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TMI Blog2023 (10) TMI 951X X X X Extracts X X X X X X X X Extracts X X X X ..... ading it to navigate various circumstances under which a claim for loss of profit may be allowed in cases of delay simpliciter in the execution of a contract - However, the contentions so raised, need not detain the case for too long. Quite apart from the appeal raising the question as to whether a claim on account of loss of profit is liable to succeed merely on the ground that there has been delay in the execution of the construction contract, attributable to the employer, the question that first needs to be answered on facts and in the circumstances is whether the Second Award is in conflict with the public policy of India. Having read the Second Award, there are no hesitation to hold that it fares no better than the First Award, for, it is equally in conflict with the public policy of India. We have noticed from the order dated 20th May, 2002 of the learned Single Judge that while remitting Claim No.12 for reconsideration, the Arbitrator was warned not to be influenced by the factors that weighed in his mind while making the First Award. The Arbitrator was also required to proceed only on the basis of the evidence on record. Yet, regrettably, what we find is that the Arbitra ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ( Contract Act ), as they all centred around the issue of delay and the resultant losses. Vide Claim No. 10, the appellant claimed a sum of Rs. 50,00,000.00 (Rupees fifty lakh) owing to the marked escalation in prices/rates for the work executed beyond the stipulated contract period. Vide Claim No. 11, the appellant implored the Arbitrator to award Rs. 41,00,000.00 (Rupees forty-one lakh) to cover substantial expenses associated with the establishment, machinery, centring/shuttering, and other vital aspects of the project. Additionally, vide Claim No. 12, the appellant urged that a compensation of Rs. 2,00,00,000.00 (Rupees two crore) be granted as redress for the loss of profit endured due to the appellant s protracted retention on the contract without any corresponding increase in monetary benefits earned. Despite the Arbitrator's rejection of Claim Nos. 10 and 11, the appellant was awarded a sum of Rs. 1,44,83,830 (Rupees one crore, forty-four lakh, eighty-three thousand, eight hundred and thirty) towards Claim No. 12, along with an interest of 18% per annum under Claim No. 13 from 12th May, 1997 to the date of actual payment. The Arbitrator supported this award based on th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... efinitely not available on record. In absence of any credible evidence and when claims under Claim Nos. 10 11 were rejected on the ground that no sufficient evidence had been placed on record by the respondent indicating increase in the prices/rates for the work executed after the stipulated contract period and also on account of establishment, machinery, centering/shuttering etc., Claim No.12 was allowed by the arbitration (sic, arbitrator) without even considering whether the respondent has placed credible and reliable evidence as required to be proved. *** 25. *** Not only there was lack of credible and required evidence placed on record by the respondent in support of Claim No.12 as set out in the extracts from the book Law of Building and Engineering Contracts, and (sic) the arbitrator also took into consideration such factors which could not and should not be (sic, have) influenced his mind. Therefore, the award was passed by the arbitrator against the fundamental policy of Indian Law attracting the provisions of Section 34 (2)(b) (ii) of the Act. I set aside the award given by the arbitrator against Claim No.12 and remit the same for re-consideration by the arbitrato ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d into litigation due to the appellant's misconceived claim, the Single Judge awarded costs of Rs. 50,000.00 (Rupees fifty thousand) in favour of the respondent, payable within four weeks from the date of the final order and interest of 9% per annum in case of non-compliance. Findings returned by the learned Single Judge are extracted below: 4. I have gone through the entire Award. The Award as a loss under this Claim 12. 5. In this view of the in the arbitration proceedings. 