Ash 1 sj-475n546.09 IN THE HIGH COURT OF JUDICATURE AT BOMBAY ORDINARY ORIGINAL CIVIL JURISDICTION SUMMONS FOR JUDGMENT NO. 475 OF 2009 IN SUMMARY SUIT NO. 2616 OF 2009 WITH SUMMONS FOR JUDGMENT NO. 546 OF 2009 IN SUMMARY SUIT NO. 2981 OF 2009 Rohini Industrial Electricals Limited. .. Plaintiff Vs Offshore Infrastructures Limited .. Defendant -- Shri Pradeep Sancheti Sr. Advocate along with Ms Neha Shah i/by DSK Legal for the Plaintiff. Shri S.U. Kamdar, Sr. Advocate i/by Shri S.S. Phadke for the Defendant. -- CORAM : A.S. OKA, J SUBMISSIONS WERE HEARD ON : 14TH AND 19TH JANUARY, 2011. JUDGMENT PRONOUNCED ON : 8TH EBRUARY, 2011. JUDGMENT : . These two Summonses for Judgment can be disposed of by a common judgment and order as the facts of the cases are more or less similar. In Suit No. 2616 of 2009, the Plaintiff has pleaded that the Defendant issued two purchase orders to the Plaintiff for the purposes of carrying out electrical Ash 2 sj-475n546.09 and instrumentation works at Awa and Ajmer Sites for Mundra-Delhi Pipeline Project. The first purchase order is dated 30th August, 2006 which was awarded for the supply, installation and testing of electrical items for (Part-B) at Awa and Ajmer Sites. The Plaintiff has made a reference to the said order as “the Electrical Purchase Order”. The second purchase order is dated 31st August, 2006 for supply, installation, testing and commissioning of instrumentation works at the sites Awa and Ajmer sites for Mundra-Delhi Pipeline Project ( for short “MDPL” ) at Awa and Ajmer Sites. The said purchase order was amended on 16th October, 2006. The said purchase order dated 31st August, 2006 as amended on 16th October, 2006 is hereinafter referred to as “the Instrumentation Purchase Order”. The plaintiff has stated that the said purchase order was issued to the Plaintiff pursuant to the work allotted to the Defendant under an agreement executed between the Defendant and the Hindustan Petroleum Corporation Limited (for short “HPCL”). The Plaintiff has made a reference to the said agreement between the Defendant and the HPCL as the HPCL Agreement. 2. The Plaintiff has made a reference to various terms and conditions of electrical purchase order as well as instrumentation purchase order. It is contended by the Plaintiff that as per the understanding between the Plaintiff and the Defendant, the maximum liquidated damages that could be levied by the Defendant for any delay in completion of work by the Plaintiff was 5% of the value of the order. The Plaintiff is relying upon a Measurement Ash 3 sj-475n546.09 Sheet as well as checklist liquidation of the said work done by the Engineers India Limited. It is alleged that on the basis of the measurement sheet, the Plaintiff raised final invoices on the Defendant with respect to the work done pursuant to the Electrical Purchase Order. Even as regards the implementation of the instrumentation work order, the Plaintiff has relied upon a checklist liquidation and a measurement sheet drawn at the time of joint measurement. 3. According to the case of the Plaintiff, final invoices aggregating to a sum of Rs. 2,65,47,560/- were raised relating to Awa and Ajmer sites. According to the Plaintiff, the Defendant accepted the invoices without any protest or demur. 4. The Plaintiff pointed out that the Defendant by a letter dated 17th April, 2008 alleged that the HPCL has imposed on them an amount of Rs. 99,76,527/- as liquidated damages for delayed completion of project at the MDPL Site. The Defendant alleged that the delay was on account of failure of the Plaintiff to complete its scope of work within the stipulated period and, therefore, the said amount of liquidated damages would be recovered from the Plaintiff. The Plaintiff responded by its letter dated 19th May, 2008 by which a demand was made for the amount due under the invoices while denying the allegation of delay in completion of the project. The Plaintiff admitted of having accepted to bear the liquidated damages against the documentary Ash 4 sj-475n546.09 evidence only for the portion of the works carried out by the Plaintiff as the agreement between the Plaintiff and the Defendant was on back to back basis. 5. By a letter dated 3rd June, 2008, the Plaintiff demanded the payment of outstanding amount from the Defendant. The Defendant issued a letter dated 19th June, 2008 contending that the HPCL had deducted a sum of Rs.99,76,527/- as the liquidated damages in respect of the bills pertaining to Awa and Ajmer Project. It was stated that the HPCL had deducted a sum of Rs.15,74,382/- towards the liquidated damages from the bills of the Defendant in respect of separate Electrical Purchase Order and Instrumentation Purchase Order relating to Rewari and Bahadurgarh Project sites. Suit No. 2981 of 2009 pertains to the claim of the Plaintiff based on the separate Electrical Purchase Order and Instrumentation Purchase Order as regards Rewari and Bahadurgarh Project. 