Supreme Court of India on Proof of Loss for LD Claim in Public Utility Services Contracts

In a recent post (22.01.2015), we had discussed the law of liquidated damages and rasied a few pertinent questions regarding proof of loss. In the said post, we had taken note of the decision in  ONGC v SAW Pipes where the court had provided a few illustrations of cases where actual losses need not be proved: a) Delay/ breach in contracts for construction of a road or bridge; b) Delay/ breach caused is one of the several reasons for the legal injury (for example, delay in sending casings was one of the several reasons for postponing deployment of rigs).

Recently (04.02.2015), the Supreme Court of India held in M/s. Construction & Design Services v DDA that in cases of delay/ breach in contract for construction of a public utility service, even in the absnece of specific evidence of loss suffered by the said party, the contractor would be liable for liquidated damages (if breach is established).

In the instant case, the contractor delayed in completing the contract for construction of sewerage pump within the contractually stipulated time. When liquidated damages were imposed, the contractor questioned the same before a Single Judge of the Delhi High Court which upheld the contractor's contentions. The Division Bench, on the other hand, reversed the decision of the Single Judge and held that there was no need of proof of loss in cases of public utility services (pdf).

However, the court held that it could even then determine whether the liquidated damages agreed in the contract was reasonable or not. Since the court felt that DDA never led any evidence to prove losses, the court deemed it fit to award half the sum agreed in the contract as reasonable. The court held:

"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 also could have led evidence to show the extent of higher amount paid for the work got done or produce any other specific material but it did not do so, we are of the view that it will be fair to award half of the amount claimed as reasonable compensation."