Loss-of-profit awards may stand independently of rejected idling-cost claims when supported by evidence.

The Union of India awarded the respondent a contract on 22 November 2010 to reconstruct a sea dyke.

Although the respondent furnished the earnest money deposit (EMD) and performance guarantee, the work did not commence because the site had not been handed over.

The Union invoked Clause 3A of the General Conditions of Contract (GCC) to foreclose the contract on 23 March 2015, several years after the stipulated commencement date.

The arbitrator found that the site was unavailable, awarded amounts on certain claims—including ₹12,85,982 for loss of profit, calculated at 3.75% of the net contract amount—and rejected the respondent’s claim for idling of machinery, tools, plant and site overheads.

The Section 34 challenge was dismissed by the Additional District Judge. The Union appealed under Section 37, principally challenging the award for loss of profit.

Whether the award of loss of profit under Claim No. 4 was unsustainable because the arbitrator rejected the separate claim for idling of machinery, tools, plant and site overheads under Claim No. 5.

Whether the arbitrator’s quantification of loss of profit was unsupported or perverse, warranting interference under Sections 34 and 37 of the Arbitration and Conciliation Act, 1996.

Section 37 of the Arbitration and Conciliation Act, 1996 provides limited appellate review of an arbitral award, while Section 34 confines judicial interference to the grounds specified there; the court does not reappraise the merits as an appellate court.

Section 73 of the Indian Contract Act, 1872 permits compensation for loss or damage naturally arising from a breach, but excludes remote and indirect loss.

In Batliboi Environmental Engineers Ltd. v. Hindustan Petroleum Corporation Ltd., (2024) 2 SCC 375, the Supreme Court held that an award may be set aside where, among other things, it lacks reasoning or a rational basis for quantification, or results in disproportionate or overlapping compensation.

A.T. Brij Paul Singh v. State of Gujarat, AIR 1984 SC 1703, supports the availability of damages for loss of expected profit following a breach, subject to the circumstances and evidence.

The tribunal’s construction of the contract and assessment of evidence are not to be displaced merely because another view is possible.

The court upheld the finding that the Union was responsible for the failure to proceed: the NIT stated that the site was available, but the correspondence showed that it had not been demarcated or handed over.

Clause 3A contemplated early foreclosure where work could not start for reasons beyond the contractor’s control, yet the Union invoked it more than four years after commencement was due.

The court treated the loss-of-profit claim as distinct from Claim No. 5, which concerned unsubstantiated expenditure on idle resources and manpower.

For Claim No. 4, the arbitrator had before it the respondent’s income-tax returns showing declining gross income and the contract’s 15% margin for overheads and profit.

The award allowed only 3.75% of the net contract amount, which the court considered a reasoned and reasonable quantification, unlike the unsupported and disproportionate calculation in Batliboi.

The court therefore found no basis for interference under Sections 34 or 37.

The appeal was dismissed, the arbitral award and the order dismissing the Section 34 challenge were left undisturbed, and any pending application was disposed of.