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2016 Supreme(Bom) 1710
IN THE HIGH COURT OF JUDICATURE AT BOMBAY
R.D. DHANUKA, J.
Essar Procurement Services Ltd. - Petitioner
Versus
Paramount Constructions A Partnership firm - Respondent
ARBITRATION PETITION NO. 470 OF 2012
Decided On : 25-11-2016
For the Petitioner: Mr. Zal Andhyarujina, Mr. Nishant Sasidharan, Mr. Nivit Srivastava, Mr. Nakul Jain, M/s. Maniar Srivastava.
For the Respondent: Mr. Soli Cooper, Mr. Hamed Kadiani, Ms. Krushi Barfiwala, Mr. Siddharth Ranade, M/s. ALMT Legal.
The court held that the arbitral tribunal erred in applying the Hudson Formula to calculate damages without any evidence of actual loss. The court also held that the arbitral tribunal erred in allowing overlapping claims for overhead and loss of profit.
Headnote:
The court set aside the arbitral award allowing the respondent's claims for overhead, loss of profit, interest, and arbitration costs. The court found that the arbitral tribunal erred in applying the Hudson Formula to calculate damages without any evidence of actual loss. The court also found that the arbitral tribunal erred in allowing overlapping claims for overhead and loss of profit. The court upheld the arbitral tribunal's rejection of the petitioner's counterclaims.
Fact of the Case:
The petitioner invited tenders for erection, testing, and commissioning of a chemical soar water treatment facility. The respondent submitted a bid and was awarded the contract. The respondent deposited a security deposit and was required to commence work within a certain timeframe. The petitioner, however, did not provide the work front within the contractual period and informed the respondent that the project had been put under suspension. The respondent claimed that the petitioner had suspended the work indefinitely and made various claims, including claims for delay in payment, overhead, loss of profit, interest, and arbitration costs. The petitioner denied the claims and raised a counterclaim.
Finding of the Court:
The court found that the arbitral tribunal erred in applying the Hudson Formula to calculate damages without any evidence of actual loss. The court also found that the arbitral tribunal erred in allowing overlapping claims for overhead and loss of profit. The court upheld the arbitral tribunal's rejection of the petitioner's counterclaims.
Issues: 1. Whether the arbitral tribunal erred in applying the Hudson Formula to calculate damages without any evidence of actual loss? 2. Whether the arbitral tribunal erred in allowing overlapping claims for overhead and loss of profit? 3. Whether the arbitral tribunal erred in rejecting the petitioner's counterclaims?
Ratio Decidendi: 1. The court found that the arbitral tribunal erred in applying the Hudson Formula to calculate damages without any evidence of actual loss. The court held that the respondent had not produced any books of account or other evidence to support its claim for overhead and loss of profit. The court also held that the arbitral tribunal had not considered the petitioner's submissions that the claim for overhead and loss of profit was not proved or that the same was based on no evidence. 2. The court found that the arbitral tribunal erred in allowing overlapping claims for overhead and loss of profit. The court held that the respondent could not have earned a profit without incurring expenses on overhead. Therefore, the court held that the arbitral tribunal could not have allowed both claims simultaneously. 3. The court upheld the arbitral tribunal's rejection of the petitioner's counterclaims. The court found that the petitioner had not made any claims which were the subject matter of the counterclaim at any point of time earlier and had made such claims only for the first time along with the written statement. The court held that the arbitral tribunal could not have allowed such counterclaims made by the petitioner.
Final Decision: The court set aside the arbitral award insofar as claims made by the respondent were allowed. The court upheld the arbitral award rejecting the counterclaim made by the petitioner.
By this petition filed under Section 34 of the Arbitration and Conciliation Act, 1996 (for short “the said Act”), the petitioner has impugned the arbitral award dated 9th August 2011 made by the arbitral tribunal allowing few claims made by the respondent and directing the petitioner to pay a total sum of Rs.16,55,733/- with interest @15% p.a. from the date of award till the date of payment to the respondent. Some of the relevant facts for the purpose of deciding this arbitration petition are under:-
2. On 30th April 1998, the petitioner invited tender for erection, testing and commissioning of chemical soar water treatment facility for Issar Oil Limited at Vadinar. The respondent submitted their bid pursuant to the said offer issued by the petitioner on 11th May 1998. The petitioner accepted the final offer made by the respondent and issued a letter of intent on 29th May 1998. The parties, thereafter, entered into a Contract on 29th May 1998 for erection, testing and commissioning of chemical soar water treating facility for a total sum of Rs.35 lacs. The respondent was required to commence the said work from 29th May 1998 and was required to achieve mechanical completion as well as commissioning on or before 28th February 1999.
3. The respondent deposited the security deposit amount @ 5% p.a. of the contract amount in the form of a bank guarantee dated 2nd June 1998 as per the terms of the contract with the petitioner. It was the case of the respondent that the petitioner, however, did not provide the work front within the contractual period though the respondent had finalized with different agencies or contractors for mechanical, electrical and instrument works as per the requirement of the subject work to achieve the mechanical completion within the contractual time period of 9 months. It was the case of the respondent that due to financial problem faced by the petitioner, work was required to be suspended.
4. By the letters dated 26th March 1999 and 3rd April 1999, the petitioner intimated through their official communication that they were facing financial crunch and admitted the request of the respondent for time extension in order to facilitate the execution of the said work. The petitioner informed the respondent during the month of March/April, 1999 that the project of Essar Oil Refinery had been put under suspension and advised the respondent that they should not proceed with further work and all the activities related to the subject project be suspended.
5. It was the case of the respondent that the respondent had no other option than to suspend all activities and the respondent had been following up with the petitioner from time to time for recommencement of the balance project activities and had informed that the delay in recommencement of the work was adding to their expenses besides huge amount remaining due from the petitioner. It was the case of the respondent that since there was no response or indication about recommencement of the activities from the petitioner, the respondent vide their letter dated 5th August 2002 informed the petitioner that the said contract could not be kept alive for an indefinite period and that the respondent was incurring heavy losses.
6. The petitioner, thereafter, proposed a meeting through a letter dated 14th August 2002 and had held a meeting on 12th September 2002 in the premises of the respondent. In the said meeting, the respondent raised various points. It is the case of the respondent that the petitioner agreed in principle for revision but later on refused to revise the contract through their letter dated 10th October 2002. The respondent reiterated their contentions and made a demand vide their letter dated 28th October 2002 and called upon the petitioner for settlement of outstanding dues before recommencement of balance work. In the said letter, the respondent also demanded the compensation for the losses alleged to have been suffered by the respondent due to sus