7. *** I accept the objections to the Award and the Award dated 15.7.2002 of the Arbitrator is set aside and the claim of the contractor under Claim 12 will accordingly stand dismissed. In the facts and circumstances of the case, I award costs of Rs.50,000/- in favour of the petitioner and against the respondents Accordingly, in the facts of the present case, I deem it fit to award interest on the costs. e) Dissatisfied with the findings of the learned Single Judge, the appellant preferred an appeal before the Division Bench of the High Court under Section 37 of the Act. While dismissing the appeal vide the impugned judgment, the Division Bench was of the view that no evidence w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... modification, the Act of 1996, modelled on the UNCITRAL Model Law on International Commercial Arbitration 1985, does not grant the court the power to modify awards under Section 34. This aligns with the legislative intent of minimizing judicial intervention in arbitral awards. Reliance in support of the said contention was placed on The Project Director, NHAI vs. M. Hakeem and Another (2021) 9 SCC 1; d) M/s AT Brij Paul Singh Ors. vs. State of Gujarat (1984) 4 SCC 59 was relied upon to submit that a contractor is entitled to damages for loss of expected profit on the remaining work and only a broad evaluation is required to assess the amount of damages instead of going into minute details; and e) Hudson s formula has received legal acceptance and is generally used by courts and other judicial bodies in awarding loss of profit. Learned counsel further submitted that Hudson s formula works on the numbers and figures contemplated in the contract as envisaged by the parties at the time of signing of the contract rather than the actuals during the ongoing work. Therefore, the actual number of men, material and machinery allocated by the appellant for the work bears no relevance ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion 34(2)(b)(ii) of the Act. e) The Arbitrator's actions present a perplexing situation: while dismissing Claim Nos. 10 (compensation for increased prices/rates after the contract period) and 11 (compensation for the establishment, machinery, centring/shuttering, etc.) due to the absence of credible evidence, the Arbitrator, on the other hand, proceeded to grant damages for loss of profit under Claim No. 12. This prompts a crucial question: If there was insufficient evidence to support Claim Nos. 10 and 11, what other evidence could possibly justify awarding loss of profit under Claim No. 12? f) Mechanical application of Hudson s formula would serve no purpose and burden the exchequer was the ASG s concluding submission. ANALYSIS AND FINDINGS 7. We have considered the submissions advanced by learned counsel for the parties and also perused the materials on record. 8. The appeal is directed towards dismissal of the appellant's claim for compensation relating to loss of profits (Claim No. 12). It is undeniably established that the appellant's claim for loss of profit stems from the delay attributed to the respondent in completing the project. It is fu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ving read the Second Award, we have no hesitation to hold that it fares no better than the First Award, for, it is equally in conflict with the public policy of India. We have noticed from the order dated 20th May, 2002 of the learned Single Judge that while remitting Claim No.12 for reconsideration, the Arbitrator was warned not to be influenced by the factors that weighed in his mind while making the First Award. The Arbitrator was also required to proceed only on the basis of the evidence on record. Yet, regrettably, what we find is that the Arbitrator went on to ignore the judicial decision of the High Court with impunity. He once again emphasized on delay caused by the respondent in completion of the works entrusted to the appellant by not providing complete site and drawings within the stipulated contract period and that non-handing over of site certainly constituted fundamental breach of contract vitiating the entire contract. He then referred to Hudson s espousal of fundamental breach of contract which, according to him, was the standard text in all engineering and building contracts. It is, therefore, apparent that the factors which weighed in the Arbitrator s mind in the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... through compelling evidence. This evidence should convincingly demonstrate that had the contract been executed promptly, the contractor could have secured supplementary profits utilizing its existing resources elsewhere. 17. One might ask, what would be the nature and quality of such evidence? In our opinion, it will be contingent upon the facts and circumstances of each case. However, it may generally include independent contemporaneous evidence such as other potential projects that the contractor had in the pipeline that could have been undertaken if not for the delays, the total number of tendering opportunities that the contractor received and declined owing to the prolongation of the contract, financial statements, or any clauses in the contract related to delays, extensions of time, and compensation for loss of profit. While this list is not exhaustive and may include any other piece of evidence that the court may find relevant, what is cut and dried is that in adjudging a claim towards loss of profits, the court may not make a guess in the dark; the credibility of the evidence, therefore, is the evidence of the credibility of such claim. 18. Hudson s formula, while at ..... 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