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ARGUMENTS AGAINST SWCL
Aadhan Green Energy Limited (AGEL) states that the actions of Solar Water Corporation Limited (SWCL) leading up to the termination of the contract were arbitrary, and the settlement agreement was concluded under Duress. AGEL claims are supported by many provisions of the Indian Contract Act,1872 , that addresses the breach of contract, coercion, and the consequences of delayed payment. SUPPORTING POINTS Sec-15 of ICA, 1872: COERCION & DURESS Section 15 of the Indian contract act define Coercion , “Coercion is the committing or threatening to commit, any act forbidden by Indian Penal Code, or the unlawful detaining, or threatening to detain, any property, to the prejudice of any person whatever, with the intention of causing any person to enter into an agreement. DELAYED PAYMENTS AGEL were forced to agree to the settlement due to SWCL’s economic duress. As economic duress is not specifically mentioned in the ICA,1872, but in section 15, coercion includes act that threaten a party’s financial stability or well-being. SWCL delayed payment due to AGEL for work completed in September 2023 & October
2023. These delays continued for several months, which leads to the financial strain on AGEL (Clause 4 of the proposition). AGEL repeatedly requested for the payments from SWCL but did not receive them until March 2024, which affected AGEL’s ability to continue working on the project. Threat of withholding payments, imposing LDs, and reducing the scope of work under the contract amount as economic pressure on AGEL, thus amounting to coercion under the section 15 of ICA, 1872. EVIDENCE- The proposition clearly states that the non-release of payment by SWCL was causing “ severe financial distress ” to AGEL , which impacted its progress. REDUCTION OF WORK SCOPE On April,01 2024 SWCL issued a notice to AGEL to reduce the scope of work to 50% and imposed Liquidated Damages (LDs) for delay in completing the project. Sudden reduction of
the contract’s scope deprived AGEL of opportunity to earn from remaining part of the project, forced AGEL to accept disadvantageous terms(Clause 6 of Moot Preposition). THREAT OF INVOCATION OF THE ADVANCE PAYMENT BOND SWCL’s letter dated April 01, 2024 also required AGEL to pay the remaining advance payment of INR 7,50,00,000/- (7.5 crore Indian Rupees ) by April 30, 2024, failing of which , SWCL would invoke the advance payment bond. This amounts to further financial pressure on AGEL to agree to the settlement (Clause 6 c). SECTION 19 OF 1CA, 1872- Voidability of agreements without free consent.— When consent to an agreement is caused by coercion, fraud or misrepresentation, the agreement is a contract voidable at the option of the party whose consent was so caused. As from above points and evidences , it can be state that AGEL consented to the settlement under coercion & duress , hence the settlement between both the parties is voidable. GENUINE CONSENT WAS ABSENT The key argument for AGEL is that the settlement was not entered voluntarily but under economic duress. In Section 10 of ICA,1872 - All agreements are contracts if they are made by the free consent of parties competent to contract, for a lawful consideration and with a lawful object, and are not hereby expressly declared to be void. AGEL can show that the free consent element was not present, as evidenced by: Financial Pressure – The financial distress caused by the delayed payments created a situation where AGEL had no choice but to accept the settlement to avoid bankruptcy. Unequal Bargaining Power – SWCL is a public sector enterprise with govt. backing, had significantly more bargaining power and used this leverage to impose unfavourable settlement terms on AGEL. OTHER FACTOR- AGEL can highlight that SWCL acted in mala fide intention by delaying payments, reducing the scope of work and threatening to invoke bonds to gain an unfair advantage in the settlement process.
suspended its work due to financial distress caused by non-payment, can use this ruling to defend its decision to suspend the project. SECTION 56 – Doctrine of Frustration According to the section 56 of ICA, 1872, describes conditions when performance of contract become impossible due to an unforeseen event, not caused by the fault of either party. When a contract becomes impossible to perform , then the contract declared void. AGEL milestone was directly dependent on SWCL making the payment. As SWCL delayed payment for September and October 2023, put AGEL into difficult situation , unable to continue the work. Despite the willingness to perform the contract, AGEL couldn’t complete contract. Acc. to sec 56 of ICA when performance becomes impossible due to circumstances beyond the control of promisor ( i.e. AGEL), the contract is frustrated. SWCL reduced the scope of work of AGEL which amount to made the completion of the project impossible. AGEL was acting in good faith and attempting to meet deadlines, but SWCL’s actions frustrated the contract by changing its original terms. Hence due to SWCL’s delayed payments and reduction of scope , AGEL can seek relief under Section 56 to claim compensation for the investment made in machinery worth INR 2 Crores. Supporting Case Law
- Satyabrata Ghose v. Mugneeram Bangur & Co. (1954) : o In this landmark case, the Supreme Court of India established that impossibility of performance could include not just physical impossibility, but also cases where the object of the contract is rendered impracticable. AGEL can rely on this judgment to argue that the object of the contract was made impractical due to SWCL’s delayed payments and the sudden reduction in scope, which made the project impossible to complete.