6. It is stated that the Defendant withheld 10% of the total bill amount under the instrumentation purchase order as well as electrical purchase order. It is contended that the amount payable under the said two purchase orders for Awa and Ajmer Project is Rs.2,65,47,560/-. Hence, the retention amount for the same is Rs.26,54,756/-. It is contended in the suit that defect liability period expired in February, 2009 and, therefore, the Defendant is liable to pay the retention amount of Rs.26,54,756/-. The Plaintiff has relied upon a letter dated 31st March, 2009 sent by the Defendant Ash 5 sj-475n546.09 to the Advocate for the Plaintiff by which the Defendant admitted the liability to pay the retention amount. Reliance has been placed on the correspondence made between the parties as well as notice dated 16th January, 2009 sent by the Advocate for the Plaintiff to the Defendant. The Plaintiff is relying upon the letter dated 25th February, 2009 sent by the Defendant to the Advocate for the Plaintiff. In the said letter, the Defendant stated that as regards all the four contracts in relation to Awa , Ajmer, Rewari and Bahadurgarh, the Plaintiff was entitled to receive a sum of Rs.28,37,546/-. According to the Defendant, this amount was payable on account of the retention money after adjusting the same in the reconciliation statement. It is the contention of the Plaintiff that as per the agreement between the Plaintiff and the Defendant, the liquidated damages that can be levied due to delay in completion of the work cannot exceed 5% of the order value of both the category of contracts. Therefore, it was submitted by the Plaintiff that even assuming that the Plaintiff is responsible for the alleged delay, liquidated damages on account of delay cannot exceed Rs. 16,04,622/- in case of Awa and Ajmer and a sum of Rs.8,71,796/- in case of contracts for Rewari and Bahadurgarh sites. As per the statement of claim in the Plaint in suit no.2616 of 2009, a sum of Rs. 83,71,905/- is payable by the Defendant to the Plaintiff on account of excess deduction made by the Defendant towards the liquidated damages. The second claim is of a sum of Rs.26,54,756/- towards retention money. Thus, the total claim in the suit is Rs.1,10,26,661/- with interest thereon from the date of filing of the suit at the rate of 18% per annum. The Suit No.2981 of Ash 6 sj-475n546.09 2009 relates to the amounts payable under the electrical purchase order and instrumentation purchase order of the works to be carried out at Rewari and Bahadurgarh Sites. Reliance is placed on the same correspondence between the parties. As per the statement of claim, a sum of Rs.7,02,586/- is claimed on account of excess deduction made by the Defendant towards liquidated damages. In this case, a sum of Rs.17,53,535/- was claimed on account of retention money payable by the Defendant. Thus, the total claim in the suit is in the sum of Rs.24,56,121/- together with interest on the said amount at the rate of 18% per annum from the date of institution of the suit till realization. 7. The learned Senior Counsel appearing for the Plaintiff in both the suits in support of Summons for Judgment invited the attention of the Court to the terms and conditions incorporated in the Electrical Purchase Order as well as Instrumentation Purchase Order which are subject matter of both the suits. He pointed out that as far as the scope of work and general terms and conditions are concerned, the electrical purchase order incorporates the specifications and terms and conditions of the contract between the Defendant and the HPCL on back to back basis. He invited the attention of the Court to Clause (7.c) of the General Terms in the contract between the HPCL and the Defendant. He pointed out that the retention money is 10% of the total value of the running account and final bill which can be retained for a period of 12 months from the date of completion of the job. He submitted that clause 10 of the said contract provides for liquidated damages at the rate Ash 7 sj-475n546.09 of 0.5% of the total contract value for every week or a part thereof of the delay subject to the maximum of 5% of the total order value. He submitted that assuming that there was a delay on the part of the Plaintiff, the liquidated damages could have been