M/S Construction & Design Services vs Delhi Devt.Auth

The Supreme Court addressed the issue of liquidated damages in contracts, specifically under the context of whether stipulated damages can be considered penalties in the absence of evidence of actual loss. The Court held that the burden of proof lies on the party alleging that the stipulated amount is a penalty, and emphasized that compensation must be reasonable and not arbitrary. The judgment of the Delhi High Court was set aside, and the matter was remanded for further consideration regarding the nature of the compensation stipulated in the contract under Clause 2.