Calcutta High Court (Appellete Side)
State Of West Bengal & Ors vs M/S. S.K. Maji on 5 March, 2025
Author: Soumen Sen
Bench: Soumen Sen
IN THE HIGH COURT AT CALCUTTA
CIVIL APPELLATE JURISDICTION
(COMMERCIAL DIVISION)
BEFORE:
The Hon'ble Justice Soumen Sen
and
The Hon'ble Justice Biswaroop Chowdhury
FMA 573 of 2024
State of West Bengal & Ors.
Vs.
M/s. S.K. Maji
For the Appellants : Mr. Arindam Mondal, Adv.,
Ms. Srijani Mukherjee. Adv.
For the Respondent. : Mr. Soumik Ganguly, Adv.,
Mr. Tanmoy Mukherjee, Adv.,
Mr. Souvik Das, Adv.,
Ms. Chandana Chakraborty, Adv.
Hearing concluded on : 25th February, 2025
Judgment on : 5th March, 2025
Soumen Sen, J.
1. The present appeal arises out of an impugned judgment and
order dated 25th February, 2021 passed by the learned Commercial Court at
Asansol under Section 34 of the Arbitration and Conciliation Act, 1996
(hereinafter referred to as ‘the said Act’).
2. Shorn of details the facts of the case enumerate that the
respondent contractor carries on business under the trade name and style of
M/s. S.K. Maji having its principal place of business in Tamluk, Purba
Medinipur, executing various engineering works under contract with various
2
departments including the state of West Bengal, which is the appellant
herein.
3. The Government of West Bengal through the Superintending
Engineer, Public Works Department, Paschim Medinipur published a notice
inviting tender being N.I.T. No.15 of 2009-2010 on 24 th February, 2010 for
construction of District Health Administrative Building at Bankura at an
estimated sum of Rs.1,69,25,089/-. Time for submission of tender was fixed
on 29th March, 2010. The respondent contractor participated in the said
tender and submitted his tender on the same date and within the stipulated
time. The tender of the respondent contractor was accepted and the
acceptance was communicated by letter dated 29 th June, 2010. The
contractor was requested to take up work immediately and complete it in
conformity with the terms and conditions of the contract within a stipulated
period of 18 months with effect from 6th July, 2010 i.e. within 5th June, 2012.
The aforementioned memo dated 29th June, 2010 was treated as a formal
work order and the contractor was directed to proceed with the work only
after having conducted from assessment and pre-determination of the tender
quantity and was also allowed to visit the site of work.
4. Disputes having arisen between the parties, by letter dated 13th
January, 2014 the executive engineer terminated the work order and the
tender was rescinded under Clause 3(a) of the agreement no.02 of 2010 and
2011. Subsequently, the respondent contractor invoked arbitration for
settling of such disputes between the parties. Shri Tapan Kumar Roy
Chowdhury, Superintending Engineer was appointed as the sole arbitrator in
3
this matter and he passed the arbitral award dated 3rd July, 2017 as follows
in respect of the 9 claims of the claimant/respondent:
Sl. Amount as per Claimant's claim Awarded amount
No.
1 Claim No.1 of Rs.4,51,462/- Rs.4,23,615.00 paisa
2 Claim No.2 of Rs.2,50,000/- Rs.1,88,665.00 paisa
3 Claim No.3 of Rs.16,92,489/- Rs.9,66,711.00 paisa
4 Claim No.4 of Rs.18,90,060/- Rejected, Rs. Nil
5 Claim No.5 of Rs.21,06,384/- Rejected, Rs. Nil
6 Claim No.6 of Rs.7,14,227/- Rejected, Rs. Nil
7 Claim No.7 of Rs.1,43,250/- Rejected, Rs. Nil
8 Claim No.8 of Rs.15,17,750/- Rs.5,11,000.00 paisa
9 Claim No.9 of Rs.1,50,000/- Rejected, Rs. Nil
5. In the impugned judgement and order dated 25th February, 2021
passed by the learned Commercial Court, the learned Judge found no reason
for interference with the findings of the learned arbitrator for Claim Nos. 1 to
7 and 9 but set aside the Claim no.8 relating to payments towards labour
force and establishment during the stoppage of work for which the claimant
had claimed a sum of Rs.15,17,750/-. Considering the fact that the arbitrator
had allowed this claim with reference to the prevailing labour wages during
stoppage of work and awarded Rs.5,11,000/- even after noting that the
contractor had not submitted any document being the labour licence from the
labour department in terms of the contract during the arbitral process, the
learned judge held that the actual loss suffered by the contractor in this
regard could not have been ascertained in the absence of the requisite
documents. The learned Commercial Court held that in the present facts and
4
circumstances awarding this amount tantamounted to wandering outside the
terms of the contract and awarding such sum in convention thereof had
shocked the conscience of the court and hence the award on such ground
was set aside.
