Supreme Court: Deciding the pivotal question as to when and to what extent can the stipulated liquidated damages for breach of a contract be held to be in the nature of penalty 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, the Court held that 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 bench of T.S Thakur and A.K. Goel, JJ further held that the party complaining of breach can certainly be allowed reasonable compensation out of 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.
In the case where the parties were represented by Kundan Kumar Mishra and Binu Tamta, the respondent awarded a contract to the appellant for constructing a sewerage pumping station. However, the said contract was terminated due to delay in execution of the work resulted in loss for which the respondent was entitled to reasonable compensation. Considering the facts of the case, the Court said that 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 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 specific material but it did not do so, the Court awarded half of the amount claimed as reasonable compensation. Construction & Design Services v. Delhi Development Authority, , decided on 04.02.2015