- Naihati Jute Mills Ltd. v. Hyaliram Jagannath (1968) : o The Supreme Court emphasized that frustration applies not only when performance becomes physically impossible, but also when the performance is radically different from what was originally agreed. AGEL can argue that the unilateral reduction of the project scope by SWCL and delayed payments
radically altered the original contract, frustrating AGEL's ability to perform as intended.
- Energy Watchdog v. CERC (2017) : o In this case, the Supreme Court held that for frustration under Section 56 , there must be a significant change in circumstances, not caused by either party, that makes the performance impossible. AGEL can argue that the significant change in circumstances (SWCL’s non-payment and sudden scope reduction) were beyond AGEL’s control, leading to frustration of the contract. SECTION 68 – Claims for necessaries supplied to incapable person of contracting In section 68, if a person, incapable of entering into a contract, or any one whom he is legally bound to support, is supplied by another person with necessaries suited to his condition in life, the person who has furnished such supplies is entitled to be reimbursed from the property of such incapable person. But it can also be applicable in situations where a party has provided essential services or goods without receiving due payment. AGEL used its machinery, manpower and other resources to the project site. Even though SWCL failed to pay for the months of September and October 2023 ,40% of the project was completed as per the milestone shows that AGEL provided essential services that profited SWCL. This makes AGEL’s claim valid under section 68 which supports compensation when one party benefits from necessary services or goods. Relevant Case Law
- Govindram Gordhandas Seksaria v. State of Gondal (1950) : In this case, the court held that a party providing necessary goods or services is entitled to reimbursement if the other party benefitted from those services. Although this case dealt with a minor, the principle of fairness and reimbursement for necessary supplies/services can be applied to AGEL’s situation, where SWCL benefitted from AGEL’s work but did not fully pay for it.
SECTION 73 – Compensation for breach of contract When a contract has been broken, the party who suffers by such breach is entitled to receive, from the party who has broken the contract, compensation for any loss or damage caused to him thereby, which naturally arose in the usual course of things from such breach, or which the parties knew, when they made the contract, to be likely to result from the breach of it. SWCL failed to make payment on time to AGEL for the months of September and October 2023, even AGEL completed 24% of the project. The delay in payment caused financial distress to the AGEL, which led to delay in project. As per section 73 of ICA, AGEL is entitled to claim compensation for the losses it suffered due to SWCL’s failure to make payment which was obligated in the contract. Hence, the non payment by SWCL was a breach of contract which had consequences on AGEL’s working. SWCL reduced AGEL's scope of work by 50% on April 1, 2024, which affected AGEL’s financial interests, this reduction was done without proper reason and affected AGEL’s profits. under Section 73 AGEL can entitled to compensation for the loss of profit and opportunity caused by the reduced scope of work. the contract was terminated by SWCL on April 30, 2024, was wrongful and caused financial harm. SWCL’s non-payment and the reduction in the scope of work led to this situation, AGEL can claim compensation for the losses resulting from the contract’s termination. Under Section 73, AGEL is entitled to recover damages for the expected profits it would have earned had the contract been completed as originally agreed. Relevant Case Law
- Hadley v. Baxendale (1854) : Though an English case, this landmark ruling laid the foundation for the principles in Section 73, where the court held that damages must be reasonably foreseeable. AGEL can argue that the financial loss it suffered due to the delays in payment and reduction in the scope of work were foreseeable outcomes, as SWCL’s actions hindered the project’s progress.
- M.L. Devendra Singh v. Syed Khaja (1973) : In this case, the Supreme Court of India held that a party could recover damages for the loss of profits resulting from the wrongful termination of a contract. AGEL can rely on this case to claim compensation for the profit it lost due to the arbitrary reduction of the scope of work and the eventual termination by SWCL. SECTION 74 – Liquidated damages to be reasonable Under section 74 of ICA, “ When a contract is breached, the party that suffers damages is entitled to recompense from the person who broke the contract caused to him, which naturally arose in the normal course of things from the breach ” SWC’s failure to release payments on time and reduction of AGEL’s scope of work by 50% and eventually terminated the contract. SWCL threatened AGEL with the imposition of both Delay Liquidated Damages and Milestone Liquidated Damages for the delay in project completion, but under sec 74 such liquidated damages should only be awarded to SWCL if it can show that the delay was due to AGEL's actions. But the delay was result of SWCL’s failure to release payments timely for September and October 2023 , caused economic or financial distress that hindered AGEL’s ability to meet project milestones. SWCL’s imposition of liquidated damages after reducing the scope of the contract penalizes AGEL for delays that were not entirely AGEL’s fault. Under section 74, courts have discretion to reduce the amount of damages if they are found to be excessive or unfair. Relevant Case Law a. Fateh Chand v. Balkishan Das (1963) : In this case, the Supreme Court of India held that liquidated damages must be a genuine pre-estimate of the loss suffered by the party and not a penalty. AGEL can rely on this precedent to argue that the liquidated damages claimed by SWCL are punitive in nature and not reflective of any actual loss suffered by SWCL due to AGEL’s delays. b. ONGC v. Saw Pipes Ltd. (2003) : In this case, the Supreme Court upheld the principle that a party could recover reasonable compensation under Section 74 even if actual damages are difficult to quantify. AGEL can use this to assert that any
