Full Judgment Text
2019:BHC-OS:2978
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IN THE HIGH COURT OF JUDICATURE AT BOMBAY
ORDINARY ORIGINAL CIVIL JURISDICTION
ARBITRATION PETITION NO.90 OF 2013
Municipal Corporation of Greater
Bombay … Petitioner
Versus
M/s Nagarjuna Construction
Company Limited … Respondent
…..
Mr. P. G. Lad a/w Ms. Aparna M. Kalathil & Mr. D.S. Shingade, for the
PetitionerMCGM.
Mr. Kishore M. Jawle, for the Respondent.
…..
CORAM : S.C. GUPTE, J.
DATE : 22 JANUARY 2019
(Oral Judgement)
. This arbitration petition challenges an award passed by an arbitral
tribunal of three arbitrators in a reference arising out of a construction
contract.
2 In June 2004, the Petitionercorporation invited tenders for
construction of grade separators at Gadkari Chowk, Mumbai. The
Respondentcontractor submitted its bid. The same was accepted by the
Petitioner and accordingly, on 2 December 2004, a contract was entered
into between the parties. Following the contract, on 3 December 2014,
the site was handed over by the Petitioner to the Respondent, whereupon
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the latter claimed to have started the work on the project. On 26 February
2005, the Petitioner wrote a letter to the Respondent demanding
suspension of work. It is an admission position that this suspension was
never revoked. During the continuance of the suspension, the Petitioner,
by its letter dated 22 November 2007, claimed that the contract had come
to an end by efflux of time. Finally, by its consultant's letter dated 17 April
2008, the Petitioner informed the Respondent that the contract was
deemed to have been terminated. The Respondent raised several claims.
Since these were not accepted by the Petitioner, disputes arose between
the parties, which were referred to arbitration. The arbitral tribunal, by its
award dated 24 March 2012 (corrected on 12 September 2012), allowed
three claims of the Respondent, namely, (i) claim for reimbursement of
expenses incurred by the Respondent to fulfill its contractual obligations
(Claim No.1), (ii) claim for compensation for infructuous expenses
incurred for preparation of casting yard and fabricating moulds for precast
unit (Claim No.5) and (iii) claim for loss of overheads and profits (Claim
No.8). Each of these three claims was awarded partly, claim No.1 in the
sum of Rs.1,35,880, Claim No.5 sum of Rs. 1,36,421 and claim no.8 of
Rs.1,17,53,180.
3 The amount of Rs.1,35,880 for Claim No.1 was said to be the
expenditure actually incurred for performance guarantee, whereas the sum
of Rs.1,36,421, awarded under claim No.5, was actually the payment made
to a consultant firm, one Structon Consultants. These payments were
found by the arbitral tribunal to be genuine and payable accordingly. None
of these claims admits of any acceptable challenge under the provisions of
Section 34 of the Arbitration and Conciliation Act, 1996 (“Act”). These are
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matters of assessment of evidence, on which the arbitrators have come to
possible views. The views are supported by evidence on record. The
award on these claims cannot be termed as an award not supported by any
evidence; no irrelevant or nongermane material has been considered by
the the arbitrators; and no relevant or germane material has been
disregarded for arriving at these conclusions. The award on these two
claims accordingly does not merit any interference.
4 The main submissions made by learned Counsel for the Petitioner
pertain to the award of loss of profit (Claim No.8). Learned Counsel
submits that, in the first place, the Petitionercorporation was justified in
first suspending and then terminating the contract on account of public
outcry. Learned Counsel submits that the contract work was meant to be
for the benefit of public and since the public themselves had serious
objection to the work, the Petitionercorporation was constrained to first
suspend and later terminate the contract work. Learned Counsel submits
that the corporation's act in this behalf is effectively covered by Section 56
of the Contract Act. Learned Counsel secondly submits that not having
carried out the contract work or produced any evidence of loss of profits,
the Respondentcontractor could not have claimed any amount towards
loss of overheads or profits and that the award for loss of profits is vitiated
by breach of public policy of India as well as patent illegality appearing on
the face of the award. None of the contentions has any merit, as I shall
presently point out.
5 What the arbitrators have awarded here is the Respondent's claim for
loss of profits and not for loss of overheads. Considering the Indian law of
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damages for breach of contract, the court, tasked with adjudicating a
contractor's claim for loss of profits on being denied the opportunity to
carry out the work under a works contract by any act of the employer, has
to see whether such denial was wrongful or whether the contractor was at
fault justifying the denial. The court has to then consider the measure of
loss or damage caused to the contractor as a result of his being denied the
opportunity to carry out the contract work. As held by the Supreme Court
1
in A.T. Brij Paul Singh Vs. State of Gujara t it is well established that if
rescission or termination of the contract by the employer is held to be
unjustified and the plaintiffcontractor is shown to have executed a part of
the works contract, the contractor would be entitled to claim damages for
loss of profits, which he expected to earn by undertaking the works
contract. Such claim of expected profits is legally admissible on proof of
breach of the contract by the erring party. Though what would be a
measure of such profits would depend upon facts and circumstances of
each case, it is always accepted that a reasonable expectation of profit is
implicit in a works contract and its loss has to be compensated by way of
damages if the other party to the contract is guilty of its breach. In A.T.
