Incoterms settle the question on ownership transfer based on:

1.     Ownership transfers as provided in express or implied terms in the contract

2.     If the contract is completely silent, the time when the contract got made

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 Clause 201.2 applies for ‘delay in delivery of a fully functional Wind Park.’ As there was no delivery, the question of paying under clause 201.2 did not arise. Will clause 201.2 apply to the undelivered functional Wind Park?

Rajanya Construction Ltd (RCL) was awarded a contract for construction of Chemical Storage Terminal at National Physical Laboratory (NPL), Ahmedabad on 20 February 2014. One of the conditions of the contract required the RCL to furnish a Bank Guarantee equivalent to 10% of the contract price within 28 days from the date of signing of the contract. Accordingly, the RCL furnished a Bank Guarantee of Bank of India dated 11 August 2014 for amount of Rs. 1,00,00,000/- (Rupees one crore only). The instrument reads thus: -

Bank Guarantee

“In consideration thereof, we Bank of India, Surat, hereinafter referred to as the Guarantor Bank hereby irrevocably and unconditionally guarantee to pay to you on your written demand and without demur such amount or amounts not exceeding the sum of Rs. 1,00,00,000/- (Rupees one crore only), 10 percent of Contract Price on receipt of your written demand within 3 working days.”

As per the terms of the contract the RCL was required to complete the contractual work within two years of the execution of the said contract. There were two extensions of one year each as granted by the NPL to enable RCL to complete the contractual work. A final extension was granted up to 30 September 2018 which has expired.

There were issues between both parties regarding the contractual work in the context of completion of the project and it clearly appears that there was delay on part of the NPL in approval of the revised plan. However, NPL invoked the bank guarantee.

The letter addressed by NPL to Bank of India reads thus: -

“This is with reference to the Bank Guarantee dated 11 August 2014, for Rs. 1,00,00,000/- (Rupees one crore only) issued in favour of NPL. As RCL (“Contractor”) have not fully complied with the terms of the Contract Agreement dated 2 June 2014 and performance is not as Contracted. Therefore, pursuant to the terms of the bank guarantee, we invoke the guaranteed amount in full and hereby demand you to credit the said amount immediately.”

The parties are in dispute.

Wayne Electricals Limited (Wayne) is a manufacturer of Integrated Circuit (IC) Chips. It has a distributorship contract with Tyrell Distributors Limited (Tyrell). The distributorship was on party-to-party basis and delivery on FOB (Free on Board) basis. That is, Tyrell got the delivery of the goods when Wayne gave the goods to the ship appointed by Tyrell. The contract had the following clause:

Notwithstanding delivery and the passing of risk in the products, title shall not pass to buyer until seller has received payment in full for the products and all other goods. Until such time as title passes, buyer shall hold the products as seller’s agent and shall keep them separate from buyer's other goods. Prior to title passing buyer shall be entitled to resell or use the products in the ordinary course of business and shall account to the seller for the proceeds of sale. If the buyer fails to comply with a demand from the seller to return products to which title has not passed, seller may forthwith enter any premises where the products are stored and repossess them …

Tyrell received a consignment of IC Chips on September 1. It had not paid for it to Wayne. It sold the entire consignment to Omni Holmes Limited (Omni) on September 20. Within the sale contract, Omni was to pay Tyrell within seven days of raising of the invoice. Omni has delayed paying by 50 days. Omni is in financial difficulties and the amount may not get paid.

Tyrell has not paid for the consignment to Wayne. Wayne is demanding the payment of invoice by Tyrell. The Tyrell has paid all the invoices other than this one. Tyrell contends that it will pay Wayne as and when it gets paid by Omni. Wayne claims that the contract has an ownership retention clause and Tyrell is in breach of the contract in reselling the goods without paying for them and becoming owner of the goods? Is Tyrell in breach of the contract?

Wonka Bunkers Limited (Wonka) is a company engaged in selling fuel oil for ships. Wonka entered into a contract with a shipping company, Oceanic Shipping Limited (Oceanic) to sell it 200 metric tons of fuel oil. The fuel oil was to be delivered to the ship of the shipping company, ‘Hispaniola’. The contract incorporated the standard contract terms of the seller. The contract was titled ‘sale contract for Fuel Oil’. The contract was silent as to when the ownership will transfer to the buyer. The payment term stated: ‘Buyer will pay within 15 days of delivery of the goods.’

On August 1, Wonka pumped in 200 Metric Tons of fuel oil in the fuel tank of ‘Hispaniola’. The ship started using the fuel soon after the delivery was over, and Wonka pulled out the filling hosepipe. On August 5, Oceanic Shipping filed for insolvency. Wonka apprehended that it would not get paid the price. Wonka emailed to Oceanic Shipping: ‘We continue to be the owner of the fuel oil supplied to you and demand restoration of our property to us. Our tanker is coming, and you are required to give it access to the ship to pump out our fuel oil.’ Oceanic Shipping company responded: ‘The fuel oil is our property. You can claim the price but not have the fuel oil restored to you.’ The parties are in dispute whether Wonka has transferred the ownership in the fuel oil to Oceanic Shipping.

