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Issue for consideration:Arbitral award in question if in conflict with the public policy of India and; whether a claim on account of loss of profit is liable to succeed merely on the ground that there has been delay in the execution of the construction contract, attributable to the employer.Arbitration and Conciliation Act, 1996 – s.34(2)(b) – “Public policy of India” – Appellant awarded work contract by the respondent – Disputes between the parties owing to the delay in work, referred to Arbitrator – Vide First Award, appellant was awarded sum towards loss of profit (Claim No.12) – Award set aside by High Court, claims remitted to the Arbitrator – Second Award was passed maintaining the award for loss of profit and interest to the appellant vide First Award – Respondent filed petition u/s.34 for setting aside the second Award – Single Judge allowed the objection, rejected the appellant's claim inter alia holding that there was no sufficient evidence presented by the appellant to establish the claimed loss of profit – Order affirmed by Division Bench:Held: Second Award is equally in conflict with the public policy of India as the First Award – While remitting Claim No.12 for reconsideration, the Arbitrator was warned not to be influenced by the factors that weighed in his mind while making the First Award – Arbitrator was also required to proceed only on the basis of the evidence – However, the Arbitrator went on to ignore the judicial decision of the High Court with impunity – The factors which weighed in the Arbitrator’s mind in the first round and the second round are one and the same – To avoid any charge of being branded as a mirror image of the First Award insofar as Claim No.12 is concerned, the Second Award appears to have been expressed in language and form different from the earlier one without, however, there being any change in substance – A judicial decision of a superior court, which is binding on an inferior court, has to be accepted with grace by the inferior court notwithstanding that the decision of the superior court may not be palatable to the inferior court – This principle, ex proprio vigore, would be applicable to an arbitrator and a multi-member arbitral tribunal as well, particularly when it is faced with a judicial decision (either u/s.34 or s.37 of the Act) ordering a limited remand – In the wake of authority of judicial determination made by the Courts of law, any award of an arbitrator or a tribunal that seeks to overreach a binding judicial decision does conflict with the fundamental public policy and thus, cannot be sustained – Further, a claim for damages, whether general or special, cannot as a matter of course result in an award without proof of the claimant having suffered injury – Arbitral award in question is patently illegal in that it is based on no evidence and is, thus, outrightly perverse; therefore, again, it is in conflict with the “public policy of India” as contemplated by s.34(2)(b) – No merit in the appeal. [Paras 13, 14 and 20]Arbitration – Claim for loss of profit arising from a delayed contract or missed opportunities from other available contracts – Claimant to substantiate the presence of a viable opportunity through compelling evidence demonstrating that had the contract been executed promptly, the contractor could have secured supplementary profits utilizing its existing resources elsewhere – Nature and quality of such evidence:Held: Will be contingent upon the facts and circumstances of each case – However, it may generally include independent contemporaneous evidence such as other potential projects that the contractor had in the pipeline that could have been undertaken if not for the delays, the total number of tendering opportunities that the contractor received and declined owing to the prolongation of the contract, financial statements, or any clauses in the contract related to delays, extensions of time, and compensation for loss of profit – This list is not exhaustive and may include any other piece of evidence that the court may find relevant – In adjudging a claim towards loss of profits, the court may not make a guess in the dark; the credibility of the evidence, therefore, is the evidence of the credibility of such claim – Thus, for claims related to loss of profit, profitability or opportunities to succeed, one would be required to establish that there was a delay in the completion of the contract; that such delay is not attributable to the claimant; that the claimant’s status as an established contractor, handling substantial projects; and credible evidence to substantiate the claim of loss of profitability – In the present case, the fourth condition, namely, the evidence to substantiate the claim of loss of profitability remains unfulfilled. [Paras 17, 19]Arbitration – Contractor's claims for loss of profit – Hudson’s formula:Held: Hudson’s formula though has attained acceptability and is well understood in trade, however, it does not apply in a vacuum – Hudson’s formula, as well as other methods used to calculate claims for loss of off-site overheads and profit, do not directly measure the contractor's exact costs – Instead, they provide an estimate of the losses the contractor may have suffered – While these formulae are helpful when needed, they alone cannot prove the contractor's loss of profit – They are useful in assessing losses, but only if the contractor has shown with evidence the loss of profits and opportunities it suffered owing to the prolongation. [Para 18] |
