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Compensation dependent on damage clause in agreement not actual loss

If clause for damages present, Party entitled to reasonable compensation whether or not actual loss occurred

In Mahanagar Telephone Nigam Limited v. Haryana Telecom Limited, Mahanagar Telephone Nigam Limited ('MTNL') has filed present petition under Section 34 of Arbitration & Conciliation Act, 1996 challenging an Award dated 12th March, 2003 passed by Arbitral Tribunal ('AT') in disputes between MTNL and Respondent, Haryana Telecom Limited ('HTL'). AT held that, since MTNL failed to prove actual loss or damage on account of delayed delivery of goods and since, mere delay in supplies was unlikely to cause damages, question of even fixing a reasonable compensation under Section 74 of Indian Contract Act, 1872 ('ICA') did not arise. Consequently, MTNL was asked to refund HTL sum of Rs. 1,03,20,763 together with interest @ 12% from the date of Award till the date of payment.

The Delhi High Court held that in present case, it is not possible for Court to agree with submission on behalf of HTL that, MTNL was required to prove actual loss suffered by it. Purpose of first part of Clause 16.2 is to provide for a genuine pre-estimate of damages payable as LD even without requirement of having to prove actual loss. Section 74 of ICA emphasises that, in case of a breach of contract, party complaining the breach is entitled to reasonable compensation whether or not actual loss is proved to have been caused.

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