Damages for loss of profit require substantiating evidence and cannot be decreed on mere pleadings.

The appellant (Gujarat Water Supply and Sewerage Board) filed a suit for recovery of damages amounting to Rs. 17,28,855.65 against the defendant contractor for failing to complete construction of an ESR and underground sump within the stipulated 12-month period

The defendant filed a written statement-cum-counterclaim for Rs. 24,79,000 under Order 8 Rule 6A of the CPC, alleging that delays were caused by the plaintiff’s late approval of designs, unforeseen hard rock cutting, and price escalations

The trial court dismissed the plaintiff's suit and partly allowed the defendant’s counterclaim, awarding Rs. 6,52,050 with 12% interest

The plaintiff appealed only against the decree allowing the counterclaim

1. Whether the trial court committed a manifest error of law and fact by partly allowing the counterclaim in the absence of cogent evidence?

2. Whether the defendant established the necessary conditions to claim damages for loss of profit and escalation of costs?

The court applied Order 8 Rule 6A of the Code of Civil Procedure, 1908, which dictates that a counterclaim has the same effect as a cross-suit and must be proved by the defendant with the same burden of proof as a plaintiff in a suit

Regarding the claim for loss of profit, the court relied on the Supreme Court precedent in M/s Unibros v. All India Radio (2023 INSC 931), which established a four-prong test: (i) delay in completion, (ii) delay not attributable to the claimant, (iii) status as an established contractor, and (iv) credible evidence to substantiate the loss

The principle of contractual risk assumption was applied via Condition No. 2 of the tender notice (Exh. 120), which deems the contractor to have inspected the site and satisfied themselves of all work conditions

The High Court observed that the trial court allowed several claims (Nos. 2-6) without any supporting documentary evidence, relying merely on pleadings

Regarding Claim No. 2 (unpaid work), the court found that the plaintiff had already measured and paid for the work done (Exh. 147), which the defendant accepted without dispute

Claims for hard rock cutting (No. 3) and water pumping (No. 4) were barred by Condition No. 2 of the tender, which placed the risk of site conditions on the contractor

The court rejected Claim No. 5 (escalation) and Claim No. 6 (depreciation and loss of profit) because the defendant failed to produce books of account or prove that the delay was solely attributable to the plaintiff, thus failing the Unibros test

The court categorized the trial court's decision as being based on "no evidence"

It held that the defendant was only entitled to the refund of the Security Deposit (FDR) of Rs. 55,000

The court struck down the award of compounded interest and granted simple interest at 12% per annum from the date of the counterclaim until realization

All other reliefs granted by the trial court regarding the counterclaim were quashed and set aside