A contract document had the following clauses on award of damages:

Damages

1. If the seller does not deliver the goods (medical supplies) on schedule, the buyer can hire goods of the same description till the goods are delivered. The seller will meet the hire charges.

2. If the buyer terminates the contract for breach of any term by the seller, the buyer may buy goods of the same description from another source. The seller will pay for the price in excess of the contract amount.

3. If the seller does not deliver the goods on schedule, the buyer can hire goods of the same description. If the goods remain undelivered, the buyer can terminate the contract. The seller will be liable for the hire charges till the termination of the contract under 1 and excess of price for purchase under 2.

4. In addition to the above, the seller will pay 0.5% of the contract value for every week of delay in delivery subject to a maximum of 10% of the total contract price.

Limitation of Liability

Neither party shall be liable to the other party for any indirect and consequential damages, loss of profits or loss of production.

The contract between buyer and seller was for medical supplies such as MRI Scan machine, X-ray machine and incinerator. The medical supplies sold by the seller were defective. Because of using defective medical supplies, the buyer’s Lab got damaged badly and as a result the buyer suffered a large financial loss in rebuilding the Lab. Parties are in dispute on the quantum of damage.

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 Mr. 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 as soon as this agreement has been signed."

Clause 204: Indemnity and Guarantee: “I, Rangarajan shall not 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 the term of the Agreement”.My liability will arise on breach/default by MNL.   

Clause 205: Declaration: I agree that my liability hereunder shall 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.

The MNL availed the loan of Rs. 1 crore from HBF on two 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.

National Project Construction Corporation Ltd. (NPCCL) is a Government Company entered into a contract with Coal India Ltd. for setting up a Housing Complex at Dankuni, West Bengal. In this regard, the NPCCL invited tender for construction of different building at Dankuni Coal Complex and after negotiation Raju Construction Limited (RCL), a firm made an offer, and agreement was executed between RCL and NPCCL. It was agreed that RCL should deposit advance to the extent of 5% of the value of the contract to NPCCL against production of Bank guarantee from a nationalised bank. In terms of the agreement, a Bank Guarantee was furnished on 24 May 2005 by the Bank of Baroda, Tollygunge Branch, to the sum of Rs. 3,50,000/- in favour of the NPCCL.

The relevant portion of the Bank guarantee is as follows:

“We the Bank of Baroda (Tollygunge Branch), do hereby guarantee the due recovery by the NPCCL of the said advance along with interest thereon as provided according to the terms and conditions of the Contract. If the said contractor fails to utilise the said advance for the purpose of the contract and/or the said advance together with interest thereon as aforesaid is not fully recovered by the NPCCL, we the Bank of Baroda (Tollygunge Branch, Calcutta), hereby unconditionally and irrevocably undertake to pay to the NPCCL on demand and without demur to the extent of the said sum of Rs. 3,50,000/- plus interest at the rate of 10% per annum and any claim made by the NPCCL on us for the loss or damage caused to or suffered by the NPCCL by reason of the NPCCL not being able to recover in full the said sum of Rs. 3,50,000/- as aforesaid”.

The construction work of the buildings under the work order had to be completed within a specified time and the RCL agreed to complete the said construction work within the time schedule as mentioned in the work order. The RCL failed to adhere to the work schedule as agreed, the NPCCL has no other alternative but to terminate the contract as, otherwise, the NPCCL stood the risk of being penalised by the Coal India Ltd. for having failed to complete the construction work within the scheduled time. The NPCCL sought to enforce the bank guarantee claiming a breach of the contract. The RCL argued that the Bank guarantee furnished by the Bank is a conditional one and not an absolute.

Parties are in dispute.

ImagineX Builders Limited (ImagineX) is a company engaged in developing sustainable greenhouse residential and commercial premises. It wanted to do the outdoor lighting for a new project through solar power. For this, it commissioned Future Forward Energy Limited (FFEL) to develop the complete system, including procuring and installing solar panels on the rooftop, installing batteries and switches, and complete wiring for the system. A fully functional outdoor lighting was to be handed over to ImagineX.

The entire value of the contract was Rs. 5 Crore. The contract provided a date by which the completed functional outdoor lighting was to be handed over to ImagineX.

FFEL delayed handing over of the completed outdoor lighting by 25 days. FFEL raised an invoice for the contract value, which ImagineX paid. The contract had the following clause on damages:

Clause 8: For a delay in handing over a completed functional outdoor lighting, FFEL will be liable to pay a penalty at the rate of 0.5% per day of delay of the contract value.

ImagineX claimed damages for the 25 days of delay in handing over of the outdoor lighting according to the clause. FFEL counters the claim. It contends that the clause uses the word ‘penalty’, declaring the intention of ImagineX to penalise FFEL. Thus, the clause is a penalty and should be declared non-binding. Is clause 8 penal?