Jharkhand High Court
M/S. Orange Business Services India ... vs Central Coalfield Limited (Govt. Of ... on 18 January, 2024
Author: Anubha Rawat Choudhary
Bench: Anubha Rawat Choudhary
IN THE HIGH COURT OF JHARKHAND AT RANCHI
Commercial Appeal No. 17 of 2022
M/s. Orange Business Services India Technology Pvt. Ltd., having its
Registered Office at 601, 6th Floor, DLF South Court Mall, Saket, New Delhi-
110017, P.O. & P.S.- Saket, District- New Delhi and Corporate Office at : 15th
Floor, Vishwaroop IT Park, Section 30-A, Vashi, Navi Mumbai, India-
400703 through its Authorised Representative Mr. Pradeep Kumar Pandey,
S/o Chandra Dhari Pandey, R/o Opp. To M-13, Argora Housing Colony, P.O.
& P.S.- Argora, District- Ranchi, holding the post of Program Manager.
......Plaintiff/Appellant
Versus
1. Central Coalfield Limited (Govt. of India Undertaking), Darbhanga House,
Ranchi, P.O. G.P.O., P.S.- Kotwali, District- Ranchi, Jharkhand - 834001
2. The Chairman/Managing Director (CMD), Central Coalfields Limited,
Darbhanga House, Ranchi, P.O. G.P.O., P.S.- Kotwali, District- Ranchi,
Jharkhand- 834001
3. The General Manager (Purchase)/ Head of Department, Central Coalfields
Limited, Darbhanga House, Ranchi P.O. G.P.O., P.S.- Kotwali, District-
Ranchi, Jharkhand - 834001 ... Respondents/Respondents
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CORAM: HON'BLE THE ACTING CHIEF JUSTICE
HON'BLE MRS. JUSTICE ANUBHA RAWAT CHOUDHARY
For the Appellant : Mr. Devasish Bharuka, Advocate
: Mr. Ravi Bharuka, Advocate
: Mr. Nitin Kumar Pasari, Advocate
: Mrs. Sidhi Jalan, Advocate
For the Respondents : Mr. Indrajit Sinha, Advocate
: Mr. Ankit Vishal, Advocate
---------------
JUDGMENT
C.A.V. On 05th September 2023 Pronounced on 18th January 2024 Per, Anubha Rawat Choudhary, J.
This Commercial Appeal has been filed against the judgment dated 20.06.2022 passed by the learned Presiding Officer, Commercial Court at Ranchi in Commercial Suit No. 331 of 2017 whereby the Money Suit of the appellant for a sum of Rs.5,98,13,807/- has been partly allowed in favour of the appellant to the extent of Rs. 1,44,18,600/- and partly rejected to the extent of Rs. 4,53,95,207/-. The appellant has thus challenged the impugned order and judgment dated 20.06.2022 only to the extent of rejection of the money suit so far it relates to the claim of Rs. 4,53,95,207/-.
22. The case arises out of a contract awarded to the appellant by the respondents for a 'Turnkey project for Supply, installation, commissioning and maintenance of RISC/EPIC Servers along with allied accessories on a rental basis for a period of (5) years ('Project').
3. The details of the amount decreed in favour of the appellant related to work performed by the appellant and invoices were raised by the appellant for the supplies made under the supply order during the period from July 2015 to May 2016 which included One Time Charges (OTC), monthly rental charges for 11 months and shifting of items from old to the new office of CCL (respondents). The monthly rental charges were fixed at Rs.10,25,337.78 and had two components i.e. product cost and service cost. The chart mentioned in the plaint and decreed for the amount mentioned therein is quoted as under:-
S. Particulars/Services Invoice No. & Date Amount No. (In INR)
1. One Time Charges (OTC) CCL/DC/01 Dtd. 12 30,76,014.57 May 2016
2. Monthly rental for 11 Relevant Invoices for 1,12,78,715.69 months from July, 2015 to 11 months have been May, 2016 provided at Annexure K Colly,
3. Shifting of items from old to MUM/ST/1617/236 63,868.70 new office of CCL Kolkata dated 11-July 2016 Sales Office.
Outstanding Amount 1,44,18,600
4. The contract was terminated by the respondents on 13.01.2017 and the Performance Bank Guarantee was invoked. The appellant is aggrieved by the rejection of the money claim on account of the loss of equipment supplied by the appellant whose payment was spread over the contract period by way of a component of the monthly rental charges; loss on account of maintenance services rendered from July 2016 to January 2017 and claimed refund of the amount realized by the respondents by invoking Performance Bank Guarantee but during the course of arguments gave up the claim regarding remuneration paid to manpower deployed for two months. The following chart mentioned in paragraph 30 of the plaint gives the various heads and the amount claimed:-
Sl. Particulars Amount
No.
1. Loss on account of equipment supplied 3,63,50,258 3 equivalent to forty-nine (49) installments.
2. Loss on account of two months of remuneration 5,70,265 given to manpower deployed.
3. Loss on account of maintenance services 19,95,928 rendered to the respondents from July 2016 till January 2017
4. Loss suffered on account of unlawful 64,78,756 encashment of Performance Bank Guarantee by the Respondents.
Total 4,53,95,207/- 5. The plaint 5 (i) As per the plaint, the appellant had participated under a tender issued
by the respondents for a 'Turnkey project for supply, installation, commissioning and maintenance of RISC/EPIC Servers along with allied accessories on a rental basis for a period of (5) years ('Project').
The appellant being a successful bidder was issued the supply order dated 28.03.2014 for supplying, installing, commissioning, and maintaining servers along with allied accessories for a period of five years on a rental basis for a contract value of Rs.6,23,03,148/-. As per the payment terms, the appellant was entitled to receive payment for the work done on two fronts i.e. "One Time Charge" (OTC) and "monthly rental charges" for a period of five years. The appellant was also required to submit a "Performance Bank Guarantee" (PBG) equivalent to an amount of ten percent (10%) of the contract value within fifteen days of the installation and commissioning of the entire project.
5 (ii) As per paragraphs nos.8 and 9 of the plaint, the appellant had submitted its conditional acceptance on account of various anomalies and ambiguity in the said supply order in respect of price break-up details and the appellant approached the respondents seeking amendment in the supply order to attain clarity concerning price break- up details and to carry out its obligations including submission of Performance Bank Guarantee. On account of such ambiguity regarding price break-up and applicable tax rates, the appellant was not in a position to furnish the Performance Bank Guarantee within the time frame as required under the supply order since the contract value 4 including the tax rates applicable was not definitive and the Performance Bank Guarantee had to be submitted equivalent to an amount of 10% of the contract value. Since it was the fault of the respondents, the submission of the Performance Bank Guarantee was not objected to by the respondents. On account of ambiguity concerning price break-up details, the initial supply order issued by the respondents was amended vide 1st corrigendum dated 23.04.2014 to the supply order. The supply order was again amended vide 2nd corrigendum dated 20.03.2015 wherein the consignee details as given under the initial supply order were modified by CCL. 5 (iii) Thereafter, there was a huge delay on the part of the respondents in issuing road permits for various consignees and issuing clarity concerning the issuance of 'Form C' to the appellant. 5 (iv) In the meanwhile, despite delays the appellant started the execution of the project and duly completed the process of distribution and transportation to sites, installation, integration, and commissioning of the project by 20.05.2015.
5 (v) Even by this time, there was no clarity regarding applicable tax rates, and the issuance of Form C was also not confirmed by the respondents. In the absence of Form C, the appellant was not in a position to issue/raise invoices upon the respondents and initiate billing for services rendered by it. The appellant issued various letters to the respondents asking them to issue clarifications or amendments in respect of the applicability of the full rate of tax and/or confirm the issuance of Form C to facilitate the plaintiff to raise invoices. 5 (vi) Amidst these various communications, the respondents issued a letter dated 30.11.2015 that all the delivery, installation, and commissioning of the project were completed by 20.05.2015 and admitted that the rentals for the services provided by the appellant should start from 01.07.2015. However, a 3rd corrigendum dated 08.03.2016 was issued by the respondents wherein a change in tax structure was preferred by the respondents which resulted in a revision and increase in the contract value of the project, and consequently, the appellant was able to furnish the Performance Bank Guarantee dated 22.04.2016 equivalent to 10% of the revised contract value as per the Supply order 5 and it was only after the submission of the Performance Bank Guarantee by the appellant, the respondents released the earnest money deposit (EMD) as per the terms of the tender notice. 5 (vii) The appellant duly submitted the invoices on account of One Time Charge (OTC) to the respondents amounting to Rs.30.76,014.57 as a part of the consideration for the work already performed and also raised invoices for the rental for the period from July 2015 to May 2016 amounting to Rs.1,12,78,715.69. The appellant was also required to shift/relocate the various IT equipment items and machinery installed and for that, an amount of Rs.63,686.70 was chargeable for which another invoice was raised and consequently, the total outstanding amount as per the plaint for the invoices raised by the appellant on the respondents was Rs.1,44,18,600/-. 5 (viii) Despite raising invoices dated 12.05.2016, 11.07.2016 and monthly rental for 11 months from July 2015 to May 2016 and satisfactory performance, the respondents did not release the payment due to which the appellant was constrained to suspend the services on 16.09.2016 and in response, the respondents vide email dated 16.09.2016 and 17.09.2016 requested the appellant to immediately restore the services and assured the appellant that a committee has been constituted to resolve the matter efficaciously. The appellant with bonafide intent arranged for funds and restored the services with an optimistic approach that the respondents would clear the long-standing dues and informed the respondents vide letter dated 21.10.2016. However, vide letter dated 01.11.2016 the respondents alleged that the appellant had violated the terms of the supply order and had caused a huge loss on account of irresponsible conduct and breach of contract. The respondents vide letter dated 13.01.2017 (received by the appellant on 19.01.2017) issued a letter terminating the Supply order. It was the case of the appellant that the termination order was issued without providing any reason or justification, no opportunity of hearing was granted to the appellant before issuing the termination order and the appellant had not violated any terms and conditions of the contract. 5 (ix) The appellant had responded to the termination letter vide letter dated 23.01.2017 that there was no violation of the terms and conditions of 6 the contract and the delivery, installation and commissioning of the project was done satisfactorily by the appellant as per the terms of the contract but the appellant did not receive any response to the same. Ultimately, the appellant issued a legal notice dated 10.02.2017 under section 80 of the Code of Civil Procedure (CPC) for recovery of the outstanding dues payable by the respondents but no response was received to the legal notice. It was the case of the appellant in paragraph no.28 of the plaint that because of arbitrary action of wrongful termination of supply order carried by the respondents, the appellant was entitled to recovery of the outstanding amount and also for compensation/damages on account of irreparable and irretrievable loss and injury suffered by it during the course of completion of its obligation under the supply order. It was their case that the loss/damages suffered by the appellant which naturally arose during the usual course of supply order was on account of the various heads amounting to Rs.4,53,95,207/-.
5 (x) The appellant sought a decree for recovery of the outstanding amount of Rs.1,44,18,600/- with interest @ 18% from the outstanding date till the date of payment. The appellant also prayed for a decree for an amount of Rs.4,53,95,207/- as loss and damages suffered on account of wrongful termination of supply order being the balance cost of equipment, provision of maintenance services, manpower cost and on account of unlawful encashment of Performance Bank Guarantee by the respondents along with interest @ 18% per annum till the date of payment.
6. Written Statement 6 (A) As per the written statement, the foundational facts about the floating of tender and awarding of contract to the appellant, are not in dispute. However, the respondents stated that as per Article 12 of the supply order, the appellant was required to furnish the security deposit amount in the form of a bank guarantee for 10% value of the awarded contract, that is, for Rs.62,35,000/- within 15 days from the date of supply order but the appellant did not submit the security deposit within the stipulated time and even afterward, and thereby breached the contract which was an impediment for their entitlement to any 7 payment. It was denied that the appellant was entitled to receive payment on two fronts. i.e. One Time Charge (OTC) and also monthly rental charges. The respondents asserted that the appellant had submitted conditional acceptance of supply order vide letter dated 17.04.2014 merely on account of some calculation mistake on the applicable taxes and the same was rectified by corrigendum dated 23.04.2014 and some calculation mistakes cannot be termed as anomalies and ambiguities and contention of the appellant in that regard was denied. The contention of the appellant concerning error in price break-up was also denied although the same was clarified vide corrigendum dated 23.04.2014 but the appellant did not give the security deposit. The other statements in connection with ambiguity in connection with price break-up and the clarity concerning Form C etc. were also denied by the respondents. While denying paragraph 12 of the plaint, it was stated in paragraph 14 of the written statement that the need for amendment arose because the appellant asked for road permit which in turn arose as the appellant had wrongly quoted the concessional sales tax in their offer and it was also stated that the supply order was amended vide corrigendum dated 20.03.2015 because of mistake on the part of the appellant. It was stated in paragraph no.15 that the appellant had issued a letter stating that the delivery, installation, and commissioning of the CCL server project was completed on 28.05.2015 on all locations of the supply order and it was mutually agreed that from 01.07.2015 the appellant was authorized for billing for monthly rental as per the supply order and One Time Charge (OTC), if any.
6 (B) It was stated in paragraph no.18 that the appellant cannot claim that the commissioning of the project was complete on 20.05.2015 as the appellant has also stated that the rental payment was to start from 01.07.2015. It was stated in paragraph no.20 of the written statement that a bill on account of One Time Charge (OTC) and monthly rental charges for 11 months from July 2015 to May 2016 and for shifting of items from the old to the new office was received by the Finance Department of the respondents on 01.09.2016, 08.08.2016 and 30.08.2016 respectively. It was stated in the written statement that the 8 appellant committed mischief by unilaterally stopping the servers from 16.09.2016. The respondents sent an email on 16.09.2016 to restore the services immediately to which the appellant started shutting down the servers at different locations starting from 16.09.2016 resulting in the stoppage of all the IT-related activities including COAL(NET) applicable in CCL. Again, a request was made on 24.09.2016 to the appellant through email to restore the services within 24 hours, failing which the management of the respondents will take appropriate action as per the provisions of the contract. It has been stated that the Committee constituted on 16.09.2016 gave the following recommendation on 20.09.2016: -
(i) As legal issues have been raised by M/s Orange, the matter of these issues and amendments may be referred to legal department;
(ii) Action as deemed fit may be taken as against the Plaintiff for non-submission of Security Deposit (SD) as per provision of the Contract/General Terms and Condition (Clause no. 20).
(iii) If no alternative left action be taken for waiver of security deposit clause of the contract;
(iv) LD (Liquidated Damages) to be imposed as per the provision of the contract;
6 (C) It was asserted that the respondents were free to take all actions as per the contract which are as under: -
(i) Forfeit the performance guarantee in full under clause 20(e) of the General Terms and Conditions of NIT and Clause 3 of the Important Commercial Terms and Conditions of NIT.
