MANAGER M/S MAGMA HD... v. KANAK PRABHA SINHA

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IN THE HIGH COURT OF JHARKHAND AT RANCHI

LPA No. 445 of 2023

….….. M/s. Megha Engineering & Infrastructures Ltd., through its Associate General Manager and Powers of attorney holders, Mr. Rakesh Ranjan ..… Appellant

Versus

1.Jharkhand Urja Sanchar Nigam Limited, through its Managing Director, having its office at Nigam HQ Building, Kusai Colony, Doranda, P.O. & P.S.-Doranda, District- Ranchi.

2.Chief Engineer (Transmission), Jharkhand Urja Sanchar Nigam Limited, having his office at Nigam HQ Building, Kusai Colony, Doranda, P.O. & P.S. Doranda, District- Ranchi.

3.Director of Accounts, R.E./Plan, Jharkhand Urja Sanchar Nigam Limited, having his office at Nigam HQ Building, Kusai Colony, Doranda, P.O. and P.S. Doranda, District- Ranchi.

4.General Manager, Contract & Materials (non W.B. Project), Jharkhand Urja Sanchar Nigam Limited, having his office at Nigam HQ Building, Kusai Colony, Doranda, P.O. and P.S. Doranda, District-Ranchi.

5.Deputy General Manager, Transmission Circle, Daltonganj, Jharkhand Urja Sanchar Nigam Limited, having his office at Nigam HQ Building, Kusai Colony, Doranda, P.O. and P.S.Doranda, District-Ranchi. .....Respondents

….…..

CORAM: HON'BLE MR. JUSTICE RONGON MUKHOPADHYAY HON'BLE MR. JUSTICE DEEPAK ROSHAN

….….. For the Petitioner : Mr. M.S.Mittal, Sr. Adv. Mr. Salona Mittal, Adv

For the Respondents : Mr. Rajiv Ranjan, Sr. Adv. Mr. Sachin Kumar, A.A.G-II

C.A.V. ON 08/04/2024 PRONOUNCED ON: 04/07/2024 Per Deepak Roshan, J.

Heard learned counsel for the parties.

2. This letters patent appeal is directed against the judgment dated 20.07.2023 passed by the Writ Court in W.P.(C) No. 1036 of 2022; whereby the prayer of the petitioner to release the amount of liquidated damages of Rs.6,42,84,491/- was not allowed and petitioner was

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granted liberty to get its grievances adjudicated through a competent court of civil jurisdiction.

3. The brief facts of the case is that the erstwhile JSEB issued an NIT in 2012 for Erection, Testing, Construction and Engineering and Commissioning of 220 KV Three Phase Chatra-Latehar Transmission Line on turnkey basis. Clause 2.28 stipulated that liquidated damages could be levied and recoveries from contractors for the payments due can be made. After being selected as the successful bidder, the appellant was issued a purchase order for supply of materials and a work order for erection / civil work. It is relevant to note that the stipulation for liquidated damages in these orders contained an additional stipulation as compared to the NIT, i.e., Liquidated damages (in short LD)could be awarded in delay of completion of project except when the delay is on account of JSEB. As per the appellant, this stipulation would necessarily mean that the factum of as to who caused the delay has to be decided and adjudicated and cannot be unilaterally decided by a party to the contract, i.e. the JUSNL in the present case.

While work was being done, JSEB was re-structured by Jharkhand Government and four Units were formed. JUSNL succeeded to this work on behalf of JSEB. The appellant highlighted various issues to the respondents such as delay in issuing road permits, delay in issuance of drawings, delay in payment of bills.

Further facts reveal that first time extension was granted by the respondent to the appellant for completion of work till 30.9.2015 without any LD and second time extension was granted till 30.9.2015 and that too without LD. The appellant kept on highlighting the delays being faced in the project which were beyond the control of the

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appellant. However, third time extension was given till 30.9.2016 but LD was levied for the first time. The appellant immediately protested to the MD, JUSNL, against deduction of liquidated damages. Fourth time extension was granted till 28.2.2017 with LD as imposed in the 3rd time extension. Fifth time extension was granted stating that LD will be imposed till the project is completed. First quantity variation was approved and the value of work was increased from Rs. 57.35 Crores to Rs. 62.75 Crores. The transmission line being constructed by the appellant was to feed electricity from Chatra Grid Sub Station to the Latehar Grid Sub Station. However, since the Latehar Grid Sub Station was not available for tapping, the appellant was directed to make alternate arrangement i.e., tapping of the Chatra-Latehar Transmission Line (being constructed with the appellant) with the Latehar- Daltonganj Transmission Line. Second quantity variation was approved and the value of work was increased from Rs.