maximum 5% of the total order value of the purchase order issued by the Defendant to the Plaintiff and it cannot be 5% of the total order value of the contract between the Defendant and the HPCL. He submitted that as far as instrumentation purchase order is concerned, there is a clear stipulation in the form of clause 11 therein which provides that penalty shall be at the rate of 0.5% per week of delay subject to maximum of 5% of the order value. He pointed out that only in payment terms under the instrumentation purchase order , it is provided that the same shall be in accordance with the contract between the Defendant and the HPCL on back to back basis. He submitted that as far as the liquidated damages for delay is concerned, it shall be maximum of 5% of the order value under both the orders. He submitted that the liquidated damages of 5% of the value of the contract between the Defendant and the HPCL cannot be charged as liquidated damages. He submitted that as far as retention amount is concerned, it is not in dispute that the period of 12 months has been completed and, therefore, the Defendant cannot retain the said amount. He pointed out that in the letters dated 25th February, 2009 and 31st March, 2009, the Defendant accepted the fact that the retention amount will have to be released in case of all the four contracts. He pointed out that the letter dated 19th June, 2008 clearly records that the amount of liquidated damages at the rate of 5% of the contract value Ash 8 sj-475n546.09 between the Defendant and the HPCL have been illegally deducted by the Defendant. He submitted that the deduction could have been at the most 5% of the value reflected in the four purchase orders. He invited attention of the Court to the annexures/enclosures to the letter dated 19th June, 2008 of the Defendant which shows that the total amount of Rs.37,40,923.60ps. was payable towards all the four purchase orders. He invited the attention of the Court to the annexure on page 51 of the reply filed by the Defendant. He submitted that the annexure on Page 51, the Defendnat has come out with a case that a sum of Rs.2,44,427/- is in fact payable by the Plaintiff. 8. He submitted that in the letter dated 25th February, 2009, the Defendant admitted that the Plaintiff is entitled to release of a sum of Rs. 28,37,546/- towards 10% retention amount. He submitted that after having taken the said stand, now the Defendant is coming out with a stand that the amount of Rs.28,37,546/- is not payable. He submitted that as far as 10% retention amount is concerned, in any event, the Defendant has no defence whatsoever. He submitted that as far as the liquidated damages are concerned, the maximum 5% of the amounts payable under both the orders could have been deducted. However, the Defendant is seeking to deduct 5% of the total contract amount between the Defendant and the HPCL which is patently illegal. He pointed out that the claim in the suits as regards the liquidated damages is only in respect of the excess deductions made by the Ash 9 sj-475n546.09 Defendant and not the deductions at the rate of 5% of the value of both the orders. 9. The learned Senior Counsel appearing for the Defendant pointed out that as far as the liquidated damages are concerned, in the electrical purchase order, there is a specific stipulation that all the terms and conditions of the contract between the Defendant and the HPCL stand incorporated in the said order. He pointed out that the Clause No.10 of the agreement between the Defendant and the HPCL clearly provides that the liquidated damages for delay shall be at the rate of maximum 5% of the total contract value. He pointed out the stand taken by the Defendant in the correspondence. He pointed out that by the letter dated 19th June, 2008, the Defendant informed the Plaintiff that in case of all the four orders, the HPCL has deducted an amount equivalent to the maximum 5% of the total value towards the liquidated damages. He pointed out that even in case of instrumentation purchase orders, there is a clause which provides for maximum deduction of 5% of the order value on account of liquidated damages. He submitted that clause 14 of the said order provided that the payment shall be back to back in line with the terms incorporated in the agreement between the Defendant and the HPCL. He submitted that both the clauses are required to be read together and therefore, the Defendant is entitled to deduct 5% of the total contract amount of HPCL contract. He submitted that the triable issue of interpretation of the said terms of the contract arises . Ash 10 sj-475n546.09 10. He submitted that the amount of Rs.28,37,546/- which is quoted in the letters dated 25th February, 2009 and 31st May, 2009 is subject to reconciliation of the accounts. He submitted that the reply filed to the Summons for Judgment shows that the said amount is not payable after reconciliation of the accounts. He submitted that the Defendant has pointed out that it has raised the debit notes to the extent of Rs.42,79,350/-. He pointed out that all the details of the debits have been provided in the annexures to the affidavit-in-reply. He submitted that in fact after all the debits, the Plaintiff is liable to refund an amount of Rs.2,44,427/-. 