(ii) Engage a third party for resuming the server project under Clause 20(b) and (c) of the General Terms and Conditions of NIT;
(iii) Recover loss suffered on account of delay in the completion of work and stoppage of the server under Clause 20(a) and 20(f);
6 (D) It has been asserted in paragraph no.25 of the written statement 9 that the said server and associated essential accessories of the appellant were the lifeline of all projects and in view of the ongoing crisis raised due to stoppage by the appellant an alternative arrangement was needed to restore all the business functionalities and IT initiatives deployed on respondents' server. After failing in all efforts for restoring services, the CCL management started exploring other alternatives to start installed IT services in CCL. It was asserted that the HP EPIC servers and its essential allied accessories supplied by the appellant on which COAL- NET software and other IT initiatives software were posted were stopped thereby affecting the work of IT initiatives taken and operations at CCL severely. The respondents denied all the claims of the appellant.
6 (E) It has been asserted that the bills of the appellant could not be processed for releasing payment as Liquidated Damages amounting to 10% of the entire project cost was more than the One Time Charge (OTC) bill amount. It was stated that the appellant submitted Performance Bank Guarantee (PBG) as 10% of the contract amount for Rs.64,78,756/- on 19.04.2016 with a validity period of five years three months commencing from 30.06.2015 to 20.09.2020 and requested to consider the same as security deposit cum Performance Bank Guarantee (PBG).
6 (F) It has been stated in paragraph no.31 that the appellant raised One Time Charge bill of Rs.30,76,014.16 on 24.05.2016, which necessitated multiple corrections due to mistakes. The appellant ultimately submitted the corrected bill on 16.07.2016. However, the processing of the bill for payment release was delayed because the Liquidated Damage amount, constituting 10% of the entire project cost was more than the One Time Charge bill amount. The appellant had submitted monthly rental bills for 11 months, totaling Rs.1.015 Crore, initially raised on 23.07.2016 for the period from 01.07.2015 to 30.05.2016. After scrutiny, these bills were forwarded to the Finance Department for audit and payment on 08.08.2016. However, the Finance Department at CCL Hq. was unable to process the bill for payment release because of the non-deposition of the security deposit, as specified in Clause no.12. A clarification was sought on 30.09.2016 10 regarding the recovery of Liquidated Damage in relation to the amendment order dated 20.03.2015. Meanwhile, the appellant initiated giving notices from 29.08.2016, indicating an intention to withdraw support and switch servers due to the non-payment of the mentioned claim by the CCL. It was stated that since the appellant committed a breach of contract by not depositing security money, the Finance Department could not release payment. The GM (System) of the respondents requested, through an email dated 07.09.2016, to review the notices, as the case was being processed by the concerned departments. A Committee was formed on 16.09.2016 to examine the case and provide lawful recommendations but unfortunately, the appellant intentionally stopped the server. The appellant had received a Satisfactory Performance Certificate for 11 months, based on the technical compliance of the functionalities provided in the work order. The Satisfactory Performance Certificate does not imply fulfilment of any commercial terms and conditions stipulated in the work order/NIT document. Services were extended until the evening of 16.09.2016. However, from that date onward, the appellant discontinued all services related to the servers, causing disruption to vital business functionalities installed on the server. These disruptions lead to further chaos. Regarding the claims raised by the plaintiff in Paragraph Nos.I, II, III, IV and under various grounds, the respondents contended that they were false and fabricated. The respondents asserted that the plaintiff is not entitled to any alleged loss and suggested that these claims have been made in order to hide the appellant's misdeeds, causing significant losses to the respondents.
7. Issues framed by the learned Commercial Court (I) "Whether the suit is maintainable in its present form? (II) Whether the plaintiff has valid cause of action for the present suit?
(III) Whether the plaintiff is entitled for a decree of Rs.
5,98,13,807/-?
(IV) Whether the plaintiff is entitled for the relief or reliefs as prayed for in the plaint?"
8. Two witnesses were examined on behalf of the appellant:-
P.W. No. Name Remarks
11
P.W. 1 Aftab Alam Client Relationships Director-Public
Sector sales of the appellant
P.W. 2 Vikram Client Relationships Director-Public
Kapoor Sector sales of the appellant
9. On behalf of the appellant, following documents were proved and marked Exhibit (henceforth Ext.). They are:-
Ext. Description of Documents/ Articles Date of Whether No. Admission admitted after or without objection Ext. 1 Board Resolution dated 31.01.2017 21.06.2019 With Authorization Letter (1 page) Objection Ext. 2 Notice inviting tenders (NIT) 21.06.2019 With (Domestic) Advertisement No. Objection 06/2013-14 (59 pages) Ext. 3 Supply Order dated 28.03.2014 (03 21.06.2019 With pages) Objection Ext. 4 Original Corrigendum dated 21.06.2019 With 23.04.2014 (03 pages) Objection Ext. 5 Original Letter dated 20.03.2015 (1 21.06.2019 With page) Objection Ext. 6, Letter dated 11.05.2015, 27.05.2015, 21.06.2019 With 6/1 to 17.06.2015, 14.10.2015, 16.11.2015, Objection 6/6 31.12.2015 and 05.02.2016 issued to the defendant. (14 pages) Ext. 7 Letter No. CCL/GM/SYS/15- 21.06.2019 With 16/765D dated 30.11.2015 issued by Objection CCL defendant for acceptance of delivery, installation, and commissioning of CCL server project. (1 page) Ext. 8 Fourth Corrigendum letter dated 21.06.2019 With 08.03.2016 issued by the defendant Objection CCL Ext. 9 OTC Invoice raised by the plaintiff 21.06.2019 With vide letter dated 12.05.2016 and Objection 24.05.2016 (5 pages) 12 Ext. 9/1 Photocopy of Letter dated 21.06.2019 With 24.05.2016 issued by plaintiff which Objection was got received to the defendants Ext. 10 Letter dated 22.07.2016 issued by the 21.06.2019 With plaintiff which was received by Objection defendant on 23.07.2016 along with Invoice (47 pages) of plaintiff Ext. Letter dated 09.09.2016 issued by 21.06.2019 With 10/1 plaintiff Objection Mark- Photocopy of Work Order mentioned 21.06.2019 With X/1 in Para 24 of deposition of the PW 1 Objection Ext. 11 Installation and Commissioning 21.06.2019 With Report mentioned in Para-24 of Objection deposition of the PW 1 Ext. 12 Commercial Invoice and Tax Invoice 21.06.2019 With and issued on 11.07.2016 mentioned in Objection 12/1 Para-256 of deposition of the PW 1 Ext. 13 Satisfactory Performance Report 21.06.2019 With issued by defendant mentioned in Objection Para 28 of deposition of the PW 1 Ext. 14 Letter dated 29.08.2016 and and 14.09.2016 of Plaintiff mentioned in 14/1 Para 29 of deposition of the PW 1 Ext. 15 Letter dated 16.09.2016 and 21.06.2019 With And 17.09.2016 issued by defendant Objection 15/1 through E-mail mentioned in Para-30 of deposition of the PW 1 Ext. 16 Letter dated 21.10.2016 and 21.06.2019 With and 01.11.2016 of plaintiff mentioned in Objection 16/1 Para-30 of deposition of the PW-1 Ext. 17 Letter dated 13.01.2017 of defendant 21.06.2019 With mentioned in Para-31 of deposition Objection of the PW 1 Mark- Reply to Termination Letter dated 21.06.2019 With X/2 13.01.2017 issued by CCL Objection Ext. 18 Photocopy of Vakalatan Notice 21.06.2019 With issued along with Postal receipt sent Objection by plaintiff mentioned in Para-34 of deposition of the P.W. 1 13
10. On behalf of the respondents only one witness was examined- (henceforth DW):-
D.W. No. Name Remarks
D.W. 1 Rajesh Kumar Pandey Senior Manager in Material
Management Department
11. On behalf of the respondents, some documents were proved and marked Exhibit (henceforth Ext.) Ext. No. Description of Documents/ Date of Whether Articles Admission admitted Ext. X & Letter dated 17.04.2014, Ref. 27.09.2019 With X/a No. Orange Objection CCL/DC/2013-14/32 (photocopy of letter dated 23.04.2014 No. 155.01/01/14-371A Ext. A E-Mail dated 17/09/16 27.09.2019 With Objection Ext. X/b Photocopy of committee 27.09.2019 With recommendation dated Objection 20/09/16 Ext. X/c Photocopy of legal opinion 27.09.2019 With Objection
12. The witnesses of the parties have supported their respective cases and have been cross-examined at length, the details of which have been mentioned in paragraph nos.16 to 18 of the impugned judgment and order. The learned Commercial Court examined the oral as well as documentary evidences and recorded findings and decreed the suit partly in favour of the appellant. Findings of the learned Commercial Court is summarized as under: -
Regarding issue nos. I and II a. It was clear that the appellant submitted a one-time charge bill and monthly rental from July 2015 to May 2016 for an amount of Rs.1.35 Crore. The bill was forwarded. The defendant sought clarification for the timely submission of the security deposit and compensation of liquidated damages for the delay in the completion of the project.
b. Appellant shut down the server on 16.09.2016 without waiting for the resolution of disputes. Admittedly vide Letter dated 24.09.2016, the respondents requested the appellant to restore the functioning of the server and it was stated that the respondents have the right to recover the damages 14 for the loss suffered on account of the withdrawal of services concerning the server. It has been further admitted position that the appellant vide its letter dated 25.09.2016 stated that the withdrawal of services was due to financial hardship faced by the company for the absence of any payment for the year. This was the claim by the appellant for breach of contract. c. From the communication between the appellant and the respondents, it is clear that both parties were aware of the fact that non-payment of the one- time charge bill is due to failure to deposit the security deposit and refusal to the imposition of liquidated damages for the delayed completion of the contract work by the appellant given in Clause 7.4, 7.7, 7.8, and 7.9 of the supply order regarding security deposit amount and the Performance Bank Guarantee amount.
d. The shutdown of the server had a huge adverse impact on the functioning of the respondents and most of their operations relating to booking and supply of coal to various Thermal Power wings and steel plants and industries etc. were completely tied through the server. The administrative functioning of the respondents concerning employees, salaries, etc. was also carried out through the server. The respondents have argued that they suffered huge losses on account of the shutting down of servers. It is clear from the document and oral evidence that the appellant has shut down the server without waiting for the resolution of disputes/issues raised by it which is a breach of trust. The appellant has been delaying the process and almost everywhere the appellant was found wanting in their approach. e. Admittedly, the respondents have agreed to amendments on the request of the appellant but, if seen minutely, it is clear that all the extensions were sought well after the lapse of required time. Even then the respondents were going with the contract. The final nail was put only when the appellant shut down the server causing loss to the respondents as claimed. It is clear that the respondents had assured that they were considering the bill submitted by the appellant.
f. The respondents claimed liquidated damages for the delayed completion of the contract and this was in pursuance of the clauses of NIT. The demand of the respondents for the liquidated damage was not uncalled for and unjust and also when the appellant had shut down causing a huge loss to the respondents. The respondents had no option but to terminate the contract. g. When the appellant went with the agreement then it was a bounden duty to follow the terms of the contract including payment for liquidated damages for the delayed completion of the project as per the condition of the Supply order. It was unjust on the part of the appellant to shut down the server on 16.09.2016 and 17.09.2016 when the respondents had assured that they were looking for a resolution of disputes and were considering the bills.
h. The appellant had completed the work after a delay of almost a year and had employed cost-cutting measures for his profit by non-deposit of security deposit.
i. As per the contract, the security deposit and Performance Bank Guarantee were separately stipulated in the supply order of the defendant company and the appellant was required to give both under contract. The delay and difficulties faced by the respondents in payment of the one time charge bill and monthly rental were the result of the action of the appellant; the respondents even helped the appellant with road permit etc. not required qua them under the contract and also extended the time required for supply, Installation, Commissioning and Integration of server.
15j. From the perusal of NIT (Ext.2) Clause 5-III of the General Terms and Conditions (page 37 of the NIT), it was clear that no rewording of any part of the clause of NIT was to be allowed. It was specifically mentioned that it would be accepted as it was. In 5.4 of the General Terms and Conditions, it was mentioned that the essence of the Turnkey Project for supplying, installing, Commissioning, and maintaining of RISC/EPIC server along with allied accessories in CCL is the successful implementation of the said project in time and the project implementor should give utmost importance to this aspect throughout the project live cycle. Clause 7 of the NIT mentioned about delivered installation, commissioning, and integration. Clause 8 of the General Terms and Conditions of the NIT envisages liquidated damages (LD) for delay in completion. It has been envisaged that at the rate of 0.5% of the entire project cost per week or part thereof as stated in 1 Clause of delivery, installation, commissioning, and integration was subject to a maximum limit of 10% of the entire project cost. Clause - 9 deals with the Performance security in detail. It has been envisaged that 10% of the contract amount should be submitted within 15 days of installation and commissioning of the entire project by the successful bidder in any of the forms mentioned in that clause which amongst others include bank guarantee, demand draft, etc. Clause 10 deals with force majeure. Clause 11 of the General Terms and Conditions deals with payment terms. It says 80% of the one time charge will be made within 21 days from the date of submission of clear and acceptable bills/invoices after delivery of all items of each group of the turnkey project for supply, installation, commissioning, and maintenance of RISC/EPIC server along with allied accessories. Clause 11 (c) envisaged that the balance 20 % payment for one time charge will be made within 21 days from the date of submission of clear and acceptable bill/invoice (in triplicate) after successful commissioning of the project as stated in clause-1 of delivery, installation commissioning and integration. The payment schedule also speaks about the monthly rental clause-12 of the NIT deals with technical terms. k. Clause 10 of the supply order (dated 28.01.2014) (Ext. 3) speaks of Performance Bank Guarantee. It has been mentioned that 10% of the Contract amount i.e. Rs. 62,35,000/ should be submitted within 15 days of installation, commissioning of the entire project by the successful bidder for any of the forms such as bank guarantee etc. Clause 12 of the supply order speaks about security deposit. It has been envisaged that the appellant has to furnish the security deposit amount in the form of a demand draft or bank guarantee of any scheduled bank for 10% of the value of the awarded contract i.e. Rs. 62,35,000/- without having any ceiling within 15 days from the date of supply order. Thus, from the NIT (Ext.2) and supply order (Ext.3) it is clear that the amount was clear and ascertained in both the documents especially the supply order dated 28.03.2014. So the argument of the appellant that the supply order was not certain was held to be devoid of any merit. It may be that with the change in tax structure, this could have either increased or decreased with the revised contract amount but at that time the appellant could have acted as per the document of the respondents. The argument of the appellant on these scores was held to be spacious and unacceptable.
