M/S. CONSTRUCTION & DESIGN SERVICESversusDELHI DEVELOPMENT AUTHORITY

                  [2015] 2 S.C.R. 341


     M/S. CONSTRUCTION & DESIGN SERVICES                    A

                           V.

          DELHI DEVELOPMENT AUTHORITY

         (Civil Appeal Nos. 1440-1441 OF 2015)              B

                  FEBRUARY 04, 2015

   [T.S. THAKUR AND ADARSH KUMAR GOEL, JJ.)

     Contract Act, 1872 - ss. 73, 74 - Breach of contract   C
- Extent of allowing stipulated liquidated damages by
way of penalty in absence of actual loss -Failure of the
appellant to execute work of public utility-construction
of sewerage pumping station, within stipulated time -
Termination of contract by respondent-DOA due to delay      D
in execution of the project - Levy of compensation by
order of penalty - Suit for recovery of the said amount
by respondent - Dismissed by the Single Judge of the
High Court, however, decreed in favour of respondent
by the Division Bench - Dismissal of review petition -      E
On appeal, held: Section 74 emphasizes that the party
complaining of the breach of contract is entitled to
receive reasonable compensation whether or not actual
loss is proved to have been caused by such breach -
If the compensation named in the contract is by way of      F
penalty, the party is only entitled to reasonable
compensation for the loss suffered - However, if the
compensation named in the contract for such breach is
genuine pre-estimate of loss, the actual loss need not
be proved - Burden to prove that no loss was likely to      G
be suffered is on the party committing breach - Thus,
it can be presumed that delay in executing the work
resulted in loss in the form of environmental degradation

                          341                               H
342        SUPREME COURT REPORTS                [2015] 2 S.C.R.


A and loss of interest on the capital for which the
  respondent was entitled to reasonable compensation -
  Evidence of precise amount of Joss may not be possible
  but in absence of any evidence by the party committing
  breach that no loss was suffered by the party
8 complaining of breach, the court has to proceed on
  guess work as to the quantum of compensation to be
  allowed in the given circumstances - Since the
  respondent neither showed the extent of higher amount
  paid for the work got done nor produced any other
C specific material, respondent to be awarded half of the
  amount claimed as reasonable compensation.

          Oil and Natural Gas Corporation Ltd. v. Saw Pipes Ltd.
      2003 (3) SCR 691: (2003) 5 SCC 705 - relied on.
D     Mis. Arosan Enterprises Ltd. v. Union of India and
  another1999 (2) Suppl. SCR 621: (1999) 9 SCC 449; Fateh
  Chand v. Bal Kishan Das (1964) 1 SCR 515; Mau/a Bux v.
  Union of India 1970 (1) SCR 928: (1969) 2 SCC 554; M.L.
  Devendra Singh v. Syed Khaja 1974 (1) SCR 312: (1973) 2
E SCC 515; P D'Souza v. Shondri!o Naidu 2004 (3) Suppl.
  SCR 186: (2004) 6 SCC 649- referred to.

                       Case Law Reference

        1999 (2) Suppl. SCR 621      Referred to.     Para 6
 F
        (1964) 1SCR515               Referred to.     Para 6
        1970 (1) SCR 928             Referred to.     Para 6
        1974 (1) SCR 312             Referred to.     Para 6
G       2004 (3) Suppl. SCR 186      Referred to.     Para 6
        2003 (3) SCR 691             Relied on.       Para18

          CIVIL APPELLATE JURISDICTION: Civil Appeal
H Nos. 1440-1441 of2015
   CONSTRUCTION & DESIGN SERVICES v. D. D. A.                     343


    From the Judgment and Order dated 10.02.2012 and A
01.06.2012 of the Division Bench of the Delhi High Court in
RFA (OS) No. 35 of 2010 and Review Petition No. 369 of
2012 in RFA (OS) No. 35 of 2010 respectively.

    C. S. Parashar, Saurabh, Rajiv Mishra, Arvind Kumar            8
Garg, Kundan Kumar Mishra for the Appellant.

    Dhruv Tamta, Binu Tamta for the Respondent.

    The Judgment of the Court was delivered by
                                                                   c
    ADARSH KUMAR GOEL, J. 1. Leave granted.

    2. These appeals have been preferred against final
judgment and order dated 10th February, 2012 in RFA(OS)
No.35 of 2010 and dated 1st June, 2012 in R.P. No.369 of
2012 in RFA (OS) No.35 of 2010 passed by the High Court D
of Delhi at New Delhi.