6. With regard to claim No. 1 regarding refund of Security Deposit,
the respondent contractor had contended in the statement of claim that total
Security Deposit of Rs. 4,51,462/- had been withheld by the appellant. From
the documents, the learned Arbitrator found having regard to the
Measurement Books and Bill copy that a sum of Rs. 3,03,112/- was deducted
from 1st R.A. Bill and a sum of Rs. 1,20,503/- was deducted towards security
deposit from 2nd R.A. Bill, thus totalling to a sum of Rs. 4,23,615/- which
was awarded towards security deposit under claim No. 1.
7. As for claim No. 2 regarding outstanding dues against the value
of the work executed, the respondent contractor had claimed a sum of Rs.
2,50,000/-. The learned Arbitrator duly considered the Measurements Books,
Store Indent and Bill copies to form the conclusion that the claimant was
entitled to a sum of Rs. 1,88,665/-. Such conclusion did not suffer from
surmise and speculation in the view of the learned judge, Commercial Court
in the instant case wherein the respondent contractor was not held
responsible for non-execution of the job in totality.
8. The learned Commercial Court found no reason for interference
with the said findings of the sole arbitrator with respect to the Award made on
these two claims and such findings being well-reasoned and not illegal,
perverse or arbitrary we do not find any reason to intervene on such grounds
as well.
5
9. The primary issue raised in this instant appeal is whether the
claim for loss of profit at 15% amounting to Rs. 16,92,289/- raised in the
statement of claim (Claim no.3) could have been awarded by the learned sole
arbitrator in the absence of any proof either oral or documentary.
10. Mr. Arindam Mondal, the learned Counsel on behalf of the
appellant has submitted that the statement of claim did not contain the
necessary pleadings for establishing loss of profit. Unless loss was pleaded
and established by proof, an award on loss of anticipated profit could not
have been passed. Such submissions have been buttressed with the aid of
Unibros v All India Radio1, Bharat Coking Coal Ltd. v L.K. Ahuja2,
Batliboi Environmental Engineers Limited v Hindustan Petroleum
Corporation Limited and Another 3 and H.J. Baker and Brothers Inc v
Minerals and Metals Trade Corporation Limited (MMTC) 4 which have been
discussed hereinbelow. The learned Counsel has stressed on the fact that
even in the case of anticipated loss, the same has to be established as the
same is a sine qua non for claiming loss of profit. In this regard, reliance was
placed on the case of Kanchan Udyog Limited v. United Spirits Limited 5.
It was strenuously argued that the claimant was not interested in proceeding
with the work beyond the stipulated period of the contract and had never
sought for even a single extension of time and had expressed willingness to
leave the work. Instead, the claimant had himself sought for honourable
termination of the contract as would be apparent from the letters of the
1
2023 SCC OnLine SC 1366
2
2004 (5) SCC 109
3
2024 (2) SCC 375
4
2023 (9) SCC 424
5
2017 (8) SCC 237
6
contractor dated 30th May 2012, 11th June 2013, 26th July 2013 and 13th
November 2013.
11. Per contra, Mr. Soumik Ganguly, on behalf of the respondent
contractor has submitted that there was a delay on the part of the appellant
in supplying the necessary drawings, issuing steel materials of required
quantities, giving the specific instructions for progress of work in absence of
structural drawings and the presence of an electric post at the site of work
which hampered the progress of work in question. In this regard the learned
Counsel for the contractor placed reliance on the observation of the learned
Commercial Court to the effect that the appellant in spite of having sufficient
authority under the contract had neither issued any instructions regarding
the work nor made any attempt to overcome the difficulties of construction
and had not even replied to the claimant’s written information. They could
have avoided the unpleasant situation and the work could have been
completed. Furthermore, due to such substantial delay in progress of work
the price of the job work had escalated substantially for which the present
claimant/respondent had asked for honourable termination of the work order
or in the alternative to allow the claimant to complete the job work at the new
price rate apropos the escalation of the work schedule. In this regard our
attention has been drawn to the letter dated 30th May 2012 and 11th June,
2013 whereby the contractor brought the attention of the executive
engineering to the fact that the price of materials and wages of labourers had
increased during the long delay of work and considering the fact that tender
was of the year 2008 it was not possible for the claimant contractor to
continue the work in the year 2013-14 at the earlier rate of work for which
7
they had already prayed for honourable termination of the tender and to be
relieved of the contract.
