authorities for the proposition that the Court even in arbitration cases
should be conscious of and ordinarily should not refuse claims towards
loss of profits. At the same time, the reference to Section 73 – which
finds express mention in Brijpaul (supra) clarifies that damages claimed
cannot be granted as a matter of course; some material evidence is
necessary. In this case, the extensions led to claims for payments on
various accounts and heads during the extended period. The cumulative
effect of the award and the impugned judgment is such that the majority
of such heads of claim for extra expenditure, increased salary and other
overheads for the additional period have been granted. They are based
upon certain formulae under the contract. However, in the case of the
claim of general loss of profits, having nexus with the value of the
contract, the Court finds that there is no worthwhile evidence – apart
from the line of questioning adopted by the claimants.
10. That in arbitration proceedings, just as in civil cases, an injured
party can claim damages, does not necessarily translate into an award for
damages towards loss of profits unless some diligence is exercised by the
party (in the present case, Ahluwalia claiming it). In other words, a claim
for damages (general or special) in the proceedings, cannot as a matter of
course, result in an award, without proof of having suffered injury.
IN THE HIGH COURT OF DELHI AT NEW DELHI
Pronounced on: 17.10.2017
FAO (OS) (COMM) 143/2017, C.M. APPL.25112/2017
AHLUWALIA CONTRACT (INDIA) LIMITED .
V
THE UNION OF INDIA .....
CORAM:
HON'BLE MR. JUSTICE S. RAVINDRA BHAT
HON'BLE MR. JUSTICE S.P. GARG
Dated:OCTOBER 17, 2017
1. Ahluwalia Contract (India) Ltd (the appellant, hereafter
“Ahluwalia”) appeals the decision of a learned Single Judge, under
Section 37 of the Arbitration and Conciliation Act (“the Act”), declining
to set aside the award of an arbitral tribunal, under Section 34.
2. The facts are that Ahluwalia was awarded the contract for 'Package
III, Electrical Services at AIIMS, Raipur entered into on 11.08.2011
(hereafter 'the Agreement') after it successfully bid in a tender process
floated by the Respondent, through the Ministry of Health and Family
Welfare (hereafter “the Principal”). The agreement involved the supply,
installation, testing and commissioning of electrical equipment(s). The
total contract value was ` 41,20,09,326/-. The completion period of the
contract was 16 months, starting from 19.08.2011. Ahluwalia alleged that
the Principal did not hand over the entire site till December 2015. In the
meanwhile, the tenure of completion under the Agreement was extended
eleven times. Accordingly, it alleged that delays in the performance of
the Agreement – attributable - to the Principal’s acts and omissions,
resulted in losses to it. It claimed compensation. The Principal refuted
these allegations and blamed Ahluwalia for the delays; it further alleged
that in terms of the General Conditions of Contract (hereafter 'GCC'), no
compensation was payable for any delay in handing over of the site.
Since these disputes could not be resolved through mutual negotiation,
they were referred to arbitration, in terms of a condition under the
contract.
3. Ahluwalia sought an Award in respect of 17 heads of claims. 12
claims (nos. 1 to 6, 8, 9, 10, 11, 15 and 16) were allowed. 4 claims, i.e.
nos. 3 to 5 and 7 were concerned with expenses alleged to have been
incurred by Ahluwalia during the extended period of agreement. They
were, however, rejected by the tribunal, which held that the contract did
not provide for such expenses separately. The arbitrator furthermore held
that the claims were in fact covered within the mark-up of 15% costs of
materials/labour provided to cover all overhead profits. An important
claim, i.e. no.12 relating to loss of profits suffered during the extended
period of agreement was rejected on the basis that it was hypothetical and
conjectural. Likewise, claim no.13 for bonus in terms of clause 2A of the
GCC was rejected.
4. In the petition under Section 34, eight claims rejected by the
tribunal were impugned. Learned Single Judge took note of clause 2X –
which defined “market rates” and clause 40h of the Special Conditions of
Contract (SCC) which had prohibited compensation on account of delay
in the starting of work – on account of acquisition of land, encroachment
and in case of clearance work or towards sanction to estimates etc. The
learned Single Judge was of the opinion that the reasoning given by the
tribunal was unsustainable.
5. With respect to the rejection of the claim for loss of profits, the
learned Single Judge held as follows:
“16. The arbitrator had also rejected ACIL's Claim no.12 for
loss of profits during the extended period. The arbitrator found
such claim to be hypothetical and this court is unable to accept
the contention that the aforesaid view is not a plausible one. It
is well settled that the claim for loss of profits is in the nature of
damages and it would be incumbent on any party claiming such
damages to establish the same with reasonable certainty.
17. In Bharat Coking Coal Ltd. v. L K Ahuja: (2004) 5 SCC
109, the Supreme Court had observed as under:-
“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.”
