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1. The respondent herein was awarded certain contracts by the petitioner. These works were executed by the respondent but there was delay in the execution of the contract. Clause 4.4.0.0. of the General Conditions of Contract provided for liquidated damages in case of delay in execution. Invoking this clause the petitioner recovered the maximum liquidated damages as provided, i.e. 10% of the contract value, from the respondent's last running account bill. The respondent agitated as according to it no such liquidated damages were payable. The contract provided arbitration clause, which was invoked by the respondent. The learned arbitrator went into this question and has rendered his impugned award dated 28.4.2003 holding that the imposition of liquidated damages by the petitioner was not justified. The present petition is filed by the petitioner challenging this award. The question, as is clear from the above, is about the competence of the petitioner to recover the liquidated damages and scope of this petition is to consider as to whether the impugned award deciding this question is liable to be interfered with in exercise of this Court's jurisdiction under Section 34 of the Arbitration and Conciliation Act, 1996 (for short, the 'Act').

Thus, according to the petitioner, there was delay of 21 months, 131/2 months and 13 months respectively in the execution of the aforesaid three contracts. Clause 4.4.0.0. of the General Conditions of Contract entitles the petitioner to liquidated damages for delay at 1% of the total contract value for each week or part thereof, subject to maximum of 10%. This clause reads as under:
Clause 4.4.0.0: If there is any delay in the final completion of the work at any job site or specific works in respect of which a separate Progress Schedule has been established, beyond the date for the final completion of the work or work aforesaid at the job site as stipulated in the Progress Schedule, the owner shall (without prejudice to any other right of owner in this behalf) be entitled to liquidate damages for delay at 1% (one per cent) of the total contract value for each week or part thereof that the work remains incomplete beyond the scheduled date of final completion for the work, or works, as the case may be, at the job site, subject to a maximum of 10% (ten per cent) of the total contract value.

16. His next submission was that it was not necessary for the petitioner to prove actual loss as the clause regarding liquidated damages inherits pre-estimated damages and, therefore, in view of Section 74 of the Contract Act such damages can still be awarded without proving the same. He submitted that Section 74 of the Contract Act categorically lays down that where a contract is breached and a sum is named in the contract as the amount to be paid in cash of such a breach, the party complaining of the breach is entitled, whether or not actual damage or loss is proved to have been caused thereby, to receive from the party in breach reasonable compensation not exceeding the amount so named. Sections 73 & 74 of the said Act operate in two separate realms, i.e. one of un-ascertained and unquantified damages (Section 73) where actual loss and damages and that too within the reasonable contemplation of the parties and subject to actual proof operates; and the other of liquidated damages (Section 74) where the liquidated sum itself is a reasonable and sufficient benchmark of damages and no actual loss or injury need to be established or proved. For the purposes of determining whether or not the liquidated amount is claimable, the petitioner was not required to prove any actual loss or damage. All that the petitioner needed to establish was that, there admittedly being a time overrun, : (i) it was not claiming a sum in excess of the liquidated damages amount under the relevant clause; and (ii) at the threshold of the contract, the liquidated damages was considered to be a reasonable and genuine pre-estimate of the losses that the petitioner was likely to suffer if the contract was breached.

41. It is clear from the above that Section 74 does not confer a special benefit upon any party, like the petitioner in this case. In a particular case where there is a clause of liquidated damages the Court will award to the party aggrieved only reasonable compensation which would not exceed an amount of liquidated damages stipulated in the contract. It would not, however, follow there from that even when no loss is suffered, the amount stipulated as liquidated damages is to be awarded. Such a clause would operate when loss is suffered but it may normally be difficult to estimate the damages and, therefore, the genesis of providing such a clause is that the damages are pre-estimated. Thus, discretion of the Court in the matter of reducing the amount of damages agreed upon is left unqualified by any specific limitation. The guiding principle is 'reasonable compensation'. In order to see what would be the reasonable compensation in a given case, the Court can adjudge the said compensation in that case. For this purpose, as held in Fateh Chand (supra) it is the duty of the Court to award compensation according to settled principles. Settled principles warrant not to award a compensation where no loss is suffered, as one cannot compensate a person who has not suffered any loss or damage. There may be cases where the actual loss or damage is incapable of proof; facts may be so complicated that it may be difficult for the party to prove actual extent of the loss or damage. Section 74 exempts him from such responsibility and enables him to claim compensation inspite of his failure to prove the actual extent of the loss or damage, provided the basic requirement for award of 'compensation', viz. the fact that he has suffered some loss or damage is established. The proof of this basic requirement is not dispensed with by Section 74. That the party complaining of breach of contract and claiming compensation is entitled to succeed only on proof of 'legal injury' having been suffered by him in the sense of some loss or damage having been sustained on account of such breach, is clear from Sections 73 and 74. Section 74 is only supplementary to Section 73, and it does not make any departure from the principle behind Section 73 in regard to this matter. Every case of compensation for breach of contract has to be dealt with on the basis of Section 73. The words in Section 74 'Whether or not actual damage or loss is proved to have been caused thereby' have been employed to underscore the departure deliberately made by Indian legislature from the complicated principles of English Common Law, and also to emphasize that reasonable compensation can be granted even in a case where extent of actual loss or damage is incapable of proof or not proved. That is why Section 74 deliberately states that what is to be awarded is reasonable compensation. In a case when the party complaining of breach of the contract has not suffered legal injury in the sense of sustaining loss or damage, there is nothing to compensate him for; there is nothing to recompense, satisfy, or make amends. Therefore, he will not be entitled to compensation See State of Kerala v. United Shippers and Dredgers Ltd. . Even in Fateh Chand (supra) the Apex Court observed in no uncertain terms that when the section says that an aggrieved party is entitled to compensation whether actual damage is proved to have been caused by the breach or not, it merely dispenses with the proof of 'actual loss or damage'. It does not justify the award of compensation whether a legal injury has resulted in consequence of the breach, because compensation is awarded to make good the loss or damage which naturally arose in the usual course of things, or which the parties knew when they made the contract, to be likely to result from the breach. If liquidated damages are awarded to the petitioner even when the petitioner has not suffered any loss, it would amount to 'unjust enrichment', which cannot be countenanced and has to be eschewed.