62.75 Crores to Rs. 64.28 Crores.

4. Mr. M. S. Mittal, learned senior counsel assisted by Mr. Salona Mittal, Advocate representing the appellant submits that the liquidated damages only gives a party a right to sue and such party cannot, unilaterally, without any adjudication, deduct liquidated damages. For a party to claim damages / loss, the factum of breach has to be first proved. This fact of breach is primary, the loss is consequential thereto. He further submits that therefore, once when breach is established by a court of competent jurisdiction, will the question of loss arise which will also have to be determined by the said court.

He contended that a party to the contract cannot be an arbiter in its own cause. Therefore, the respondents are duty bound to first prove that the contract has been

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breached by the respondents and only then can liquidated damages be allowed by a competent civil court/arbitral tribunal. By deducting damages from the running bills of the appellant, the respondent-JUSNL has already adjudicated the issue of breach of contract as well as the quantum of damages.

He further submits that the reason as to why factum of breach must be proved in the present case is all the more important considering the following aspects -

(i) Although the NIT consists of a liquidated damage clause stipulating deduction of liquidated damages in case of delay of contract, the purchase order specifically provides that, liquidated damages can be deducted except when the delay is on account of JUSNL. Therefore, liquidated damages cannot be levied when JUSNL is itself responsible for delay in completion of the project. This question has therefore to be necessarily decided by an independent adjudicatory body. By deducting liquidated damages, JUSNL has already decided that there was no delay on its part. This is clearly against the basic principles of equity and justice as JUSNL cannot itself decide its conduct. This is more so in light of the fact that the appellant has never admitted delay and has always opposed the levy of liquidated damages.

(ii) The fact that JUSNL itself directed the appellant to do additional work in 2017 and 2020 as is evident from the first quantity variation dated 27.6.2017, as well as the second quantity variation dated 25.2.2020. This clearly goes on to show that JUSNL itself did not consider that time is the essence of the

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contract. If that is the case, there can be no delay in completion of the project and hence the question of levy of liquidated damages would never have arisen. All these facts could have been decided by an independent body.

(iii) Further, JUSNL has also admitted that the tapping point at the Latehar Grid Sub Station was not available and hence asked the appellant to tap the line to some other transmission line as stop gap arrangement. Therefore, when JUSNL had failed to fulfil its part of the obligation, it cannot unilaterally deduct liquidated damages.

Relying upon the aforesaid grounds, Mr. Mittal contended that the impugned order dated 20.7.2023 passed by the learned Writ Court which directed the appellant to approach the Civil Court for adjudication of dispute as to who was in breach of contract suffers from infirmity as it has not taken into account that unless and until it would be decided as to which party has committed delay, LD should not have been charged.

5. In order to buttress his argument, learned senior counsel has relied upon the following judgments:-

(i) In the case of J.G. Engineers (P) Ltd. Versus Union of India reported in (2011) 5 SCC 758;

(ii) In the case of Bharat Sanchar Nigam Limited & Anr. Versus Motorola India Pvt. Ltd. reported in (2009) 2 SCC 337;

(iii) In the case of M/s. Aditya and Rashmi Construction Pvt. Ltd. versus state of jharkhand passed in W.P.(C) no.2924 of 2014 ;

(iv) M/s Inox Air Products Ltd. Versus SAIL & Ors. reported in 2015 SCC OnLine Jhar 3278;

6. Mr. Rajiv Ranjan, learned Advocate General assisted by

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Mr. Sachin Kumar, learned AAG-II appearing for the respondents submits that the judgment dated 20.07.2023 passed by the writ court in W.P.(C) No. 1036 of 2022 is just, legal and suffers from no infirmities and no interference in the same is warranted in light of facts and law. He further submits that the writ court has comprehensively examined the factum of the dispute between the parties and the relevant case laws and accordingly disposed of the writ petition. He further submits that the liquidated damages @ 0.50% of the work value for each week of the delay in completion of the project beyond stipulated date of completion has been prescribed in the contract document and the same was agreed upon between the parties. He further submits that the liquidated damages being the pre-estimated amount agreed between the parties and provided in the contract document requires no proof of damages and can be deducted in terms of the contract between the parties. Admittedly, there was long delay in the completion of the work, much beyond the scheduled date and the same was also not completed despite multiple extension requests earlier being agreed by the respondents without liquidated damages and with price variation with express stipulation(s) agreed between the parties that further time extension granted only with liquidated damages in terms of the contract between the parties. He contended submits that the said condition was never challenged by the petitioner and thereby the principle of estoppel and waiver will apply against the petitioner. Learned Advocate General lastly submits that the petitioner cannot take benefit of time extension granted on their own request under the terms of the contract and keep executing the work and thereafter turn around challenge another part based on which the extension order i.e. liquidated damages was granted in the first place. The parties have expressly and duly agreed to the liquidated damages