11. It must be stated here that after hearing of the Summons for Judgment was completed, the Defendant was called upon to give a break-up of the amount of Rs.28,37,546/-. Accordingly, additional affidavit has been filed by the Defendant on 17th January, 2010. It is stated in the said affidavit that after considering the refund of retention money and accounting for payment made to the Plaintiff under the two work orders relating to Rewari and Bahadurgadh, the net amount payable to the Plaintiff works out to Rs.3o, 89,973/- and after deducting the sum of Rs.2,44,427/- which is allegedly payable by the Plaintiff to the Defendant on account of Awa and Ajmer Sites, the sum of Rs.Rs.28,37,546/- is payable by the Defendant to the Plaintiff. Ash 11 sj-475n546.09 12. I have given careful consideration to the submissions. As pointed out earlier, the claim in both the suits is in two parts. The first claim is as regards the excess deduction allegedly made by the Defendant on account of liquidated damages and the second claim is on account of refund of retention money. In both the suits, the plaint proceeds on the footing that the liquidated damages cannot exceed 5% of the order value and not the 5% of the order value of the contract between the Defendant and the HPCL. The contention of the Defendant is that on account of delay in completion of the work by the Plaintiff, the HPCL has made deduction of the amount equivalent to 5% of the contract value of the contract between the Defendant and the HPCL and therefore, the entire said amount will have to be deducted from the amount payable to the Plaintiff. The claim made in the suits is as regards the excess amount deducted by the Defendant and there is no claim made as regards the amount equivalent to 5% of the order value of the electrical purchase order and instrumentation purchase orders which are subject matter of the suits. 13. It must be noted here that in the letter dated 19th June, 2008 sent by the Defendant to the Plaintiff, the Defendant pointed out that in case of bills pertaining to Awa and Ajmer Sites, deduction of the sum of Rs. 99,76,527/- has been made by the HPCL. While determining the amount payable to the Defendant, the said deduction has been made by the Defendant on account of liquidated damages. The said amount represents 5% of the Ash 12 sj-475n546.09 contract value between the Defendant and HPCL. Similarly in the said letter, it is pointed out that in case of Rewari and Bahadurgadh projects, the deduction of Rs.15,74,382/- was made by the HPCL while making payment to the Defendant. The said amount is equivalent to 5% of the contract value between the Defendant and the HPCL. 14. In case of both the suits, the electrical purchase order and in particular Clause 10 thereof clearly provides that all the terms and conditions of the contract applicable between the Defendant and HPCL shall be applicable back to back basis. In the said contract between the Defendant and HPCL, clause (10) provides for payment of liquidated damages to the extent of 5% of the total contract value of the contract between the Defendant and HPCL. Whether the Plaintiff is liable to pay damages to the extent of 5% of the contract value of the electrical purchase order or 5% of the value of the HPCL contract is a matter of interpretation of the contract. The terms of the instrumentation purchase order in both the suits are identical which are different from the terms of the electrical purchase order. Clauses 11 and 14 of the instrumentation purchase order read thus:- “11. Completion Period : Time is an essence of this project. All the work as defined in Annexure I shall be completed within four (4) Months from the date of PO. You shall ensure that, delivery of all the items in such a way that there will not be any delay for installation Ash 13 sj-475n546.09 & completion. Any delay in completion shall be to your own risk, cost & consequences. We shall levy penalty @ 0.5% per week of delay subject to the maximum of 5% of order value. 