The Supreme Court dismissed the appeal, upholding the High Court’s finding that the claim of ₹68.15 lakhs was speculative and beyond the contractual provisions. The Court held that the liquidated damages provided under the agreement were final and binding, and the appellant had failed to invoke contractual remedies for replacing the machinery.

Held:

Liquidated Damages Governed Compensation Unless Overridden by Additional Contractual Provisions – The Supreme Court held that the contract explicitly stipulated liquidated damages for delay and performance failure, and any claim beyond such terms was impermissible. (Para 29, 30)

Judicial Intervention in Arbitral Awards Was Limited – The Supreme Court held that courts could interfere in an arbitral award only if it was beyond jurisdiction or patently illegal, which was not the case here. (Para 11, 26)

Refund of Consideration Was Not Allowed as Contract Did Not Provide for It – The Supreme Court held that the appellant retained the machinery but failed to invoke the contract’s clause for replacement; hence, a refund claim was not maintainable. (Para 27, 28, 30)

Speculative Damages Were Not Sustainable – The Supreme Court held that the claim of ₹68.15 lakhs was based on hypothetical calculations and was rightly rejected by the High Court. (Para 30)

Ratio Decidendi:

a) Liquidated Damages Limited Compensation – In a contract containing a liquidated damages clause, additional compensation beyond the agreed sum could not be claimed under Section 74 of the Indian Contract Act, 1872. (Para 28, 29)
b) Judicial Review of Arbitral Awards Was Limited – The Civil Court and High Court had jurisdiction to set aside an arbitral award only if it was contrary to law or jurisdictionally flawed. (Para 11, 26)
c) Non-Invocation of Contractual Remedies Barred Additional Claims – The appellant failed to exercise its right to seek machinery replacement under the contract, making the claim for a refund untenable. (Para 25, 27)
d) Speculative Claims Were Not Enforceable – Compensation could not be granted based on assumptions or speculative calculations without concrete evidence. (Para 30)

Major Acts Discussed:

1. Constitution of India, 1950 – Article 136 (Special Leave to Appeal).
2. Arbitration Act, 1940 – Section 30 (Grounds for Setting Aside an Award).
3. Indian Contract Act, 1872 – Section 74 (Compensation for Breach of Contract where Penalty is Stipulated).
4. Sale of Goods Act, 1930 – Section 59 (Buyer’s Right to Repudiate for Breach of Warranty).

Subjects:

Arbitration – Liquidated Damages – Performance Guarantee – Breach of Contract – Non-Performance – Refund of Consideration – Speculative Calculation – Judicial Review – Contractual Interpretation – Arbitral Tribunal’s Jurisdiction.

Nature of the Litigation:

A dispute arising out of a contract between the parties for the supply of machinery and equipment for a fermentation process, where the appellant claimed damages for non-performance.

Relief Sought by the Appellant:

The appellant sought damages of ₹68.15 lakhs for the loss suffered due to non-performing machinery and equipment, which was rejected by the High Court.

Reason for Filing the Case:

The appellant alleged that the supplied machinery failed to meet the contractual performance guarantee and sought a refund of the purchase amount along with damages.

Issues Before the Court:

1. Whether the claim of ₹68.15 lakhs for non-performance of machinery was justified under the contract and the Arbitration Act, 1940.
2. Whether the High Court was correct in setting aside the Arbitral Tribunal’s second award regarding the said claim.
3. Whether the appellant was entitled to a refund of the entire purchase amount as claimed.

Submissions:

By the Appellant:

• The High Court’s interference in the award was beyond the limited scope permitted under the Arbitration Act, 1940.
• The machinery supplied was ineffective and resulted in losses, justifying damages.

By the Respondent:

• The claim was speculative and exceeded the liquidated damages stipulated in the contract.
• The appellant did not invoke the contract’s replacement clause, and thus, a refund claim was untenable.
• Section 74 of the Contract Act limited the damages to liquidated damages already awarded.