l. Further the correspondence shows that the corrigendum to supply order was carried out on 23.04.2014 (Ext.4) and the letter for the corrigendum was sent by the appellant on 17.04.2014. Thus, presuming that the supply order (Ext.2) was received on whatever date, the appellant has failed to deposit 16 the security deposit with the respondents. Even the letter for carrying out the corrigendum in the supply order was well beyond 20 days. m. The appellant has stated about the issuance of road permit and Form-C vide its letter dated 23.05.2014 marked Ext. X. It may be pointed out that in the whole NIT and supply order there is no commitment from the respondents that they will provide a road permit and also Form-C. Admittedly the appellant had written about 7 letters starting from 11.05.2015 to 05.02.2016 requesting to expedite Tax issues and other issues raised by the letters in the past.
n. The letter dated 30.11.2015 from the CCL to the appellant is in respect of acceptance of delivery, installation, and commissioning of the CCL server project (Ext.7), and through that letter the request was made for final commissioning in terms of coal NET output from 01.07.2015. o. Thus, it is clear that the appellant has either taken the words of NIT and supply order casually or it was deliberately acted not in conformity with the contract. It is the general principle that when there is written agreement the verbal or oral commitment is barred where it is specifically written. So the appellant's argument that it was the respondents who were not clear in their approach leading to the amendment of supply order thrice was unacceptable. The learned counsel for the appellant argued the rule of estoppel. No doubt the appellant went ahead with the work since the respondents either through verbal or written order acquiesced in the implementation of the project.
p. As regards the damages claimed by the appellant it is to be seen what is the nature of the project. These projects are envisaged in such a manner that once the continuity breaks the project stands nowhere. The project was a turnkey project where the supply of material delivery, commissioning, and installation all were part of the project. So merely because most of the project will be completed will be of no help to the respondents unless it is fully complete. It may be noticed that if the project is fully complete and only commissioning or integration is required even then the project is of no use for the person concerned. It is the admitted case of the appellant and respondents that after 16.09.2016 the server was switched off. Thus, even if it presumed that it worked up to 16.09.2016 even then as it is admitted case of the commissioning and integration was to commence from 1st July 2015. Once it was started the respondents' dependency on this computer project was full, it is not far to imagine how respondents would have suffered by the sudden switch off of the server and the related equipment. q. Thus, there is no doubt that the appellant supplied the materials to the respondents. The installation, commissioning, and integration were done. The respondents enjoyed the benefit for more than eleven months. The impact of breach of contract cannot be 100% over the appellant. Admittedly due to the closing of the server and switching off, the respondents suffered and as a consequence, the appellant also suffered.
r. Thus, after considering all these facts it is held that the appellant is entitled to the bills submitted as admitted by the respondents and decreed to the extent of Rs. 1,44,18,600/-. Thus, it was decided that the suit was maintainable in its present form. The appellant had a valid cause of action for the suit. Accordingly, Issue No. I and II were decided in favour of the appellant and against the defendants.
Regarding issue no. III and IV s. The learned Court enlisted the claim of the appellant under various heads of damages. Then held that the respondents have acquiesced in the 17 implementation of the project either by written amendment or by oral instruction but it is also an admitted position and one can simply imagine that the respondents also must have suffered a huge loss for the reason that their dependency on the computer system must have gone high. Further when all the work was being done on the computer system and then suddenly the server was switched off, it would have impacted the respondents a lot. Although the respondents have not come up with any counter claim but loss of the respondents is not difficult to imagine. Under the circumstances, it will not be just and proper to give damage when the appellant fails to complete the obligation for one reason or the other. The admitted case is that even if the appellant's arguments are accepted, even then appellant was yet to provide services maintenance for 49 months. The appellant also failed to provide the security deposit and Performance Bank Guarantee as per requirement of NIT (Ext.2) and supply order (Ext.3). Under the circumstances, the learned commercial court did not find any merit in the case of the appellant claiming damages on account of loss on the four counts mentioned above.
t. As regards the encashment by the respondents of the Performance Bank Guarantee was held to be right given the facts that the respondents were liable to be compensated for liquidated damages on account of delay in completion of the project and further sudden switching off of the server caused heavy loss to the respondents.
13. The parties have filed their synopsis of arguments and also the list of dates.
14. Case of the Appellant before this Court 14(A) Prayer regarding damages has been rejected on the following three grounds and each of these grounds are unsustainable.
a. Ground (1): The appellant has not provided services maintenance for 49 months. The learned Court has erred since:
i. The appellant did not seek Rs.3.63,50,528/- towards charges for service maintenance for 49 months. The claim was towards equipment supplied for the remaining period of 49 months. ii. The contract between the parties clearly provides for separate payments to the appellant for supply of equipment on one hand and providing maintenance services on the other hand. iii. It is an admitted fact that the appellant supplied all the equipment as per the contract and the respondents retained the same for the remaining 49 months. Thus, the appellant was entitled towards payment for supply of equipment for the remaining 49 months.
b. Ground (2): The respondents have suffered losses on account of suspension of service from 16.09.2016 to 21.10.2016. The learned Court has erred since:
i. There is neither any counter-claim for damages by the respondents nor any evidence or proof of losses to support its claim of alleged damages in terms of section 73 or section 74 of the Indian Contract Act, 1872.18
ii. The respondents had earlier made a bald claim of alleged damages to the tune of Rs. 10 crores per day in its letter dated 24.09.2016 to the appellant. However, the same has not even been pleaded in the written statement, much less proved/substantiated by way of evidence.
iii. The learned Commercial Court has proceeded purely on assumption and conjectures. In complete absence of any pleading, evidence or proof, it has erroneously found that, 'one can simply imagine that the defendant also must have suffered huge losses.
iv. Liquidated Damages were mentioned in the respondent's letter dated 20.03.2015 but were never finally imposed. Thus, the respondents themselves were well aware that no damages could ever be proved by them.
v. In view of the above, absence of damages or loss on part of the respondents is an admitted position.
c. Ground (3): The appellant has failed to deposit security deposit and Performance Bank Guarantee. The learned Court has erred in view of the following submissions:
i. This factual finding is perverse since it does not take into consideration the relevant terms of the contract as also the below factual narrative.
• As per the scheme of the contract, the appellant was to:
firstly, submit Earnest Money Deposit (EMD) along with the bid; secondly, after execution of the contract, replace the EMD with Security Deposit (SD); thirdly, post- commissioning, convert the SD into Performance Bank Guarantee (PBG).
• Admittedly, EMD was a fixed amount of Rs.10 Lakhs which was deposited at the time of submission of tender. However, the SD and PBG were both dependent upon finalization of the contract price, that is, 10% value of the awarded contract. • Admittedly, due to non-supply of Form C and lack in clarity on part of the respondents, the contract price was finalized by the respondents only on 08.03.2016.
• Admittedly, by the time the contract price was finalized, the project had already been commissioned way back on 20.05.2015, as a result of which the 2nd stage of depositing Security Deposit had already passed by and became inconsequential.
• Admittedly, immediately after finalization of the contract price on 08.03.2016, the appellant submitted the PBG on 22.04.2016 against which the aforesaid EMD of Rs. 10 Lakhs was returned to the appellant.
19ii. Without prejudice, in view of Clause 8 of the Supply order, payment of OTC or monthly rentals was never linked to the deposit of SD or PBG.
iii. Without prejudice, admittedly, the respondents had never raised the issue of alleged breach of contract by the appellant on account of non-deposit of Security Deposit until after suspension of services by the appellant on account of non- payment. This was much after the commissioning of the project and much after the second stage when the SD was to be given. This, therefore, is a clear case of waiver or acquiescence. iv. Without prejudice, the respondents have not shown or proved any prejudice or loss caused to it on account of non- submission of security deposit, especially when subsequently PBG was submitted by the appellant.
14(B) Loss on account of two months of remuneration given to manpower deployed- Rs.5,70,265: This claim has been given up during the course of the arguments.
14(C) Loss on account of maintenance services rendered to the respondents from July 2016 till January 2017- Rs. 19,95,928:
a. Service cost per month was Rs. 2,83,892.84.
b. Therefore, the service cost for seven months is being claimed by the appellant.
14(D) No proof of any loss suffered by the respondents justifying the encashment of Performance Bank Guarantee by it Rs.64,78,756/-
(i). The learned Commercial Court has held that, "As regards the Performance Bank Guarantee the encashment by the defendant was right in view of the facts that they were liable to be compensated for liquidated damages on account of delay in completion of project and further sudden switching off of server causing heavy loss to the defendant."
(ii). The above finding is erroneous since:
a. The respondents never actually imposed Liquidated Damages upon the appellant.
b. The objections of the appellant vide letter dated 17.06.2015 was not decided by CCL till the end. Delay was on account of CCL as the change of consignee as the consignee was not registered with the local tax department.
c. The respondents had to justify the encashment of PBG by quantifying actual losses by way of pleading and evidence before the Ld. Commercial Court, which admittedly was not done. Since, there is no loss pleaded or proved by respondents, the encashment of PBG remains wholly unjustified. d. Reliance is placed on Kailash Nath Associates v. DDA, (2015) 4 SCC.
14(E) Perverse Findings of Facts:
20(i). Finding that 'both parties were aware that non-payment of OTC is on account of failure to deposit SD' is erroneous and perverse in absence of any evidence or document on record to justify such a finding.
(ii). Finding that 'In view of the Clause 7.4, 7.7, 7.8 and 7.9 the supply order dated 24.03.2014, the plaintiff was found wanting in respect of furnishing security deposit amount and the Performance Bank Guarantee amount' is erroneous and perverse. Relevant clause is Clause 12 of Supply order Clause 7.4 and Clause 7.7 are inapplicable on the facts of the case. Clauses 7.8 and 7.9 do not even exist in the supply order.
(iii). Finding that 'As per contract, the security deposit and Performance Bank Guarantee were separately stipulated in the supply order of the defendant company and the plaintiff was required to give both under contract' is erroneous and perverse and contrary to Clause 3 of NIT, Clause 16(b) of GCC of NIT and Clause 12 of NIT which states that the SD will be converted to PBG and Clause 10 of NIT which states that PBG is to be given after commissioning.
(iv). Finding that "Thus, from the NIT (Ext.2) and supply order (Ext.3) it is clear that the amount was clear and ascertained in both the documents specially the supply order dated 28.03.2014. So the argument of the plaintiff that the supply order was not certain is devoid of any merit. It may be that with the change in tax structure this could have either increased or decreased with the revised contract amount but at that time plaintiff could have acted as per the documents of the defendant." is erroneous and perverse.
a. Annexure BB of the NIT provided appellant to quote concessional rate of CST against Form C based on which the price was quoted by the appellant.
b. Appellant wrote various letters dated 11.05.2015, 27.05.2015, 17.06.2015 14.10.2015, 16.11.2015, 31.12.2015 and 05.02.2016 to bring about necessary amendment in the supply order mentioning the applicability of full rate of CST in the absence of C Form.
c. Amendment was affected by the respondents with much delay vide the 3rd amendment dated 08.03.2016.
d. Therefore, it was the responsibility of respondents to immediately rectify the defect so that the contract could be performed. Despite this appellant performed and completed the work on 20.05.2015 itself without any clarity on the final value of the contract which was made clear only by way of the amendment of 08.03.2016 almost 10 months after the commissioning of the Project.
(v). Finding that "there is no commitment in the whole supply order or NIT that CCL would provide road permit or Form C" is erroneous since:
21a. Clause 16(n) of the Supply order dated 28.03.2014 provides for the issuance of road permit by the respondents. b. Annexure BB of the NIT required the appellant to quote a concessional rate of CST against Form C to be issued by the respondents.
14(F) Termination of Supply order by the respondents were contrary to the Agreement:
1. Termination was arbitrary, without prior notice, and contrary to the supply order. Contentions and Objections of the appellant were not considered.
2. CCL had no right under the Supply order to terminate the Supply order:
a. Clause 11(d) of Supply order: The respondents could have terminated only if the availability of the turnkey project goes below 80% continuously in the 7th month and not any time before it.
b. Clause 18(c) of Supply order: On expiry of 60 months.
3. Termination was premeditated- Termination was on 13.01.2017.
But, in its earlier letter dated 01.11.2016, the respondents had confirmed that alternative arrangements to operate the system had already been made.
14(G) On suspension of service by the appellant Finding that abrupt suspension of service by the appellant is "breach of trust" and Respondent No.1/CCL had no option but to terminate the Supply Order'.
a. The respondents amended the Supply order after a delay of 10 months on 08.03.2016 after which the appellant, because of clause 19 of the Supply order, could raise the bill with much delay.
b. When the bills were raised by the appellant on 12.05.2016, the same was not cleared again till 16.09.2016 when the appellant was constrained to suspend the services after giving prior notice dated 29.08.2016 and 14.09.2016.
c. The respondents withheld the payments for more than 16 months without any justification and reasonable cause. d. The suspension of services by the appellant was therefore solely attributable to the faults of the respondents.
15. Case of the Respondents before this Court 15(A) The Supply order was issued on 28.03.2014 for the supply, installation, commissioning and maintenance of RISC/EPIC Servers along with allied accessories on a rental basis for 5 years under certain terms and conditions, which have been mentioned hereinbelow:
22a. Clause 5 (i) of the Supply order mentions the time frame during which the supply, installation, commissioning, and integration of the entire project was to be completed. The time duration is mentioned as 08 weeks from the placement of the supply order.
b. Clause 5 (ii) states that if the aforesaid execution of the project is delayed, the Liquidated Damages as indicated in Clause 13 of the supply order will be imposed.
c. Clause 7.4 specifies the essence of the project as follows:-
"The essence of the Turnkey Project for Supply, installation, commissioning and maintenance of RISC / EPIC Servers along with allied accessories in CCCL is the successful implementation of the said project in time and the project implementer should give utmost importance to this aspect throughout the project life cycle."
d. Clause 8 sets out the terms of payment under two headings i.e. (i) One Time Charges (OTC), and (ii) Monthly Rental (MR). The aforesaid charges are liable to be paid only after successful commissioning of the project.
e. Clause 8 (d) mentions that the MR can be started only after submission of the Bank Guarantee.
f. Clause 8 (i) states that after the expiry of the rental period, the Project Implementor (Appellant) will be entitled to take back all the items except those covered under the OTC.
g. Clause 8 (k) further states that the respondents (CCL) would have the option to take ownership of all the components by paying monthly rental charge of one month.
h. Clause 10 stipulates the payment of 10% of the contract amount within 15 (fifteen) days of installation and commission of the entire project, as a Performance Bank Guarantee.
i. Clause 12 stipulates that a security deposit amount of 10% of the contract would have to be submitted within 15 (fifteen) days of the supply order. The same would be liable to be forfeited for unsatisfactory performance and/or contractual failure.
j. Clause 13 states that Liquidated Damages would be 10% of the entire project cost.