     3. The question raised for our consideration is when
and to what extent can the stipulated liquidated damages
for breach of a contract be held to be in the nature of penalty    E
in absence of evidence of actual loss and to what extent the
stipulation be taken to be the measure of compensation for
the loss suffered even in absence of specific evidence.
Further question is whether burden of proving that the amount
stipulated as damages for breach of contract was penalty is        F
on the person committing breach.

     4. The respondent - Delhi Development Authority
awarded a contract vide agreement dated 4th October, 1995
to the appellant for constructing a sewerage pumping station G
at CGHS area at Kondli Gharoli at Delhi. Clause 2 in the
agreement provided as follows:

    "the contractor shall comply with the said time
    schedule. In the event of the contractor failing to
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344         SUPREME COURT REPORTS                   [2015] 2 S.C.R.


A          comply with this condition, he shall be liable to pay
           as compensation an amount equal to one percent
           or such smaller amount as the Superintending
           Engineer Delhi Development Authority (whose
           decision shall be final) may decide on the said
B          estimated cost of the whole work for everyday that
           the due quantity of work remains incomplete;
           provided always that the entire amount of
           compensation to be paid under the provisions of
           this clause shall not exceed ten percent of the
C          estimated cost of work as shown in the tender."

       Since the work proceeded at slow pace and the
  appellant-defendant failed to complete the same, the contract
  was terminated on 17th September, 1999. Under Clause 2
D of the agreement, the Superintending Engineer of the
  respondent levied compensation of Rs.20,86,446/- for delay
  in execution of the project by an order of penalty dated 21st
  July, 1999 and called upon the appellant to deposit the same.
  The said order reads thus :
E         "The work was being executed by you at extremely
          slow pace. You had to complete the job by 7.1.97.
          You had failed to complete the work even after expiry
          of 2 years six months after stipulated date of
          completion. Despite the clear direction from Hon'ble
F         Supreme Court to expedite the work and complete
          the job by June-99, you have failed to comply the
          direction of Court and have rather abandoned the
          work since 6.4. 99 and you failed to complete the
          work till date.
G
            In exercise of the power conferred on me underclause-
      2 of the agreement, I, R. C. Kinger, the SE!CC-1 O/DDA decide
      and determine that you are liable to pay Rs. 20, 86, 4461- (Rs.
      Twenty lacs eighty six thousand four hundred forty six only)
H
    CONSTRUCTION & DESIGN SERVICES v. D. D. A.               345
            [ADARSH KUMAR GOEL, J.]

as and by way of compensation as stipulated in c/ause-2 of A
the agreement."

     5. On failure of the appellant to respond to the above
order, the respondent filed suit No.1311 of 2002 before the
Delhi High Court for recovery of the said amount with interest. 8
The appellant-defendant failed to contest the suit inspite of
service but made an application raising objection to the
maintainability of the suit on the ground that vide order dated
191h December, 2001, a former Judge of Delhi High Court
had been appointed arbitrator to decide the disputes arising C
out of the contract. The said application was, however,
dismissed on the ground that the matter in the suit was not
within the purview of the arbitration. The Court proceeded
to decide the suit on merits.

     6. Learned single Judge dismissed the suit holding that D
the plaintiff had not treated the time fixed for performance of
the contract as of essence and the compensation stipulated
in Clause 2 of the agreement was in the nature of penalty.
The basis for levy of compensation had not been indicated
so as to determine whether the compensation claimed was E
reasonable. Reliance was placed on the judgment of this
Court in Mis. Arosan Enterprises Ltd. vs. Union of India
and another1 in support of the view that the time stipulated
in the agreement was not treated to be of essence. It was
further observed that since the claim for compensation was F
based on sole discretion and not on the basis of loss suffered,
the same was in the nature of penalty and thus, the said
Clause could not be enforced in view of Section 74 of the
Contract Act as laid down in Fateh Chand vs. Bal Kishan
Das2, Mau/a Bux vs. Union of /ndia 3, M.L. Devendra Singh G


1. (1999) 9   sec 449
2. (1964) 1 SCR 515
3. (1969) 2   sec 554                                          H
346          SUPREME COURT REPORTS                  [2015] 2 S.C.R.


