Case title: J G Engineers Pvt. Ltd v. Union of India, AIR 2011 SC 2477.
๐ “Damages” for breach of contract refers to the compensation for any damage or injury or inconvenience suffered by the other party as a consequence of the breach.
๐ Employers generally have the Liquidated Damages or LD clause in contracts. Such clauses provide that in case of breach, say on the account of delay in completion of work, LD will be levied or imposed as a consequence thereof. Such stipulations are covered under Section 74 of the Act. The court is not bound to award the amount mentioned in contract as damages but can award a reasonable compensation not exceeding the amount mentioned.
๐ In J G Engineers Pvt. Ltd v. Union of India19 the Hon’ble Supreme Court held that a party can impose LD only if the other party has committed the breach and that must have been adjudicated by the court or arbitrator.
๐ It is pertinent to note here that the employer cannot unilaterally determine the breach and impose LD. There has to be an adjudicatory process provided in the contract, the courts in absence of such process have refused to enforce the clauses authorizing the employer from quantifying the damages on its own.20 Thus, before the breach is adjudicated by court or arbitrator the employer cannot impose any LD on the contractor. If he does so, the same will be illegal or perverse.
๐ Also, the employer cannot impose the LD without giving the defaulting party a reasonable notice to remedy the ‘delay’ or ‘breach’. The requirement of giving notice is not a mere formality. The employer is obligated to give a detail notice stating clearly the breach complained of time to remedy such breach and consequences in case the breach is not remedied within the specified period.
๐ The employer’s right to realize LD is forfeited in certain circumstances such as:
Waiver: When there is a breach of contract, the employer can either elect to affirm the breach and claim LD or ignore the same and grant continuation of the contract. In case he chooses not to elect the breach as repudiatory breach, he is disentitled to claim LD. He would have said to waive off his right to claim LD and the right to claim the same will be forfeited.
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