Damages for loss of profits or escalation beyond contract period require actual proof of loss.

The dispute arose from a tripartite agreement for electrical works at G.B. Pant Hospital, New Delhi

While the work was scheduled for completion by July 2008, it was finished in November 2011

The delay was regularized without penalty

The Arbitrator awarded the contractor escalation under Clause 10CC (Claim 3) and loss of turnover/profitability (Claim 6)

The Petitioner (PWD) challenged these specific findings under Section 34 of the Arbitration and Conciliation Act, 1996 ("A&C Act"), alleging they were patently illegal and lacked evidentiary support

Simultaneously, the Respondent sought enforcement of the award

1. Whether the Arbitrator committed patent illegality by awarding escalation under Clause 10CC for the prolonged period despite the clause expressly limiting its application to the stipulated period

2. Whether an award for loss of turnover and profitability can be sustained without evidence of actual loss or missed opportunities, relying solely on a CPWD memorandum formula

The court applied Section 34 of the A&C Act, noting that an award may be set aside for "patent illegality" if it is perverse, irrational, or ignores vital evidence

It relied on Associate Builders v. DDA and Ssangyong Engineering v. NHAI to established that while courts do not act as appellate bodies, an award based on "no evidence" is patently illegal

Regarding damages, the court applied Section 73 of the Indian Contract Act, 1872 (ICA), which requires proof of actual loss

It further cited Kailash Nath Associates v. DDA and Unibros v. All India Radio, holding that a formula (like the Hudson formula or CPWD memo) cannot substitute the requirement of proving actual damages or lost opportunities.

The court found the award for Claim 3 (Escalation) contradictory; the Arbitrator acknowledged that Clause 10CC did not contractually apply to the extended period but used its formula anyway to grant damages under Section 73 of the ICA

This was held illegal because the Arbitrator failed to require proof of actual cost increases as necessitated by Section 73

Regarding Claim 6 (Loss of Profits), the court determined the Arbitrator reached a conclusion based on a "guess in the dark"

The award relied solely on a notional 15% CPWD memorandum without scrutinizing books of accounts or evidence showing the contractor was prevented from taking other projects

Following the Unibros precedent, the court held that even if the employer is at fault for the delay, the contractor must still fulfill the "fourth condition": providing credible evidence of lost profitability

The Court allowed the Objection Petition and set aside the Impugned Arbitral Award regarding Claim 3 (escalation: ₹38,96,175/-) and Claim 6 (loss of profits: ₹16,23,195/-), along with their respective interest. Consequently, the Enforcement Petition was dismissed to the extent of the set-aside claims but allowed to proceed for the remaining undisputed portions of the award