Zephyr Power Limited (Zephyr) is a company primarily engaged in developing wind power plants. It was employed (contracted) by Suzlon Energy Private Limited (Suzlon) to develop the second largest Wind Park in Jaisalmer, with a capacity of 1,864MW. Zephyr commissioned Apex Solutions Private Limited (Apex) to perform key stages in setting up Wind Park in Jaisalmer, such as site selection and preparation, foundation construction, tower installation, turbine assembly and installation, blade installation, and grid connection. A fully functional Wind Park was to be handed over to Zephyr.

The entire value of the contract between Zephyr and Apex for setting up Wind Park in Jaisalmer was Rs. 500 Crore. The contract provided a date by which a fully completed and functional Wind Park was to be handed over by Apex to Zephyr.

Apex delayed handing over of the completed functional Wind Park by 25 days. The work was satisfactory, and Zephyr accepted it. However, the delay by Apex delayed the completion of the main contract and Zephyr had to pay Rs. 50 crores in damages to the employer, that is, the Suzlon which had commissioned the Jaisalmer Wind Park. Zephyr sought to recover the damages from Apex. The contract Zephyr had with Apex had the following clauses on damages:

Clause 201.1. Apex shall be liable to Zephyr for any damage suffered by Zephyr as a consequence of Apex’s breach of contract …

Clause 201.2. For a delay in handing over a fully functional Wind Park, Apex will be liable to pay damages at the rate of 0.1% per day of delay of the contract value.

Zephyr calculated its damages under the two clauses as follows:

1. Under clause 201.1:  Rs. 50 crores

2. Under clause 201.2:   Rs. 500 crores x 0.1% x 25 days = Rs. 12.5 crores

Zephyr claimed both the amounts in damages from Apex. Apex denied its liability to pay either of the two damages. The parties are in dispute. In this context, which of the following statements on award of damages is correct?

Advait Private Limited (APL) signed an annual contract for the maintenance of its computers with Sun Computers Limited (SCL), on 20 August 2023. The contract was for the Calendar year starting from 1 January 2024 to 31 December 2024. The total value of the contract was Rs. 10 Lakh. On 21 August 2023, following the business compulsions, APL made some changes. It sold all its computers and decline to proceed with the contract with SCL. The SCL is claiming damages from the APL for breach of contract.

Parties are in dispute.

What are unliquidated damages?

There are auction houses in major commercial cities of the world. Antique and artwork is mostly bought and sold through the auction houses. A person has to first register as a bidder with the auction houses. The auction houses have terms and conditions for registration. In addition, the auction houses prepare catalogues for the sale of the items and distribute it to the registered bidders. These become shared between the bidders and the auctioneer. The auctioneer is authorised by the owner to sell the goods. The auctioneer, thus, gets the owner and the buyer into a sale contract.

An auction house was auctioning a suitcase belonging to a celebrity novelist of the past. The catalogue described the sale item as ‘a leather suitcase belonging to and used by the novelist”. The hammer was struck to the highest bidder. The buyer paid and the auction house gave him the suitcase. The buyer kept the suitcase on a display shelf in the living room. Three months later, the buyer was cleaning the suitcase. He opened it to clean it inside. While cleaning it, his hand touched something hard. The suitcase had a pocket inside for storing things. He opened the pocket and found a diamond ring. The diamond ring belonged to the novelist. The buyer tried to sell the diamond ring through an auction house. Through this, the family of the novelist and the auctioneer learnt that the buyer had got the ring along with the suitcase. A dispute developed. Both, the family and the buyer claim to be the owner of the ring. Has the buyer become the owner of the ring?

Mr. Rangarajan is an entrepreneur in the digital media industry, he operated his business through, Moon Networks Limited (MNL). Rangarajan wanted to expand the business activities of MNL and for this he needed investment of about Rs 5 crore. He identified Mariam Equity Fund Limited, a Delhi based venture capital fund, as a potential source of investment. Mariam was interested but required MNL to meet certain conditions and standards. Rangarajan identified Hindustan Business Finance (HBF) which could give MNL a short-term loan. The HBF agreed to give a loan only if Rangarajan give a personal guarantee. Towards this, Rangarajan signed various documents including the Personal Guarantee and Indemnity, and Corporate Guarantee.

