Judgment:
* IN THE HIGH COURT OF DELHI AT NEW DELHI % + Date of Decision: April 15, 2014 FAO(OS) 441/2010 HARYANA TELECOM LTD Represented by: ..... Appellant Mr.J.K.Chaudhary, Advocate for Mr.Narendera M.Sharma, Advocate versus BHARAT SANCHAR NIGAM LTD ..... Respondent Represented by: Mr.Sanjeev Narula, Advocate + FAO(OS) 442/2010 HARYANA TELECOM LTD Represented by: ..... Appellant Mr.J.K.Chaudhary, Advocate for Mr.Narendera M.Sharma, Advocate versus BHARAT SANCHAR NIGAM LTD ..... Respondent Represented by: Mr.Sanjeev Narula, Advocate + FAO(OS) 445/2010 HARYANA TELECOM LTD Represented by: ..... Appellant Mr.J.K.Chaudhary, Advocate for Mr.Narendera M.Sharma, Advocate versus BHARAT SANCHAR NIGAM LTD ..... Respondent Represented by: Mr.Sanjeev Narula, Advocate CORAM: HON'BLE MR. JUSTICE PRADEEP NANDRAJOG HON'BLE MR. JUSTICE JAYANT NATH PRADEEP NANDRAJOG, J.
(Oral) 1. Three Arbitral Awards dated June 19, 2007 passed by the same sole arbitrator have been set aside by the learned Single Judge vide impugned order dated March 12, 2010. Three petitions filed under Section 34 of the Arbitration and Conciliation Act, 1996 have been allowed. Needless to state, the respondent BSNL was the petitioner before the learned Single Judge.
2. Liquidated damages levied by the respondent were set aside by the learned Arbitrator. The amount deducted by the respondent from out of the sum payable to the appellant under the three contracts has been directed to be paid over under the award together with interest @ 12% per annum. As a result of the three awards being set aside the respondent would have to make no refund.
3. Facts were common. BSNL had floated tenders for supply of PIJF Cables, which we are given to understand are jelly filled polythene insulated cables. Admittedly, the cables had to be laid by BSNL to provide telephone connections. Admittedly, the cables were supplied late. Admittedly, the three contracts had a clause for liquidated damages, being clause No.16, which reads as under:
“Cl.-16 LIQUIDATED DAMAGES161 The date of delivery of stores stipulated in the acceptances of tender should be deemed to the essence of the contract and delivery must be completed not later than the dates specified therein. Extension will not be given except in exceptional circumstances. Should however, deliveries be made after expiry of the contract delivery period without prior concurrence of the purchaser, and be accepted by the consignee, such deliveries will not deprive the purchaser of its right to recover liquidated damages under clause 16.2 below. However when supply is made with 21 days of the contracted original delivery period, the consignee may accept the stores and in such cases the provisions of clause 16.2 will not apply. 16.2 Should the tenderer fail to deliver the stores and any consignment thereof within the period prescribed for delivery the Purchaser shall be entitled to recover 1/2% of the value of the delayed supply for each week of delay or part thereof, subject to maximum of 5% of the value of the delayed supply, provided that delayed portion of the supply does not in any way hamper the commissioning of the other systems. Where the delayed portion of supply materially hampers installation and commissioning of the other systems, LD Charges shall be levied as above on the total value of the Purchase Order. Quantum of Liquidated Damages assessed and levied by the purchaser shall be final and not challengeable by the supplier.”
4. The learned Arbitrator has held that the levy and recovery thereof by BSNL was illegal. The learned Arbitrator has held that as per the clause, notwithstanding its caption, the levy was penal i.e. in terroram. The learned Arbitrator has further held that not being in the nature of a pre-estimate of damages, since the alleged loss was not reflected in the account books, the evidence relating to the alleged loss had to be overlooked.
5. The fault found by the learned Single Judge is two-fold. The first is that the case belongs to a genre of cases where actual loss or damages is impossible to be proved and for which the learned Single Judge has referred to the law declared in the opinion reported as (2003) 5 SCC705ONGC vs. Saw Pipes Ltd. The second is to the reasoning that since the loss was not reflected in the account books the evidence concerning loss had to be overlooked is a perverse finding.
6. We agree with the view taken by the learned Single Judge. Just as in cases such as award to construct a bridge by a Government department which would be used by public, if contractor defaults on the time schedule, it would be impossible for the Government to prove loss but would warrant damages to be levied because public at large would suffer due to belated construction of the bridge and capital incurred would remain blocked. In a case where cables are not supplied within time to BSNL thereby delaying laying of the network and hence delaying making available telecommunication services to the public, damages would have to be paid on the same principle as applicable to a bridge.
7. Besides, in the instant case there is evidence of loss of revenue in the form of telecommunication services being delayed and revenue to be earned not being earned for the period of delay. The reasoning of the learned Arbitrator that this loss not being reflected in the books of accounts has to be ignored has rightly been held to be a perverse reasoning by the learned Single Judge. We would only add that a loss may be of two kinds. The first is when the buyer has to pay more money to purchase the same goods. This loss would be reflected in the books of accounts in the form of higher capital spent. The second kind of loss would be income not earned from carrying on business, which will never be reflected in the books of account.
8. The appeals are dismissed but without any order as to costs. (PRADEEP NANDRAJOG) JUDGE (JAYANT NATH) JUDGE APRIL15 2014 rb