A vs. Syed Khaja 4, P. D'Souza vs. Shondrilo Naidu5 and Oil
  and Natural Gas Corporation Ltd. vs. Saw Pipes Ltd. 6.
  Learned single Judge concluded as follows:-

           "20. The Court is of opinion that the plaintiff having
B          not treated the contract as of the essence, and
           having extended the time for performance on
           several occasions, cannot now fall back on a
           presumptive condition to impose the maximum
           compensation leviable; enforcement of such action
c          would be giving effect to a penalty clause. As far
           as granting reasonable compensation is concerned,
           the plaintiff has not shown even the basis for levying
           the compensation that it did in this case .. As said
           earlier, this aspect assumes significa,.ce, because
           the plaintiff was aware what extent of the contract
D
           was performed, as well as what was the exact extent
           of loss, in monetary terms, either by way of payment
           to another contractor, or the amount spent for
           completing the work. In the circumstances, the
           Court is of opinion that the relief sought cannot be
E
           granted."

       7. On appeal, the Division Bench reversed the view taken
  by the learned single Judge. It was held that delay in a
  contract of construction of a public utility service could itself
F be a ground for compensation without proving the actual
  loss. Accordingly, the suit was decreed for payment of
  Rs.20,86,446/- with pendente lite and future interest@ 9%
  per annum. It was observed:
G            "5. The respondent had been proceeded against
           ex-parte at the trial and has chosen not to appear

      4. (197:3) 2 sec 515
      5. (2004) 6 sec 649
H     6. (2003J 5 sec 105
CONSTRUCTION & DESIGN SERVICES v. D. D. A.                  347
        [ADARSH KUMAR GOEL, J.]

even before us. The evidence led by the appellant            A
has remained unrebutted.

   6. Suffice would it be to state that the observations
of the Supreme Court in para 68 of the decision
reported as AIR 203 SC 2629 ONGC v. Saw Pipes                B
Ltd. are squarely applicable in the instant case as
per which delayed constructions such as completing
construction of road or bridges within stipulated time
would be difficult to be linked with actual loses
suffered by the State and in such cases the pre-
estimated damages envisaged in the contract have
                                                             c
to be paid.

  7. Now, a Sewage Pumping Station is not
something from which Revenue would be generated
by the State. It is a public utility service and has a       D
role to play in maintaining or preserving clean
environment. If Sewage Pumping Station are not
set up, sewage would stagnate as cess pools in
low lying areas and would cause environmental
degradation, both air and soil. That apart, in a             E
delayed project, interest on blocked capital would
obviously be a measure of damages.

   8. The learned Single Judge has ignored as
aforesaid and held that in the absence of proof of           F
damages, compensation levied under clause-2
cannot be recovered. The learned Single Judge is
incorrect in view of the law declared by the Supreme
Court and thus we allow the appeal and set aside
the impugned decree. Suit filed by the appellant is          G
decreed in sum of Rs. 20, 86, 4461- with pendente lite
and future interest @ 9% per annum from date of
suit till realization and the suit filed by the appellant
is disposed of accordingly with costs all throughout."
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348        SUPREME COURT REPORTS                 [2015] 2 S.C.R.


A         8. The appellant filed a review petition which was
      dismissed.

         9. We have heard learned counsel for the parties.

        1O. On 191h November, 2012 notice was issued subject
B to the appellant depositing the entire decretal amount in this
  Court and by a subsequent order, the amount was directed
  to be kept in term deposit for a period of one year to ensure
  for the benefit of the successful party. Accordingly, the amount
  of Rs.20,86,500/- is said to have been deposited which has
C been kept in FDR which is going to mature on 81h February,
  2015.

       11. Learned counsel for the appellant submitted that the
  Division Bench erred in holding that the entire amount of
D stipulated damages was genuine measure of compensation
  when instead of any fixed amount, only the maximum amount
  of compensation was stipulated. The contract in question
  only envisaged the upper limit of damages which could be
  claimed. It is submitted that the agreement quoted in earlier
E part of the order clearly shows that what is stipulated is that
  the compensation shall not exceed 10% of the estimated
  cost and the amount to be recovered as compensation was
  required to be determined by the Superintending Engineer.
  The respondent-plaintiff has failed to show the actual amount
F of loss suffered in getting the work executed from any other
  contractor. In these circumstances, at best a part of it could
  be taken to be compensation and the remaining penalty.
  He submitted that the judgment of this Court in Saw Pipes
  Ltd. (supra) relied upon by the High Court is distinguishable
G in the fact situation of the present case. Without determining
  that the stipulated compensation was reasonable, the
  maximum amount stipulated could not be treated as
  compensation.