The relevant terms of the Personal Guarantee and Indemnity are as follows:

Clause 203: Advances: “The Loan shall be drawn down in a single sum (or such other sums as shall be agreed between the Parties) as soon as this agreement has been signed.”

Clause 204: Indemnity and Guarantee: “Without prejudice to the provisions of Clause 203, I (Rangarajan) shall indemnify and hold you harmless against the Loss and Cost that you may suffer or incur by reason of failure of the Borrower [MNL] to comply with any term of the Agreement”.

Clause 205: Declaration: “I agree that my liability hereunder shall not be affected by:

                                                                            I.          any indulgence granted or made by you to or with the Borrower or any Co-surety.

                                                                          II.          any variation to the Agreement and/or to any other document executed by any person in connection therewith.

                                                                        III.          any invalidity, illegality, unenforceability, irregularity or frustration of any actual or purported obligation of, or security held from, the Borrower or any other person.

And I shall be liable under this Agreement in every respect as a principal debtor.”

The MNL availed the loan of Rs. 1 crore from HBF on five instalments. When MNL defaulted on repayment, HBF pursued Rangarajan under the personal guarantee and indemnity. Rangarajan argued his liability was secondary to MNL’s and that the sums disbursed weren’t a valid loan.

Parties are in dispute as to liability on repayment of loan.

Vandelay Shipping Fuels Limited (Vandelay) is a company engaged in selling fuel oil for ships. It entered into a contract with a shipping company, Soylent Navigation Limited (Soylent) to sell it 50 metric tons of fuel oil. The fuel oil was to be delivered to the ship of the shipping company, ‘Serenity’. The supply was to come from a lot of 200 MT which Soylent had examined and approved. The lot was stored in a tank at the port. The contract was silent as to when the ownership will transfer to the buyer. The contract term stated:

1. The fuel oil will be delivered to the buyer within 6 days of the buyer paying the price.

2. The buyer must pay before the goods are delivered to the seller.

3. The ownership in the goods would not transfer till the seller is fully paid.

The buyer paid the full amount on August 4. Thereafter, the government imposed a sanction on Vandelay from transferring ownership in goods as it had accumulated taxes to the government. Vandelay could deliver the goods to the buyers where the ownership had been transferred. However, it could not transfer ownership after having received the sanction. Soylent is claiming that Vandelay should deliver the fuel oil. Vandelay asserts that it is barred by the sanction to deliver the fuel oil to Soylent. Has the ownership in 50 MT transferred to Soylent?

Bytewise Consulting Limited (Bytewise) is a company engaged in providing consulting services in finance and investments. It wanted a studio to be developed in its corporate office for its executives to have online meetings with its clients, branch offices and associates.

Bytewise entered a contract with InnoVision Technologies Limited (InnoVision) for the development of the studio. Bytewise was converting a conference hall in a studio. The contract included InnoVision refurnishing the hall; procuring equipment including cameras, screens, servers and routers; networking the equipment; doing trial runs; and finally handing over the completed functional studio.

The entire value of the contract was Rs. 6 Crore. The contract provided a date by which the completed functional studio was to be handed over to Bytewise.

Ten days were passed the delivery date. InnoVision had not even started work on the project. Within the terms of the contract, delay of delivery by InnoVision was of essence of the contract, that is, it was a condition of the contract. Following the term, Bytewise terminated the contract. Bytewise awarded the contract to another party for a contract value of 6.05 crores.

Bytewise sought to recover the damages from InnoVision. The contract Bytewise had with InnoVision had the following clauses on damages:

Clause 5.1. InnoVision shall be liable to Bytewise for any damage suffered by Bytewise because of InnoVision’s breach of contract …

Clause 5.2. If InnoVision fails to deliver a completed functional studio within the time specified, InnoVision shall be liable to pay damages at the rate of 0.1% (zero point one percent) of the total contract value for per day of delay in delivery of the completed studio.