Brij Paul 's case, 15 per cent of the value of the balance work considered as
reasonable damages towards loss of profits for the same type of work
between the same parties at a nearby work site, was accepted as a
reasonable measure of damages. Relying on the dicta in the case of
2
Dwarkadas Vs. State of MP , the Supreme Court in MSK Projects India
3
(JV) Limited Vs. State of Rajasthan held that a claim of a contractor for
damages as expected profits out of the contract could not be disallowed on
1 (1984) 4 S.C.C. 59
(1999) 3 S.S.C. 500
2
3(2011) 10 S..C.C. 573
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the ground that there was no proof that he suffered actual loss to the
extent of the amount claimed on account of breach of contract. Relying on
these cases, a Division Bench of our court in Mahanagar Gas Ltd Vs.
4
Babulal Uttamchand & Co . considered 10 per cent of the value of
balance work awarded towards loss of profits as a reasonable measure of
damages.
6 We have to test the present award on the basis of the law stated
above. The focus of our inquiry under Section 34 of the act is, as explained
by the Supreme Court in case of Associate Builders Vs. Delhi
5
Development Authority , to see if the award under challenge is in
contravention of public policy of India; in particular, if it contains an
impossible view or a view which no fair or judicially minded person would
take or a view that would shock the conscience of the court. The court has
also to see if there is any patent illegality appearing on the face of the
award; in particular, if the award is in accordance with the terms of the
contract or contains any adjudication prohibited by the terms. In the
present case, the arbitrators have come to a conclusion that there was no
breach of contract on the part of the Respondentcontract; the contractor
was in no way responsible for suspension of work. The suspension was
ordered unilaterally by the Petitionercorporation on 26 February 2005 and
it was never revoked thereafter. Though the suspension was not revoked or
withdrawn within 28 days from the date of suspension, under Clause
59.2(b) of the contract, the Claimant did not treat the same as a
“fundamental breach of contract” or treat the contract as voidable under
Clause 59.1. It instead claimed damages for its breach by the employer.
2013 (5) Bom.C.R.756
4
5 AIR 2015 SC 620
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The Petitionercorporation's argument in this behalf was that the case fell
within the scope of Section 55 of the Contract Act (the third part of
Section 55). The arbitrators were of the view that the case fell not within
the third part of Section 55, but the second part of Section 55; though
the contract did not become voidable for the employer's failure, the
promisee was entitled to receive compensation from the promiser for any
loss occasioned by such failure. The arbitrators also noted the stand of the
Petitioner's engineer that the contract was deemed to have been terminated
on the expiry of 28 days of suspension of work. The arbitrators held the
stand to be incorrect and accordingly, ruled that the contract had come to
an end by efflux of time, i.e. at the expiry of the contract period, without
anyone terminating the same for any reason. Since the suspension of the
contract during the entire period of its subsistence was entirely to the
Petitioneremployer's account, the arbitrators held such unilateral act on
the part of the Petitioner as a breach of contract and accordingly,
considered the claim of the Respondent for loss of profits. The arbitrators
held that (a) the claimant, having been prevented from carrying out the
work awarded to it for no fault of it, was denied profits, and (b) under
normal circumstances, 10 per cent amount of the value of work which was
denied could be accepted as a reasonable measure of pure profits. After
excluding profit attributable to the actual work executed at site, as
certified by the engineer of the Petitioner, the arbitrators awarded a sum of
Rs.1,17,53,180 towards loss of profits. In the light of the law stated and
the evidence discussed above, the arbitrators' award of loss of profits can
certainly be termed as a possible conclusion, which is supported by
evidence. It cannot be termed as a conclusion, which is either impossible
or a conclusion which no fair or judiciously minded person could have
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arrived at or a conclusion that would shock the conscience of the court. In
so far as the the terms of the contract are concerned, the interpretation of
the arbitrators demonstrates a reasonable view and not an unreasonable or
impossible view. The arbitrators have not taken into account any irrelevant
or nongermane material or circumstance or disregarded any relevant or
germane material or circumstance to arrive at the conclusion. It does not
accordingly merit any interference under Section 34 of the Arbitration and
Conciliation Act, 1996.
7 As for the submission of learned Counsel for the Petitioner under
Section 56 of the Contract, no such ground was urged before the
arbitrators or is even pleaded in the present petition. Besides, the mere
fact that there were objections raised to the proposed work by the members
of public does not signify that the construction work ordered under the
contract was an impossible act.
8 In the premises, there is no merit in the arbitration petition. The
petition is dismissed.
(S.C. GUPTE, J.)
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