Claim Under Section 70 Contract Act Cannot Be Raised When Parties Are Governed By Contract : SC [Read Judgment]

The Supreme Court bench of Justices R F Nariman and Vineet Saran has explained that claim of quantum meruit under Section 70 of the Indian Contract Act cannot be raised when parties are otherwise governed by contract.

This is because Section 70 occurs in Chapter V of the Contract Act which deals with "certain relations resembling those created by contract". Section 70 deals with obligation of a person enjoying benefit of a non-gratuitous act to compensate the person giving the benefit.

 The case before the Supreme Court was an appeal by Mahanagar Telecom Nigam Ltd against Tata Communications against an order of the Telecom Disputes Settlement Appellate Tribunal.

The dispute related to MTNL adjusting certain amounts to itself from its dues to Tata arising out of a purchase order. MTNL alleged that Tata had committed breach of contract. The amount deducted from the bills raised by Tata were characterised as rent rates of dark fibre.

However, the Purchase Order between the parties had stipulated liquidated damages in case of default, which was fixed at 12% of the purchase value. Based on this, the TDSAT directed MTNL to return to Tata the amount retained by it in excess of 12% liquidated damages. Challenging this, MTNL approached the Supreme Court.

The bench referred to several precedents which held that for work done or services rendered pursuant to the terms of a contract, compensation quantum meruit cannot be awarded where the contract provides for the consideration payable in that behalf.

The judgment referred to the dictum in  Mulamchand v. State of M.P., (1968) 3 SCR 214, that :

"The important point to notice is that in a case falling under Section 70 the person doing something for another or delivering something to another cannot sue for the specific performance of the contract, nor ask for damages for the breach of the contract, for the simple reason that there is no contract between him and the other person for whom he does something or to whom he delivers something. So 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"

The case at hand was governed by Section 74 of the Contract Act, since liquidated damages were stipulated in the contract. Hence, the Court affirmed the TDSAT order, which held that MTNL could not have imposed a unilateral sum taking recourse to Section 70, over and above the liquidated damages.

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