# CASE DETAILS M/S UNIBROS v. ALL INDIA RADIO

- **Citation:** 2023 INSC 931
- **Court:** Supreme Court of India
- **Decided:** 2023-10-19
- **Case number:** Civil Appeal No.6895 of 2023
- **Bench:** S. Ravindra Bhat, Dipankar Datta
- **Source:** https://unisonlegal.in/judgment/supreme-court-of-india/case-details-m-s-unibros-v-all-india-radio-36686
- **Pages:** 16

## Headnote

Issue for consideration: Arbitral award in question if in confl ict with
the public policy of India and; whether a claim on account of loss of profi t
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 profi t (Claim No.12) - Award set aside by High Court, claims
remitted to the Arbitrator - Second Award was passed maintaining
the award for loss of profi t and interest to the appellant vide First
Award - Respondent fi led 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 suffi cient evidence presented
by the appellant to establish the claimed loss of profi t - Order affi rmed
by Division Bench:
Held: Second Award is equally in confl ict with the public policy of
India as the First Award - While remitting Claim No.12 for reconsideration,
the Arbitrator was warned not to be infl uenced 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 fi rst round and the
second round are one and the same - To avoid any charge of being branded
684
SUPREME COURT REPORTS
[2023] 14 S.C.R.
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
diff erent 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 confl ict 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 suff ered 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 confl ict 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 profi t 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 profi ts
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, fi nancial statements, or any clauses
in the contract related to delays, extensions of

## Text

[2023] 14 S.C.R. 683 : 2023 INSC 931
683
CASE DETAILS
M/S UNIBROS
v.
ALL INDIA RADIO
(Civil Appeal No. 6895/2023)
OCTOBER 19, 2023
[S. RAVINDRA BHAT AND DIPANKAR DATTA, JJ.]
HEADNOTES
Issue for consideration: Arbitral award in question if in confl ict with
the public policy of India and; whether a claim on account of loss of profi t
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 profi t (Claim No.12) - Award set aside by High Court, claims
remitted to the Arbitrator - Second Award was passed maintaining
the award for loss of profi t and interest to the appellant vide First
Award - Respondent fi led 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 suffi cient evidence presented
by the appellant to establish the claimed loss of profi t - Order affi rmed
by Division Bench:
Held: Second Award is equally in confl ict with the public policy of
India as the First Award - While remitting Claim No.12 for reconsideration,
the Arbitrator was warned not to be infl uenced 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 fi rst round and the
second round are one and the same - To avoid any charge of being branded
684
SUPREME COURT REPORTS
[2023] 14 S.C.R.
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
diff erent 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 confl ict 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 suff ered 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 confl ict 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 profi t 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 profi ts
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, fi nancial statements, or any clauses
in the contract related to delays, extensions of time, and compensation for
loss of profi t - This list is not exhaustive and may include any other piece of
evidence that the court may fi nd relevant - In adjudging a claim towards loss
of profi ts, the court may not make a guess in the dark; the credibility of the
685
evidence, therefore, is the evidence of the credibility of such claim - Thus,
for claims related to loss of profi t, profi tability 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 profi tability - In
the present case, the fourth condition, namely, the evidence to substantiate
the claim of loss of profi tability remains unfulfi lled. [Paras 17, 19]
Arbitration - Contractor's claims for loss of profi t - 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 profi t, do not directly measure the contractor's exact
costs - Instead, they provide an estimate of the losses the contractor may
have suff ered - While these formulae are helpful when needed, they alone
cannot prove the contractor's loss of profi t - They are useful in assessing
losses, but only if the contractor has shown with evidence the loss of profi ts
and opportunities it suff ered owing to the prolongation. [Para 18]
LIST OF CITATIONS AND OTHER REFERENCES
Associated Builders vs. Delhi Development Authority (2015) 3 SCC 49:
2014 [13] SCR 895; Bharat Cooking Coal Limited vs. L.K. Ahuja (2004) 5
SCC 109: 2004 [3] SCR 1105; The Project Director, NHAI vs. M. Hakeem
and Another (2021) 9 SCC 1: M/s AT Brij Paul Singh & Ors. vs. State of
Gujarat (1984) 4 SCC 59: McDermott International Inc. vs. Burn Standard
Co. Ltd. and Ors (2006) 11 SCC 181: 2006 [2] Suppl. SCR 409; ONGC
Ltd. vs. Saw Pipes Ltd (2003) 5 SCC 705: 2003 [3] SCR 69 - referred to.
