Is a provision that imposes an obligation to pay up if a certain event takes place a penal provision or is it a pre-estimate of damages to be imposed?
In BSNL v Reliance Communication Ltd the Supreme Court stated that if the predominant function of the provision was to deter a party from breaking a contract, it would be penal. However, if the provision had been included in an attempt to estimate losses resulting from a breach, it would amount to liquidated damages.
As such clause 6.4.6 in a contract between Bharat Sanchar Nigam Limited (BSNL) and Reliance was not a penal clause. Instead, it represented a pre-estimate of reasonable compensation for loss suffered by BSNL.
You must be a
to read this content, please
Bharucha & Partners Advocates & Solicitors
Cecil Court, 4th Floor, MK Bhushan Road
Tel: +91-22 2289 9300
Fax: +91-22 2282 3900