14. Payment Terms : Shall be back to back in line with HPCL payment terms. You shall submit 3 compies of Invoice for our records.” 15. Clause 14 provides that payment terms shall be back to back in line with the HPCL payment terms which, in turn, provides for maximum liquidated damages of 5% of the contract value. Therefore, whether the Defendant is entitled to deduct 5% of the contract value of the contract between the Plaintiff and the Defendant or 5% of the total contract value of the contract between the Defendant and the HPCL is again a matter of interpretation of the instrumentation purchase order. The deductions made by the Defendant are on the basis of the deductions made by the HPCL. It is the case of the Defendant that the deduction was made by the HPCL due to delay on the part of the Plaintiff in completion of Work. Therefore, as far as the claim regarding excess deductions of the liquidated damages is concerned, there is a triable issue based on interpretation of terms of both the purchase orders. 16. As far as the second claim on account of retention amount is concerned, it will be necessary to make a reference to the letter dated 19th June, 2008 addressed by the Defendant to the Plaintiff. This letter deals with Ash 14 sj-475n546.09 all the four contracts subject matter of these two suits. In the said letter as regards the retention money, the Defendant has stated thus:- “Please note that you were to submit bank guarantee in lieu of retention of 10% of total bill value amounting to Rs.4223693.60 as shown in our statement. You are requested to forward the same immediately on receipt of which we will consider the above amount as being payable.” In the enclosure to the said letter, retention amount is shown as Rs. 42,23,693.60 being 10% of the billing value. The enclosure makes a reference to the pre-final bills in respect of Awa and Ajmer project and final bills in respect of Rewari and Bahadurgadh Projects. The net amount payable by the Defendant as shown in the said enclosure in respect of all the four contracts is Rs.37,40,923.60 ps. 17. In the letter dated 25th February, 2009 addressed to the Advocate for the Plaintiff, it is stated by the Defendant thus:- “As early as June 19, 2008, we had correctly furnished to your client the reconciliation of accounts covered by all four orders placed by us on your client for Awa, Ajmer and Rewari, Bahadurgarh. As on date the Defect liability period for all orders are completed and as such the 10% retention can be released to your client. On release of retention money and adjusting the same in the above reconciliation statement your client is entitled to receive a payment of Rs.28,37,546/- (Rupees Twenty Eight Lacs Thirty Seven Thousand Five Hundred and Forty Six Only ) in respect of all four purchase orders put together. Ash 15 sj-475n546.09 You are hereby informed to advise your client write to us for release of the above amount of Rs.28,37,546/- in full and final settlement of all their claims against all four orders placed by us on your client. On receipt of such letter we shall release the above amount of Rs. 28,37,546/- in full and final settlement of all dues payable to them against our order dated 24.04.06 and 02.06.06 for Rewari Bahadurgarh and Order dated 30.08.06, 31.08.06 and Amendment dtd 16.10.06 for Awa Ajmer. In these circumstances, your clients are not entitled to the amounts claimed and referred to in your communication under reference, except for the reconciled amount of Rs.28,37,546/- (Rupees Twenty Eight Lacs Thirty Seven Thousand Five Hundred and Forty Six Only. Your clients are also not entitled to any interest thereon as claimed.” ( Underlines supplied ) 18. The said letter was followed by another letter dated 31st March, 2009 sent by the Defendant to the Advocate for the Plaintiff. In Clause (e) of Paragraph 2 of the said letter, the Defendant has stated thus:- “(e) The subject matter of outstanding dues (Rs. 20295/-) on account of the ferrules supplied by your Client was brought to our notice for the first time by your letter no.140 dtd 16.01.09. We shall verify our records and if the said Invoice is received by us and is found to be true and correct, the said amount of Rs. 20295/- will be added to the amount of Rs.28,37,546/- payable to your client in full and final settlement in accordance with our letter dtd 25.02.09.” ( Underlines supplied ) Ash 16 sj-475n546.09 In Paragraph 3 of the said letter, it is stated thus:- “We reiterate that the entitlement of your Client is limited to Rs.28,37,546/- ( except for aforesaid cost of ferrules, which is under