OTHER CASE DETAILS INCLUDING IMPUGNED
ORDER AND APPEARANCES
CIVIL APPELLATE JURISDICTION : Civil Appeal No.6895 of 2023.
From the Judgment and Order dated 09.12.2019 of the High Court of
Delhi at New Delhi in FAOOS No.229 of 2010.
M/S UNIBROS v. ALL INDIA RADIO
686
SUPREME COURT REPORTS
[2023] 14 S.C.R.
Appearances:
Sameer Rohatgi, Jagdish Vats, T.S. Chaudhary, Kartikey Singh, Sachin
Gupta, Advs. for the Appellant.
Sanjay Jain, A.S.G., Piyush Beriwal, Sabarish Subramanian, Mrs. Bani
Dikshit, Raghav Sharma, Padmesh Mishra, T.S. Sabarish, Ms. Harshita
Sukhija, Amrish Kumar, Advs. for the Respondent.
JUDGMENT / ORDER OF THE SUPREME COURT
JUDGMENT
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 affi rmed 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 profi t 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
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 suff ered a delay of roughly 421⁄2
months and was fi nally completed on 30th October, 1994. Disputes and
diff erences 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)
687
decided various claims and counter-claims fi led 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 fi fty 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 profi t endured due to the
appellant's protracted retention on the contract without any
corresponding increase in monetary benefi ts 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 31⁄2 years leading to loss of the appellant's
profi t earning capacity during the said extended period. The loss
of profi t was worked out based on a profi t allowance of 71⁄2% per
year, which the Arbitrator held to be reasonable in a civil works
contract. Applying Hudson's formula, the Arbitrator arrived at the
fi nal compensation for loss of profi t, the computation of which
is outlined below:
Period of delay
42.5 months
Contract value
Rs. 5,45,27,386.00
Contract period
12 months
M/S UNIBROS v. ALL INDIA RADIO
DIPANKAR DATTA, J.
688
SUPREME COURT REPORTS
[2023] 14 S.C.R.
Contractor's profi t (7 1⁄2 % per year) Rs. 40,89,554.00
Contractor's expected profit per
month
Rs. 3,40,796.00
The total amount of loss of profi t
The total period of delay
x Contractor's expected
profi t per month
Rs. 1,44,83,830.00
b)
Aggrieved by the aforesaid First Award, primarily to the extent it
awarded Rs.1,44,83,830.00 towards loss of profi t to the appellant,
the respondent fi led an objection under section 34 of the Act
before the High Court impugning the decision pertaining to
Claim Nos. 12 and 13. Vide judgment and order dated 20th May,
2002, the First Award was set aside and the aforesaid claims were
remitted to the Arbitrator for re-consideration and for passing a
fresh award. The operative part of the judgment passed by the
learned Single Judge reads thus:
"24. *** Except for placing on record the Hudson's formula
and a passage from the book law (sic, Law) on Building
and Engineering Contracts, no other evidence is placed on
record by the respondent to show that the profi t percentage
as claimed towards loss of profi t was a realistic one at that
times and consequently there was no change in the market
and also that the work of at least the same general level of
profi tability would have been available to the respondent
at the end of the stipulated contract period. Therefore,
evidence in respect of the said claim appears to be defi nitely
not available on record. In absence of any credible evidence
and when claims under Claim Nos. 10 & 11 were rejected
on the ground that no suffi cient evidence had been placed on
record by the respondent indicating increase in the prices/
rates for the work executed after the stipulated contract
period and also on account of establishment, machinery,
centering/shuttering etc., Claim No.12 was allowed by
the arbitration (sic, arbitrator) without even considering
689
whether the respondent has placed credible and reliable
evidence as required to be proved. ***
25. *** Not only there was lack of credible and required
evidence placed on record by the respondent in support
of Claim No.12 as set out in the extracts from the book
Law of Building and Engineering Contracts, and (sic) the
arbitrator also took into consideration such factors which
could not and should not be (sic, have) infl uenced his
mind. Therefore, the award was passed by the arbitrator
against the fundamental policy of Indian Law attracting the
provisions of Section 34 (2)(b) (ii) of the Act. I set aside the
award given by the arbitrator against Claim No.12 and remit
the same for re-consideration by the arbitrator and to pass
a fresh award in respect of the said claim without being in
any manner infl uenced by such factors and on the basis of
the evidence available on record. Since the award passed
by the arbitrator is set aside to the aforesaid extent, the
award of interest in Claim No. 13 in respect of the amount
of Claim No. 12 also stands set aside and quashed and the
same are remitted for reconsideration and decision. Subject
to the aforesaid modifi cations in the award, the remaining
part of the award is upheld."
