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IN THE HIGH COURT OF JUDICATURE AT MADRAS
N.ANAND VENKATESH, J.
M/s. Y.Chinna Reddy, rep.by its Managing Partner Mr.Y.Chinna Reddy – Appellant
Versus
The Union of India, rep.by the General Manager, Southern Railway – Respondent
Original Petition No.906 of 2016
Decided On : 24-9-2025
| Table of Content |
|---|
| 1. factual background of the case concerning contract disputes. (Para 1 , 3) |
| 2. arguments regarding the arbitral award and claims raised by the petitioner. (Para 4 , 5) |
| 3. court's analysis of claims and responses from both parties. (Para 6 , 8 , 9) |
| 4. court’s reasoning regarding the arbitral tribunal's findings. (Para 7 , 12 , 24) |
| 5. legal principles regarding loss of anticipated profits and related claims. (Para 28 , 29) |
| 6. final ruling to dismiss the original petition. (Para 46) |
ORDER :
This petition has been filed under Section 34 of the Arbitration and Conciliation Act, 1996 (for short, the Act) against the award dated 29.8.2016 passed by the Arbitral Tribunal.
2. Heard both.
3. The case of the petitioner is as follows :
(i) The respondent - Southern Railway called for tenders for modernisation of Perambur Loco Works - proposed construction of bogie repair shop, air brake and miscellaneous shed, service building and allied works. The petitioner participated in the tender and their tender was accepted vide letter of acceptance dated 21.3.2014, pursuant to which, an agreement was executed between the petitioner and the Southern Railway on 12.6.2014 for a total sum of Rs.10.72 Crores with the date of completion as 20.3.2015.
(ii) The petitioner started the work after taking necessary clearance from the workshop authorities. Some new items connected with earth work were also executed by the petitioner though they were not a part of the agreement and it was done purely on the request made by the Southern Railway. Later, the Southern Railway could not pay the money for the work that was done by the petitioner for want of funds. Even though the petitioner repeatedly requested the Southern Railway to arrange for funds and make payment, the same was not done.
(iii) Since this issue was not resolved by the Southern Railway, the petitioner stopped the work and requested the Southern Railway to foreclose the contract and compensate for the losses suffered by the petitioner. Since the Southern Railway denied the claims, the petitioner filed a petition in O.P.No. 809 of 2014 before this Court. Subsequently, the contract was also terminated by the Southern Railway on 24.1.2015 since the petitioner did not restart the work. On 10.4.2015, the said petition was allowed by this Court, pursuant to which, the Arbitral Tribunal was constituted.
(iv) The petitioner made the following claims before the Arbitral Tribunal :
| S.No. | Description of Claim |
| Claim 1 | Declaration that the railway had called for Tenders and awarded the instant contract without ensuring the specific allotment and availability of funds |
| Claim 2 | Declaration that the claimant was prevented from executing and completing the contract works due to the railway's inability to pay for the work done. |
| Claim 3 | Declaration that the contract must be finalised without any liability (like LD, penalty, forfeiture of SD. Performance Guarantee etc) on the claimant |
| Claim 4 | Damages for the loss in anticipated profits @ 15% of the value of unexecuted work (as per Sec-73 of the Indian Contract Act) due to failure of the project on account of railway's latches and failures. (i.e. 15% of unexecuted work for Rs.10,52,00,000/-) |
| S.No. | Description of Claim |
| Claim 5 | Damages for loss in turnover and good-will (@5% of the unexecuted contract value). |
| Claim 6 | Payment of the bill amount under CC-I & Part. |
| Claim 7 | Payment of Final Bill for earthwork with lead and other works (but measurements yet to be recorded). |
| Claim 8 | Refund of the Performance Guarantee. |
| Claim 9 | Refund of the EMD |
| Claim 10 | Payment for the cost of Drawing, Designing, Planning, etc preparation and proof checking as per conditions of the Agreement. |
| Claim 11 | Lab Testing charges Aggregate, Cement, RMC Design-Mix etc. |
| Claim 12 | Idle payment for the following: (1) Site Engineer (1 No. per month Rs.30,000/- for six months) (2) Site in charge (1 No. per month Rs.25,000/- for 6 months) (3) Supervisor (1 No. per month Rs. 15,000/- for 6 months) |
| Claim 13 | Idling of workmen - skilled la |
Court upheld the Arbitral Tribunal's decision based on the principle that interference is limited to cases of perversity, with findings deemed a plausible view of the evidence.
The Court emphasized the limited scope of jurisdiction under Section 34 of the Act and the need for evidence to support claims for loss of profit.
The court upheld the Arbitrator's findings that the rescission of the contract was unjust and delays were primarily attributable to the petitioner, affirming the award under Section 34 of the Arbitra....
The non-breaching party is entitled to damages that place them in a position as if the contract had been performed, with the awarded loss of profits upheld based on reasonable calculations.
The court upheld the arbitral award barring the idling costs due to lack of proof, affirming the necessity for evidential support in claims made under arbitration.
The court emphasized the requirement for the arbitrator to assign reasons in support of the award and the limited scope of interference by the court in arbitration awards.
The court held that a contract's termination after expiration is unlawful, necessitating the return of forfeited amounts when unjustified actions take place.
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