Phoenix Yule and Neyveli Lignite Corporation

Referred to the decision of the Supreme Court in the case ONGC v. SAW Pipes to define as
to what comes under the scope of “Public Policy”

“Therefore, in our view, the phrase "public policy of India" used in Section 34 in context is
required to be given a wider meaning. It can be stated that the concept of public policy
connotes some matter which concerns public good and the public interest. What is for public
good or in public interest or what would be injurious or harmful to the public good or public
interest has varied from time to time. However, the award which is, on the face of it,
patently in violation of statutory provisions cannot be said to be in public interest. Such
award/judgment/decision is likely to adversely affect the administration of justice. Hence, in
our view in addition to narrower meaning given to the term "public policy" in Renusagar
case it is required to be held that the award could be set aside if it is patently illegal. The
reason would be award could be set aside if it is contrary to:

(a) fundamental policy to Indian law; or

(b) the interest of India; or

(c) justice or morality, or

(d) in addition, if it is patently illegal.

Illegality must go to the root of the matter and if the illegality is of trivial nature it cannot be
held that award is against the public policy. Award could also be set aside if it is so unfair
and unreasonable that it shocks the conscience of the court. Such award is opposed to
public policy and is required to be adjudged void.”

P.33
“While considering the phrase "public policy of India", the Apex court laid down the
principles as stated above. However, as far as the liquidated damages are concerned, the
Apex Court discussed sections 73 and 74 of the Contract Act and categorically held that if the
terms are clear and unambiguous stipulating the liquidated damages in case of breach of
contract, unless it is held that such estimate is unreasonable or is by way of penalty party
who has committed the breach is required to pay such compensation as provided in Sec. 73
of the Contract Act and further held that Sec. 74 is to be read along with Sec. 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 claim a decree. The court
is competent to award reasonable compensation in case of breach even if no actual
damage is proved or suffered.”

(Reasonable compensation comes under the scope of Public Policy)

Bindu Kelunni v. Blue Dart Aviation

P.24
“In the instant case, the appellant had abruptly resigned the employment of the plaintiff by
submitting the resignation letter within a period of 11 months from the date of joining the
services of the plaintiff. Therefore, definitely there should be a loss of revenue to the
plaintiff-company as contended by the learned counsel for the respondent/plaintiff, which
cannot be proved in the form of evidence. Whereas the defendant had executed the Bond
wilfully with full knowledge and complete understanding of the terms and conditions of the
Bond, by indemnifying to pay a sum of Rs. 10 lakhs, which amount she recognises as
indirect cost that would be incurred by the company for her training, if she did not
successfully complete the training and get released as a First Officer or if she leaves the
services of the respondent or if her services are terminated by the respondent in certain
circumstances as provided under Bond, within a period of three years of her release as First
Officer. Therefore, by acknowledging the said clause, the defendant undertook to pay a
sum of Rs. 10 lakhs in the event of her leaving the services of the plaintiff within three
years. Therefore, it is not possible to the plaintiff to lead evidence to prove loss and
damages, when the appellant abruptly resigns the services of the plaintiff in violation of
the terms of her employment. The losses incurred by the plaintiff, as a result of the
defendant's abandonment of the services of the plaintiff, without any reasonable notice,
cannot be computed for the reason that there were several variables of the plaintiff's
business operations that were disturbed.”

P.25
“if a compensation named in the Bond for a party's breach was a genuine pre-estimate of
loss which the parties knew when they made the contract to be likely to result from the
breach of it, it is not necessary for the parties to prove such a loss and the parties are not
required to prove the loss suffered by them by leading evidence. The above said judgment
clearly encapsulate the inconveniences, losses and damages that were faced by the plaintiff
as a result of the abrupt departure of the defendant from the services of the plaintiff,
without providing any reasonable notice period. Therefore, it is clear that the defendant is
guilty of breach of the Bond and causing inconvenience to the plaintiff because of her abrupt
exit from the services of the plaintiff.”