 (emphasis ours)
c)
The Arbitrator passed a fresh award dated 15th July, 2002 ("Second
Award", hereafter) maintaining the award for loss of profi t and
interest to the appellant vide First Award. By referring to the
communications between the parties, the Arbitrator reiterated
that the respondent had failed to provide the complete site and
drawings within the stipulated contract period, leading to delays.
As per established legal principles, the party responsible for the
breach of the contract is liable for reasonably foreseeable losses.
Considering the appellant's status as an established contractor,
handling substantial projects, the Arbitrator inferred that it was
reasonable to assume earning of expected profi ts elsewhere by
the appellant. Employing the doctrine that within a contract, gains
M/S UNIBROS v. ALL INDIA RADIO
DIPANKAR DATTA, J.
690
SUPREME COURT REPORTS
[2023] 14 S.C.R.
prevented qualify as loss sustained, the Arbitrator observed that
the appellant was not required to establish the exact amount of
gain or loss with absolute certainty; instead, presenting fairly
persuasive and the best available evidence under the particular
circumstances of the case would suffi ce.
d)
The respondent fi led a petition under Section 34 of the Act,
seeking to set aside the Second Award. The learned Single
Judge of the High Court vide judgment and fi nal order dated
25th February 2010 allowed the objection under Section 34
and rejected the appellant's claim under Claim No. 12 with an
observation that there was no suffi cient evidence presented by the
appellant to establish the claimed loss of profi t; the lack of records
regarding the alleged utilization of men, material, machinery,
overheads, and other resources in the contract performance that
could have otherwise been used for other profi table contracts
raised doubts about the legitimacy of the claimed losses under
Claim No. 12. With an observation that the Union of India was
forced into litigation due to the appellant's misconceived claim,
the Single Judge awarded costs of Rs. 50,000.00 (Rupees fi fty
thousand) in favour of the respondent, payable within four weeks
from the date of the fi nal order and interest of 9% per annum in
case of non-compliance. Findings returned by the learned Single
Judge are extracted below:
"4. I have gone through the entire Award. The Award ... as
a loss under this Claim 12.
5. In this view of the ... in the arbitration proceedings.
7. *** I accept the objections to the Award and the Award
dated 15.7.2002 of the Arbitrator is set aside and the claim
of the contractor under Claim 12 will accordingly stand
dismissed. In the facts and circumstances of the case, I
award costs of Rs.50,000/- in favour of the petitioner and
against the respondents... Accordingly, in the facts of the
present case, I deem it fi t to award interest on the costs."
e)
Dissatisfi ed with the fi ndings of the learned Single Judge, the
appellant preferred an appeal before the Division Bench of the
691
High Court under Section 37 of the Act. While dismissing the
appeal vide the impugned judgment, the Division Bench was of
the view that no evidence was produced on behalf of the appellant
to support the plea of loss of profi t during the period when the
work was prolonged; fi ndings returned by the Arbitrator are,
therefore, contrary to law, more particularly the Contract Act
which governs matters related to loss of profi t. Having found no
infi rmity or illegality, the judgment of the learned Single Judge
was confi rmed, and the appeal was dismissed, being devoid of
any merit.