Bytewise calculated its damages under the two clauses as follows:

1. Under clause 5.1:  Rs. 5 lakhs

2. Under clause 5.2:   Rs. 6,00,00,000 x 0.1% x 10 days = Rs. 6 lakhs

Bytewise claimed both the amounts in damages from InnoVision. The InnoVision contends that Bytewise cannot apply both Clause 5.1 and Clause 5.2. As it has made claim under Clause 5.1, it cannot claim under Clause 5.2. Is the application of both, Clause 5.1 and 5.2, by Bytewise correct?

Banerjee Power Transmission Limited (BPTL) entered a contract with Hindustan Steel Works Construction (HSWC) for construction work in the Farakka Superpower Thermal Project at Farakka, West Bengal. On behalf of BPTL, Bank of India (BOI) furnished a Bank Guarantee totalling Rs. 11,50,000 to HSWC as a security deposit for the construction work. The essential terms necessary for enforcing the Bank guarantee is as follows:

Bank Guarantee

1) The Bank undertakes to indemnify Hindustan Steel Works Construction to the extent of the amount specified in the guarantee against any loss or damage caused to or suffered by the Hindustan Steel Works Construction by reason of any breach of the terms and conditions of the contract between the Banerjee Power Transmission Limited and Hindustan Steel Works Construction.

2) The Banks further agree that the Hindustan Steel Works Construction shall be the sole Judge as to whether Banerjee Power Transmission Limited has committed any breach or breaches of the terms and conditions of the said contract and the extent of loss, damage, costs, charges and expenses caused to or suffered by or that may be caused to or suffered by the Hindustan Steel Works Construction on account thereof and the decision of the Hindustan Steel Works Construction on this point will be final and binding on the Banks.

3) Irrespective what is stated in clauses above, liability to invoke the performance guarantee/bond under this agreement arises only if breach is established.  

HSWC sought to enforce the bank guarantee claiming a breach of the contract. BPTL argued that Bank Guarantee were conditional requiring HSWC to specify and quantify the damages caused by alleged breach of contract in their demand for payment.

Parties are in dispute on the nature of instrument.

Zephyr Power Limited (Zephyr) is a company primarily engaged in developing wind power plants. It was employed (contracted) by Suzlon Energy Private Limited (Suzlon) to develop the second largest Wind Park in Jaisalmer, with a capacity of 1,864MW. Zephyr commissioned Apex Solutions Private Limited (Apex) to perform key stages in setting up Wind Park in Jaisalmer, such as site selection and preparation, foundation construction, tower installation, turbine assembly and installation, blade installation, and grid connection. A fully functional Wind Park was to be handed over to Zephyr.

The entire value of the contract between Zephyr and Apex for setting up Wind Park in Jaisalmer was Rs. 500 Crore. The contract provided a date by which a fully completed and functional Wind Park was to be handed over by Apex to Zephyr.

Twenty five days were passed the delivery date. Apex had not even started work on the project. Apex declared to Zephyr that it would not be able to perform the contract as it did not have the skill and resources to do the work. Zephyr accepted the anticipatory breach by Apex and terminated the contract. Zephyr awarded the contract to another party for a contract value of 550 crores.

Zephyr sought to recover the damages from Apex. The contract Zephyr had with Apex had the following clauses on damages:

Clause 201.1. Apex shall be liable to Zephyr for any damage suffered by Zephyr as a consequence of Apex’s breach of contract.

Clause 201.2. If Apex fails to deliver a fully functional Wind Park within the time specified, Apex shall be liable to pay damages at the rate of 0.1% of the total contract value per day of delay in delivery of a fully completed and functional Wind Park.

Zephyr calculated its damages under the two clauses as follows:

1. Under clause 201.1:  Rs. 50 crores

2. Under clause 201.2:   Rs. 500 crores x 0.1% x 25 days = Rs. 12.5 crores

Zephyr claimed both the amounts in damages from Apex. Apex contends that Zephyr cannot apply both Clause 201.1 and Clause 201.2. As it has made claim under Clause 201.1, it cannot claim under Clause 201.2. Is the application of both, Clause 201.1 and 201.2, by Zephyr correct?

What are Liquidated Damages?