12. Before the arbitral tribunal, the respondent contractor had
claimed an amount of Rs.16,92,489/- towards profit at a rate of 15% over the
unexecuted value of work. While adjudicating such claim the arbitrator
recorded that the contractor (claimant therein) had time and again written
letters to the appellant about difficulties in continuing the work due to late
availability of drawings, requirement of steel materials, non-removal of the
electric post, payment of bills but neither had the Engineer in Charge
responded to such letters nor was there any vigilance of the work by the
departmental officers. Long after the expiry of the stipulated period of the
contract, the Engineer in Charge recorded the fact of suspension of work and
requested the claimant to complete the work within the extended date of
validity of the tender.
13. The arbitrator noted that the contractor’s duty to be discharged
was dependent upon the appellant’s duty under the contract especially when
the contractor had informed him about the hindrances at the worksite and
hence the appellant had failed in discharging the duties conferred upon them
under the contract for completion of a time bound government project. In this
regard the learned arbitrator has observed:
“Due to failure from the part of the respondent, claimant was
restrained for completing the entire work and as such the claimant
failed to earn his profit over the unexecuted value of the work. the
claimant as per his calculation recorded the value of the
unexecuted work is for a sum of Rs. 1,12,83,262.14 paisa,
whereas, according to the respondents after considering the
8documents and also the financial statement the value of the
unexecuted work comes at Rs. 1,14,58,486/-. But after
considering all the documents disclosed by respondents,
according to my calculation while considering the value of the
outstanding dues, total value of the unexecuted value of the work
comes at for a sum of Rs. 1,13,73,069/-. This amount includes
cost of construction, overhead and profit to the contractor. The
claimant has claimed profit as 15% but there is no mention about
cost of establishment and in my considered view this should be
5% as such the claimant is entitled to 10% profit over the
unexecuted value of the work which comes at Rs. 9,66,711/-.
That apart, the decision cited by the Ld. Advocate of the claimant
supports 10% profit as also the paragraph placed from the book of
G.T. Gajria on Building & Engineering Contract in India. As such
the claimant is entitled to a sum of Rs. 966711/- account.) on this
account.”
14. There lies a fundamental difference between claims raised by
contractors against employers for loss of profit and loss of profitability. While
loss of profit indicates claims for loss of expected profit due to unexecuted
work resulting from an illegal or premature termination of the contract, loss
of profitability of loss of business signifies claims for reduction in the
estimated profit margin due to prolongation of the contract or claims for loss
of opportunity to take up other projects during the extended period where the
contractor could have earned a profit. Loss of profit and loss of profitability
are often mistakenly used interchangeably which has been noted by the Delhi
High Court in Shri Ajay Kalra v Delhi Development Authority & Ors.6 as
follows:
6
2023:DHC: 9476
9“”Loss of Profits” and “Loss of Profitability” has often been
interchangeably used in recovery cases. The former stands for the
loss incurred due to the non-completion/ prevention from
completing of the contract on account of breach committed by the
respondent. The latter refers to the loss incurred due to the delay
in the project attributable to the respondent, due to which the
claimant has lost the opportunity to earn profits through other
projects after the contractual period.”
15. It is now an established position of law that claims for loss of
profitability are not generally allowed in the absence of evidence to prove such
loss. The view of the courts on this issue is explicit through judgments like
Unibros (supra), Bharat Coking Coal (supra), and Batliboi (supra), as has
also been relied upon by the appellants in this matter. However, reliance on
such cases is not apposite in the present case since those conflate the
concepts of loss of profit and loss of business. It is pertinent to note here that
even though the Apex court used the expression ‘loss of profits’ in essence the
claim was that of ‘loss of profitability’ and thus the requirement to prove
actual loss was mandated only for losses arising out of delay and should not
be misunderstood to be applicable to loss of profits for unexecuted works.
