The main legal point established in the judgment is the requirement for evidence to support claims in arbitration, particularly in quantifying losses and expenses.

(Dr. D.Y. Chandrachud, J.) :

This Appeal arises from a judgment of a Learned Single Judge dated 11 November 2011 on a petition under Section 34 of the Arbitration and Conciliation Act 1996.

2. On 28 February 1998 a letter of intent was issued by the Respondent to the Appellant for the construction of Plant 'C' building at a contract price of Rs.1.63 Crores. A reference was made to arbitration of the disputes and differences between the parties in the execution of the work under the contract. By the award of the Arbitral Tribunal, the Respondent was directed to pay an amount of Rs.1.93 Crores to the Appellant together with interest at 10% per annum on the principal sum of Rs.1.84 Crores. The heads of claim which were awarded by the Arbitral Tribunal were as follows:

1) Principal Retention Money Amount payable by the Respondent to the Appellant Rs.1,43,028/-

2) Principal amount of overhead loss Rs.1,32,53,248/-

3) Principal amount of loss of profit Rs.13,50,715/-

4) Loss for underutilized plant and equipment Rs.38,11,531/-

5) Reimbursement of infrastructure expenses Rs.2,01,417

Interest was awarded on the principal retention money and loss of profits pendentelite.

3. The Learned Single Judge affirmed the award of the Arbitral Tribunal insofar as it allowed the claim in respect of retention money in the amount of Rs.1.43,028/-holding that the claim arose out of the contract and that the conclusion which was arrived at by the Arbitrator was a possible conclusion to be drawn on the basis of the material on the record. The arbitral award in respect of the remaining claims was, however, set aside.

4. The Appellant had claimed an amount of Rs.1,88,15,960/-towards overhead losses on the basis of Hudson's Formula. While noting that the Appellant had not produced either the basis of the account or led any oral evidence in support of the claim, the Arbitrator nonetheless allowed the claim on the basis of a finding that Hudson's Formula is adopted for quantification of claims for overhead losses in India. The award contains the following finding:

“35(i) The Claimants have claimed a sum of Rs.1,88,15,960/-for overhead loss on the basis of Hudson Formula. The Respondents have denied their liability and have stated that no evidence of actual loss alleged to have been suffered by the Claimants has been led so as to entitle the Claimants to claim the same from the Respondents. It is correct that the Claimants have not produced their basis of account nor led any oral evidence to prove the overhead loss caused to or suffered by the Claimants. However, in the construction industry when the resources are mobilized and the delay is caused in execution of work which is not attributable to the contractor, overhead losses consequently caused to the contractor, the contractor becomes entitled to same on the basis of Hudson Formula even in want of direct evidence to prove the same.

This formula is adopted for quantification of claims for overhead losses in India. Even in the case of Messrs A.T. Brij Paul Singh & Brothers Vs. State of Gujarat (AIR 1994 SC 1703) on which reliance is placed by Dr. Dave, learned Techno – Legal Consultant for the Claimant, this formula has been accepted by the Hon'ble Supreme Court for quantification of claims for overhead losses. On the basis of Hudson Formula, the Claimants have claimed overhead losses upto 28th January 2002 amounting to Rs.1,88,15,960/-.”

5. The Learned Single Judge, while setting aside the arbitral award noted that -

(i) The Respondent had specifically objected to the adoption of Hudson's Formula noting that this was not an accepted method or measure for the quantification of losses and that the Appellant had in fact failed to produce any evidence in support of the claim. The Arbitral Tribunal had not dealt with the objections of the Respondent;

(ii) The finding of the Arbitrator that Hudson's Formula had been accepted by the Supreme Court in the decision in M/s. A.T. Brij Paul Singh and Bros. v. Sta