SUBMISSIONS OF THE PARTIES
5. Taking exception to the decisions of the Single Judge as well as the
Division Bench, Mr Sameer Rohatgi, learned counsel appearing on behalf
of the appellant advanced the following submissions:
a)
The learned Arbitrator had arrived at a just and reasoned
conclusion after carefully perusing the materials and evidence on
record and in the absence of any perversity or caprice, the courts
cannot interfere with the award. Relying on Associated Builders
vs. Delhi Development Authority1, learned counsel submitted
that the arbitrator is the sole judge of the quality and quantity of
evidence and the High Court, under section 34 of the Act, cannot
act as a fi rst appellate or a revisional court by interfering with
arbitral awards in the absence of perversity.
b)
Bharat Cooking Coal Limited vs. L.K. Ahuja2 was placed in
support of the contention that the High Court has a limited scope
of interference in awards passed by an arbitrator. Learned counsel
placed reliance on the specifi c excerpt of this Court's decision,
which is extracted below for facility of reference:
"11...When the arbitrator has applied his mind to the
pleadings, the evidence adduced before him and the terms
of the contract, there is no scope for the court to reappraise
1
(2015) 3 SCC 49
2
(2004) 5 SCC 109
M/S UNIBROS v. ALL INDIA RADIO
DIPANKAR DATTA, J.
692
SUPREME COURT REPORTS
[2023] 14 S.C.R.
the matter as if this were an appeal and even if two views
are possible, the view taken by the arbitrator would prevail.
So long as an award made by an arbitrator can be said to
be one by a reasonable person no interference is called for.
However, in cases where an arbitrator exceeds the terms
of the agreement or passes an award in the absence of any
evidence, which is apparent on the face of the award, the
same could be set aside."
c)
According to Section 34, an award cannot be modifi ed but can
only be set aside under specifi c grounds outlined in the provision.
Unlike the Arbitration Act of 1940, which explicitly allowed
for modifi cation, the Act of 1996, modelled on the UNCITRAL
Model Law on International Commercial Arbitration 1985, does
not grant the court the power to modify awards under Section
34. This aligns with the legislative intent of minimizing judicial
intervention in arbitral awards. Reliance in support of the said
contention was placed on The Project Director, NHAI vs. M.
Hakeem and Another3;
d)
M/s AT Brij Paul Singh & Ors. vs. State of Gujarat4 was relied
upon to submit that a contractor is entitled to damages for loss
of expected profi t on the remaining work and only a broad
evaluation is required to assess the amount of damages instead
of going into minute details; and
e)
Hudson's formula has received legal acceptance and is generally
used by courts and other judicial bodies in awarding loss of
profi t. Learned counsel further submitted that Hudson's formula
works on the numbers and fi gures contemplated in the contract
as envisaged by the parties at the time of signing of the contract
rather than the actuals during the ongoing work. Therefore,
the actual number of men, material and machinery allocated
by the appellant for the work bears no relevance whatsoever
in calculating the loss of profi t incurred by the appellant due
3
(2021) 9 SCC 1
4
(1984) 4 SCC 59
693
to the breach of contract by the respondent, else Hudson's
formula would be rendered redundant. Reliance was placed on
McDermott International Inc. vs. Burn Standard Co. Ltd. and
Ors5 to draw support.
6. Mr. Sanjay Jain, learned Additional Solicitor General ("ASG",
hereafter) appearing on behalf of the respondent submitted that the arbitral
award was passed in an arbitrary and whimsical manner, and was rightly
rejected both by the Single Bench and the Division Bench. Urging this Court
to dismiss the appeal and confi rm the decisions of the Division Bench as
well as the Single Judge, the ASG advanced the following submissions:
a)
The present case being that of delay simpliciter, Hudson's formula
will have no application to award any amount for loss of profi t
without the aggrieved party leading any evidence as a condition
precedent to the application of the said formula.
b)
The application of Hudson's formula hinges upon three essential
conditions:
i.
Firstly, the profi t awarded to the contractor must have been
realistically attainable elsewhere had it been free to leave
the contract at the appropriate time;
ii.
Secondly, the contractor should not have consistently
underestimated his costs during pricing, ensuring that the
profi t percentage was genuinely viable at that point;
iii.
Thirdly, there should have been no subsequent changes
in the market, such that work of a comparable level of
profi tability would have been available to the contractor
at the time of the conclusion of the contract.
c)
It was further submitted that to fulfi l the aforesaid conditions,
satisfactory and cogent evidence is a sine qua non even if the loss
is not of a remote or imaginary nature. In the absence of cogent
evidence substantiating a genuine loss of profi t or opportunity,
5
 (2006) 11 SCC 181
M/S UNIBROS v. ALL INDIA RADIO
DIPANKAR DATTA, J.