15(B) The second prayer in the suit for loss and damages on account of wrongful termination of the supply order under different heads. 15(C) The prayer relating to loss on account of equipment supplied in respect of the equipment supplied due to the alleged wrongful termination of the contract was rejected by the learned Commercial Court. The appellant did not make any effort to recover the equipment supplied to the respondents on a rental basis after the contract was terminated. The aforesaid equipment was to be installed in the premises of the respondents for a period of 05 (five) years during the existence of the contract as per Clause 8 (i). Clause 8 (i) clearly stipulates that the equipment would be returned to the appellant. The appellant, however, without making any effort to recover the equipment, 23 sought to recover the price of the equipment supplied by the respondents. However, it is clear from the terms of the contract that the parties intended to retain the equipment for a period of 05 (five) years or during the period of existence of the contract. Thereby, once the contract was terminated, the appellant became entitled to take back all the items/equipment that were not covered under OTC. The equipment/servers were supplied on a rental basis and so, the appellant cannot claim rental payment for the period for which they did not render their services as per the contract. The appellant has neither pleaded nor proved that the respondent-Company is using the equipment installed by the appellant after the termination of the contract. The supply order was for supply, installation, commissioning and maintenance of RISC/EPIC Servers along with allied accessories on a rental basis for 05 years.
15(D) The supply order clearly states that the work was supposed to be completed within 08 (eight) weeks and the security deposit was supposed to be submitted within 15 (fifteen) days from the date of the supply order. Both these terms of the contract were not complied with. The appellant communicated to the respondents about certain problems that were faced by them during the execution of the contract and the same were duly addressed by the respondents by way of amendments made to the Supply order. 23.04.2014 Corrigendum issued for revision of price breakup (typographical error) keeping total contract value unchanged.
09.10.2014 Change in the name and address of two consignees (CCL, HQ and Kolkata) was communicated to M/s Orange Business Services India Technology Pvt. Ltd.
20.03.2015 Time extension granted for eight weeks with imposition of LD from the date of issue of this amendment.
08.03.2016 Clause no. 4 of the supply order relating to CST provision amended with approval of CCL Board.
By way of the supply order dated 28.03.2014, the contract value became definite and the appellant became liable to pay the security deposit as per the terms of the contract. However, the appellant raised objections in its letter dated 30.08.2014 regarding various problems faced by it. It is pertinent to mention here that the aforesaid letter was sent 05 (five) months after the supply order was issued, whereas the time within which the contract was to be completed was 08 (eight) weeks.
15(E) The delay in payment was due to a mistake on the part of the appellant, as the taxes quoted in its offer were a concessional rate of CST, whereas, at a later stage, the appellant submitted that the concessional rate of sales tax would not apply to them and that a full rate of sales tax would apply. As the tax was quoted wrongly in their offer, issues related to the payment of taxes arose. The Paying Authority at the time of processing of the bills pointed out that the appellant had not submitted the security deposit. The delay was due 24 to the breach of the terms of the contract by the appellant. A Committee was constituted to resolve these issues and while these disputes were being considered, the appellant stopped the services, as a result of which the essential services of the respondents came to a standstill. 15(F) As the appellant committed a breach of the terms of the contract and, thus, became liable for forfeiture of the security deposit, as the aforesaid amount was a reasonable pre-estimate of Liquidated Damages which were mentioned in the supply order, the same was forfeited for breach of the contract. In view of the decision of the Hon'ble Apex Court in Kailash Nath Associates v. DDA, (2015) 4 SCC 136, the amount ascertained as a reasonable estimate of Liquidated Damages arising out of breach of contract can be forfeited. Further, in the case of ONGC v. Saw Pipes Ltd., (2003) 5 SCC 705, the Hon'ble Apex Court has held that if there is a preconceived agreement or a consensus to pay an amount as Liquidated Damages in case of a breach, then such amount can be used without any further requirement to calculate the actual loss due to the breach. The respondents being aggrieved of the breach and the consequent losses forfeited 10% of the contract value which was estimated as Liquidated Damages in Clause 5 (ii) of the supply order. 15(G) The security deposit and the Performance Bank Guarantee were separately stipulated in the supply order and were both required to be submitted at different stages of the execution of the contract. As per Clause 10 of the supply order dated 28.03.2014, the appellant was required to submit a Performance Bank Guarantee (PBG) equivalent to 10% of contract value within 15 days of installation and commissioning of the entire project. The appellant failed to submit both before the stipulated period. The appellant did not deposit the Performance Bank Guarantee of 10% of the contract amount in terms of clause 10 of the supply order dated 28.03.2014 from the date of commissioning of the project i.e. 20.05.2015 till the date of the 3 rd Amendment dated 08.03.2016 citing the reason that there was uncertainty in the value of the contract and further that there was no demand by the respondents to deposit the security deposit after the supply order dated 28.03.2014.
15(H) The abrupt suspension of services by the appellant on 16.09.2016 was a serious breach of the contract. The respondents requested the appellant vide its e-mails dated 16.09.2016 and 17.09.2016 to restore the services immediately, however, the appellant did not restore the services. The stoppage resulted in the shutting down of the operations of critical functions which led to huge losses. The contract was virtually terminated the moment the appellant stopped the operation of the server and did not resume it even after written requests from the respondents. The losses suffered by the appellant could not be quantified after the violation of the terms of the contract and were thereby preconceived in the terms of the contract itself in the Clause which provided for Liquidated Damages.
15(I) The Liquidated Damages are a pre-estimated loss that was mutually agreed upon by both parties and, therefore, the respondents were not required to file/raise any counterclaim for the same.
2515(J) The respondents sent an E-mail on 16.09.2016 itself, requesting not to shut down the servers, and further sent an e-mail on 17.06.2016 to restore the service immediately. In view of the dispute that had arisen due to the non- cooperative attitude of the appellant, the respondents constituted a committee on 16.09.2016 which gave its report on 20.09.2016.
15(K) The aforementioned Committee, constituted on 16.09.2016, gave following recommendations on 20.09.2016;
1. as legal issues have been raised by M/s Orange, the matter of these issues and amendments may be referred to the legal department.
2. action as deemed fit may be taken as against the Plaintiff for non- submission of Security Deposit (SD) as per provision of the Contract/General Terms and Condition (Clause No. 20).
3. if no alternative left action to be taken for waiver of the security deposit clause of the contract;
4. LD (Liquidated Damage) to be imposed as per the provision of the contract;
15(L) The Committee came to the following conclusion:
1. Action for termination of work under reference may be considered to be taken in violation of the contact as per NIT;
2. Action for recovery after due and proper assessment of actual loss may be considered to be taken;
3. Action for engagement of third party for resuming server project or purchase/hire of new server may be considered immediately on an urgent basis to achieve digitization of CCL (Respondent) by December 2016 and also in view of the applicability of GST, w.e.f. April 2017.
15(M) The proposals for termination of the contract with the appellant and the Award of a fresh contract were put up before the Board of Directors of the Respondent-CCL in its 432nd meeting held on 29.11.2016 and the same was approved. Consequently, the termination letter dated 13.01.2017 was sent to the appellant. As per the terms and conditions of the contract, the supply order dated 28.03.2014 was canceled and the Performance Bank Guarantee submitted by the plaintiff was encashed.
15(N) The impugned judgment has been passed by the Learned Presiding Officer, Commercial Court, at Ranchi, after duly considering the pleadings and evidence on record and, therefore, the instant appeal is liable to be dismissed.
Findings of this Court
16. In short, it is the case of the appellant that upon issuance of the supply order, the appellant submitted its conditional acceptance to the supply order as there were various anomalies and ambiguities with respect of price break-up details including tax rates. On account of ambiguity in the supply order regarding price break-up and taxation, the appellant could not furnish the Performance Bank Guarantee (PBG) in terms of clause 10 of the supply order as the amount in connection with the Performance Bank Guarantee (PBG) was not certain. With 26 regard to the security deposit in terms of clause 12 of the supply order, it has been submitted that the security deposit was to be converted into Performance Bank Guarantee (PBG) and thus there was no separate obligation. Performance Bank Guarantee (PBG) was duly furnished after the clarity regarding price breakup and tax and for this purpose as many as three corrigenda were issued by the respondents lastly on 08.03.2016. The Performance Bank Guarantee (PBG) for 10% of the contract value was furnished on 22.04.2016. Further, the delay in commissioning the project has been explained by stating that the required form C and permits were not issued and an extension of 8 weeks was granted vide 2nd Corrigendum dated 20.03.2015 and the project was commissioned on 20.05.2015. While explaining the discontinuation of the services to the respondents, it has been stated that the bills raised by the appellant were not paid within the time of 21 days stipulated in the supply order and the services were discontinued after due notice to the respondents raising grievance regarding non-payment of bills and thus the respondents have violated the terms of the contract. It is their case that with effect from 16.09.2016, the support maintenance services were withdrawn and servers were switched off and the services were restored on 21.10.2016 at the request of the respondents made through two e-mails dated 16.09.2016 and 17.09.2016. However, the respondents vide letter dated 01.11.2016 informed the appellant that the restoration of services and deployment of manpower had become redundant and alleged that the appellant had violated the terms and conditions of the supply order and chose to terminate the supply order vide letter dated 13.01.2017 and wrongly encashed the Performance Bank Guarantee (PBG) on 25.01.2017 and realized an amount of Rs. 64,78,756/-. It has been submitted that the respondents had no power under the contract to terminate the contract in the manner it has been done and that the contract could be terminated only under two contingencies: -
a. Clause 11(d) of Supply order: The respondents could have terminated only if the availability of the turnkey project goes below 80% continuously in the 7th month and not any time before it. b. Clause 18(c) of Supply order: On expiry of 60 months.
It has been also submitted that the termination was premeditated as the respondents in their earlier letter dated 01.11.2016 had confirmed that alternative arrangements to operate the system had already been made.27
17. On the other hand, it is the case of the respondents that the appellant had violated the terms of the NIT/Supply order and did not even deposit the security amount and the supply order was rightly terminated for violation of the terms of the contract. There was no ambiguity in the supply order. The learned Commercial Court has rightly come to a finding that respondents had no option but to terminate the supply order dated 28.03.2014
18. Although the issues were framed by the learned Commercial Court in the presence of the parties, but no issue was framed on the point of legality and validity of the order of termination of the supply order. However, the parties had contested the matter on the point of termination of contract and led evidence and the learned Court below has recorded findings touching upon the point of termination of the supply order and related points. During the course of arguments, parties have argued on the point of legality and validity of the order of termination. Accordingly, after hearing the learned counsels for the parties and considering the facts and circumstances of this case, the following points arise for determination in the present case: -
(a) Whether the respondents were justified in terminating the supply order dated 28.03.2014 (exhibit-3) vide termination order dated 13.01.2017 (Exhibit 17).
(b) Whether the appellant is entitled to damages under the following heads: -
(i) Loss on account of equipment supplied by the appellant to the respondents for a period of 5 years - Rs.3,63,50,258.
(ii) Loss on account of failure on the part of the respondents to make payment for maintenance services rendered by the appellant from the month of July 2016 till January 2017 - Rs.
19,95,928/-
(iii) Loss suffered on account of encashment of performance bank guarantee - Rs. 64,78,756/-.
(c) Whether the respondents are entitled to retain any amount collected through the invocation of performance bank guarantee under the head of 'liquidated damages' without filing any counter-claim?
(d) Whether any amount be permitted to be retained as liquidated damages by invoking performance bank guarantee without substantiating the actual loss or damages suffered by the respondents by adducing evidence?28
19. During the course of arguments, none of the parties have disputed the documents and also the contents of the documents referred to by the parties. Important clauses of the Notice Inviting Tender (NIT)
20. Before proceeding, it would be relevant to refer to the NIT and the supply order involved in this case.
20 (i) The Notice Inviting Tender (NIT) was floated for a Turnkey Project for Supply, installation, commissioning, and maintenance of RISC/EPIC Servers along with allied accessories on a rental basis for a period of (5) years (Project). The commercial terms and conditions and the NIT have been mentioned in "Annexure - AA"
to the NIT whose relevant extracts are quoted as follows:
"2. Earnest Money Deposit: Earnest Money Deposit (EMD) as indicated at page 1 of the NIT should be furnished in the form of e-payment mode only along with techno commercial bid to be submitted electronically through www.itietendering.com/CIL.
the bidder can make payment of EMD through NEFT/RTGS from any scheduled Bank.
The bidder.....
3. Security Deposit: The successful tenderer shall have to furnish the security deposit amount in the form of Demand Draft or Bank Guarantee of any scheduled bank for 10% (ten percent) value of the awarded contract (landed value) without having any ceiling within 15 days' time from the date of supply order. In case the successful tenderer fails to deposit the security money, the order shall be cancelled and the case shall be processed to order elsewhere and the firm's performance is to be kept recorded for future dealings with them. Security deposit money will be refunded to the firm within 30 days from the date of satisfactory execution of the contract.
For unsatisfactory performance and/or contractual failure, the security money shall be forfeited.
Security Money may be converted into performance bank guarantee (PBG) (wherever PBG is required as per the contract). However, in such case the amount of PBG should not be less than 10% (ten percent) of the landed value of the order.
Exemption of security deposit: ....."
14. TAXES AND DUTIES APPLICABLE:
i. Whenever the bidders mention that taxes and duties are payable extra, the current rate of taxes and duties as applicable will be added.
Excise duty if applicable will be payable extra as... In case of imported stores other than direct import by CCL the firm....
ii. In case the price is stated to be inclusive of Excise Duty, the current ....
In case the rate of Excise Duty varies with the turnover of the ......
iii. SALES TAX:
a. VALUE ADDED TAX (VAT): ....................... b. CENTRAL SALES TAX: In case of supplies where Central Sales Tax is applicable. Central Sales tax as applicable for tendered items should be quoted. If the bidder is exempted from paying CST or paying CST at a lower rate than the national rate, notarized copy of valid documentary evidence is to be submitted (uploaded & attached).29
iv. If any other levy is applicable, the type of such levy and the rate (%) should be indicated.
20 (ii) At internal page no.19 of the NIT, the concessional rate of tax /full rate of tax under CST (Central Sales Tax) has been specifically mentioned as follows:
"Note: in case Central Salex TAX (CST) is applicable, please quote CONCESSIONAL RATE OF CST AGAINST FORM:C'/FULL RATE OF CST."
20 (iii) Clause Nos.8, 9, and 15 of NIT (Annexure - CC) refers to Liquidated Damages, performance security, payment terms and duration of the contract which are quoted as under:
"8. LIQUIDATED DAMAGES (LD) FOR DELAY IN COMPLETION @0.5% of the entire project cost per week or part thereof as stated in first (i) clause of Delivery, Installation, Commissioning, and integration are subject to a maximum limit of 10% of the entire project cost.