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Clause i.e. clause 2.28 of NIT and the same being pre- estimated genuine liquidated damages and is not by way of penalty, so there is no justifiable reason for the respondents to prove loss on account of the delay in completion of the project. It is for the party who contends that the stipulated amount is not reasonable compensation, to prove the same.

7. In support of his arguments learned AG relied upon the following judgment:-

(i) M/s H.M. Kamaluddin Ansari & Co. Versus UOI & Ors reported in (1983) 4 SCC 417;

(ii) ONGC Ltd. Versus Saw Pipes Ltd. reported in (2003)

5 SCC 705;

8. Having heard learned counsel for the parties and after going through the documents annexed with the respective affidavits and the averments made herein, it appears that the dispute in the present appeal relates to the manner in which the respondent-JUSNL has deducted liquidated damages amount of Rs.6,42,84,491/- from the running bills of the appellant without any adjudication as to the factum of breach and the quantification of damage.

From record it appears that the appellant had participated in NIT No. 475/PR/JSEB/1213; whereby Clause

2.28 stipulated that liquidated damages @ 0.50% of the total work value for each week of delay in completion of project beyond schedule date of completion was to be levied. The letter of intent (in short LOI) was issued on 20.12.2012 and the completion period for the project was 18 months from the date of issuance of LOI i.e. 19.06.2014. The clause of the liquidated damages was reiterated in the aforesaid LOI. The appellant applied for extension of time multiple times for completion of the project and was accorded multiple extensions. The appellant was accorded extension(s) up to 30.09.2015 & later till 31.03.2016 without liquidated damages and without price variation with a direction that if

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further time extension is required will be granted with liquidated damages. Thereafter, further extension was requested and granted vide letter dated 02.08.2016; whereby extension was granted up to 30.09.2016 with liquidated damages and without price variation with condition that if the work was not completed in the extended period, liquidated damages will be imposed on the entire extended period. Further, extension was granted vide letter dated 29.11.2016 and the period of completion of the work was extended up to 28.02.2017 with liquidated damages and without price variation. Thereafter, there were further extensions requested and approved and the last extension was granted vide letter dated 22.05.2017 wherein the period was extended upto 31.05.2017. The total liquidated damages deducted is Rs 6,42,84,941/- which is 10% of the Agreement Value and as per Clause-2.28 of the NIT is the ceiling of liquidated damages which may be imposed under the terms of the contract between the parties.

9. The appellant has disputed the imposition of liquidated damages on the ground that the delay was not attributable to them; rather occasioned by facts and circumstances beyond the control of the appellant and was attributable to the respondents. The appellant has further contended that the present disputes involves disputed questions concerning breach by the appellant and the same cannot be decided by the party alleging breach and same has to be determined only by an adjudicatory forum i.e. a Court or an Arbitral Tribunal. Thus, the amount cannot be withheld on account of LD unless adjudicated by a competent court.

The stand of the respondents is that the judgment dated 20.07.2023 of the learned Single Judge is just, legal and suffers from no infirmities and no interference in the same is warranted in light of facts and law. The learned Writ Court comprehensively examined the factum of the dispute

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between the parties and the relevant case laws and accordingly disposed of the writ petition.

10. It is evident from Clause-2.28 of the NIT that the liquidated damages @ 0.50% of the work value for each week of the delay in completion of the project beyond stipulated date of completion has been prescribed in the contract document and the same was agreed upon between the parties. Thus, prima facie it appears that the liquidated damages being the pre-estimated amount agreed between the parties and provided in the contract document require no proof of damages and can be deducted in terms of the contract between the parties. The onus to prove that the respondent suffered no loss or the loss suffered by the respondents is less than the amount of liquidated damages is on the appellant, which is admittedly a disputed question of fact and the appellant is at liberty to get these issues adjudicated by a competent Civil Court by leading evidence.

