In claims for loss of profit due to contract delays, the claimant must provide credible evidence of potential profits missed, or the claim will be dismissed as lacking substantiation.

JUDGEMENT

DIPANKAR DATTA, J.

1. Leave granted.

2. This appeal, at the instance of M/s Unibros (“appellant”, hereafter), registers a challenge to the judgment and order dated 9th December, 2019 in FAO (OS) 229/2010 passed by the High Court of Delhi (“High Court”, hereafter) dismissing an appeal carried by the appellant under section 37 of the Arbitration and Conciliation Act, 1996 (“the Act”, hereafter). Vide the impugned judgment, a Division Bench affirmed the judgment and order of a learned Single Judge dated 25th February, 2010 whereby an objection of the All India Radio (“respondent”, hereafter) under section 34 of the Act was allowed resulting in setting aside of an arbitral Award dated 15th July, 2002 to the extent it awarded loss of profit to the appellant.

3. The relevant facts, discerned from the records, reveal that the appellant was awarded a work contract by the respondent to carry out Digitally signed by NEETA SAPRA Date: 2023.10.19 16:05:01 IST Reason:

Signature Not Verified construction of Delhi Doordarshan Bhawan, Mandi House, Phase-II, New Delhi. The work was scheduled to commence on 12th April, 1990 and reach completion on 11th April, 1991; however, it suffered a delay of roughly 42½ months and was finally completed on 30th October, 1994. Disputes and differences emerged between the parties owing to such delay, which were subsequently referred to an Arbitrator (“Arbitrator”, hereafter) for resolution.

4. The trajectory of the case, leading to the present stage, is set out hereunder: a) Arbitration proceedings having been initiated, the Arbitrator vide award dated 11th February, 1999 (“First Award”, hereafter) decided various claims and counter-claims filed by the parties.

Claim Nos. 10, 11, and 12 were collectively addressed under section 73 of the Indian Contract Act, 1872 (“Contract Act”), as they all centred around the issue of delay and the resultant losses.

Vide Claim No. 10, the appellant claimed a sum of Rs. 50,00,000.00 (Rupees fifty lakh) owing to the marked escalation in prices/rates for the work executed beyond the stipulated contract period. Vide Claim No. 11, the appellant implored the Arbitrator to award Rs. 41,00,000.00 (Rupees forty-one lakh) to cover substantial expenses associated with the establishment, machinery, centring/shuttering, and other vital aspects of the project. Additionally, vide Claim No. 12, the appellant urged that a compensation of Rs. 2,00,00,000.00 (Rupees two crore) be granted as redress for the loss of profit endured due to the appellant’s protracted retention on the contract without any corresponding increase in monetary benefits earned. Despite the Arbitrator's rejection of Claim Nos. 10 and 11, the appellant was awarded a sum of Rs. 1,44,83,830 (Rupees one crore, forty-four lakh, eighty-three thousand, eight hundred and thirty) towards Claim No. 12, along with an interest of 18% per annum under Claim No. 13 from 12th May, 1997 to the date of actual payment. The Arbitrator supported this award based on the undisputed fact that the delay in completing the work beyond the stipulated contract period was caused by the respondent and against the stipulated contract period of 12 months, the appellant was retained by the respondent for the execution of the work for an additional period of 3½ years leading to loss of the appellant’s profit earning capacity during the said extended period. The loss of profit was worked out based on a profit allowance of 7½% per year, which the Arbitrator held to be reasonable in a civil works contract. Applying Hudson’s formula, the Arbitrator arrived at the final compensati