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Arbitration & Commercial LawSupreme Court of India

Sahakarmaharshi Bhausaheb Thorat Sahakari Sakhar Karkhana Ltd. v. Thyssen Krupp Industries India Pvt. Ltd.

Civil Appeal · 2025 INSC 219Decided 14 Feb 2025
C.A. No.-003194-003194 - 2014
Justice Abhay S. Oka · Justice Ujjal Bhuyan

Background

A sugar cooperative factory contracted with a machinery supplier in 1992 to build a fermentation plant guaranteed to yield 280 litres of alcohol per metric tonne of molasses, for about Rs. 93.20 lakhs. The plant was delivered late and, across several trial runs, never came close to the guaranteed yield. After decades of arbitration and litigation - including an earlier round that reached the Supreme Court and was sent back for fresh arbitration - the key dispute that survived was the cooperative's claim for Rs. 68.15 lakhs as a refund of money spent on a plant it said was effectively "scrap."

Decision Breakdown

The Supreme Court held that because the contract itself contained a detailed liquidated-damages clause (Clause 15) covering delay and non-performance, and the cooperative had already been awarded damages under that clause, Section 74 of the Contract Act confined it to what the contract expressly provided. The Court noted the cooperative never invoked Clause 21, which would have let it replace the defective machinery itself and recover the actual replacement cost from the supplier - instead it simply claimed a refund of everything it had spent, which was not the remedy the contract or the law allowed once liquidated damages had already been fixed and paid. Finding no error in the High Court's reasoning, the Supreme Court dismissed the appeal.

Lesson Learnt

Where a contract fixes a specific liquidated-damages remedy for non-performance, a party generally cannot later claim a full refund of money spent instead - it must pursue the remedy the contract actually provides (here, replacing the defective goods and claiming actual replacement cost), or its recovery is capped by the agreed clause.

Sahakarmaharshi Bhausaheb Thorat Sahakari Sakhar Karkhana Ltd. v. Thyssen Krupp Industries India Pvt. Ltd. – Legal Case Shots | LegalAware