11. It is further evident from records that the work which was being executed was of public importance and thereby the delay in execution of the work by itself caused loss to the Respondents. It is an admitted fact that there was long delay in the completion of the work, much beyond the scheduled date and the same was also not completed despite multiple extension requests made earlier by the appellant and agreed by the respondents without any liquidated damages. It further transpires from records that when the work was not completed; there was further extension of time by the respondents at the request of the appellant and this time with price variation with express stipulation(s) agreed between the parties that further time extension granted only with liquidated damages in terms of the contract between the parties. At this stage it is pertinent to mention here that the said condition was never challenged by the appellant and thereby the principle of estoppel and waiver will operate

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against the appellant. The appellant cannot take benefit of time extension granted on their own request under the terms of the contract and keep executing the work and subsequently taking a U turn confront another part based on which the extension order i.e. liquidated damages was granted in the first place. The parties have expressly and duly agreed to the liquidated damage Clause i.e. clause 2.28 of NIT and the same being pre-estimated liquidated damages and is not by way of penalty, so there is no justifiable reason for the respondents to prove loss on account of the delay in completion of the project.

It is settled principle of law that it is for the party who contends that the stipulated amount is not reasonable compensation, to prove the same. It is not the case of the appellant that the liquidated damages as deducted under the terms of the contract is not a genuine pre-estimate of the loss suffered by the respondents on account of the delay in completion of the project or no loss has been suffered by the respondents on account of the delay on part of the appellant.

12. In the case of ONGC Ltd. (supra), the Hon'ble Apex Court after considering sections 73 and 74 of the Indian Contract Act and Fateh Chand Case has clearly held that 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. Thus, the respondent has rightly withheld the amount in terms of clause 2.28 of NIT read with Clause 3.14(viii) of NIT. The appellant's claim requires adjudication by Civil Court of competent jurisdiction and the liberty for the same has already been granted by the learned Single Judge.

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13. The appellant has relied several judgments which are not applicable in the peculiar facts and circumstances of this case. The same are being discussed herein below:

In J.G. Engineers Private Ltd. (supra); no LD was levied there during execution of the work and till termination of contract. The matter was referred to arbitrator and by way of counter claim LD was claimed. The Ld. Arbitrator decided the question of breach in favour of the contractor and in that view the case was decided in favour of the Contractor holding that no LD can be levied. Thus, the facts of that case were entirely different from the facts of this case; thus not applicable.

Similarly the judgment in the case of BSNL (supra) the issue before the Hon'ble Apex Court was as to whether the levy of LD under clause 16.2 of the tender document is an accepted issue in terms of clause 20.1 of the said document so that the same cannot be referred to arbitration or looked into by the arbitrator. In that case, LD was imposed by the appellant. The appellant was arguing that they have unilateral right to determine the LD and even if it is exorbitant would be final and cannot be challenged. Meaning thereby; imposition of LD being accepted by the contractor cannot be adjudicated upon as clause 16.2 provided that the quantification of liquidated damages shall be final and cannot be challenged by the supplier was held to be in restraint of legal proceeding u/s.28 of the Contract Act.

Here, in the present case, no such restraint is there and the appellant is at liberty to challenge the action of the respondent before a competent Civil Court and can plead and argue that the respondent did not suffer any loss or the quantum of LD withheld by the respondent is in excess of the actual loss or damage suffered by the respondent. Similarly, the case of Shree Rameshwara Rice Mills (supra) is also not applicable. In the said case Clause-12

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quoted in para-2 may be referred. It provided that "the first party shall be liable to pay damages to the second party as may be assessed by the second party, in addition to the forfeiture in part or whole of the amount deposited by him. Any amount that may become due or payable by the first party to the second party under any part of the agreement shall be deemed to be and may be recovered from the first party as if they were arrears of land revenue."

Thus, in that case the amount was not quantified in the contract and as such the clause itself was different with the clause under consideration in the present where amount is pre-estimate and agreed upon between the parties. Further, in the present case, no such restraint is there and the appellant is at liberty to challenge the action of the respondent before a competent Civil Court and can plead and argue that the respondent did not suffer any loss or the quantum of LD withheld by the respondent is in excess of the actual loss or damage suffered by the respondent. Further, in the case of Inox Air Products Ltd (supra), relied by the appellant; the issue before the learned Single Judge was different. Para-20 may be referred. The respondent SAIL had decided the question of breach against the petitioner. In that view of the matter, the learned Single Judge had held that the respondent SAIL is not competent to determine the aforesaid question.