694
SUPREME COURT REPORTS
[2023] 14 S.C.R.
it would be unjustifi able to permit the contractor to capitalize
solely on the application of a formula.
d)
In the present case, the ASG submitted, no evidence was led by
the appellant, far less, any credible or cogent evidence, to prove
that it was capable of earning such price elsewhere by way of
any other contract that was available to it at that time, which it
could not execute due to prolongation of the contract; such an
award, being perverse, confl icts with the public policy of India
under Section 34(2)(b)(ii) of the Act.
e)
The Arbitrator's actions present a perplexing situation: while
dismissing Claim Nos. 10 (compensation for increased prices/
rates after the contract period) and 11 (compensation for the
establishment, machinery, centring/shuttering, etc.) due to the
absence of credible evidence, the Arbitrator, on the other hand,
proceeded to grant damages for loss of profi t under Claim No.
12. This prompts a crucial question: If there was insuffi cient
evidence to support Claim Nos. 10 and 11, what other evidence
could possibly justify awarding loss of profi t under Claim No.
12?
f)
Mechanical application of Hudson's formula would serve no
purpose and burden the exchequer was the ASG's concluding
submission.
ANALYSIS AND FINDINGS
7. We have considered the submissions advanced by learned counsel
for the parties and also perused the materials on record.
8. The appeal is directed towards dismissal of the appellant's claim
for compensation relating to loss of profi ts (Claim No. 12). It is undeniably
established that the appellant's claim for loss of profi t stems from the delay
attributed to the respondent in completing the project. It is further evident
that the loss of profi t sought in the present case is primarily based on the
grounds that the appellant, having been retained longer than the period
stipulated in the contract and its resources being blocked for execution of
the work relatable to the contract in question, it could have taken up any
other work order and earned profi t elsewhere.
695
9. The contentions advanced on behalf of the appellant tasks us to
resolve a recurring issue which, while not unprecedented, has consistently
confronted the courts leading it to navigate various circumstances under
which a claim for loss of profi t may be allowed in cases of delay simpliciter
in the execution of a contract.
10. However, the contentions so raised, need not detain us for too long.
Quite apart from the appeal raising the question as to whether a claim on
account of loss of profi t is liable to succeed merely on the ground that there
has been delay in the execution of the construction contract, attributable
to the employer, the question that fi rst needs to be answered on facts and
in the circumstances is whether the Second Award is in confl ict with the
public policy of India (as held by the learned Single Judge, since affi rmed
by the Division Bench) .
11.What would constitute "public policy of India" has been lucidly
explained by this Court in ONGC Ltd. vs. Saw Pipes Ltd6:
"31..., the phrase 'public policy of India' used in Section 34 in context
is required to be given a wider meaning. It can be stated that the concept
of public policy connotes some matter which concerns public good
and the public interest. What is for public good or in public interest
or what would be injurious or harmful to the public good or public
interest has varied from time to time. However, the award which is,
on the face of it, patently in violation of statutory provisions cannot be
said to be in public interest. Such award/judgment/decision is likely
to adversely aff ect the administration of justice."
12. Subsequent decisions of this Court have interpreted "public policy
of India" to include, among others, compliance with fundamental policy
of Indian law, statutes and judicial precedents, need for judicial approach,
compliance with natural justice, Wednesbury unreasonableness and patent
illegality. We may refer to the decision in Associated Builders (supra) in
this behalf.
13. Having read the Second Award, we have no hesitation to hold that it
fares no better than the First Award, for, it is equally in confl ict with the public
6
(2003) 5 SCC 705
M/S UNIBROS v. ALL INDIA RADIO
DIPANKAR DATTA, J.
