The arbitral award was set aside for lacking adequate reasoning and justifications in damage calculation, violating principles of public policy and arbitration standards.

JUDGEMENT

SANJIV KHANNA, J. This appeal by way of special leave by Batliboi Environmental Engineers Limited1 takes exception to the judgment dated 02.11.2007, whereby the Division Bench of the High Court of Judicature at Bombay allowed the appeal2 filed by Hindustan Petroleum Corporation Limited3 under Section 37 of the Arbitration and Conciliation Act , 19964, and thereby has set aside the arbitral award dated 23.03.1999. 1 For short, BEEL.

2 Appeal No. 227 of 2001 in Arbitration Petition No. 280 of 1999. 3 For short, HPCL.

4 For short, A&C Act.

Digitally signed by SWETA BALODI Date: 2023.09.21 17:25:51 IST Reason:

Signature Not Verified

2. On acceptance of tender and in terms of the letter of intent dated 27.02.1992, HPCL had awarded to BEEL the turnkey contract for detailed engineering including civil and structural design, supply and erection, testing and commissioning of 23 MLD capacity Sewage Water Reclamation Plant in Mahul Refinery area. The contract value was Rs.574.35 lakhs. The contract period was 18 months from the date of letter of intent, and accordingly the work was to be completed by 28.08.1993. There was delay in completion. On written requests/applications made by BEEL, the time for completion was extended on two occasions. Three revisions were also issued by HPCL. The last revision dated 20.09.1994 had extended the period for completion from 26.09.1994 by 10 months beginning from the date on which approval of electrical items was accorded by HPCL. BEEL carried on the work till 30.03.1996. Thereafter, BEEL abandoned the work. It is an accepted position that as on 30.03.1996, 80% of the work was complete.

3. On 04.07.1996, BEEL made a formal claim to HPCL for breach of contract on account of delay in execution, causing extra expenses and losses. By the letter dated 16.05.1997, BEEL sought an advance payment of Rs.50 lakhs to enable them to resume work, and simultaneously expressed its desire to resolve the dispute through conciliation. BEEL by the same letter also invoked the arbitration clause in the contract, if the proposal as given by BEEL was unacceptable to HPCL. HPCL by the letter dated 05.05.1997 refused to make payment, and relying on the terms of the contract had impressed upon BEEL to resume and complete the remaining work, even if the matter was to proceed for arbitration. BEEL did not agree and resume work.

4. The General Manager (Project), Mahul Refinery, HPCL, appointed Mr. K. Narayanan as the sole arbitrator to adjudicate upon the disputes and differences in the execution of the contract. Claim was filed by BEEL and reply/counter claim was filed by HPCL, to which rejoinder with supporting documents and sur-rejoinders were filed.

In all about 14 hearings were held before the arbitral tribunal between the period 12.03.1998 and 07.01.1999 and oral arguments were addressed. Ocular evidence was not led. The learned arbitrator had conducted a site inspection on 24.12.1997.

5. The arbitral award dated 23.03.1999, substantially allows the Claims Nos. 1,2, and 4 of the BEEL. The relevant portion of the award dealing with the claims of the BEEL, reads:

“A.

Claims of the Claimants:

Claim No.1 – Compensation for loss of Overhead and profit and also profitability: Rs.3,38,38,460.00 The claim is forwards loss of Overheads and profit/profitability calculated on the basis of 48 months delay as of 27.08.1997. The Claimants have considered 10% of the Contract value towards Overheads and another 10% towa