16. In Unibros (supra) the Supreme Court was faced with a similar
situation wherein the appellant’s claim for loss of profit stemmed from the
delay attributable to the respondent in completing the project. It had also
been established that the loss of profit claimed was based on the ground that
the appellant having been retained longer than the period stipulated in the
contract and its resources being blocked for execution of the work relatable to
10
the contract in question, it could have taken up any other work order and
earned profit elsewhere. The Court observed as under:
“15. Considering the aforesaid reasons, even though little else
remains to be decided, we would like to briefly address the
appellant’s claim of loss of profit. In Bharat Cooking Coal (supra),
this Court reaffirmed the principle that a claim for such loss of
profit will only be considered when supported by adequate
evidence. It was observed:
“24. … It is not unusual for the contractors to claim loss of
profit arising out of diminution in turnover on account of
delay in the matter of completion of the work. What he should
establish in such a situation is that had he received the
amount due under the contract, he could have utilised the
same for some other business in which he could have earned
profit. Unless such a plea is raised and established, claim for
loss of profits could not have been granted. In this case, no
such material is available on record. In the absence of any
evidence, the arbitrator could not have awarded the same.”
(emphasis ours)
16. To support a claim for loss of profit arising from a delayed
contract or missed opportunities from other available contracts
that the appellant could have earned elsewhere by taking up any,
it becomes imperative for the claimant to substantiate the
presence of a viable opportunity 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
11
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 attained acceptability and is well
understood in trade, does not, however, apply in a vacuum.
Hudson’s formula, as well as other methods used to calculate
claims for loss of off-site overheads and profit, do not directly
measure the contractor’s exact costs. Instead, they provide an
estimate of the losses the contractor may have suffered. While
these formulae are helpful when needed, they alone cannot prove
the contractor’s loss of profit. They are useful in assessing losses,
but only if the contractor has shown with evidence the loss of
profits and opportunities it suffered owing to the prolongation.
19. The law, as it should stand thus, is that for claims related to
loss of profit, profitability or opportunities to succeed, one would
be required to establish the following conditions : first, there was
a delay in the completion of the contract; second, such delay is not
attributable to the claimant; third, the claimant’s status as an
established contractor, handling substantial projects; and fourth,
credible evidence to substantiate the claim of loss of profitability.
On perusal of the records, we are satisfied that the fourth
condition, namely, the evidence to substantiate the claim of loss of
profitability remains unfulfilled in the present case.
12
20. The First Award was interfered with by the High Court for the
reasons noted above. The Arbitrator, in view of such previous
determination made by the High Court, could have granted
damages to the appellant based on the evidence on record. There
was, so to say, none which on proof could have translated into an
award for damages towards loss of profit. A claim for damages,
whether general or special, cannot as a matter of course result in
an award without proof of the claimant having suffered injury.
The arbitral award in question, in our opinion, is patently illegal in
that it is based on no evidence and is, thus, outrightly perverse;
therefore, again, it is in conflict with the “public policy of India” as
contemplated by section 34(2)(b) of the Act.” (emphasis supplied)
17. The Apex Court in the case of Unibros (supra) placed reliance on
the case of Bharat Coking Coal (supra), wherein the Court on similar lines
had observed that it was not uncommon for contractors to claim loss of profit
as a result of reduced turnover due to work completion delays. In such cases
however, they should prove that if they had received the sum due under the
contract, they could have used it to fund another business venture in which
they could have profited. Unless such a plea was raised and substantiated,
the claim for loss of profits could not be granted.
18. Furthermore, in Batliboi (supra) another division bench of the
Apex Court observed in paragraph 23 as follows:
“23. Ordinarily, when the completion of a contract is delayed and
the contractor claims that s/he has suffered a loss arising from
depletion of her/his income from the job and hence turnover of
her/his business, and also for the overheads in the form of
workforce expenses which could have been deployed in other
contracts, the claims to bear any persuasion before the arbitrator
or a court of law, the builder/contractor has to prove that there
13was other work available that he would have secured if not for
the delay, by producing invitations to tender which was declined
due to insufficient capacity to undertake other work. The same
may also be proven from the books of accounts to demonstrate a
drop in turnover and establish that this result is from the
particular delay rather than from extraneous causes. If loss of
turnover resulting from delay is not established, it is merely a
delay in receipt of money, and as such, the builder/contractor is
only entitled to interest on the capital employed and not the profit,
which should be paid.” (emphasis supplied)
19. However, if the contract is delayed due to breaches on the part of
the employer the contractor would be entitled to recover his profit on the
basis of reasonable expectation of profits which could be earned if not for the
illegal termination of the contract.
20. The case of A.T. Brij Paul Singh and Others v State of
Gujarat7, which has also been relied upon by the respondent contractor,
concerned a works contract wherein the contractor had claimed damages for
loss of expected profit on the remaining work on account of wrongful
termination of the contract by the government. The Supreme Court observed
that where in a works contract the party entrusting the work committed a
breach of the contract, the contractor would be entitled to claim damages for
loss of profit which he expected to earn by undertaking the works contract.
