(1.) THIS appeal has been filed by the appellants under Section 39 of the Arbitration Act, 1940 (hereinafter referred to as "the Act") impugning the judgment of the court below dated 31.3.2012 by which the objections filed by the appellants herein under Sections 30 and 33 of the Act have been dismissed. The facts of the case are that the appellant no. 1 was appointed as a trainee pilot with the respondent herein (claimant in the arbitration proceedings) on terms and conditions as mentioned in the letter dated 26.07.1989. The appellant no. 1 also executed an indemnity bond dated 1.8.1989 to render 7 years of service with the respondent. Appellant no. 1, however, left earlier than the fixed period. The respondent therefore called upon the appellant no. 1 to pay an amount of Rs. 6,42,857/ - along with interest. It may be noted that the indemnity bond executed by the appellant no. 1 provided for liquidated damages of Rs. 7.5 lacs if the appellant no. 1 left the services before the contracted period of 7 years. Since the appellant no. 1 failed to pay the amount as demanded, the respondent invoked arbitration proceedings, and which resulted in an Award dated 25.7.1998 being passed as per which the respondent awarded a sum of Rs. 6,42,857/ - along with interest at 12% per annum.
(2.) LEARNED counsel for the appellants urged before this Court that by passing of the Award Arbitrator misconducted himself and the proceedings because the Arbitrator has gone against the law of the land that damages actually ought to have been proved to have been caused to the respondent and unless such damages are proved by the respondent, grant of damages specified in the indemnity bond would amount to imposing of a penalty which is legally impermissible as per Section 74 of the Indian Contract Act, 1872. Reliance in support of this argument is placed upon a judgment of a Division Bench of this Court in the case of Vishal Engineers & Builders Vs. Indian Oil Corporation Ltd., FAO(OS) No. 204/2010 decided on 30.11.2011.
(3.) THE Supreme Court in the judgment of ONGC vs. Saw Pipes Ltd. : (2003) 5 SCC 705 has while dealing with grant of liquidated damages under Section 74 of the Contract Act, 1872 has given an example of contractual delay in construction of road within the stipulated contractual time, and in which case it would be difficult to prove how much loss is suffered, because how many persons would have used the toll road in the delayed period could not be calculated and consequently in such cases liquidated damages can be awarded by virtue of the clause of liquidated damages in the contract and such a clause would not be in the nature of penalty.