Profits Earned Do Not Negate Damages Claim In Arbitration: Calcutta High Court

On Monday, 13 April, the Calcutta High Court held that earning profits does not, by itself, defeat a claim for damages arising from breach of contract and upheld the arbitral award in favour of Great Eastern Energy Corporation Limited (GEECL)

A Division Bench of Justices Arijit Banerjee and Om Narayan Rai dismissed SRMB Srijan Ltd's appeal under Section 37 of the Arbitration and Conciliation Act, clarifying that damages are not limited to actual loss but also include loss of expected or additional profits.

The judges observed:

“If a person earns profits by employing all avenues that he has, he cannot be said to have failed in mitigating his damages. But, can such earning of profit alone always lead to the conclusion that there has been no damage at all? The answer has to be in the negative as there can be situations where a person could be entitled to more profits than what he has actually earned but has been deprived of the further profit element due to the breach of the contract complained of.”

The dispute arose from a Gas Sale and Purchase Agreement dated 11 May 2011, which contained a Minimum Guaranteed Offtake (MGO) clause assuring payments to GEECL. On 21 June 2022, an Arbitral Tribunal found SRMB in breach and awarded compensation. A Single Judge upheld the award on 5 September 2024.

Before the Division Bench, SRMB argued that GEECL suffered no loss as it continued to earn profits.

The Court rejected this contention, holding that a party may still suffer loss if it is deprived of higher profits it was contractually entitled to earn. It emphasised the limited scope of interference under Section 37 and found no reason to interfere with the Single Judge's decision.

It observed:

“Apart from the fact that we are exercising powers under Section 37 Court of the 1996 Act, we must not forget that even otherwise while sitting in appeal against an order of an Hon'ble Single Judge of this Court even in ordinary appellate proceedings, the appellate Court would interfere only when the order impugned is clearly wrong and not when it is not right. In the case at hand, we do not find any reason to disagree with the Hon'ble Single Judge even to the slightest degree.”

Accordingly, the High Court dismissed the appeal and affirmed GEECL's entitlement to damages under the award.

For Appellant: Senior Advocates Jayanta Kr. Mitra, Sakya Sen, with Advocates Arnab Das, Rehanuddin Ansari

For Respondent: Senior Advocate Ratnako Banerji with Advocates Sarvapriya Mukherjee, Kanishk Kejriwal, Debargha Basu