What would be the measure of profit and what proof should be tendered to
sustain the claim are different matters but the claim under this head is
certainly admissible. But that there shall be a reasonable expectation of profit
is implicit in a works contract and its loss has to be compensated by way of
7
1984 (4) SCC 59: 1984 SCC OnLine SC 147
14
damages if the other party to the contract is guilty of breach of contract
cannot be gainsaid. [Also see Satyendra Nath Bose v Bibhuti Bhusan
Bhar & Ors.8] It was observed in this regard that:
“What would be the measure of profit would depend upon facts and
circumstances of each case. But that there shall be a reasonable
expectation of profit is implicit in a works contract and its loss has
to be compensated by way of damages if the other party to the
contract is guilty of breach of contract cannot be gainsaid. In this
case we have the additional reason for rejecting the contention that
for the same type of work, the work site being in the vicinity of each
other and for identical type of work between the same parties, a
Division Bench of the same High Court has accepted 15 per cent of
the value of the balance of the works contract would not be an
unreasonable measure of damages for loss of profit.
***
Now if it is well established that the respondent was guilty of
breach of contract inasmuch as the rescission of contract by the
respondent is held to be unjustified, and the plaintiff-contractor had
executed a part of the works contract, the contractor would be
entitled to damages by way of loss of profit. Adopting the measure
accepted by the High Court in the facts and circumstances of the
case between the same parties and for the same type of work at 15
per cent of the value of the remaining parts of the works contract,
the damages for loss of profit can be measured.”
This decision was also followed by the Apex Court in the case of Dwarka
Das v State of M.P. & Anr.9
21. To the same effect is the judgment in Mohd. Salamatullah and
Ors. v. Government of Andhra Pradesh10. After approving the grant of
8
AIR 1963 Cal 163
9
1999( 3) SCC 500
15
damages in case of breach of contract, the Court further held that the
appellate court was not justified to interfere with finding of fact given by the
trial court regarding quantification of the damages even if it was based upon
guess work.
22. A division bench of the Delhi High Court in Cobra Instalaciones
Y Servicios, S.A. & Shyam Indus Power Solution Pvt Ltd. v. Haryana
Vidyut Prasaran Nigam Ltd.11 upheld the quantification of damages by an
arbitrator through “honest guesswork” or a “rough and ready method” since it
was difficult to quantify the precise amount of loss suffered by the party.
23. Subsequently, in MSK Projects India (JV) Limited v. State of
Rajasthan & Another12, the Apex Court clearly stated that a claim of
expected profits is legally admissible on proof of the breach of contract by the
erring party, as a reasonable expectation of profit is implicit in a works
contract and its loss has to be compensated by way of damages once the
breach on part of the other party is established and no other proof of loss
shall be required. It was observed therein as follows:
“38. In common parlance, “reimbursement” means and implies
restoration of an equivalent for something paid or expended.
Similarly, “compensation” means anything given to make the
equivalent. (See State of Gujarat v. Shantilal Mangaldas [(1969) 1
SCC 509 : AIR 1969 SC 634] , Tisco Ltd. v. Union of India [(2001)
2 SCC 41 : AIR 2000 SC 3706] , GDA [(2004) 5 SCC 65 : AIR 2004
SC 2141] and HUDA v. Raj Singh Rana [(2009) 17 SCC 199 :
(2011) 2 SCC (Civ) 136 : AIR 2008 SC 3035] .) However,
in Dwaraka Das v. State of M.P. [(1999) 3 SCC 500 : AIR 1999 SC10
AIR 1977 SC 1481
11
2024 SCC OnLine Del 2755
12
2011( 10) SCC 573
161031] it was held that a claim by a contractor for recovery of
amount as damages as expected profit out of contract cannot be
disallowed on ground that there was no proof that he suffered
actual loss to the extent of amount claimed on account of breach of
contract.