696
SUPREME COURT REPORTS
[2023] 14 S.C.R.
policy of India. We have noticed from the order dated 20th May, 2002 of the
learned Single Judge that while remitting Claim No.12 for re-consideration,
the Arbitrator was warned not to be infl uenced by the factors that weighed in
his mind while making the First Award. The Arbitrator was also required to
proceed only on the basis of the evidence on record. Yet, regrettably, what
we fi nd is that the Arbitrator went on to ignore the judicial decision of the
High Court with impunity. He once again emphasized on delay caused by
the respondent in completion of the works entrusted to the appellant by
not providing complete site and drawings within the stipulated contract
period and that non-handing over of site certainly constituted fundamental
breach of contract vitiating the entire contract. He then referred to Hudson's
espousal of fundamental breach of contract which, according to him, was
the standard text in all engineering and building contracts. It is, therefore,
apparent that the factors which weighed in the Arbitrator's mind in the fi rst
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 diff erent from the earlier one without, however, there being any
change in substance.
14. It is elementary, though it has to be restated, that 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 under section 34 or section 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, in our opinion, does confl ict with the fundamental public
policy and cannot, therefore, sustain.
15. Considering the aforesaid reasons, even though little else remains to
be decided, we would like to briefl y address the appellant's claim of loss of
profi t. In Bharat Cooking Coal (supra), this Court reaffi rmed the principle
that a claim for such loss of profi t will only be considered when supported
by adequate evidence. It was observed:
697
"24. ... It is not unusual for the contractors to claim loss of profi t arising
out of diminution in turnover on account of delay in the matter of
completion of the work. What he should establish in such a situation
is that had he received the amount due under the contract, he could
have utilised the same for some other business in which he could have
earned profi t. Unless such a plea is raised and established, claim for loss
of profi ts could not have been granted. In this case, no such material
is available on record. In the absence of any evidence, the arbitrator
could not have awarded the same."
(emphasis ours)
16. To support a claim for loss of profi t arising from a delayed contract
or missed opportunities from other available contracts that the appellant
could have earned elsewhere by taking up any, it becomes imperative for
the claimant to substantiate the presence of a viable opportunity through
compelling evidence. This evidence should convincingly demonstrate that
had the contract been executed promptly, the contractor could have secured
supplementary profi ts utilizing its existing resources elsewhere.
17. One might ask, what would be the nature and quality of such
evidence? In our opinion, it 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, fi nancial statements,
or any clauses in the contract related to delays, extensions of time, and
compensation for loss of profi t. While this list is not exhaustive and may
include any other piece of evidence that the court may fi nd relevant, what
is cut and dried is that in adjudging a claim towards loss of profi ts, 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.
18. Hudson's formula, while attained acceptability and is well
understood in trade, does not, however, apply in a vacuum. Hudson's
formula, as well as other methods used to calculate claims for loss of off -
site overheads and profi t, do not directly measure the contractor's exact
costs. Instead, they provide an estimate of the losses the contractor may
M/S UNIBROS v. ALL INDIA RADIO
DIPANKAR DATTA, J.
698
SUPREME COURT REPORTS
[2023] 14 S.C.R.
have suff ered. While these formulae are helpful when needed, they alone
cannot prove the contractor's loss of profi t. They are useful in assessing
losses, but only if the contractor has shown with evidence the loss of profi ts
and opportunities it suff ered owing to the prolongation.
19. The law, as it should stand thus, is that for claims related to loss
of profi t, profi tability or opportunities to succeed, one would be required
to establish the following conditions: first, there was a delay in the
completion of the contract; second, such delay is not attributable to the
claimant; third, the claimant's status as an established contractor, handling
substantial projects; and fourth, credible evidence to substantiate the claim
of loss of profi tability. On perusal of the records, we are satisfi ed that the
fourth condition, namely, the evidence to substantiate the claim of loss of
profi tability remains unfulfi lled in the present case.
20. The First Award was interfered with by the High Court for the
reasons noted above. The Arbitrator, in view of such previous determination
made by the High Court, could have granted damages to the appellant based
on the evidence on record. There was, so to say, none which on proof could
have translated into an award for damages towards loss of profi t. A claim for
damages, whether general or special, cannot as a matter of course result in
an award without proof of the claimant having suff ered injury. The arbitral
award in question, in our opinion, is patently illegal in that it is based on no
evidence and is, thus, outrightly perverse; therefore, again, it is in confl ict
with the "public policy of India" as contemplated by section 34(2)(b) of
the Act.
21. For the reasons aforesaid, we fi nd no merit in this appeal. The
same stands dismissed. However, cost awarded by the learned Single Judge
is made easy.
Headnotes prepared by:
Appeal dismissed.
Divya Pandey