P.27
“Due the abrupt resigning of the defendant from the services, the plaintiff has to appoint
another person as First Officer. It is not possible to employ another Pilot in place of the
defendant for several months since the sourcing and employment of Pilots takes
approximately about 3-4 months and training needs to be imparted to such Pilot before
he/she can be qualified to fly the aircrafts of the plaintiff. Due to the abrupt exit of the
appellant from the services, the plaintiff has suffered revenue loss. Moreover, in the
evidence of D.W.1, she had admitted that the training involves direct as well as indirect
costs. She has also stated that suddenly abandoning the service of the plaintiff, will put the
whole schedule of the plaintiff in jeopardy thereby disrupting essential public service.”

We are of the opinion that the amount of Rs. 10 lakhs mentioned in the Bond is a genuine
pre-estimate of the damages which would be incurred by the plaintiff in the event of abrupt
leaving the services
JK Fenner

P.16
The preliminary objection raised by the Respondent regarding maintainability cannot be
countenanced as the Claimant has only challenged that portion of the Award that is against
them. Therefore, the acceptance of the amounts due towards that portion of the Award in
their favour will not amount to estoppel.

(a) From a reading of the pleadings, written arguments, the documents and the Award the
following facts emerge. The Claimant was awarded - the Contract for installing the lignite
Handling System which was an intermediary system. The Contract was awarded to the
Claimant as they had satisfied the qualifying requirement i.e., they had entered into an
Agreement with M/s. John Holland Construction arid Engineering Pty Limited, an Australian
Company who had the requisite experience of installing a-Lignite Handling System. The
terms of the Agreement had stipulated that the LHS shall be completed, upto and including
the successful completion of the trial operation by the Claimant, within a period of 30
months from the date of the Letter of Award. The Letter of Award was issued on
31.7.1998/12.8.1998 and therefore, the time for completion of the installation was by
1.1.2001. The terms of the Contract (Schedule IV) further provided the bar chart detailing
the various stages of the Contract and the time to be taken for each of them. This Schedule
Further provided the levy of LD for the non-fulfillment of the time Schedule. The terms of the
Contract would stipulate that the LD would be leviable when the scheduled date for the
successful completion of the trial operation is not adhered with and the rate of LD provided
is 0.5% of the non-utilizable portion of the works per week of delay or part thereof subject to
a maximum of 10%.

(b) Admittedly, the Claimant had not adhered to the stipulated date of completion and had
sought extensions. Ultimately, it was only on 01.01.2003 that the Claimant became ready to
undergo the trial operations. The Respondent had, therefore, claimed liquidated damages.
The Tribunal had rejected the claim of the Claimant to refund the LD recovered by the
(Respondent on the ground that there was a delay and the cause factors for the delay were
not proved. The Tribunal has extensively dealt with each one of the cause factors put
forward by the Claimant and rendered its finding. The contention of the Claimant that the
Respondent had not suffered any loss as even when the Claimant was ready for the trial
operation the Respondent was not ready and therefore, LD cannot be levied has been
rejected by the Tribunal with cogent reasons. The Tribunal has observed that the Claimant
has pushed back the agreed completion date by three years and it is only on account of their
delay that the other delay had occurred and the recovery of LD was justified. The learned
Senior Counsel appearing on behalf of the Claimant has contended that the Respondent had
not suffered any loss on account of the delay and therefore, the levy of LD was contrary to
provisions of Section 74 of the Contract Act. The above argument has been turned down by
the Tribunal after taking into account the fact that the Claimant without any reasonable
cause has delayed the project by over 3 years. The Tribunal has also taken into account the
fact the every extension starting from the first extension has been granted only subject to
the levy of LD by the Respondent. Therefore, from 01.01.2001, till the date of the LHS being
made ready, the LHS was non utilizable. The parties have agreed to have LD levied at the
maximum rate of 10% of the non-utilizable portions. The actual loss in the instant case
cannot be proved. Further, the LHS was an important and integral system which had to be
set in place to convey lignite to the boiler.