39. In A.T. Brij Paul Singh v. State of Gujarat [(1984) 4 SCC 59 :
AIR 1984 SC 1703] , while interpreting the provisions of Section
73 of the Contract Act, 1972, this Court held that damages can be
claimed by a contractor where the Government is proved to have
committed breach by improperly rescinding the contract and for
estimating the amount of damages, the court should make a broad
evaluation instead of going into minute details. It was specifically
held that where in the works contract, the party entrusting the
work committed breach of contract, the contractor is entitled to
claim the damages for loss of profit which he expected to earn by
undertaking the works contract. Claim of expected profits is
legally admissible on proof of the breach of contract by the erring
party. It was further observed that : (SCC pp. 64-65, para 10)
“10. … What would be the measure of profit would depend
upon the facts and circumstances of each case. But that
there shall be a reasonable expectation of profit is implicit in
a works contract and its loss has to be compensated by way
of damages if the other party to the contract is guilty of
breach of contract cannot be gainsaid.” (emphasis supplied)
24. In Deo Kumar Saraf v Union of India 13, this Court on the issue
of awarding loss of profits in a case of wrongful termination of the contract by
the respondent had held as follows:
“7. The ratio of the two decisions reported in AIR 1963 Cal 163
and (1984) 4 SCC 59 : AIR 1984 SC 1703 is that once the Court
has held that there is a breach of works contract the contractor
13
1988 SCC OnLine Cal 324: (1988) 2 Cal LJ 325
17would be entitled to damages by way of loss of profit and the
measure of damages if proved, the damage would be awarded on
that basis. But if the damage is not satisfactorily proved, still the
contractor would be accorded the benefit of every reasonable
presumption as to loss of damages. The Court’s jurisdiction to
award damages cannot be confined to the evidence on records
only. The Court is entitled to allow damages on any other
reasonable basis, even on the basis of mere guess work. In the
present case, the petitioner had claimed 11% profit. The arbitrator,
if he has not satisfied as to the rate claimed, certainly had the
jurisdiction to reduce the rate on the basis of pure guess work or
on the basis of average rate of profit allowed to the contractor by
the respondent in respect of works contracts. As the arbitrator
was satisfied regarding the wrongful termination of the contract
by the respondent, it was his duty to find out the average rate of
profit allowed by the respondent in respect of works contracts to
accord all reasonable benefit to the petitioner for loss of profit for
compensating the contractor for glaring breach of contract
committed by the respondent in the present case. In view of the
law as laid down by the aforesaid two cases, the finding of the
arbitrator that in spite of termination of contract being wrongful,
the damage could not be awarded due to unsatisfactory evidence
on record, is a clear error of law apparent on the face of the
record, as the arbitrator was bound to compensate the loss of
profit even on the basis of his pure guess work. The arbitrator also
legally misconducted himself and the proceeding by his failure to
exercise his jurisdiction to award damages on the facts of this
case resulting in miscarriage of justice.” (emphasis supplied)
25. It is a general principle of law of contract that in case of breach of
contract, the injured must be put back in the same position that he would
have been if he had not sustained the wrong. Once the contractor has
18established an illegal and unjustified termination of contract and a breach
thereof on the part of the employer, which was also a finding of fact by the
sole arbitrator in the present case, the contractor cannot be further obligated
to establish a loss suffered on account of such breach, because a reasonable
expectation of profit is implicit in a works contract. [See MSK Projects India
(supra)]. Therefore, any loss occasioned due to illegal termination of works
contract, has to be compensated by way of damages once the breach on part
of the erring party is established. This is obviously subject to the caveat that
the compensation must be reasonable and the parties should not be allowed
to make a windfall profit, by a mere allegation of breach of contract. However,
it is a settled position of law that for estimating damages, courts are not
required to go into the minute details; a broad evaluation of the same would
suffice.
26. In JG Engineers Private Limited v. Union of India and Anr.14
the Supreme Court upheld the award of loss of profits measured at 10% of
the value of the remaining part of the contract which could not be performed
due to illegal termination of the contract. The measure of profit was assessed
at 15% of the value of the remaining part of the work in A.T. Brij Paul
(supra). The Delhi High Court in RK Aneja v Delhi Development Authority15
was of the view that the petitioner was entitled to 10% loss of profit on the
balance amount of work left undone without proof of loss of profit which he
expected to earn by executing the balance work.
14
2011 (5) SCC 758
15
1998 SCC OnLine Del 501: 1998 (2) Arb LR 341
19
27. In the statement of claim, it has been stated that the respondent
contractor had submitted the tender after considering the profit as 15% over
the entire value of the work and considering the period of the work as 18
months. Owing to failure and negligence on the part of the appellants herein
in discharging their contractual obligation and further by illegal termination
of the contract when time was no longer as of essence the appellants had
restrained the contractor from executing the work valued at
Rs.1,12,83,262.14/- and thus the claimant had suffered loss to the tune of
Rs.16,92,489/- being the 15% profit over the unexecuted value of the work.