9. PERFORMANCE SECURITY Performance Security: 10% of the contract amount should be submitted within 15 days of installation & commissioning of entire project by the successful bidder in any of the form given below:
• .........................
15. Duration of Contract
a. The contract shall come into force from the date of commissioning and shall remain in force upto 60 months.
b. Rental quoted should be firm without escalation. c. On expiry of the aforesaid period as per clause a, the contract terminates unless it is renewed upon by the customer's request in writing for such further period and on such terms and conditions as are mutually agreed upon. A prior written notice of 3 months shall be given by the customer of his intension to renew the contract."
Clause nos.16 (b), 19 and 20 of NIT (Annexure - D) deals with delivery and consequences of failure to deliver which are quoted as under:
"16 (b) Security Deposit clause should be stipulated in the tender. Two weeks time (15 days) shall be given in the order to the successful tenderer to furnish the security deposit. In case the firm fails to deposit the security money, the order shall be cancelled and the case shall be processed to order elsewhere and the firm's performance is to be kept recorded for future dealings with them.
The value of Security Money to be deposited by the successful tenderer in the form of Bank Draft shall be 10% of the value of the awarded contract without having any ceiling. For successful tenderer, EMD should be converted to Security Money which will be refunded to the firm within 30 days of satisfactory execution of the contract with the approval of the HOD of MM deptt./Head of the Area. For unsatisfactory performance and/or contractual failure, the security money shall be forfeited.
19. Delivery:
The time for and the date of delivery of the stores stipulated in the 'Purchase Order' shall be deemed to be of the essence of the contract and delivery of the stores must be completed by the date specified.30
20 In the event of failure to delivery or dispatch the stores within the stipulated date/period in accordance with the samples and/or specifications mentioned in the supply order and in the event of breach of any of the terms and conditions mentioned in the supply order, Coal India Ltd. and its Subsidiary Companies should have the right:
(a) To recover from the successful tenderer as agreed liquidated damages, a sum not less than 0.5% (half percent) of the price of any stores which the successful tenderer has not been able to supply as aforesaid for each week or part of a week during which the delivery of such stores may be in arrears limited to 10%. Where felt necessary the limit of 10% can be increased to 15% at the discretion of Head of the Materials Management Division.
(b) To purchase elsewhere, after due notice to the successful tenderer on the account and at the risk of the defaulting supplier the stores not supplied or others of a similar description without cancelling the supply order in respect of the consignment not yet due for supply or-
(c) To cancel the supply order or a portion thereof, and if so desired to purchase the stores at the risk and cost of the defaulting supplier and also-
(d) To extend the period of delivery with or without penalty as may be considered fit and proper, the penalty, if imposed shall not be more than the agreed Liquidated Damages referred to in clause (a) above.
e) To forfeit the security deposit in full or in part.
(f) ..............................."
21. Important Clauses of the Supply Order 21 (i) The supply order dated 28.03.2014 refers to the scope of supply and gives a break-up of each item from serial nos.1 to 10 having different sub-items. It also gives the break-up concerning rate without tax as well as rate with unit tax and also sum of the two components. The total value indicated in the supply order was Rs.6,23,03,148.97 (six crore twenty-three lacs three thousand one hundred forty-eight and paise ninety-seven only). The supply order itself indicates the break-up of One Time Charge (OTC), monthly rental charges (MR Charges), product cost and service cost. Clause 4 of the supply order dealt with CST and service tax mentioning that CST @ 2% on the product cost and service tax @ 12.36% on the service charges.
21 (ii) Clause - 5 of the supply order deals with delivery, installation, commissioning, and integration. It provides that the project is a 31 turnkey project and installation must be complete within 8 weeks failing which penalty by way of LD (Liquidated Damages) will be imposed as indicated under LD clause and will be calculated as per clause (13). Clause 5, 7.4, 8, and 13 of the supply order reads as follows:
"5. Delivery, Installation, Commissioning & Integration:
(i) The supply, installation, commissioning and integration of entire Turnkey Project must be completed within eight weeks from the date of placement of work/supply/purchase order.
(ii) Penalty: if execution of the project (supply, installation, commissioning & integration) is delayed, LD will be imposed as indicated under LD clause. LD will be calculated as per clause (13).
(iii) Deliverables: One copy of all User manuals (hard & [OR] soft copy) will be supplied for all software along with any other technical literatures/leaflets for all items. Step by step configuration procedure of Risc/Epic Servers, SAN storage, SAN Switch, LTO Tape Library & Line printer etc. is to be submitted.
7.4. The essence of the Turnkey Project for supply, installation, commissioning and maintenance of RISC/EPIC Servers along with allied accessories in CCL is the successful implementation of the said project in time and the project implementer should give utmost importance to this aspect throughout the project life cycle.
8. Payment Terms:-
a. 80% of one time charge (OTC) will be made within 21 days from the date of submission of clear and acceptable bills /invoices (in triplicate) after delivery of all items of each group [details of group given) of Turnkey Project for Supply, installation, commissioning and maintenance of RISC/EPIC Servers along with allied accessories in CCL. b. The challan (in triplicate) of items [as stated in (a) above] for each group should be duly signed by the designated computer centre In charge of HCC/RCCS/ACCs of each group.
c. Balance 20% payment for one time charge (OTC) will be made within 21 days from the date of submission of clear & acceptable bills/Invoices (in triplicate) after successful commissioning of the project as stated in first (i) clause of Delivery, Installation, Commissioning & Integration duly certified by the computer centre in charge of HCC/RCCS/ACCs of each group (details of group given) and further certified by the Chief Project Coordinators located at CCL HQ.
d. The monthly rental (MR) of the said Turnkey project as whole can only be started after final commissioning of entire turnkey project and Bank Guarantee submission as per CCL terms and conditions. e. The monthly rental bill in triplicate shall be raised after the end of each month and the same shall be paid within 21 days of receipt and acceptance thereof. The said payment will be made on the basis of Performance Certificate (in duplicate) duly certified by the designated computer centre In charge of HCC/RCCs/ACCs of each group [details of group given] and further certified by the designated Chief Project Coordinators located at CCL HQ.
f. One time charge (OTC) should not be more than 3 months rental charge and this limit is applicable only for items covered under both OTC and MR (Monthly Rental). This limit of 3 months rental charge is not applicable to the Project as a whole.
g. Price Fall Clause: Till the completion of delivery, if the suppliers supply the items of identical description as that of CCL to any customer, the OTC and rental charges in such occasion(s) should not be lower than those of the items supplied/to be supplied to CCL.
h. If at any time, till the completion of delivery, there is reduction in price/rental charges due to any reason whatsoever, the benefit (of such 32 reduction) is to be passed on to CCL.
i. After the expiry of rental period, project implementer will be entitled to take back all the items except those items covered solely under OTC (one time charge).
j. After the expiry of rental period, CCL would have the option to extend the contract on mutually agreed terms & conditions. For such extension(s) intimation would be given by CCL 3 months in advance. k. After the expiry of rental period, CCL will have option to take the ownership of all components of Turnkey Project by paying one- month monthly rental charge.
l. Future requirement within contract period, if any, will be charged as per the item rate defined in the Work Order and would be applicable for the entire contract period i.e. 5 year.
13) Liquidated Damages:
@ 0.5% of the entire project cost per week or part thereof as stated in first (i) clause of Delivery, Installation, Commissioning & Integration subject to a maximum limit of 10% of the entire project cost."
21 (iii) Clause 10 of the supply order mentions Performance Bank Guarantee (PBG), Clause 12 mentions security deposit (SD) which are quoted as under:
"10. PERFORMANCE BANK GUARANTEE (PBG):
10% of the contract amount i.e. Rs. 62,35,000.00 (Rs. Sixty Two Lacs Thirty Five Thousand, only) should be submitted within 15 days of installation & commissioning of entire project by the successful bidder in any of the form given below:
• a bank guarantee in the form given in the bid document as per format at Annexure-P. • Demand Draft drawn in favour of Central Coalfields Limited on any scheduled bank payable at its branch at Ranchi. The performance security deposited in the form of Bank Guarantee shall be duly discharged and returned to the contractor on successful completion/conclusion of the contract. The performance security deposit in the form of Demand Draft will be refunded at the time of completion / termination of the contract. If the performance security is provided by the successful bidder in the form of Bank Guarantee, same shall be issued by any Nationalised Bank. The said Performance guarantee shall be valid for entire project life cycle i.e. tenure of five years & three months which will be valid till the conclusion of the contract. The Performance Bank Guarantee shall be released after expiry of validity period if no claim is pending.
12)SECURITY DEPOSIT :- You will have to furnish the security deposit amount in the form of Demand Draft or Bank Guarantee of any scheduled bank for 10% (ten percent) value of the awarded contract (landed value) i.e for Rs. 62,35,000.00 (Rs. Sixty Two Lacs Thirty Five Thousand, only) without having any ceiling within 15 days time from the date of supply order. Security deposit money will be refunded to the firm within 30 days from the date of satisfactory execution of the contract. For unsatisfactory performance and/or contractual failure, the security money shall be forfeited."33
22. Amendments in the Supply Order/Extension of time with LD/Full rate of Central Sales Tax (CST) 22 (i) The 1st corrigendum of the supply order was issued vide Letter dated 23.04.2014 and is quoted as under:
"Following corrigendum is hereby issued to the subject Supply Order:
-
01) The last column of Annexure - A containing the Detail Price Break Up is corrected.
Corrected Annexure - A is enclosed herewith.
All other terms & conditions of the subject Supply Order remain unchanged."
Annexure A to the Letter dated 23.04.2014 when compared to Annexure A to the original supply order reveals that the total amount of the value of the supply order was the same.
22 (ii) The 2nd corrigendum of the supply order was issued vide Letter dated 20.03.2015 which related to the extension of time with Liquidated Damages (clause 5 of the supply order) and also changes in consignees particulars (clause-6 of the supply order) . Eight weeks' time was extended from the date of the issuance of the letter dated 20.03.2015.
"The subject Supply Order is hereby amended to the following extent:-
01) Delivery, Installation, Commissioning & Integration (Clause - 5): -
Extension of eight weeks is hereby granted with imposition of L.D. from the date of issue of this amendment for the supply, installation, commissioning and Integration of the entire Trunkey Project.
02) Consignee particulars (Clause - 6):- Consignee for CCL HQ i.e. the GM (System) is changed to the Depot Officer, Central Stores, Barkakana.
All other terms & conditions of the subject Supply Order remain unchanged."
23. Vide letter dated 11.05.2015, the appellant stated that the installation was near completion and they were awaiting amendment in the supply order mentioning the full rate of CST in the absence of Form C and payment for reimbursement of entry tax. Vide letter dated 27.05.2015 the appellant stated that they had procured all the items about 10 months back and were installed and commissioned at their end but they were not able to raise bills in the absence of amendment in the supply order regarding form C. It was only on 17.06.2015 that the appellant, interalia, raised the issue regarding the 34 imposition of LD (Liquidated Damages) in the 2nd corrigendum and requested to reconsider the same. Ultimately, the delivery, installation and commissioning of the project was accepted by the respondents vide letter dated 30.11.2015 upon mutually agreed terms, and the date of commissioning was taken as 01.07.2015 although it was also recorded that the appellant had informed that they had completed the commissioning of the project by 20.05.2015. Thus, the appellant was entitled to bill with effect from 01.07.2015 only. The contents of the letter dated 30.11.2015 issued by the respondents are quoted as under: -
"We are happy to convey you that the delivery, installation and commissioning of the CCL Server Project as per our supply order no. 155011114271 dated 28.03.2014 has been successfully completed by 20th May 2015 at all locations mentioned in the said supply order. However, considering the hand shaking of these commissioned Servers with Orade & CoalNet software and WAN Project, the final commissioning in terms of CoalNet output is hereby mutually agreed upon from 1st July-2015, hence you are authorized for the billing of monthly rental as per said supply order from 1st July 2015 and also OTC (One Time Charge) if any."
24. Thus, even as per the best case of the appellant, the date of commissioning of the project was 20.05.2015. This date of commissioning was also beyond the period extended for 8 weeks from 20.03.2015 (with LD). The mutually agreed date for raising the bill was 01.07.2015. However, the extension of time of 8 weeks with Liquidated Damages vide 2nd corrigendum dated 20.03.2015 was never modified. The extension with LD was clearly under clause 20 (a) of NIT (Annexure - D) which provides the minimum rate of LD @ 0.5% per week read with clause 20 (d) which permits extension of time of delivery with LD in terms of clause 20 (a). The extension of time and imposition of LD are also referrable to Clause 5 and Clause 15 of the Supply order dated 28.03.2014.
25. There was yet another corrigendum (the 3rd corrigendum) issued by the respondents on 08.03.2016 which was in connection with the full rate of tax in the absence of Form C under the Central Sales Tax, Act,1956. The contents of the 3rd corrigendum are quoted as under: -
"The subject Supply Order is hereby amended to the following extent: -
01) Clause No.-4 CST & Service Tax, CST will be payable as applicable without concessional/declaration form for respective items on product cost of OTC & MR value. Service Tax will be applicable as per Supply Order."35
All other terms and conditions of subject Supply Order remain unchanged."
Point no.a.- Whether the respondents were justified in terminating the supply order dated 28.03.2014 (exhibit-3) vide termination order dated 13.01.2017 (Exhibit 17)?
26. The termination order was issued vide letter dated 13.01.2017 mentioning as follows:
"Above mentioned supply order/contract is hereby terminated for violation of terms and conditions"
27. It has been argued that the supply order was ambiguous and therefore there was ambiguity with regards to the amount of security deposit and performance bank guarantee.
28. The supply order dated 28.03.2014 was for a value of Rs.6,23,03,148.94 consisting of the price for goods and services and also the tax components. The amount for security deposit was quantified and mentioned as Rs. 62,35,000/- 10% of the value of the supply order. The amount for Performance Bank Guarantee (PBG) was also quantified and mentioned as Rs. 62,35,000/- 10% of the value of the supply order. Concessional rate of CST @ 2% and service tax on services was also mentioned in the supply order.
29. So far as rectification vide 1st corrigendum no. 155 dated 23.04.2014 (Ext. 4) is concerned, the same was apparently on account of certain error in calculation. This Court has gone through the supply order dated 28.03.2014 and its Annexure-A and finds that the total amount of supply as mentioned in the supply order dated 28.03.2014 (Exhibit-3) is same as Annexure-A enclosed with the letter of 1st corrigendum dated 23.04.2014 (Ext. 4). This has no impact on the value of the supply order dated 28.03.2014.
30. The 2nd corrigendum dated 20.03.2015 was regarding extension of time by 8 weeks from 20.03.2015 but with Liquidated Damages and also mentioned some change in the name of the consignee. The 2nd corrigendum also does not change the original value of the supply order including the clause regarding specified amount of security deposit and Performance Bank Guarantee (PBG).