         12. Learned counsel for the respondent-plaintiff on the
H
   CONSTRUCTION & DESIGN SERVICES v. D. D. A.                349
           [ADARSH KUMAR GOEL, J.]

other hand submitted that even though in the order passed A
by the Superintending Engineer no specific basis has been
shown, notice was duly issued to the appellant defendant
before determining the reasonable amount of compensation
and claiming 10% of the project cost which was stipulated to
be the maximum compensation, on account of delay in B
execution of the project. On failure of the appellant to
respond, the entire amount has been rightly held to be the
estimate of damages for the loss. Burden was on the
defendant to show that no loss or lesser loss was suffered
by the plaintiff.                                            C

   13. We have given due consideration to the rival
submissions.

     14. There is no dispute that the appellant failed to
execute the work of construction of sewerage pumping D
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 E
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 F
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.

      15. Thus, even if there is no specific evidence of loss G
sufferedby 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.              H
350        SUPREME COURT REPORTS                      [2015] 2 S.C.R.


A       16. Once it is held that even in 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
B penalty. In a given case, when highest limit is stipulated
  instead of a fixed sum, in 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
C 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 on party committing breach, as already
  observed.
D
           17. It is not necessary to refer to all the judgments on
      the point in view of categorical pronouncement of this Court
      in Saw Pipes (supra), laying down as follows:-

          "64. It is apparent from the aforesaid reasoning
 E        recorded by the Arbitral Tribunal that it failed to
          consider Sections 73 and 74 of the Indian Contract
          Act and the ratio laid down in Fateh Chand case
          wherein it is specifically held that jurisdiction of the
          court to award compensation in case of breach of
 F        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
G         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
H
CONSTRUCTION & DESIGN SERVICES v. D. D. A.                351
        [ADARSH KUMAR GOEL, J.]

  has been broken, if a sum is named in the contract       A
  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                 B
  exceeding the amount so named. Section 74
  emphasizes 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.             C
  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        D
 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        E
 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. Take for illustration: if the parties
have agreed to purchase cotton bales and the same          F
were only to be kept as a stock-in-trade. Such bales
are not delivered on the due date and thereafter
the bales are delivered beyond the stipulated time, ·
hence there is breach of the contract. The question
which would arise for consideration is - whether           G
by such breach the party has suffered any loss. If
the price of cotton bales fluctuated during that time,
loss or gain could easily be proved. But if cotton
bales are to be purchased for manufacturing yam,
consideration would be different...........                H
352       SUPREME COURT REPORTS                   [2015] 2 S.C.R.


A       67. Take for illustration construction of a road or a bridge.
  If there is delay in completing the construction of road or
  btidge within the stipulated time, then it would be difficult to
  prove how much loss is suffered by the society/State.
  Similarly, in the present case, delay took place in deployment
B of rigs and on that basis actual production of gas from
  platform B-121 had to be changed. It is undoubtedly true
  that the witness has stated that redeployment plan was made
  keeping in mind several constraints including shortage of
  casing pipes. The Arbitral Tribunal, therefore, took into
C consideration the aforesaid statement volunteered by the
  witness that shortage of casing pipes was only one of the
  several reasons and not the only reason which led to change
  in dep/oym7ent of plan or redeployment of rigs Trident II
  platform B-121. In our view, in such a contract, it would be
o 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
E contract is not liable to pay compensation. It would be against
  the specific provisions of Sections 73 and 74 of the Indian
  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
F 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
G 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-
H estimate damages because of delay in supply of goods.
   CONSTRUCTION & DESIGN SERVICES v. D. D. A.                     353
           [ADARSH KUMAR GOEL, J.]

Further, while extending the time for delivery of the goods,       A
the respondent was informed that it would be required to
pay stipulated damages."

     18. Applying the above principle to the present case, it
could certainly be presumed that delay in executing the work B
resulted in loss for which the respondent was entitled to
reasonable compensation. Evidence of precise amount of
loss may not be possible but in absence of any evidence by
the party committing breach that no loss was suffered by
the party complaining of breach, the Court has to proceed C
on guess work as to the quantum of compensation to be
allowed in the given circumstances. Since the respondent
also could have led evidence to show the extent of higher
amount paid for the work got done or produce any other
specific material but it did not do so, we are of the view that 0
it will be fair to award half of the amount claimed as
reasonable compensation.

      19. Accordingly, this appeal is partly allowed and the
decree granted by the High Court is modified to the effect
that the respondent-plaintiff is entitled to half of the amount    E
claimed with rate of interest as awarded by the High Court.
Out of the amount deposited in this Court, the respondent
will be entitled to withdraw the said decretal amount and the
appellant will be entitled to take back the remaining .
                                                                   F
     20. The appeals are disposed of accordingly.
Nidhi Jain                                 Appeals disposed of.