28. In the facts of the present case, the arbitrator has given his
reasons for not accepting the said rate of 15% as claimed by the respondent
contractor and instead have awarded loss of profit at the rate of 10%
amounting to Rs.9,66,711/- based on the decisions cited by the claimant as
well as the books of G.T. Gajaria. This seems to be a rational, plausible and
possible approach that has been adopted by the learned arbitrator. The
Award is also in sync with the authorities and judicial pronouncements on
similar issues.
29. In an application for setting aside of the award under Section 34
of the Arbitration and Conciliation Act, 1996 it is now well settled by catena of
decisions that the Court does not act and function as a court of appeal over
the arbitral award and may interfere on merits limited to the grounds
mentioned in Section 34 (2) of the said Act. It is relevant to note that by way
of amendment in 2016 Sub-section (2A) has been inserted in Section 34
which provided that in case of domestic arbitration violation of public policy
of India would also include patent illegal ex facie must appear on the face of
20
the award. However, the ground of patent illegality would not be available in
the event an application for setting aside of the award is filed prior to
amendment in 2005 i.e. 23rd October, 2015 [See Ssangyong Engineering
and Construction Company Limited v National Highways Authority of
India (NHAI)16]. The application for setting aside of the award was filed on 1st
November, 2017. By way of clarification in the amendment it was made clear
that the award shall not be set aside merely on the ground of an erroneous
application of law or by re-appreciation of evidence which is merely a
reiteration of the earlier views expressed by the Hon’ble Supreme Court that
in deciding the application for setting aside the award the court is not
exercising its jurisdiction as an appellate authority and the powers of the
appellate court would not be available to a court deciding such an
application. The scope of jurisdiction under Section 34 and Section 37 of the
Act is not akin to normal appellate jurisdiction. The powers of the Court are
circumscribed by the limited grounds as mentioned in Section 34. The reason
being that the arbitration proceedings are not considered and comparable to
judicial proceedings before the Court and a party can opt for an arbitration
before any person who is not required to have a degree in law or any prior
legal experience. Once the parties have consented to an appointment of an
arbitrator it should be presumed that they have bestowed their faith and trust
on the arbitrator and wanted a decision in an informal manner. This was
recognised in Dyna Technologies (p) Limited v. Crompton Greaves Ltd.17
in which it is observed in paragraph 29: “There is no gainsaying that
16
2019 (15) SCC 131
17
2019 (20) SCC 1
21
arbitration proceedings are not per se comparable to judicial proceedings before
the Court. A party under the Indian Arbitration Law can opt for an arbitration
before any person, even those who do not have prior legal experience as well.
In this regard, we need to understand that the intention of the legislature to
provide for a default rule, should be given rational meaning in light of
commercial wisdom inherent in the choice of arbitration” and reiterated in K.
Suguman vs. Hindustan Corporation Limited 18 in the following words:
“When parties have chosen to avail an alternate mechanism for
dispute resolution, they must be left to reconcile themselves to
the wisdom of the decision of the arbitrator and the role of the
court should be restricted to the bare minimum”.
30. In Vidya Drolia & Ors. v. Durga Trading Corporation19 it is
stated:
“18. Arbitration is a private dispute resolution mechanism
whereby two or more parties agree to resolve their current or future
disputes by an Arbitral Tribunal, as an alternative to adjudication
by the Court or a public forum established by law. Parties by
mutual agreement forgo their right in law to have their disputes
adjudicated in the courts/public forum. Arbitration agreement gives
contractual authority to the Arbitral Tribunal to adjudicate the
disputes and bind the parties.” (emphasis supplied)
31. In Konkan Railway Corporation Ltd v Chenab Bridge Project
Undertaking 20 a three-judge bench in paragraph 18 stated thus:
“Scope of interference by a court in an appeal under Section 37 of
the Act in examining an order, setting aside or refusing to set18
2020(12) SCC 539 at 540
19
2021(2) SCC 1
20
2023 (9) SCC 85
22aside an award, is restricted and subject to the same grounds as
the challenge under Section 34 of the Act.” (emphasis supplied)
32. The aforesaid view has been reiterated in paragraph 26 in
Bombay Slum Redevelopment Corporation Pvt. Ltd. v. Samir Narain
Bhojwani21. It was held thus:
“26. The jurisdiction of the appellate court dealing with an appeal
under Section 37 against the judgment in a petition under Section 34
is more constrained than the jurisdiction of the Court dealing with a
petition under Section 34. It is the duty of the appellate court to
consider whether Section 34 Court has remained confined to the
grounds of challenge that are available in a petition under Section 34.