31. The 3rd corrigendum dated 08.03.2016 was to the effect that now the goods were to be supplied with full rate of central sales tax and not at the 36 concessional rate of tax and modified only clause 4 of the supply order which mentioned payment of central sales tax @ 2%. This happened on account of the reason that the required Form C to avail concessional rate of tax could not be issued although the appellant had quoted tax at concessional rate in the bid which was also mentioned in the supply order. The 3rd corrigendum did not quantify the exact financial impact in terms of money of such a modification nor enhanced the specified amount of security deposit under clause 12 (Rs. 62,35,000/-) nor enhanced the specified amount of Performance Bank Guarantee under clause 10 (Rs. 62,35,000/-). The corrigendum referred only to clause 4 of the supply order and did not refer to clause 10 (Performance Bank Guarantee) or clause 12 (security deposit). The exact amount of financial impact on account of modification from concessional rate of central sales tax to full rate of central sales tax having not been mentioned in the 3 rd corrigendum and clause 10 and 12 of the supply order having not been modified vide 3rd corrigendum, it cannot be said that the specified amount of security amount and Performance Bank Guarantee mentioned in the supply order dated 28.03.2014 stood modified. In fact, the supply order was very clear on the point of the required amount of security deposit and required amount for Performance Bank Guarantee and it cannot be said that there was any ambiguity in the supply order which could be an excuse for not furnishing the security deposit within 15 days of the supply order and Performance Bank Guarantee within 15 days of commissioning of the project. The security deposit was to be furnished within 15 days from the date of the supply order failing which the supply order could be cancelled in terms of clause 16 (b) of the NIT (Annexure - D). The time to furnish security deposit expired after issuance of the supply order and the requirement of modification with respect to full rate of central sales tax arose when the Form C to avail concessional rate of tax could not be issued. Otherwise also, it is an admitted fact on record that the security deposit was never furnished even after the 3 rd corrigendum dated 08.03.2016. Non furnishing of security deposit at all amounts to violation of material terms of the NIT and also the supply order and, accordingly, the action of the respondents to terminate the contract for violation of the terms and conditions cannot be said to be arbitrary or illegal.
32. The appellant has tried to justify the act of not furnishing the security amount by stating that the Earnest Money Deposit (EMD) was to be adjusted 37 against the security deposit and the security deposit was to be converted into Performance Bank Guarantee and the appellant had furnished the Performance Bank Guarantee on 22.04.2016 after the 3rd corrigendum dated 08.03.2016. This argument is also not acceptable as the earnest money was only Rs.10 lakhs and the required security deposit as per clause 12 of the supply order was Rs. 62,35,000/-. The requirement to furnish security deposit as per clause 12 was for unsatisfactory performance/contractual failure which could be forfeited on default and the security amount was to be refunded only after satisfactory execution of the contract. Another clause 10 provided for furnishing of Performance Bank Guarantee which was also to remain valid for the entire period of the contract. The supply order did not provide that the requirement of furnishing the security deposit could be ignored and it would be sufficient to furnish Performance Bank Guarantee. Rather clause 3 of the Annexure AA to the NIT provided that the security money may be converted into Performance Bank Guarantee only. Apparently, such option to convert security money into Performance Bank Guarantee was discretionary. Moreover, by any stretch of imagination it can be said that the appellant had the option not to furnish the security deposit and only furnish Performance Bank Guarantee and say that security deposit need not be furnished as it could be converted into Performance Bank Guarantee. The conversion of security deposit into Performance Bank Guarantee, if any, has to be preceded by furnishing of security deposit as per the contract and such conversion was not a matter of right for the appellant. As per the supply order, both the security deposit and Performance Bank Guarantee were to be furnished and the appellant was under an obligation to continue both of them for the entire period of the contract. As per the supply order security deposit was to be furnished within 15 days of the issuance of supply order and Performance Bank Guarantee within 15 days from the date of commissioning of the project. The prescribed time for commissioning was 8 weeks (56 days) from the date of issuance of the supply order. The appellant having furnished the Performance Bank Guarantee, cannot be absolved of its liability to furnish security deposit as per the terms of the NIT/Supply order.
33. P.W.-1 in his cross-examination in para-59, stated that he was supposed to deposit 10% of the Supply Order as security money within 15 days of receiving of supply order which was received on 28.03.2014 but the security 38 money was not deposited within 15 days. In para 63 he stated that after commissioning the security money was to be converted into a Performance Bank Guarantee. P.W2 in para - 37 of his cross-examination also stated 10% of the total amount was to be deposited within 15 days. In para - 38, he further stated that after getting clearance of the contract value, the security was to be deposited within 15 days. D.W-1 has stated that as per clause 12 of the supply order dated 28.03.2014, the appellant was required to furnish the security deposit amount in the form of a demand draft or bank guarantee for 10% value of the awarded contract i.e. for Rs. 6,23,50,000/- within 15 days from the date of supply order but the appellant did not submit the security deposit amount within the stipulated period and even thereafter and the plaintiff committed a breach of contract on account of non-deposit of the security amount. Thus, the requirement of furnishing security money in terms of clause 12 of the supply order within 15 days from the date of the supply order was duly established even from the oral evidence of the parties.
34. Further, even the Performance Bank Guarantee was not furnished by the appellant within 15 days of commissioning the project. Even if the best case of the appellant is taken into consideration, that is, within 15 days from the issuance of 3rd corrigendum dated 08.03.2016, the Performance Bank Guarantee was furnished beyond 15 days only on 22.04.2016. Thus, considering the time lines prescribed and even if the best-case scenario of the appellant is taken into consideration, the appellant did not abide by the terms of the contract in the matter of furnishing the Performance Bank Guarantee also and violated the terms of the contract with regard to furnishing of Performance Bank Guarantee.
35. However, having not furnished the security deposit at all, much less within 15 days of the issuance of the supply order or even 3rd corrigendum and having not furnished the Performance Bank Guarantee even within the best-case scenario of the appellant, that is, 15 days from issuance of 3rd corrigendum, the appellant had violated the terms of the contract and the respondents have rightly exercised the right to terminate the contract on account of violation of the terms and conditions of the supply order. This Court fully agrees with the submissions of the respondents that the appellant had violated both the clauses 10 and 12 of the supply order. This reason for termination of contract is also reflect from the recommendations dated 39 20.09.2016 of the committee constituted by the respondents on 16.09.2016 to resolve the issue regarding payment of bills raised by the appellant and it was only after much deliberations the letter dated 13.01.2017 terminating the supply order was issued by the respondents on the grounds of violation of the terms and conditions of the supply order.
36. So far as the argument of the appellant that it was the respondents who had violated the terms of the agreement by not complying with the terms of the NIT/supply order by not making payment of the bills is concerned, the aforesaid facts based on the materials on record reveal that the appellant did not deposit the security amount at all, much less, deposit the security amount in terms of the supply order. The requirement to deposit the security amount was an essential condition of the supply order and non-deposit called for serious consequence of termination of the supply order itself. The violation of the clause regarding security deposit was much earlier in point as the appellant was already in breach prior to raising of bills. Taking the best case of the appellant from the date of issuance of 3rd corrigendum dated 08.03.2016, the last date for security deposit was 25.03.2016 and the bills were raised much thereafter including One Time Charge (OTC), shifting charges and monthly rental for 11 months from July 2015 to May 2016. The appellant having not deposited the security amount, the respondents had a genuine reason for not releasing the bills raised by the appellant. Accordingly, the allegation of the appellant that the respondents were in breach of the contract on account of non-payment of bills is devoid of any merit.
37. The argument raised by the appellant justifying the discontinuation of services with effect from 16.09.2016 by alleging that the respondents were in breach of the contract on account of non-payment of bills is also rejected as it was the appellant who had breached the terms of the contract at earlier point of time by not furnishing security deposit which was the reason for non- payment of bills followed by termination of contract when the appellant did not restore the supply to the server in spite of emails dated 16.09.2016 and 17.09.2016 which paralyzed the entire system of the respondents.
38. Bills on account of One Time Charge and monthly rental charges for 11 months from July 2015 to May 2016 and for shifting of items from the old to the new office was received by the Finance Department of the respondents on 01.09.2016, 08.08.2016 and 30.08.2016 respectively. However, the 40 Finance Department at CCL headquarters was unable to process the bill for payment release because of the non-deposition of the security deposit, as specified in Clause 12 of the supply order. A clarification was sought on 30.09.2016 regarding the recovery of Liquidated Damages in relation to the amendment order dated 20.03.2015. Meanwhile, the appellant initiated giving notices from 29.08.2016, indicating an intention to withdraw support and switch off servers due to the non-payment of the bills. A Committee was formed on 16.09.2016 to examine the case and provide lawful recommendations but unfortunately, the appellant intentionally stopped the server and did not wait for the resolution of disputes although the respondents had assured that they were considering the bills submitted by the appellant.
39. The argument regarding the restoration of services on 21.10.2016 as claimed by the appellant and denied by the respondents is to be considered.
40. The stand of the appellant that the services were restored with effect from 21.10.2016 has been denied by the respondents. The aforesaid stand of the appellant is contrary to their letter dated 21.10.2016 (exhibit-16) wherein the appellant had mentioned that they had managed to convince their management to arrange for funds to redeploy the manpower to run the services. The letter does not indicate that the services were restored with effect from 21.10.2016. The contents of the said letter dated 21.10.2016 are quoted as under: -
"Dear Sir, Please find this letter further to our meeting with Director -Finance & Director - Technical & other stake holders at CCL as per the directives of your secretariat. As we have received positive outlook & signals from all the stake holders of the departments at CCL. We have managed to convince our management to arrange for funds to redeploy manpower to run the services.
We look forward to the cooperation of the management of the CCL to resolve the issues prevailing in the release our payments within this month for us to continue giving our support in this dire stairs situation of financial hardship due to delay in payments. As you are aware that payments are required to pay the OEM, manpower, spares, warranties etc. to run the system & maintain SLA of the work order.
Looking forward to your support in early payment & assuring you of best of our services."
41. The said letter dated 21.10.2016 was responded by the respondents vide letter dated 01.11.2016 denying the assertions made in the letter dated 21.10.2016 and stating that the restoration of services and deployment of manpower had become irrelevant and it was stated that the appellant had 41 violated the terms of the supply order. The respondents also informed the appellant that they had made alternative arrangements. The contents of the said letter dated 01.11.2016 is quoted as under: -
"Sub: - Reply to your letter ref: Orange/ CCL/Server/2016/329 dtd- 21.10.2016 Sir, The content of letter ref: Orange/CCL/Server/2016/329 dtd-21.10.2016 are not correct and hence denied. No such meeting as is being claimed by you has ever taken place between you and the Directors of CCL OR any other competent authority of CCL. You had all of sudden w.e.f. on 16.9.2016 withdrawn your service in utter violation of terms of agreement, causing huge loss to CCL, as such the management of CCL is exploring/assessing the loss in order to recover the same from you as per terms of contract. In meantime in order to avoid further loss, CCL has already made alternative arrangement. Thus question of your redeployment of manpower and resumption of services do not arise. CCL has suffered huge loss on account of irresponsible conduct and breach of contract on your part for which CCL reserves their right to take appropriate action accordance with law. Hence you are advised not to make any such misleading correspondence to CCL."
42. After going through the aforesaid between the parties and considering the attending facts of the case, this Court is of the considered view that the appellant did not restore the services to the respondents after it was discontinued with effect from 16.09.2016 despite requests made by the respondents vide email dated 16.09.2016 and 17.09.2016 although the appellant had managed to convince their management to arrange for funds to redeploy the manpower to run the services, as stated in letter dated 21.10.2016.
43. The argument of the appellant that the termination of the supply order vide letter dated 13.01.2017 was arbitrary and without prior notice and contrary to the supply order is also required to be considered.
44. The argument of the appellant that the termination of the supply order vide letter dated 13.01.2017 was arbitrary and without prior notice and contrary to the supply order is devoid of any merit.
45. The termination letter was preceded by the aforesaid letter dated 01.11.2016 wherein it was mentioned that the appellant had violated the terms of the agreement causing huge loss to the respondents and as such the management of the respondents was exploring/assessing loss to recover the same as per the terms of the contract. It was also mentioned that the respondents had suffered huge loss on account of irresponsible conduct and breach of contract and the respondents reserved their right to take appropriate action in accordance with law.
4246. It has also been argued that the termination of the supply order was contrary to the agreement. It has been submitted that the respondents had no right to terminate the supply order in view of Clause 11 (d) of the supply order as the termination was only available if the turnkey project went below 80% continuously in the 7 months and not any time before it and Clause 18 (c) of the supply order provided that the supply order would terminate on expiry of 60 months. Such arguments are devoid of any merits. From perusal of Clause 20 of the NIT, there is a clear stipulation that the supply order could be terminated on account of violation of the terms of the contract. The security deposit clause of Annexure-AA to the NIT also provides that the supply order shall be cancelled in the event of non-deposit of the security amount within 15 days of the supply order. It also provides that the security deposit shall be forfeited for unsatisfactory performance and/or contractual failure.
47. In view of the aforesaid findings, this Court is of the considered view that the learned Commercial Court has rightly recorded that as per the contract, the security deposit and Performance Bank Guarantee were separately stipulated in the supply order and the appellant was required to give both under the contract. It was envisaged that the appellant had to furnish the security deposit within 15 days of the supply order and from the NIT and supply order, it was clear that the amount was ascertained in the supply order dated 28.03.2014. The learned Commercial Court has rightly rejected the argument of the appellant that the supply order was not certain. The learned Commercial Court has also rightly recorded that the change in the tax structure could have increased or decreased and the appellant could have acted accordingly. The learned Commercial Court has also rightly recorded that presuming that the supply order was received on whatever date, the appellant failed to deposit the security deposit with the respondents. The learned Commercial Court has also rightly recorded that the appellant had either taken the words of NIT and supply order casually or it was deliberately acted not in conformity with the contract. The learned Commercial Court has also rightly recorded that the respondents had no option but to terminate the contract. As a cumulative effect of the aforesaid finding, the point no.(a) is decided against the appellant and in favour of the respondents.
48. Point no.(b) (i) Whether the appellant is entitled to damages under the following head: -
43(i) Loss on account of equipment supplied by the appellant to the respondents for a period of 5 years - Rs.3,63,50,258.
