Contractual Exclusion of Loss of Profits and Interest Costs Bars Claims Arising From Prolongation

The Petitioner challenged two Arbitral Awards dated 20.07.2024 rendered by a three-member Tribunal concerning Contract Agreements for power infrastructure.

The Tribunal had rejected the Petitioner’s claims for interest on bank guarantee extension charges (Claim No. 2) and loss of profits due to contract prolongation (Claim No. 7).

The Tribunal based its rejection on a specific interpretation of Clause 26 of the General Conditions of Contract (GCC), which limited liability for certain types of losses.

The Petitioner approached the High Court under Section 34 of the Arbitration and Conciliation Act, 1996, alleging patent illegality and misinterpretation of the contract.

1. Whether the Arbitral Tribunal’s interpretation of Clause 26 of the GCC, excluding "loss of profits" and "interest costs" as independent categories of non-recoverable loss, was perverse or patently illegal.

2. Whether the denial of interest on bank guarantee extension charges (Claim No. 2) was justified in the absence of evidence showing actual interest outflow.

3. Whether the rejection of the claim for loss of profits (Claim No. 7) was valid given the Petitioner relied solely on Hudson’s Formula without evidence of actual loss of opportunity.

Section 34 of the Arbitration and Conciliation Act, 1996, which restricts judicial interference to grounds of "patent illegality" or conflict with the "public policy of India".

The narrow scope of "public policy" post-2015 Amendment as laid down in OPG Power Generation (P) Ltd. v. Enexio Power Cooling Solutions.

The principle that the Arbitrator is the "ultimate master" of evidence and interpretation unless the view is implausible.

For loss of profit claims, standards set in Unibros v. All India Radio and Batliboi Environmental Engineers v. HPCL mandate proof of actual loss/opportunity cost before applying mathematical formulae.

The court found that the Tribunal’s interpretation of Clause 26 was a "plausible view" derived from a grammatical and syntactical analysis of the "Oxford comma" and disjunctive conjunctions in the text.

The court held that interpreting "loss of profits" and "interest costs" as distinct excluded categories—rather than just examples of "indirect loss"—was a reasonable exercise of the Tribunal’s jurisdiction.

Regarding Claim No. 2, the court reasoned that the Petitioner failed to prove an actual "interest cost" (outflow) through borrowings, and notional "interest loss" was contractually barred.

On Claim No. 7, the court affirmed the Tribunal’s distinction between contract termination (where profit is presumed) and prolongation (where actual loss of other work must be evidenced).

Since the Petitioner only provided Hudson’s Formula without contemporaneous documents showing lost opportunities, the rejection was legally sound.

The court concluded that the Tribunal’s findings were reasoned and consistent with the contract and settled law.

The denial of interest and loss of profits was upheld as the Petitioner failed to meet the requisite evidentiary thresholds.

Final order: Petitions dismissed; no order as to costs.