MTNL v. Tata Communications Ltd.

Mahanagar Telephone Nigam Ltd. (MTNL) v. Tata Communications Ltd.

Citation: AIR 2019 SC 1233

Judges: Hon’ble Rohinton Fali Nariman and Hon’ble Vineet Saran, JJ.

Facts:

In the instant case, the contract was of a purchase order between MTNL and Tata. The contract limited liquidated damages to the tune of 12% of the purchase value in case of a breach. Tata failed to discharge the obligations under the contract, due to which MTNL suffered damage. MTNL, owing to its claim for damages, deducted certain sums from the bills raised by Tata.

Tata approached Telecom Disputes Settlement and Appellant Tribunal (TDSAT), seeking that the sums deducted by MTNL were deemed to be excessive than the stipulated sums under the contract. MTNL defended its stance by stating such amount to be due under quantum meruit. Nevertheless, TDSAT directed to return the quantum meruit claim retained in excess of 12% liquidated damages, since it was unilaterally charged by MTNL without any reliable evidence of losses. This prompted MTNL to approach the Supreme Court to reconsider the appreciation of its claim.

Issue:

Whether quasi-contractual obligations can be imported into a contract which already stipulates a sum for its breach?

Judgement:

In the present case, the Supreme Court, while considering import of section 70 in a contractual claim, referred to the split verdict of Moselle Solomon v. Martin & Co. where Williams J. had held that section 70 is an independent remedy based on a different cause of action and therefore can be deemed to be an additional remedy. Whereas Jack J. held that the provision had no applicability in the case of an express contract.

To buttress this position, reliance was also placed on the case of Mulamchand v. State of M.P. where, in dealing with a claim made under section 70 of the Contract Act, the Court went on to hold:

where a claim for compensation is made by one person against another under Section 70, it is not on the basis of any subsisting contract between the parties but on a different kind of obligation. The juristic basis of the obligation in such a case is not founded upon any contract or tort but upon a third category of law namely, quasi-contract or restitution……

(emphasis supplied)

The Supreme Court, in light of the above position, held that the amount deducted by MTNL was a claim of quantum meruit which cannot be raised due to the existence of the contract. The compensation for breach of a contract was deemed to be governed by section 74 of the Contract Act, which states that where a sum is named in a contract as a liquidated amount payable by way of damages, only reasonable compensation can be awarded not exceeding the amount so stated. The Supreme Court held that MTNL can claim only the sum stipulated in the contract and any anything claimed above this sum shall be refunded accordingly.

Analysis

Section 70 falls under the purview of chapter V of the Contract Act. It provides for a situation where a non-gratuitous act by a person results in forming obligations on another party receiving a benefit out of such act. The principle under section 70 is considered similar to the doctrine of restitution (quantum meruit).