46 a) The claim under this head relates to loss on account of equipment supplied for the period of non-supply after switching off the server on 16.09.2016 till the end of the period of the contract, that is, for 49 months. This Court has already held above that the order of termination was rightly issued by the respondents on 13.01.2017. Since the appellant had breached the terms of the supply order, they have neither claimed nor they could have claimed the entire amount for the remaining period of the contract. Their claim under this head is confined and relatable to the equipment supplied by the appellant as a part of the contract, the realization of whose price was spread over the entire period of the contract as a part of monthly rental charges which in turn consisted of two parts product cost and service cost. The appellant has already been held entitled to 11 installments of the monthly rental charges by the learned Commercial Court which is not under challenge. The respondents have not raised any counter-claim on account of damages and are only concerned with the retention of the money realized by invocation of bank guarantee by way of Liquidated Damages. To adjudicate the claim under the head of loss on account of equipment supplied equivalent to 49 installments, the terms and conditions of the supply are required to be examined. 46 b) As per the breakup of the monthly rental charges, there is no doubt that the cost of the equipment was spread over the entire contract period as a part of the monthly rental charges apart from the One Time Charge which could be at the maximum of three months rental charges. So far as the product cost is concerned, as per the terms and conditions of the supply order in clause 8(i), it was specifically provided that after the expiry of the rental period, the project implementer will be entitled to take back all the items except those items covered solely under One Time Charge. As per clause 8(k), it was provided that after the expiry of the rental period, the respondents will have the option to take ownership of all the components of the turnkey project by paying one month's monthly rental charge.
4446 c) Thus, the title of the property in goods/equipment supplied remained with the appellant since the title of the goods could pass to the respondents only upon expiry of the rental period and by exercising an option to take the ownership of all the components of the turn-key project by paying one month's rental charge at the end of the contract period. Meaning thereby, that by the end of the contract period, the price of the goods spread over the entire period would have been already realized by the appellant. However, at the same time, the appellant was also entitled to take back all the items except those covered under One Time Charge after the expiry of the rental period. Given the aforesaid clauses of the supply order and similar clauses mentioned in the NIT, the title in goods remained with the appellant throughout. No material has been placed on record to show that the respondents ever exercised their option to retain the product. The appellant also did not take any step to take back the product in terms of supply order clause 8(i) and instead of taking any steps in terms of the aforesaid clause insisted upon recovery of the remaining amount of product cost incorporated in the monthly rental payment for the balance period of the contract. The appellant having not taken any step for taking back the product in terms of clause 8(i) cannot be held entitled to any compensation or damages from this Court on account of product cost particularly when the respondents have also not exercised any option to retain the product in terms of clause 8(k). Even in the suit, no alternative prayer has been made seeking a direction upon the respondents to return the product in terms of clause 8(i) of the contract or otherwise. Thus, the appellant is not entitled to any compensation concerning the balance amount of monthly charges on account of the supply of equipments.
49. Point no. (b) (ii) Whether the appellant is entitled to damages under the following head: -
(ii)Loss on account of failure on the part of the respondents to make payment for maintenance services rendered by the appellant from the month of July 2016 till January 2017 - Rs.
19,95,928/-.
45So far as the claim for loss on account of maintenance service rendered by the appellant from July 2016 till January 2017 is concerned, the appellant is not entitled to any such claim. The appellant had switched off the server with effect from 16.09.2016 and raised bills for 11 months from July 2015 to My 2016 in terms of the contract although the appellant had already breached the contract by not furnishing security deposit. It is the case of the appellant that the respondents did not provide Performance receipt for the month of July 2016 to January 2017 and hence the appellant was not able to raise invoices. As held above the supply stood discontinued with effect from 21.10.2016. There is no material on record to show that the performance during July 2016 to 21.10.2016 was satisfactory and bills were ever raised for this period, much less bills in terms of the contract supported by satisfactory performance receipts. No material has been brought to the notice of this Court from the available records during the course of arguments to substantiate the claim under this head. In view of the aforesaid, the claim of compensation/damages under the head loss on account of failure to make payment for maintenance services rendered by the appellant from July 2016 to January 2017 is rejected. Hence, point no.(b) (ii) is decided against the appellant and in favour of the respondents.
50. Point no. (b) (iii), point no.(c) and point no.(d) are related and hence they are taken up together Point no. (b) (iii) Whether the appellant is entitled to damages under the following head: -
(iii)Loss suffered on account of encashment of Performance Bank Guarantee - Rs.
64,78,756/-.
Point no. (c) Whether the respondents are entitled to retain any amount collected through the invocation of performance bank guarantee under the head of 'liquidated damages' without filing any counter-claim?
Point no.(d) Whether any amount be permitted to be retained as liquidated damages by invoking performance bank guarantee without substantiating the actual loss or damages suffered by the respondents by adducing evidence?
4651. On the point of entitlement of Liquidated Damages, the learned counsel for the appellant has relied upon the following judgements:
(i) "Sir Chunilal V. Mehta and Sons Ltd. Vs. The Century Spinning and Manufacturing Co., Ltd." 1962 (3) SCR 549
(ii) "Fateh Chand Vs. Balkishan Das" 1964 (1) SCR 515
(iii) "Maula Bux Vs. UOI" (1969) 2 SCC 554
(iv) "Kailash Nath Associates Vs. DDA" (2015) 4 SCC 136
(v) "Desh Raj Vs. Rohtash Singh" 2023 (3) SCC 714
(vi) "MTNL Vs. Finolax Cables Ltd" 2017 SCC OnLine Del 10497 49 (a) In the judgment passed in the case of "Sir Chunilal" (supra) it has been held that when the parties name a sum of money to be paid as Liquidated Damages, they must be deemed to exclude the right to claim an uncertain sum of money as damages. It has also been held that the right to claim Liquidated Damages was enforceable under section 74 of the Contract Act and where such a right is found to exist no question of ascertaining damages really arises. It does not expressly or by necessary implication keep alive the right to claim damages under the general law. By providing for compensation in express terms, the right to claim damages under the general law is necessarily excluded.
49 (b) In the judgment passed by the Hon'ble Supreme Court in the case of "Fateh Chand" (supra), it has been held that a duty not to enforce the penalty clause but only to award reasonable compensation is statutorily imposed upon the Court by section 74 of the Indian Contract Act. In this background, it has been held that in all cases, therefore, where there is a stipulation in nature of a penalty for forfeiture of an amount deposited under terms of the contract which expressly provides for forfeiture, the Court has a jurisdiction to award such compensation only as it considers reasonable, but not exceeding the amount specified in the contract as liable to forfeiture.
49 (c) In the case of "Maula Bux v. Union of India" (supra), the Hon'ble Supreme Court held that in view of the judgment in "Fateh Chand" (supra) where it was observed that Section 74 of the Indian Contract Act deals with the measure of damages in two classes of cases:
(i) where the contract names a sum to be paid in case of breach, and (ii) where the contract contains any other stipulation by way of penalty.47
The measure of damages in the case of breach of a stipulation by way of penalty is by Section 74, reasonable compensation not exceeding the penalty stipulated for. It has been held that duty not to enforce the penalty clause but only to award reasonable compensation is statutorily imposed upon Courts by Section 74. It has also been held that it is true that in every case of breach of contract, the person aggrieved by the breach is not required to prove actual loss or damage suffered by him before he can claim a decree, and the Court is competent to award reasonable compensation in case of breach even if no actual damage is proved to have been suffered in consequence of the breach of contract. But the expression "whether or not actual damage or loss is proved to have been caused thereby" is intended to cover different classes of contracts that come before the Courts. In case of a breach of some contracts, it may be impossible for the Court to assess compensation arising from the breach, while in other cases compensation can be calculated following the established rules. Where the Court is unable to assess the compensation, the sum named by the parties if it be regarded as a genuine pre-estimate may be taken into consideration as the measure of reasonable compensation, but not if the sum named is in the nature of a penalty. Where loss in terms of money can be determined, the party claiming compensation must prove the loss suffered by him. In the facts of the said case, the Hon'ble Supreme Court found that it was possible for the Government of India to lead evidence to prove the rates at which potatoes, poultry, eggs and fish were purchased by them when the plaintiff failed to deliver "regularly and fully" the quantities stipulated under the terms of the contracts and after the contracts were terminated. They could have proved the rates at which they had to be purchased and also the other incidental charges incurred by them in procuring the goods contracted for. But no such attempt was made and held that the Union has failed to establish by evidence that any damage or loss was suffered by them which arose out of the default committed by the plaintiff.
49 (d) In "ONGC Ltd. v. Saw Pipes Ltd" reported in (2003) 5 SCC 705, the law has been summarized and it has been held as under:-
"64. It is apparent from the aforesaid reasoning recorded by the Arbitral Tribunal that it failed to consider Sections 73 and 74 of the Contract Act 48 and the ratio laid down in Fateh Chand case [Fateh Chand v. Balkishan Dass, (1964) 1 SCR 515 : AIR 1963 SC 1405], SCR at p. 526 wherein it is specifically held that jurisdiction of the court to award compensation in case of breach of contract is unqualified except as to the maximum stipulated; and compensation has to be reasonable. Under Section 73, when a contract has been broken, the party who suffers by such breach is entitled to receive compensation for any loss caused to him which the parties knew when they made the contract to be likely to result from the breach of it. This section is to be read with Section 74, which deals with penalty stipulated in the contract, inter alia (relevant for the present case) provides 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, the party complaining of breach is entitled, whether or not actual 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. Section 74 emphasises that in case of breach of contract, the party complaining of the breach is entitled to receive reasonable compensation whether or not actual loss is proved to have been caused by such breach. Therefore, the emphasis is on reasonable compensation. If the compensation named in the contract is by way of penalty, consideration would be different and the party is only entitled to reasonable compensation for the loss suffered. But if the compensation named in the contract for such breach is genuine pre-estimate of loss which the parties knew when they made the contract to be likely to result from the breach of it, there is no question of proving such loss or such party is not required to lead evidence to prove actual loss suffered by him....
67. ... In our view, in such a contract, it would be difficult to prove exact loss or damage which the parties suffer because of the breach thereof. In such a situation, if the parties have pre-estimated such loss after clear understanding, it would be totally unjustified to arrive at the conclusion that the party who has committed breach of the contract is not liable to pay compensation. It would be against the specific provisions of Sections 73 and 74 of the Contract Act. There was nothing on record that compensation contemplated by the parties was in any way unreasonable. It has been specifically mentioned that it was an agreed genuine pre-estimate of damages duly agreed by the parties. It was also mentioned that the liquidated damages are not by way of penalty. It was also provided in the contract that such damages are to be recovered by the purchaser from the bills for payment of the cost of material submitted by the contractor. No evidence is led by the claimant to establish that the stipulated condition was by way of penalty or the compensation contemplated was, in any way, unreasonable. There was no reason for the Tribunal not to rely upon the clear and unambiguous terms of agreement stipulating pre-estimate damages because of delay in supply of goods. Further, while extending the time for delivery of the goods, the respondent was informed that it would be required to pay stipulated damages.
68. From the aforesaid discussions, it can be held that:
(1) Terms of the contract are required to be taken into consideration before arriving at the conclusion whether the party claiming damages is entitled to the same.
(2) If the terms are clear and unambiguous stipulating the liquidated damages in case of the breach of the contract unless it is held that such estimate of damages/compensation is unreasonable or is by way of penalty, party who has committed the breach is required to pay such compensation and that is what is provided in Section 73 of the Contract Act.
(3) Section 74 is to be read along with Section 73 and, therefore, in every case of breach of contract, the person aggrieved by the breach is not required to prove actual loss or damage suffered by him before he can claim a decree. The court is competent to award reasonable compensation in case of breach even if no actual damage is proved to have been suffered 49 in consequence of the breach of a contract.
(4) In some contracts, it would be impossible for the court to assess the compensation arising from breach and if the compensation contemplated is not by way of penalty or unreasonable, the court can award the same if it is genuine pre-estimate by the parties as the measure of reasonable compensation."
49 (e) In the case of "Kailash Nath Associates v. DDA" (supra), it has been held as under:-
"40. From the above, it is clear that this Court held that Maula Bux case was not, on facts, a case that related to earnest money. Consequently, the observation in Maula Bux that forfeiture of earnest money under a contract if reasonable does not fall within Section 74, and would fall within Section 74 only if earnest money is considered a penalty is not on a matter that directly arose for decision in that case. The law laid down by a Bench of five Judges in Fateh Chand case is that all stipulations naming amounts to be paid in case of breach would be covered by Section 74. This is because Section 74 cuts across the rules of the English common law by enacting a uniform principle that would apply to all amounts to be paid in case of breach, whether they are in the nature of penalty or otherwise. It must not be forgotten that as has been stated above, forfeiture of earnest money on the facts in Fateh Chand case was conceded. In the circumstances, it would therefore be correct to say that as earnest money is an amount to be paid in case of breach of contract and named in the contract as such, it would necessarily be covered by Section 74.
43. On a conspectus of the above authorities, the law on compensation for breach of contract under Section 74 can be stated to be as follows:
43.1. Where a sum is named in a contract as a liquidated amount payable by way of damages, the party complaining of a breach can receive as reasonable compensation such liquidated amount only if it is a genuine pre-estimate of damages fixed by both parties and found to be such by the court. In other cases, where a sum is named in a contract as a liquidated amount payable by way of damages, only reasonable compensation can be awarded not exceeding the amount so stated. Similarly, in cases where the amount fixed is in the nature of penalty, only reasonable compensation can be awarded not exceeding the penalty so stated. In both cases, the liquidated amount or penalty is the upper limit beyond which the court cannot grant reasonable compensation.
43.2. Reasonable compensation will be fixed on well-known principles that are applicable to the law of contract, which are to be found inter alia in Section 73 of the Contract Act.
43.3. Since Section 74 awards reasonable compensation for damage or loss caused by a breach of contract, damage or loss caused is a sine qua non for the applicability of the section.
43.4. The section applies whether a person is a plaintiff or a defendant in a suit.
43.5. The sum spoken of may already be paid or be payable in future.
43.6. The expression "whether or not actual damage or loss is proved to have been caused thereby" means that where it is possible to prove actual damage or loss, such proof is not dispensed with. It is only in cases where damage or loss is difficult or impossible to prove that the liquidated amount named in the contract, if a genuine pre-estimate of damage or loss, can be awarded.
43.7. Section 74 will apply to cases of forfeiture of earnest money under a contract. Where, however, forfeiture takes place under the terms and conditions of a public auction before agreement is reached, Section 74 would have no application."50
49 (f) In the case of "Desh Raj v. Rohtash Singh" (supra), it has been held as under:-
"40. In sum and substance, the appellants contend that forfeiture of sum is justified when it is: (a) clearly stipulated as earnest money; (b) forms part of sale consideration; and (c) intended to be in the nature of "guarantee for the due performance of the contract"; and (d) the binding agreement between the parties provides its forfeiture in the event of breach of the contract.