(c) In the Judgment of Kailash Nath Associates v. DDA, MANU/SC/0019/2015 : 2016 (2) CTC
570 (SC) : 2015 (4) SCC 136, the Hon'ble Supreme Court had discussed as follows:

"436. The expression "whether or not actual damage loss is proved to have been caused
thereby" means that where it is possible to prove actual damage or loss, such proof is not
dispensed with. It is only in cases where damages on loss is difficult or impossible to prove
that the liquidated amount named in the Contract, if a genuine pre-estimate of damage or
loss can be awarded."
(d) Admittedly, the Claimant has- delayed the completion of the works by over three years
and therefore, the entire project, which was for the expansion of the First Thermal Power
Station, was delayed. The delay has impliedly resulted in a loss to the Respondent which
however cannot be quantified. The LD agreed upon is reasonable as the project itself was for
Public Interest. Therefore, the award under Claim III does not require any interference.

(e) As regards the Award under the Claims V & VII once again the Arbitral Tribunal has
examined the material available before it thoroughly to come to the conclusion that JH, the
collaborator has not involved themselves in the project as undertaken by them under the
JDA. Under this head, the Tribunal has only awarded the Respondent, a sum of ` 1 crore. The
Tribunal having analysed the facts and documents have held against the Claimant and this
Court does not find any reason to hold otherwise. Further, it is noteworthy that the Contract
had been awarded to the Claimant only on account of the fact that they had a Collaboration
Agreement with JH who had prior experience in putting up a LHS. This was a qualifying
requirement. Neither the JDU nor the CA (Collaboration Agreement) were a mere formality
but an intrinsic qualifying requirement as the Respondent required the Expertise of an expert
in installing the LHS. The Tribunal has extensively dealt with the various correspondence
between the Respondent and the Claimant wherein the Respondent has sought the presence
of JH but the Claimant has not been able to involve JH in the work.

(f) Admittedly, the Claimant has not done the PGT for the auxiliaries and there is a categoric
finding of the Tribunal that the Claimant was not ready to do the PGT for the auxiliaries
which is contrary to the terms of the Contract. The conduct of the PGT was mandatory both
in respect of the main equipment as well as the auxiliaries. Though the PGT with reference to
the main equipment had not been conducted in the prescribed manner the Tribunal has
found fault with both the Claimant as well as the Respondent and taking an overall view had
directed the Respondent to pay a sum of ` 3,66,06,207 as Liquidated Damages together with
Interest of ` 3,40,43,773. I do not find any reason to interfere with this portion of the Award
as well.

(g) Claim I related to the non-payment of the amounts withheld towards retention of 10%
from the invoice amount by the Respondent as prescribed in keeping with the payment
terms. The payment terms prescribed as follows:

"After successful completion of Performance Test for equipment and, certification of results
by the purchases/Consultant - 10% to be paid."
The case of the Claimant is that though the trial operation had been carried out from
01.01.2003 to 01.03.2004 and the Respondent had taken over the entire system on
01.03.2004 the balance amount of 10% from the Invoice amount was not released by the
Respondent. The Arbitral Tribunal having held that the retention monies were repayable to
the Claimant had committed a patent illegality, in not granting Interest atleast from
01.03.2004 when the Respondent had taken over the LHS and started operating the same.
The Tribunal has denied Interest on the ground that the retention amount became
refundable only on the date of Award and therefore, the Claimant was not entitled to
Interest till the date of Award. Post award Interest has also not been awarded.

