MAHANAGAR TELEPHONE NIGAM LTD. versus TATA COMMUNICATIONS LTD.

Citation: [2019] 4 S.C.R. 885 · Decided: 27-02-2019 · Supreme Court of India · Bench: R.F. NARIMAN · Disposal: Dismissed

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Judgment (excerpt)

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MAHANAGAR TELEPHONE NIGAM LTD.
v.
TATA COMMUNICATIONS LTD.
(Civil Appeal No.1766 of 2019)
FEBRUARY 27, 2019
[R. F. NARIMAN AND VINEET SARAN, JJ.]
Contract Act, 1872 – ss. 74 and 70 – Compensation for breach
of contract where penalty stipulated for – Claim in quantum meruit
u/s. 70 when parties governed by contract – Permissibility of –
Purchase Order wherein respondent was to provide last mile
connectivity at two places of the appellant and levy of liquidated
damages were to be limited to a maximum of 12% – Bills raised by
the respondent for the services rendered amounting to
Rs. 2,15,25,512/- – On account of limitation of 12%, the appellants
could not have levied and deducted an amount more than
Rs. 25,83,181/-, however, the appellant proceeded to unilaterally
impose rentals at their own rate of dark fibre – Appellant adjusted
the amount from dues payable to the respondent by deduction from
the bill raised by the respondent – Respondent filed petition before
the tribunal against the appellant for recovery of Rs.1,10,57,268/-
plus interest thereon – Tribunal held that the principal amount to be
paid back to the respondent by the appellant would be
Rs.84,74,087/- with 9% interest thereon after deducting
Rs.25,83,181/- (12% liquidated damages) from Rs. 1,10,57,268/- –
On appeal, held: Instant case is covered by s. 74 – Tribunal rightly
held that a maximum of 12% can be levied as liquidated damages
under the contract, which would amount to Rs. 25 lakh – Since this
clause governs the relations between the parties, contractually
speaking a higher figure, cannot be awarded as liquidated damages,
which is to be considered as final – Appellant can claim only this
sum – Thus, the order of the tribunal upheld – Telecom Regulatory
Authority of India Act, 1997.
Dismissing the appeal, the Court
HELD: 1.1 Section 70 occurs in Chapter V of the Contract
Act, which chapter is headed, “of certain relations resembling
                                        [2019] 4 S.C.R. 885
885
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SUPREME COURT REPORTS
[2019] 4 S.C.R.
those created by contract”. There are five sections that are
contained in this Chapter. Each of them is posited on the fact that
there is, in fact, no contractual relationship between the parties
claiming under this Chapter. For example, under Section 68, if a
person incapable of entering into a contract is supplied
necessaries by another person, then the person who has furnished
such supplies becomes entitled to be reimbursed from the
property of the person so incapable of entering into the contract.
Section 69 also deals with a case where a person has no contractual
relationship with the other person mentioned therein, but who is
interested in the payment of money which the other person is
bound by law to pay, and who, therefore, pays it on behalf of such
person. Such person is entitled to be reimbursed by the other
person. Under Section 71, again, the finder of goods spoken of is
a person who is fastened with the responsibility of a bailee as
there is no contractual relationship between the finder of goods
and the goods which belong to another person. Equally, under
Section 72, a person to whom money has been paid or anything
delivered by mistake or coercion must repay or return it, or else,
such person would be unjustly enriched. Here again, there is no
contractual relationship between the parties. It is in this setting
that Section 70 occurs. [Para 2] [890-F-H; 891-A-B]
1.2 The instant case is really covered by Section 74 of the
Contract Act, which occurs in Chapter VI, which is headed, “of
the consequences of breach of contract”. [Para 10] [895-B]
1.3 The impugned judgment of TDSAT rightly held that a
maximum of 12% can be levied as liquidated damages under the
contract, which sum would amount to a sum of INR 25 lakh. Since
this clause governs the relations between the parties, obviously,
a higher figure, contractually speaking, cannot be awarded as
liquidated damages, which are to be considered as final and not
challengeable by the supplier. This being the case, the appellant
can claim only this sum. Anything claimed above this sum would
have to be refunded to the respondent. The impugned judgment
of the TDSAT is upheld. [Paras 13, 14] [897-G-H; 898-A-B]
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Moselle Solomon v. Martin & Co. ILR (1935) 62 Cal
612; Kanhayalal Bisandayal Bhiwapurkar (Dr.) v.
Indarchandji Hamirmalji Sisodia AIR 1947 Nag 84;
Alopi Parshad and Sons Ltd. v. Union of India
[1960] 2 SCR

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