SUPREME COURT HOLDS DAMAGES MUST BE AWARDED AS STIPULATED IN THE CONTRACT
A two Judge Bench of the Hon’ble Supreme Court comprising of Justice Abhay S. Oka and Justice Ujjal Bhuyan passed a judgement dated 14.02.2025 in the matter of Sahakarmaharshi Bhausaheb Thorat Sahakari Sakhar Karkhana Ltd. v. Thyssen Krupp Industries India Pvt. Ltd. Civil Appeal No. 3194 of 2014 wherein the Bench held that Parties cannot claim beyond what is stipulated in their agreement and the claim for damages must strictly adhere to the provisions of the Indian Contract Act 1872.
Facts
The Appellant, Sahakarmaharshi Bhausaheb Thorat Sahakari Sakhar Karkhana Ltd., entered into an Agreement on 17.11.1992, with the Respondent, Thyssen Krupp Industries India Pvt. Ltd., for the design, procurement, manufacture, and supply of machinery and equipment for a continuous fermentation process, patented by the National Chemical Laboratory, Pune (NCL). The total contract price for this Agreement was ₹93.20 lakhs, and it included a dispute resolution clause that provided for arbitration.
The plant and machinery were to be supplied within 5.5 months from the effective date of the Agreement, i.e., by 15.05.1993. The plant had to achieve a guaranteed minimum yield of 280 liters of alcohol per metric tonne of molasses.
The Appellant claimed that the Respondent failed to deliver the plant and machinery on time, causing a delay of 24 weeks. Four trial runs were conducted, but the yield was significantly lower than the guaranteed 280 liters per metric tonne. Thus, the Appellant had to face the failure to meet guaranteed yield. The highest yield achieved was 237.68 liters per metric tonne. The Appellant issued a Legal Notice on 19.10.1994, claiming a total of ₹237.83 lakhs as damages, which included losses due to:
- The shortfall in alcohol yield.
- Financial expenses related to the plant.
- Compensation for losses suffered due to non-performance of the machinery.
First round of Litigation
The Appellant invoked the Arbitration Clause and filed a statement of claim before the Arbitral Tribunal, seeking Rs. 233.75 lakhs in damages.
The first Arbitration Award was passed on 20.06.1999 and the Arbitral Tribunal awarded Rs. 159.79 lakhs to the Appellant, including liquidated damages, refund of the plant cost, and interest.
Subsequently, the Respondent challenged the said Award, and the Ld. Civil Judge set aside the Award on 06.05.2000, remanding the matter for fresh arbitration.
Later, both the Parties challenged the Civil Judge’s Order in the High Court of Bombay. The Hon’ble High Court, vide Order dated 20.10.2000 upheld the monetary compensation for only Rs. 2.09 lakhs for delay, Rs. 21.42 lakhs for loss due to low yield, and Rs. 1.5 lakhs as costs, and rejected the claim of Rs. 107.54 lakh as beyond the Tribunal’s jurisdiction.
Second Round of Litigation
Thereafter, both the aggrieved Parties went for another round of Arbitration and Civil Litigation for deciding the question of delay in delivery, interest and damages. Subsequently the matter again reached to the Bombay High Court wherein the Respondent herein challenged the Second Arbitral Award. The High Court in its judgement dated 06.02.2012 set aside the claim of the Appellants amounting to Rs. 68.15 lakh, stating that it was based on speculative and imaginary calculations. Moreover, the Hon’ble High Court upheld the compensation of Rs. 2.09 lakh (delay) and Rs. 18.64 lakh (liquidated damages) claims, which were duly accepted by the Respondent.
Thus, aggrieved by the decision of the High Court, the Appellant challenged the decision dated 06.02.2012, seeking reinstatement of the Rs. 68.15 lakh claim.
Issues
1) Whether the Hon’ble High Court erred in dismissing the Rs. 68.15 lakh claim of the Appellants?
2) Whether any claim can be provided by a Court which is not mentioned in the terms of the Agreement?
Judgement by the Hon’ble Supreme Court
The Hon’ble Supreme Court dismissed the Appeal, agreeing with the Hon’ble High Court’s reasoning and stated that-
- The contract already provided liquidated damages for non-performance, capping damages at ₹18.64 lakhs under Clause 15.
- The Appellant did not invoke Clause 21, which allowed replacement of defective machinery at the Respondent’s cost.
- The 68.15 lakh claim was not based on any specific contractual provision and was, therefore, not enforceable under Section 74 of the Indian Contract Act 1872 (Compensation for breach of contract where penalty stipulated for).
Since the Appellant retained the plant and machinery, they could not claim a refund as if it was completely unusable. The Hon’ble Supreme Court upheld the Hon’ble High Court’s decision, stating that only liquidated damages as per the contract were payable and thus the Appeal was dismissed.
Conclusion
As per the Hon’ble Bench, the Appellant had already been awarded liquidated damages as per the Agreement, and the additional claim of Rs. 68.15 lakhs was rightly rejected as it was not supported by any specific contractual provision. This Judgment reaffirms that claims for damages must strictly adhere to contractual terms. Moreover, the Hon’ble Bench also emphasized that damages must be awarded in accordance with Section 74 of the Indian Contract Act, which limits compensation to what is expressly stipulated in the contract.
ARJAV JAIN
ASSOCIATE
THE INDIAN LAWYER & ALLIED SERVICES
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