(h) The denial of Interest post 01.03.2004 to the Claimant on the ground that the Retention
amount became payable only on account of the award is a patently erroneous observation
and contrary to the payment terms stipulated in the Contract and elaborated in Schedule VI
thereto. Clause 6.5.2.1(d) of the above schedule clearly details that on the successful
completion of performance test for equipment is conducted and a Certification is issued
therewith by the Respondent, the balance 10% of the Contract price is to be released to the
Claimant. The clause further provides that in the event of commissioning being delayed
beyond six months from the schedule date and the delay is not attributable to the Claimant
the final tranche of pay shall be released against the production and acceptance of a Bank
Guarantee for an equal amount valid for one year or any revised scheduled date of
commissioning whichever is earlier. The validity of the Bank Guarantee was to be renewed
till the commissioning.

(i) A reading of the above clause clearly indicates that the parties had agreed that the final
payment had to be released latest beyond six months from' the completion of the
Performance Test. Admittedly, the Respondent had taken over the LHS. and started
operating and maintaining the same ever since 01.04.2003. The Respondent had therefore
reaped the benefits therefrom the above date. Not only has the Respondent retained 10% of
the final dues but has also been utilizing the LHS to its capacity thereby enriching itself. The
Arbitral Tribunal has overlooked the terms of Clause 6.5.2.1(d) and has erred in not granting
Interest from 1.4.2003. The Respondent has wrongly withheld the amount. No doubt the
Contract does not provide for Interest but the Clause 6.5.2.1(d) makes its evident that the
Agreement between the parties was that the amounts would be released on the completion
of the Performance Test and latest within a period of 6 months thereof. The release of the
amounts was to be done even if the LHS had not been commissioned for which the agreed
terms had provided some safeguards to the Respondent. Therefore payment of the amounts
for the work completed was the clear terms of the Agreement. The Respondent having failed
to adhere to this stipulation and continuing to retain the money thereto has rendered itself
liable to pay Interest. It is noteworthy that the Agreement between the parties does not
expressly prohibit the levy of Interest.”

Indian Oxygen v. ANS Oxygen

P.44
“This Court on considering the terms of the contract and the conduct of the contracting
parties manifested from the trail of correspondence holds that (a) Ex. A-3 is the result of a
concluded contract; (b) The respondent is the party who breached the contract; (c) The
appellant is entitled for reasonable damages. In other words, the appellant is entitled for
forfeit a reasonable amount towards damages; (d) Proof of actual damage is not a
mandatory requirement. 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 contract.”

Electronic Corporation of TN v. ICMC Corporation

P.19
“I find that the sum stipulated bears a reasonable correlation to anticipated loss in as much
as there is proportionality as between the extent of delay and the amount of LD. Therefore,
it may be concluded that it is a genuine pre-estimate of anticipated loss. Given the nature of
the contract, namely, the supply of laptop computers free of cost to students, it is evident
that the monetary or other losses arising as a consequence of delay would be virtually
impossible to establish. Thus, this contract would fall within the categories of contract,
where it would be impossible or difficult to prove loss. As regards factum of loss, the answers
of RW-1 to questions 67 and 68 were cited as proof that the Petitioner herein did not suffer
monetary or other loss. Nonetheless, the delayed supply of laptop computers to students
would certainly cause loss to students by way of delayed access to resources and
information and this certainly has an impact, albeit long term, on the economic
development of the State and cannot be treated as an injuria sine damno situation.
Otherwise, all liquidated damages clauses in Government contracts for the welfare of the
public at large or of specific segments would be rendered unenforceable because there may
not be monetary or other loss to the Government or the implementing agency of the
Government. The Supreme Court alluded to this difficulty in paragraph 67 of ONGC by
providing the illustration of a delay in construction of a road or bridge. At least, in those
cases, cost overrun as a result of time overrun could be established unlike in fixed price
contracts for implementing welfare schemes of this nature, where the direct loss is to the
public or a segment thereof. In 3i Infotech, I had concluded that there was no loss during a
certain period because certain services were not rolled out by then and such rolling out was
not the sole responsibility of the contractor concerned and the Government agency also had
to play a role in that regard.”