Penalty Is Supposed To Be @ 1% Of The Cost Of Incomplete Work Per Week Of Delay Subject To Maximum Of 10 % Of The Total Cost Of Contract: High Court Of Delhi

Title: National Projects Constructions Corporation Ltd. (Npcc) V M/S Aac India Pvt. Ltd

Citation: Fao (Comm) 140/2021

Coram: Hon’ble Mr. Justice Yashwant Varma And Hon’ble Mr. Justice Dharmesh Sharma

Decided On: November 02, 2023


This Judgment shall decide the present appeal preferred by the appellant under Section 37 of the Arbitration and Conciliation Act, 1996 read with Section 13(1A) of the Commercial Courts Act, 2015 for setting aside the impugned judgment dated 12 March 2021 passed by learned Additional District Judge-03, South District, Saket Courts, New Delhi  in ARBTN No.20824/2016, whereby the learned ADJ chose to partially set aside the award dated 29 August 2016 on the aspect of liquidated damages  to be paid by the appellant to the respondent.


The appellant, which is a Government Enterprise under the Ministry of Water Resources and also a company registered under the Companies Act, 1956 consequent to letter of intent dated 03 March 2017 entered into an agreement dated 13 March 2007 as Project Management Consultant of the Central Reserve Police Force with the respondent, which was a micro enterprise stated to be having a turnover of less than Rs. 10 Lacs, for installation of Fire Protection System for the Auditorium Block, CRPF Campus, Vasant Kunj, New Delhi. The project was stipulated to be completed within a period of 7 months from the date of issuance of LOI for total contract value of Rs. 90,79,200/-. However, performance got delayed.

appellant claimed that the respondent was in breach of its obligations under the contract and delayed its performance by taking about 33 months for completion of work, and therefore, in terms of clause 35.5 of the contract, LD was levied and adjusted against the payment payable to the respondent not only for the abnormal delay but also for causing damage to the reputation of the appellant for the delay caused; and accordingly payment for a sum of Rs. 1,13,97,341/- i.e., 10% of the work cost of the CRPF camp project was withheld. The respondent in terms of clause 52 of the ̳General Conditions‘ of the contract invoked arbitration.

The award was challenged by the respondent/claimant under Section 34 of the A&C Act and the learned ADJ vide the impugned judgment dated 12 March 2021 considered the proposition of law propounded in ONGC Ltd. v. Saw Pipes Ltd. And several other cases.

The impugned award is assailed in the present appeal before this Court inter alia on the grounds that the learned ADJ completely misconstrued the letter dated 09 October 2009 on the record and placed an erroneous construction on the provisions of the contract; and that despite concluding that there was delay on the part of the claimant/respondent in completing the project, contradicted itself by not allowing imposition of LD and rather modified the award, which course has no sanction in law.

Court’s Analysis and Judgement:

The court decided that liquidated damages and penalty were stipulated to be @ 1% of the cost of incomplete work per week of delay subject to maximum of 10 % of the total cost of contract value and it was stipulated that LD may be adjusted and set off against any sum payable to the Contractor/NPCC. It is also manifest that the contract stipulated payment by CRPF to the appellant alone. The appellant was enjoined upon to verify the bills towards the work done received from the sub-contractors. As an inevitable corollary, on imposition of LD, the appellant was well within its rights to withhold 10% of the contract value in such proportion from each of the sub-contractors including the claimant/respondent.

There are a catena of cases on the proposition that where damage or loss is difficult or impossible to prove, the Court is empowered to award liquidated amount stipulated in the contract, if it is a genuine pre-estimate of damage or loss, or reasonable compensation for the said amount loss or damage. So there was no ̳patent illegality‘ committed by the Arbitrator in passing the impugned award and the award could not have been modified by the learned ADJ in exercise of his powers under Section 34 of the A&C Act.

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Written by- Sushant Kumar Sharma

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