred by limitation ?"
103. In so far as this issue relating to limitation is concerned Ex.P19 original letter dated 19.4.2006 sent by the Chairman of the plaintiff to the Chairman of the defendant and Ex.P20 original letter dated 05.07.2006 sent by the defendant to the plaintiff are playing the predominant role.
104. The learned Advocate General, who is appearing for the defendant has adverted to that the letter of refusal dated 19.04.2006 (Ex.P19) and communication dated 05.07.2006 (Ex.P20) would not at all extend the period of limitation in the absence of specific acknowledgment of the liability by the defendant to pay the alleged suit claim.
105. Refuting this argument, Mr.AR.L.Sundaresan learned senior counsel appearing for the plaintiff has submitted that Ex.P19, letter of refusal itself had given cause of action for the plaintiff to issue notice against the defendant board for the recovery of a sum of Rs.4,50,16,757/- along with interest at the rate of 24% per annum from the date of plaint.
106. Ex.P19, is the original letter dated 19.04.2006 sent by the board to the plaintiff company wherein they have conceded that the plaintiff company had made various representations for releasing of balance of contract value. In this letter, the defendant has stated that;
"Your request for waiver of Liquidated Damages of Rs.1.44 Crores and releasing the balance amount of Rs.3.06 Crores was examined and after careful consideration it is observed that your request is not feasible of compliance for the following reasons;
1) The extension of time based on your request were granted thrice with the condition of levying Liquidated Damages only.
2) The payments were released for the actual material supplied and actual work executed at the rates accepted as per the Price Schedule A Note (i) of the agreement executed in the above Turnkey Contract.
3) It has been indicated in page 249 of the agreement that the quantity indicated are tentative only. The payment will be made to the successful bidders based on the quantities of work actually executed.
For the reasons indicated above your claim for releasing the LD amount levied on you and releasing the entire 'Turnkey Work' face value of the contract are not correct as per the terms and conditions of the contract/agreement entered with your firm for executing the subject contract work."
107. Ex.P20 is the another letter dated 05.07.2006, sent by the defendant Board to the plaintiff company requesting the plaintiff to go to the office of the Chairman, Tamil Nadu Electricity Board on 11.07.2006 at 10.00 a.m., for discussing the pending issues on the subject matter.
108. Referring these two letters and mainly based reliance upon Ex.P19, Mr.AR.L.Sundaresan has canvassed that the limitation starts from the date of refusal i.e., from 19.04.2006 (Ex.P 19) as well as from 05.07.2006 under (Ex.P20), wherein the plaintiff company was requested to approach the Chairman of Tamil Nadu Electricity Board on 11.07.2006 and therefore the suit was very well within the time and was not barred by limitation.
109. This court has given careful consideration to the submissions made by the learned Advocate General appearing for the defendant board as well as the submissions made by the learned senior counsel appearing for the plaintiff company. After striking a balance between their submissions, this court is of considered view that this suit is not barred by limitation. As it appear from the face of the plaint this suit seems to have been filed on 17.04.2009. It is also manifested from Ex.P19 that the request made by the plaintiffs company to the defendant board for waiving the liquidated damage of Rs.1.44 crores and releasing the balance amount of Rs.3.06 crores was refused by the defendant board on 19.04.2006. Computing the period of limitation from 19.04.2006 it is unambiguously established that the suit has been filed on 17.04.2009 i.e., within the period of three years. Therefore the question of limitation does not arise.
110. Issue No.1:
The defendant has not stated adequate reasons for the non-maintainability of the suit. This Court, based on the materials available on record, finds that the suit is very well maintainable within the ambit of Order VII Rule 1 of the Code of Civil Procedure read with Order IV Rule 1 of the Madras High Court Original Side Rules, 1956.
111. On pragmatic approach of the related facts and circumstances and on meticulous analysis and appreciation of the evidences both oral and documentary, this court is convinced that the plaintiff company has justified it's claim of Rs.4,50,16,757/-
112. Having regard to this fact, this suit is decreed for a sum of Rs.4,50,16,757/- together with interest at the rate of 24% per annum from the date of the plaint till the date of realization with costs. Consequently, connected applications are closed.
113. It is to be noted that despite the specific admission made by P.W.1 in his cross-examination saying that there is no agreement for payment of interest, since it is a commercial transaction it may not be proper to calculate 1% per annum and therefore this Court has granted the above decree with the calculation of the interest at the rate of 24% per annum on the decreed amount of Rs.4,50,16,757/- as stated above.
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