41. In our considered opinion, Section 74 of the Contract Act primarily pertains to the grant of compensation or damages when a contract has been broken and the amount of such compensation or damages payable in the event of breach of the contract, is stipulated in the contract itself. In other words, all pre-estimated amounts which are specified to be paid on account of breach by any party under a contract are covered by Section 74 of the Contract Act as noted by this Court in Kailash Nath Associates v. DDA. In Fateh Chand, the Constitution Bench ruled that Section 74 dispenses with proof of "actual loss or damage" and attracts intervention by courts where the pre-estimated amount is "penal" in nature.
42. We may at this juncture also note the following observations made by this Court in ONGC Ltd. v. Saw Pipes Ltd.: (ONGC case, SCC pp. 740-41, para 64) "64. ... Section 74 emphasises that in case of breach of contract, the party complaining of the breach is entitled to receive reasonable compensation whether or not actual loss is proved to have been caused by such breach. Therefore, the emphasis is on reasonable compensation. If the compensation named in the contract is by way of penalty, consideration would be different and the party is only entitled to reasonable compensation for the loss suffered. But if the compensation named in the contract for such breach is genuine pre-estimate of loss which the parties knew when they made the contract to be likely to result from the breach of it, there is no question of proving such loss or such party is not required to lead evidence to prove actual loss suffered by him. Burden is on the other party to lead evidence for proving that no loss is likely to occur by such breach."
(emphasis supplied)
43. Hence, in a scenario where the contractual terms clearly provide the factum of the pre-estimated amount being in the nature of "earnest money", the onus to prove that the same was "penal" in nature squarely lies on the party seeking refund of the same. Failure to discharge such burden would treat any pre-estimated amount stipulated in the contract as a "genuine pre-estimate of loss".
49 (g) In the judgment "MTNL Vs. Finolax Cables Ltd" 2017 SCC OnLine Del 10497 the case was arising from an arbitration proceeding where the learned arbitrator had considered the issue as to whether the encashment of bank guarantee and appropriation of the amount of 51 liquidated damages was justified? In the said judgement at paragraph nos.34 to 36, the principle of law in the matter of Liquidated Damages has been summarised, which are as under:-
"34. It is trite under Section 74 of the Contract Act, that to claim liquidated damages even where liquidated damages may be specified, the party so claiming, is entitled only to "reasonable compensation" not exceeding the amount specified. Even in a contract, where it is difficult to prove the actual damage or loss, proof thereof is not dispensed with to arrive at "reasonable compensation". It is only in cases where damages or loss was impossible to prove, that the amount named in the contract as liquidated damages, if it is genuine pre-estimate of damage or loss, can be so awarded.
35. It has been held by the ld. Single Judge therefore, that even assuming that clause 7.4 signifies a genuine pre-estimate of damages, MTNL was not relieved of showing that it had suffered some loss. Both legally and factually, this is the correct position.
36. On application of the above well settled principle, there can be no manner of doubt, that it was incumbent on MTNL to prove before the Arbitrator that it had suffered some loss, even though it may not have to prove the actual loss."
In the said case, it was noted that the learned arbitrator found that MTNL had suffered no losses and still awarded 10% of the total contract towards losses on account of Liquidated Damages although no material was placed on record to show that MTNL had suffered losses. In such background, the view of the Hon'ble Single Judge was upheld who found that the arbitral award was based on no evidence and was contrary to the well-settled legal position.
52. In the light of the aforesaid judgments, point no.(c) is considered as follows: -
50 a) In the present case, the respondents have invoked the Performance Bank Guarantee and have retained the amount so recovered being 10% of the supply order by stating that the same was on account of Liquidated Damages in terms of the contract read with grant of extension of time with Liquidated Damages vide 2nd corrigendum dated 20.03.2015.
50 b) So far as the argument that the counter- claim was required to be filed to claim retention of Liquidated Damages, the same is devoid of any merit. The appellant had already claimed refund of the amount realised through Performance Bank Guarantee and the respondents claimed the same as Liquidated Damages. The point as to whether the respondents could claim and retain the amount so realised by invoking Performance Bank Guarantee was directly in issue and the entire claim of refund can succeed only if it is found 52 that the respondents were not entitled to any amount of Liquidated Damages on the basis of the terms of the contract and in the light of the legal principles discussed above. Moreover, in the present case, the extension of time was granted upon imposition of liquidated damages.
50 c) In the judgment passed by the Hon'ble Supreme Court in "Kailash Nath Associates" (supra), it has also been held that Section 74 declares the law as to liability upon breach of contract where compensation is by agreement of the parties pre-determined, or where there is a stipulation by way of penalty but the application of the enactment is not restricted to cases where the aggrieved party claims relief as a plaintiff; the section does not confer a special benefit upon any party; it merely declares the law that notwithstanding any term in the contract predetermining damages or providing for forfeiture of any property by way of penalty, the Court will award to the party aggrieved only reasonable compensation not exceeding the amount named or penalty stipulated; the jurisdiction of the Court is not determined by the accidental circumstance of the party in default being a plaintiff or a defendant in a suit; use of the expression 'to receive from the party who has broken the contract' does not predicate that the jurisdiction of the Court to adjust amounts which have been paid by the party in default cannot be exercised in dealing with the claim of the party complaining of breach of contract.
50 d) Thus, merely because the respondents being defendants had not filed any counter claim, the same will certainly not prevent the Court from examining whether the respondents were entitled to retain the amount by way of Liquidated Damages. Unless such a finding is recorded the plaintiff being the appellant cannot be granted a decree for a refund of the amount realised by invoking the Performance Bank Guarantee. Such an adjudication would essentially depend upon the terms of the contract and the materials available before this Court and upon a finding as to whether the respondents are entitled to Liquidated Damages. The entitlement of the respondents to Liquidated Damages is directly in issue while 53 deciding the refund of the amount realized by invoking the Performance Bank Guarantee. Accordingly, non-filing of a counter-
claim for Liquidated Damages is not fatal to the claim of the respondents to retain the amount realized by invoking the Performance Bank Guarantee. The point no. (c) is accordingly decided against the appellant and in favour of the respondents.
53. This takes us to the next point, regarding point no.(b) (iii) and point no.(d).
Point no. (b) (iii) Whether the appellant is entitled to damages under the following head: -
(iii)Loss suffered on account of encashment of performance bank guarantee - Rs. 64,78,756/-.
And Point no.(d) Whether any amount be permitted to be retained as liquidated damages by invoking performance bank guarantee without substantiating the actual loss or damages suffered by the respondents by adducing evidence?
51 a) Essential facts to decide these issues are that the commissioning of the turnkey project was to be done within 8 weeks from the date of the supply order in terms of clause 5(i) of the supply order; Clause 7.4 of the supply order provided that time was the essence of the contract; clause 5(ii) read with clause 13 of the supply order provided for penalty by way of imposition of Liquidated Damages on account of delay in commissioning of the project; the project was not commissioned within the stipulated time and ultimately time was extended vide 2nd corrigendum dated 20.03.2015 (Exhibit-5) for a period of 8 weeks from the issuance of the letter of extension with the imposition of Liquidated Damages in terms of the contract; as per the best case of the appellant the project was commissioned on 20.05.2015 but this was also beyond 8 weeks from 20.03.2015; after negotiations, the date of raising the monthly bill was taken as 01.07.2015 and it was communicated to the appellant vide letter dated 30.11.2015; much after issuance of the letter dated 20.03.2015, the appellant vide letter dated 17.06.2015 had asked for reconsideration of imposition of Liquidated Damages but their request was never accepted by the respondents; 3rd corrigendum was 54 issued vide letter dated 08.03.2016 and Performance Bank Guarantee was furnished vide letter dated 22.04.2016 though beyond prescribed period of 15 days.
51 b) Thus, the total delay in commissioning of the project was more than 10 months from the date of issuance of the supply order dated 28.03.2014 and an extension of time was granted with liquidated damages. As per the contract, Liquidated Damages on delay in commissioning of the project was imposable @0.5% per week or a part thereof subject to a maximum of 10% of the project cost; the respondents had invoked Performance Bank Guarantee which was for about 10% of the project cost and retained the amount and the appellant is claiming refund of the said amount. This Court is of the considered view that once the extension of time was granted with imposition of liquidated damages there is no scope for the appellant to avoid imposition and realization of liquidated damages in terms of the contract read with the letter of extension of the time with Liquidated Damages vide 2nd corrigendum dated 20.03.2015.
51 c) The appellant has objection that the respondents having not proved the actual damages suffered cannot retain any amount under Liquidated Damages without proof of actual damage. As held in the case of "Kailash Nath Associates v. DDA" (supra) in paragraph 43.6 that the expression "whether or not actual damage or loss is proved to have been caused thereby" means that where it is possible to prove actual damage or loss, such proof is not dispensed with. It is only in cases where damage or loss is difficult or impossible to prove that the liquidated amount named in the contract, if a genuine pre-estimate of damage or loss, can be awarded. It has come during the examination of the witnesses of the appellant as well as the respondents that when the appellant had discontinued the internet services, the working of respondents had paralyzed (paragraph no.47 of the cross-examination of P.W. 2). The D.W. 1 had also stated that the shutdown of the system resulted in closure of critical operations in respondents. He has also stated that the shutdown of server resulted in stoppage of IT related activities including COAL (NET) applicable in respondents. Thus, it has come on record that the IT related services including COAL (NET) 55 which is involved in the contract were essential services required by the respondents. It has come on record that the services as per the contract were like internet services through servers. It is not the case of the appellant that the respondents did not suffer any loss or damage on account of the delay in the commissioning of the project. The actual damages on account of delay providing IT-related activities including Coal (Net) through the server is almost impossible to quantify in terms of money. In the case of IT-related activities including Coal (Net) through servers, every moment matters and it is almost impossible to prove the actual damages suffered on account of delay in providing such services. In aforesaid circumstances, the quantum of damages on account of delay in commissioning having been fixed by way of Liquidated Damages as a pre-estimate did not require any further proof from the side of the respondents.
51 d) The further argument of the appellant is that the respondents had foregone the imposition of Liquidated Damages though an extension was granted on 20.03.2015 for 8 weeks from 20.03.2015 with Liquidated Damages. In the plaint, the appellant has not stated a word about the imposition of liquidated damage by the respondents while granting an extension of time vide 2nd corrigendum dated 20.03.2015 and the appellant has referred to the 2nd corrigendum only to state that it was issued for changing the name of the consignee. However, before this Court the appellant has taken a stand that though liquidated damages were mentioned in the respondents' letter dated 20.03.2015 but were never finally imposed and have also argued that the respondents themselves were well aware that no damages could ever be proved by them.
51 e) By the aforesaid letter dated 30.11.2015, the date of commissioning of the project was fixed as 01.07.2015 but the 2nd corrigendum dated 20.03.2015 imposing Liquidated Damages while granting an extension of time by eight weeks from 20.03.2015 was never modified or withdrawn by the respondents and in fact, the appellant could complete the project only under the grant of extension of time vide the 2nd corrigendum, though there was a further delay of a few days. Clause 7.4 of the supply order specifies that time was the 56 essence of the contract. The extension of time with Liquidated Damages for eight weeks was duly accepted by the appellant and the parties acted upon the said 2nd corrigendum, the project was commissioned and admittedly the delivery was accepted by the respondents vide letter dated 30.11.2015 with effect from 01.07.2015 with mutual consent. The aforesaid letter dated 30.11.2015 has no bearing on the 2nd corrigendum imposing Liquidated Damages for delay while granting of extension of time in commissioning the project. In the aforesaid background, this Court is of the considered view that the argument of the appellant that imposition of Liquidated Damages vide the 2nd corrigendum while extending the time was not acted upon is devoid of any merit.
51 f) Upon perusal of the clauses regarding Liquidated Damages, it is apparent that Liquidated Damages were imposable @0.5% of the entire project cost per week or part thereof as stated in the first (i) clause of delivery, installation, commissioning, and integration subject to a maximum limit of 10% of the entire project cost. This was by way of penalty for delay in the commissioning of the project. Further clauses 19 and 20 of the NIT (Annexure D) provide that in the event of breach of any of the terms and conditions mentioned in the supply order, Coal India Ltd. and its Subsidiary Companies should have the right to recover from the successful tenderer as agreed Liquidated Damages, a sum not less than 0.5% (half percent) of the price of any stores which the successful tenderer has not been able to supply as aforesaid for each week or part of a week during which the delivery of such stores may be in arrears limited to 10%. It is also open to the purchaser to extend the period of delivery with or without penalty as may be considered fit and proper, the penalty, if imposed shall not be more than the agreed Liquidated Damages referred to above.
51 g) The rate fixed for imposition of Liquidated Damages was at the minimum of 0.5% of the price for each week's delay or part thereof subject to a maximum of 10% of the project cost. 10% of the project cost is reached upon delay of only 20 weeks which constitutes less than 5 months. In the present case, there has been a delay of more than 10 months in commissioning the project and when calculated at the bare 57 minimum of Liquidated Damages @ 0.5% per week of delay in commissioning, the respondents have retained the maximum permissible Liquidated Damages i.e. 10% of the project cost. Considering these circumstances, it cannot be said that the realization of Liquidated Damages is excessive. This Court is of the considered view that the Liquidated Damages imposed in the present case at the time of 2nd corrigendum while granting extension of time for commissioning of project and the extent to which the respondents have retained the amount in the name of Liquidated Damages, appears to be a reasonable compensation based on genuine pre-estimate of damage or loss which may be caused on delay in commissioning of the project and considering the nature of services being involved in the present case it is almost impossible to quantify the loss or damage based on actual loss or damage, the reason for which has already been discussed above.
51 h) The extension of time in commissioning the project with the imposition of Liquidated Damages having been proved the consequences of payment of Liquidated Damages as per the contract naturally follows in the aforesaid facts and circumstances of the case. It is neither the case of the appellant that the respondents did not suffer any losses on account of delay in service nor it is their case that any exorbitant amount over the above actual loss has been retained by the respondents. The liquidated damages in the present case is certainly pre-estimated damage calculated @ 0.5% per week of delay. The retention of money by way of Liquidated Damages by the respondents by invoking Performance Bank Guarantee cannot be faulted. 51 i) The respondents had retained only the pre-estimated Liquidated Damages at the minimum rate which reached the cap of 10% within less than 5 months delay although the delay in commission of the project was more than 10 months and the time to commission the project was granted with imposition of Liquidated Damages. In view of the aforesaid findings, the claim of the appellant in connection with refund of amount realized by the respondents through invocation of Performance Bank Guarantee cannot be granted by way of damages to the appellant.
5851 j) Accordingly, point no.(b) (iii) and (d) are decided against the appellant and in favour of the respondents.
54. All the point for determination having been decided against the appellant and in favour of the respondents, the appellant is not entitled to any relief by this Court. This appeal is accordingly dismissed.
(Shree Chandrashekhar, A.C. J.) I Agree.
(Shree Chandrashekhar, A.C.J.) (Anubha Rawat Choudhary, J.) Binit/Saurav/Mukul A.F.R.