Liquidated damages and Extension of time to complete the project

Arbitral Award – Liquidated damages for delay in completion of the project – Sections 55, 73 and 74 of the Contract Act

As per the letter of intent dated 9.3.2006 the project of construction of office building at the cost of Rs.16,48,69,970/- was given to the petitioner and the scheduled date of completion was 15.1.2017. However, the project was completed by 30.11.2007 i.e. delay of about 10 months due to land slides and rains.

The Appellant continued execution of the work beyond 30.6.2007 and completed on 30.11.2007 though the last extended period expired on 30.6.2007.

After completion of the project, the appellant claimed Rs.1,40,12,786/- including retention money and interest thereon.  However, the respondent deducted liquidated damages of Rs.82,43,499/- as per clause 26 of the contract.

In the Arbitral Award dated 10.5.2010, the liquidated damages deduction was upheld but declared the nil award against the claims and counter claims.

In section 34 petition, it was held that the liquidated damages were not justified, and the award was set-aside.  However, section 37 appeal was allowed, and the award was restored.

After completion of the work, the appellant sought extension of time by the letter dated 14.12.2007 and it was granted ex post facto by the respondent vide letter dated 26.9.2008.  However, notwithstanding extension of time, the respondent had put the appellant on notice that it had reserved right to levy liquidated damages.

HELD that once there is extension of time, there cannot be a narrow interpretation to clause 26.  Purpose of extension of time was only for completion of work.   Extension of time and liquidated damages cannot go hand in hand.  Once the appellant had completed the work during the extended period of time, the claim of liquidated damages by the respondent could not be accepted.

 Judgment dated 28.4.2025 of the Supreme Court of India in Civil Appeal No.5383 of 2024 of Consolidated Construction Consortium Limited   Vs.   Software Technology Parks of India