As stated herein above, in the present case, the respondent has not decided the question of breach; rather the respondent has withheld the amount in terms of Claus-2.28 of the contract; i.e. specific clause for liquidated damage; and it is the clear case of the respondent that the petitioner may get the question of breach and quantum of LD decided by a competent Court of law, if they are disputing the same. The amount has been withheld by the respondent pursuant to clause of the agreement and the same cannot be faulted with.

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In view of the aforesaid discussions made herein above in this paragraph, none of the judgments relied upon by the appellants is applicable in the facts and circumstances of this case.

14. In the case of M/s H.M. Kamaluddin Ansari & Co. (supra) the Hon'ble Apex Court in Para-31 has held as follows:

"31. We are clearly of the view that an injunction order restraining respondents from withholding the amount due under other pending bills to the contractor virtually amounts to a direction to pay the amount to the contractor-appellant. Such an order was clearly beyond the purview of cl. (b) of s. 41 of the Arbitration Act. The Union of India has no objection to the grant of an injunction restraining it from recovering or appropriating the amount lying with it in respect of other claims of the contractor towards its claim for damages. But certainly cl. 18 of the standard contract confers ample power upon the Union of India to withhold the amount and no injunction order could be passed restraining the Union of India from withholding the amount."

Similarly, in the case of ONGC Ltd. v. Saw Pipes Ltd. (supra) the Hon'ble Apex Court at Para 68 has laid down the law as under:

"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 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

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the measure of reasonable compensation." At this stage, reference can also be made to the judgment rendered by the Hon'ble Apex Court in the case of

Construction and Design Services v. Delhi Development Authority reported in (2015) 14 SCC 263, wherein at Para 14-15 it has been held by the Hon'ble Apex Court as under:

"14. There is no dispute that the appellant failed to execute the work of construction of sewerage pumping station within the stipulated or extended time. The said pumping station certainly was of public utility to maintain and preserve clean environment, absence of which could result in environmental degradation by stagnation of water in low lying areas. Delay also resulted in loss of interest on blocked capital as rightly observed in para 7 of the impugned judgment of the High Court. In these circumstances, loss could be assumed, even without proof and burden was on the appellant who committed breach to show that no loss was caused by delay or that the amount stipulated as damages for breach of contract was in the nature of penalty. Even if technically the time was not of essence, it could not be presumed that delay was of no consequence. Thus, even if there is no specific evidence of loss suffered by the respondent-plaintiff, the observations in the order of the Division Bench that the project being a public utility project, the delay itself can be taken to have resulted in loss in the form of environmental degradation and loss of interest on the capital are not without any basis.

15. Once it is held that even in the absence of specific evidence, the respondent could be held to have suffered loss on account of breach of contract, and it is entitled to compensation to the extent of loss suffered, it is for the appellant to show that stipulated damages are by way of penalty. In a given case, when the highest limit is stipulated instead of a fixed sum, in the absence of evidence of loss, part of it can be held to be reasonable compensation and the remaining by way of penalty. The party complaining of breach can certainly be allowed reasonable compensation out of the said amount if not the entire amount. If the entire amount stipulated is genuine pre-estimate of loss, the actual loss need not be proved. Burden to prove that no loss was likely to be suffered is no the party committing breach, as already observed."

15. Having regards to the aforesaid discussions, we hold that the judgment dated 20.07.2023 passed by the writ court does not suffers from any infirmities and no interference in

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the same is warranted. The liquidated damages @ 0.50% of the work value for each week of the delay in completion of the project beyond stipulated date of completion has been prescribed in the contract document and the same was agreed upon between the parties; accordingly, the same requires no proof of damages and can be deducted in terms of the contract between the parties .

Admittedly, there was long delay in the completion of the work and the same was also not completed despite multiple extension requests earlier being agreed by the respondents without liquidated damages and with price variation with express stipulation(s) agreed between the parties that further time extension granted only with liquidated damages in terms of the contract between the parties. It is also an admitted fact that the said condition was never challenged by the appellant.

16. In view of the aforesaid findings and the judgments referred to herein above, the instant appeal is dismissed. However, there is no order as to cost. Pending I.A.s, if any, is also closed.

(Rongon Mukhopadhyay, J.) (Deepak Roshan, J.) Jharkhand High Court at Ranchi

Dated:-04/07/2024 Amardeep/

AFR