Arbitral awards for "loss of profitability" are patently illegal if granted without credible evidence of actual loss.

The Petitioner (MMRDA) and Respondent (MMOPL, a SPV) entered into a Concession Agreement (CA) on 7 March 2007 for the Mumbai Metro-1 project.

The project faced significant delays, with commercial operations starting in June 2014 instead of 2010.

MMOPL claimed the delay, primarily due to MMRDA's failure to provide an unencumbered Right of Way (ROW), increased project costs from ₹2,356 crores to over ₹4,026 crores.

A three-member Arbitral Tribunal delivered a majority award in 2023 granting MMOPL approximately ₹496.48 crores for various claims, including increased system costs, overheads, interest, and change of scope.

MMRDA challenged this majority award under Section 34 of the Arbitration and Conciliation Act, 1996, alleging patent illegality and perversity.

1. Whether MMRDA was contractually obligated to provide the ROW free from all encumbrances, including utilities, within 180 days of the CA.

2. Whether MMOPL was entitled to monetary damages for delay over and above the extension of the concession period provided in the contract.

3. Whether the Majority Award’s grant of damages for additional overheads, interest, and opportunity costs was based on sufficient evidence or was patently perverse.

4. Whether the change from a concrete to a steel bridge at Andheri constituted a "Change of Scope" under Article 16 of the CA.

The court applied Section 34 of the Arbitration and Conciliation Act, 1996, which limits judicial interference to "patent illegality" and "public policy."

It relied on *Associate Builders v. DDA* and *Ssangyong Engineering v. NHAI* to establish that courts cannot reappreciate evidence or interfere merely because an alternative view exists.

Regarding damages, the court applied Sections 55 and 73 of the Indian Contract Act, 1872, asserting that contractual clauses barring damages for breach are void as against public policy (*Simplex Concrete Piles v. Union of India*).

For evidence, the court applied Section 34 of the Evidence Act, noting that entries in books of accounts alone are insufficient to charge liability without independent corroboration (*CBI v. V.C. Shukla*).

It also distinguished "loss of profit" from "loss of profitability," requiring strict evidence for the latter (*Unibros v. All India Radio*).

The High Court upheld the Tribunal’s finding that MMRDA was responsible for the global delay in providing ROW, noting that the Independent Engineer’s recommendation for extension (which MMRDA accepted) implicitly acknowledged MMRDA’s default.

The court affirmed that Article 4.4 of the CA did not bar monetary damages.

However, the court found the award of ₹100 crores (overheads), ₹125 crores (interest), and ₹23.47 crores (opportunity costs) patently illegal.

These claims were "loss of profitability" claims requiring "compelling evidence" of actually incurred costs or missed opportunities, which MMOPL failed to provide, relying instead on unproduced "SAP reports" and "business plans" which the witness admitted he only "test-checked" for math.

Conversely, the court sustained the award for increased system costs (foreign exchange) and the Andheri bridge, finding sufficient documentary evidence (RBI rates, board minutes, and vendor invoices) to support those specific findings.

The majority award is sustained regarding (i) VGF deductions (₹35cr), (ii) Wadala land rent (₹13.16cr), (iii) Andheri bridge additional costs (₹30.48cr), and (iv) increased cost of system works (₹163.22cr).

The award of (i) additional overheads (₹100cr), (ii) additional interest/financing (₹125cr), and (iii) opportunity costs (₹23.48cr) is quashed due to total lack of evidence and patent perversity.

Arbitration costs were reduced to ₹50 lakhs.

The Prothonotary was directed to remit the sustained portion of the deposited amount to the escrow account maintained by the intervenor, NARCL.