The Supreme Court bench of Justice R F Nariman and Justice Vineet Saran were hearing an appeal filed by the Appellant i.e. Mahanagar Telephone Nigam Ltd, against the Respondent i.e. Tata Telecommunications Ltd in a petition filed by the Respondent at the Telecom Disputes Settlement and Appellate Tribunal towards recovery of a sum of Rs. 1,10,57,268/- along with interest thereon due to the deduction by the Appellant from the bills raised by the Respondent. The primary question for adjudication that arose was ‘whether a claim in quantum meruit under Section 70 of the Indian Contract Act, 1872 was permissible when the parties are governed by a contract?’ Section 70 of the Indian Contract Act reads as follows:

70. Obligation of person enjoying benefit of non- gratuitous act.—Where a person lawfully does anything  for another person, or delivers anything to him, not intending to do so gratuitously, and such other person enjoys the benefit thereof, the latter is bound to make compensation to the former in respect of, or to restore, the thing so done or delivered.”

 

The Bench explored the Sections under Chapter V of the Indian Contract Act titled “of certain relations resembling those created by contract” which related to entitlement of a party performing a duty in the absence of any contractual relationship between the parties concerned. The Bench referred to the early judgment in the Moselle Solomon v. Martin & Co., ILR (1935) 62 Cal 612 wherein there arose a split verdict between the two judges on the point of whether Section 70 of the Contract Act can apply when there is, in fact, a contract between the parties, which held that:

“There remains to be decided the question whether the second defendant is liable under section 70 of the Indian Contract Act and to what extent. The remedy provided by this section is not dependent upon the law relating to the liabilities of principal and agent. It is an independent remedy, which is based upon a different cause of action, namely, upon whether a person has lawfully done anything for another or has delivered anything to him not intending to do so gratuitously, and such other person has enjoyed the benefit thereof. If so, he must either make compensation in respect of, or restore the thing so done or delivered.(at page 619”

The Bench further referred to the judgments in Kanhayalal Bisandayal Bhiwapurkar (Dr.) v. Indarchandji Hamirmalji Sisodia, AIR 1947 Nag 84, Alopi Parshad and Sons Ltd. v. Union of India, (1960) 2 SCR 793, Mulamchand v. State of M.P., (1968) 3 SCR 214 and the most recent judgment in Orissa Industrial Infrastructure Development Corpn. v. Mesco Kalinga Steel Ltd., (2017) 5 SCC 86 which elaborated on Section 73 of the Indian Contract Act i.e. Compensation for loss or damage caused by breach of contract, to which the Bench commented that:

“9. This Section makes it clear that damages arising out of a breach of contract is treated separately from damages resulting from obligations resembling those created by contract. When a contract has been broken, damages are recoverable under paragraph 1 of Section 73. When, however, a claim for damages arises from obligations resembling those created by contract, this would be covered by paragraph 3 of Section 73.”

The Bench upheld the order of the TDSAT and dismissed the appeal on the ground that there existed a clause in the agreement levying a maximum of 12% interest as liquidated damages, which amount comes to Rs. 25 Lakhs. Therefore, any figure higher than that stipulated in the contract cannot be awarded as liquidated damage and the balance sum would have to be refunded to the respondent in this case.

 

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Judgment: Mahanagar Telecom Nigam Ltd Versus Tata Communications Ltd