18. It is obvious that in the facts of the present case, the
arbitrator was not convinced of the opportunity costs and/or
loss of profits claimed by ACIL. This court is mindful of the
limited scope of judicial review in these proceedings. It is not
open for the court to supplant its view over that of the
arbitrator by re-appreciating the evidence and material placed
on record. Thus, no interference with the decision of the
arbitrator to reject ACIL's claim for loss of profits during the
extended period, is warranted.”
Likewise, the claim for extra amounts towards bonus in respect of the
extended period too was rejected.
6. Ahluwalia urges that the learned Single Judge fell into error in
upholding the awards so far as it sustained the rejection of its claim
towards loss of profits for the extended period. Learned counsel relied
upon the Bharat Coking Coal Ltd. v. L.K. Ahuja 2004 (5) SCC 109 and
submitted that the plea of loss of profits had not only been urged but
supported through materials. In support of this argument, learned counsel
also relied upon the line of questioning adopted during the arbitral
proceedings with special emphasis on question nos. 88-90. It was stated
that the nature of answers to the questions (which pertained to the margin
of profit that the contractor accepted under such agreements) justified a
finding in favor of claim for profits. Learned counsel also relied upon
A.T. Brij Paul Singh and Ors. v. State of Gujarat 1984 (4) SCC 59 and
submitted that 15% of the contract value towards loss of profits for the
extended period was justified in the entirety of circumstances.
7. It was also argued that the claim for bonus for the extended period
was likewise rejected in an unreasoned manner. It was argued on behalf
of the Principal, on the other hand, that the rejection of the claims
towards loss of profits and for bonus for the extended period was entirely
justified. Learned counsel highlighted the narrow scope of Section 67 of
the Act, emphasizing that unless the Court which had dealt with a
petition under Section 34 renders a finding which is plainly unreasonable
or unsustainable in law, the scope of interference in appeal is limited. It
was also urged that the issue whether and if to what extent damages
towards loss of profits is to be awarded relates to examination of pure
questions of law. Without a finding with regard to patent error in law on
the face of the record or findings that are contrary to stipulations in the
contract or an approach indicative of such unreasonableness on the part
of the Tribunal that no reasonable person placed in such or like
circumstances would have arrived at, the award cannot be set aside. It
was urged that besides relying upon the line of questioning in crossexamination
of the Principal’s witness, there was no documentary
evidence to establish the loss of profits in fact claimed. Therefore, the
denial of claims under that head was justified and valid.
8. From the above analysis, it is evident that Ahluwalia’s appeal is
confined principally to the denial of its claim for damages towards loss of
profits. It is an undeniable fact that the contract could not be completed
within the time agreed; several successive extensions were granted.
Equally, the extensions were mutually agreed and apparently on account
of the Principal’s defaults. Ahluwalia, no doubt, in its claims set out 17
heads and sub-heads. The tribunal had initially allowed damages on 9
heads of claims. To this, the impugned order added 3 further claims,
rejection of which was held to be untenable. Of the 2 claims in respect of
which the appeal has been preferred, the main one appears to be no.12,
i.e. loss of profits.
9. Bharat Coking (supra) and Brijpaul (supra), no doubt, are
authorities for the proposition that the Court even in arbitration cases
should be conscious of and ordinarily should not refuse claims towards
loss of profits. At the same time, the reference to Section 73 – which
finds express mention in Brijpaul (supra) clarifies that damages claimed
cannot be granted as a matter of course; some material evidence is
necessary. In this case, the extensions led to claims for payments on
various accounts and heads during the extended period. The cumulative
effect of the award and the impugned judgment is such that the majority
of such heads of claim for extra expenditure, increased salary and other
overheads for the additional period have been granted. They are based
upon certain formulae under the contract. However, in the case of the
claim of general loss of profits, having nexus with the value of the
contract, the Court finds that there is no worthwhile evidence – apart
from the line of questioning adopted by the claimants.
10. That in arbitration proceedings, just as in civil cases, an injured
party can claim damages, does not necessarily translate into an award for
damages towards loss of profits unless some diligence is exercised by the
party (in the present case, Ahluwalia claiming it). In other words, a claim
for damages (general or special) in the proceedings, cannot as a matter of
course, result in an award, without proof of having suffered injury. The
tribunal – as well as the learned Single Judge in this case appreciated the
conspectus of circumstances. The former had the benefit of consideration
of record as the primary adjudicatory body. The Tribunal was unable to
discern any substantial material to justify the claim for damages towards
loss of profits. Having regard to these facts, this Court is of the opinion
that the rejection of claim nos. 12-13 was dealt with correctly and
reasonably by the learned Single Judge in the impugned judgment, which
does not warrant interference.
11. For the above reasons, there is no merit in the appeal. It is
accordingly dismissed without order on costs.
S. RAVINDRA BHAT
(JUDGE)
S.P. GARG
(JUDGE)
OCTOBER 17, 2017
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