Date:20/04/2003 URL: http://www.thehindu.com/2003/04/20/stories/2003042002991000.htm

National

SC ruling on liquidated damages

By J. Venkatesan

NEW DELHI April 19. The Supreme Court has set aside an arbitration award directing the Oil and Natural Gas Commission (ONGC) to refund $ 3,04,970.20 and Rs. 15.76 lakhs towards liquidated damages retained by it while making payment to a company.

Laying down the law on claiming liquidated damages under Sections 73 and 74 of the Contract Act, a Bench comprising Justice M.B. Shah and Justice Arun Kumar held that in every case of breach of contract, the aggrieved person was not required to prove actual loss or damage suffered by him before he could claim a decree.

The Bench held that the court was competent to award reasonable compensation for breach of contract even if no actual damage was proved to have been suffered in consequence of the breach.

It said that if the terms of contract were clear and unambiguous, stipulating liquidated damages for breach, the party committing the breach was required to pay compensation unless it was held that such estimate of damages/compensation was unreasonable.

In this case, SAW Pipes Ltd. was required to supply goods to ONGC within a specified period. As the company failed to supply them on time, ONGC deducted from the payment, $ 3,04,970.20 and Rs. 15,75,559 towards customs duty, sales tax and freight charges by way of liquidated damages.

The arbitration Tribunal held that ONGC had wrongly withheld the amount and the company was entitled to recover the entire amount with interest. Both a single Judge and a Division Bench of the Bombay High court dismissed ONGC's appeal.

The special leave petition in the apex court sought to set aside the award under Sec. 34 of the Arbitration and Conciliation Act (ACA), 1996.