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Section 70 of the Indian Contract Act cannot be attracted during the subsistence of a separate Contract: SC
The Supreme Court dealt with a contractual dispute between Mahanagar Telecom Nigam Limited (MTNL) and Tata Communication. The former had adjusted the amount payable to the latter on account of a purchase order and alleged that the latter had committed a breach of contract. The company said that the bills raised by the Tata Communication were described as rent rates of dark fibre.
The Hon’ble Bench of the Supreme Court comprising Justice R F Nariman and Vineet Saran said that the Quantum meruit under section 70 of the Indian Contract Act, 1872 does not have application in the instant case. Section 70 of the Indian Contract Act, 1872 is as follows:
Obligation of person enjoying benefit of non-gratuitous act—Where a person lawfully doing 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 MTNL relied on this section primarily because it creates a relationship as the same as a contractual relationship. Nevertheless, the Purchase Order or the contract between the parties at dispute had a provision, in case of default, for liquidated damages at 12% of the purchase value. The Telecom Dispute Settlement Appellate Tribunal (TDSAT) ordered the MTNL to make the payment of the amount retained by it in excess of 12%.
The MTNL reached the doors of the Supreme Court against the above decision. By relying on several precedents, the apex court concluded that during the subsistence of a contract, section 70 could not be invoked, thereby quantum meruit could not be provided considering the clause that provides for liquidated damages in the contractual agreement between the parties concerned.
The Court referred a dictum in Mulamchand Vs. State of Madhya Pradesh (1963) 3 SCR 214. In that case, the court observed that the person who does or delivers anything to some other person could not sue the latter for specific performance of the contract, not seek damages for breach thereof. This was because of the non-existence of the actual contract between those two parties; therefore, compensation sought under section 70 was based on different obligation and not based on contracts. In other words, it depends on quasi-contract or restitution.
The Supreme Court upheld the TDSAT order and said that the TDSAT could not have imposed a unilateral sum under section 70 of the act, during the subsistence of a separate contract.