The ultimate function of the appellate court under Section 37 is to
decide whether the jurisdiction under Section 34 has been exercised
rightly or wrongly. While doing so, the appellate court can exercise
the same power and jurisdiction that Section 34 Court possesses with
the same constraints.” (emphasis supplied)
33. The award can be interfered only on the limited grounds as
envisaged under the Act. Moreover, when the view taken by the arbitrator is a
possible view the court in deciding an application for setting aside the award
shall not interfere with such a view or substitute such view with its own view.
Once the interpretation given by the arbitrators are backed by logic and are
reasonable the same is required to be upheld as held in:
i) MMTC Ltd. v. Vedanta Ltd. reported in 2019(4) SCC 163
paragraph 14
21
2024 (7) SCC 218
23
ii) UHL Power Company Ltd. v. State of Himachal Pradesh
reported in 2022(4) SCC 116 paragraphs 18 and 22.
34. The jurisdiction of the court under section 37 of the Act, as
clarified in MMTC (supra) and reiterated in Konkan Railway Corporation
Ltd. (supra) is akin to the jurisdiction of the court under Section 34 of the
Act. The scope of interference by a court in an appeal under Section 37 of the
Act, in examining an order setting aside or refusing to set aside an award, is
restricted and subject to the same grounds as the challenge under Section 34
of the Act. The jurisdiction under Section 34 of the Act is exercised only to see
if the Arbitral Tribunal’s view is perverse or manifestly arbitrary. [See Konkan
Railways Corporation Ltd. (supra)].
35. In Somdatt Builders (supra) the Hon’ble Supreme Court in
referring to M/s. Larsen Air Conditioning and Refrigeration Company v.
Union of India22 and Reliance Infrastructure Ltd. v. State of Goa 23 has
observed that:
“It is necessary to remind the courts that a great deal of restraint is
required to be shown while examining the validity of an arbitral award
when such an award has been upheld, wholly or substantially, under
Section 34 of the 1996 Act. Section 37 of the 1996 Act grants narrower
scope to the appellate court to review the findings in an arbitral award if
it has been upheld or substantially upheld under Section 34. Frequent
interference with arbitral awards would defeat the very purpose of the
1996 Act.” (emphasis supplied)22
2023 INSC 708
23
2024 (2) SCC 613
24
36. The aforesaid view has been reiterated in a fairly recent decision
in C & C Construction Ltd. v. Ircon International Ltd.24 in which it has
been stated that “in appeal, Section 37 of the Act grants narrower scope to
the appellate court to review the findings in an award, if it has been upheld,
or substantially upheld under Section 34“. (emphasis supplied) The views
expressed by the Arbitral Tribunal have been accepted by Commercial Court
at Asansol and therefore the court under Section 37 would be extremely chary
and circumspect in scrutinizing the award.
37. Though the underlying philosophy in arbitration law in this
country has undergone a sea-change from what it was under the Arbitration
Act, 1940 to what it is now under the 1996 Act and several Supreme Court
judgments caution against interpreting the provisions of the 1996 Act by
referring to the 1940 Act, the fundamental basis in dealing with a challenge to
an arbitral award remains unaltered. In the most traditional approach, the
court would not step in to correct every perceived wrong complained of by a
challenger simply on the ground that since the challenger was a party to an
agreement that took the assessment away from the sovereign forum to a
private forum, the challenger had to live with the decision of the forum of its
choice. The same proposition, put in a different form, is simply this: when
there is a proper submission, whether of fact or of law, to arbitration, it is not
for the court to sit as an ordinary court of appeal over an arbitral award
because the arbitrator has taken a view of law or of fact which a court of law
may not have taken if such court were trying the dispute. The everlasting
principle, unaffected by the paradigm shift in the arbitration law in this
24
2025 SCC OnLine SC 218
25
country, is that except to the extent expressly or by necessary implication
permitted by the governing statute, the court will not revise, remit or set aside
an arbitral award. [See State of West Bengal v Pam Developments Private
Limited25].
38. In light of the distinction between loss of profits and loss of
profitability/loss of business as elucidated hereinbefore and the fact that in
cases of damages claimed by a contractor where the Government is proved to
have committed breach by improperly rescinding the contract and for
estimating the amount of damages, the court should make a broad
evaluation instead of going into minute details, the respondent contractor in
the present case should be entitled to loss of profit at the rate of 10% as
awarded by the learned sole arbitrator.
39. Hence, the appeal fails and the judgment dated 25th February
2021 passed by the learned Commercial Court at Asansol is upheld.
40. There shall be no order as to costs.
I agree (Soumen Sen, J.)
(Biswaroop Chowdhury, J.)
25
2017 SCC OnLine Cal 13272