Withdrawing a contractually assured canteen subsidy constitutes breach, entitling the contractor to proven damages.

Gujarat Industrial Caterers Pvt. Ltd. (“the plaintiff”) entered into a contract dated 25 January 1994 with Oil & Natural Gas Corporation Ltd. (“ONGC”) to operate an industrial canteen on a subsidised basis at ONGC’s Ankleshwar Project.

The subsidy-coupon system was discontinued from 1 July 1995. The plaintiff alleged that its monthly sales fell substantially and that it suffered continuing operational losses.

The plaintiff filed Special Civil Suit No.236 of 1998 claiming damages of Rs.41,45,940, continuing losses, and injunctive relief.

The Trial Court held that the subsidy formed part of the contractual arrangement and that its withdrawal constituted a breach. It awarded Rs.4,29,000 with interest at 9% from the date of filing of the suit until realization.

Whether discontinuation of the subsidy-coupon facility constituted a breach of the catering contract, entitling the plaintiff to damages under Section 73 of the Indian Contract Act, 1872?

Whether the plaintiff proved an actual monthly loss of Rs.22,000, as awarded by the Trial Court, or Rs.67,800, as claimed in the appeal for enhancement?

Whether the plaintiff was entitled to damages for the entire period claimed, including the period up to 30 September 1998, rather than the period adopted by the Trial Court?

The Court applied Section 73 of the Indian Contract Act, 1872, under which a party suffering from breach of contract is entitled to compensation for loss or damage that naturally arose in the usual course of things from the breach or was within the parties’ contemplation when the contract was made; speculative or unproved damages cannot be awarded.

The Court also applied the principle that contractual rights and obligations must be determined from the language and commercial character of the agreement.

Since the contract expressly contemplated operation of the canteen on a “subsidized basis,” withdrawal of the subsidy during the subsistence of the contractual arrangement amounted to a breach.

The Court construed the expression “running an industrial canteen on subsidized basis” in the contract together with the agreed low prices of food items and the established coupon mechanism.

It held that the subsidy was not merely an independent welfare policy for ONGC employees but formed part of the contractual basis on which the plaintiff accepted and operated the canteen contract.

ONGC therefore had no contractual right to withdraw the subsidy during the relevant period, and its discontinuation constituted a breach attracting Section 73.

As to quantum, the Court relied substantially on ONGC’s own offer during negotiations to consider compensation of Rs.22,000 per month for the loss caused by discontinuation of the coupons.

However, the plaintiff’s claim of Rs.67,800 per month was supported only by invoices and correspondence and not by audited accounts, balance sheets, profit-and-loss statements, or other clear evidence establishing actual loss.

The award of Rs.4,29,000, calculated at Rs.22,000 per month, with interest at 9% from the date of filing of the suit until realization, was upheld.

The plaintiff failed to establish entitlement to the enhanced claim of Rs.67,800 per month or damages for the additional period claimed.

Accordingly, both appeals—ONGC’s appeal against liability and the plaintiff’s appeal for enhancement—were dismissed, with no order as to costs.