Calcutta High Court Upholds ₹24.30 Lakh Award To Contractor After Union Failed To Provide Site

On 5 October, the Port Blair Circuit Bench of the Calcutta High Court upheld an arbitral award of Rs. 24.30 lakh in favour of K.P. Trading and Company, holding that the award of loss of profit was supported by the material on record and did not warrant interference.

Justices Madhuresh Prasad and Prasenjit Biswas dismissed the Union of India's appeal under Section 37 of the Arbitration and Conciliation Act, 1996, against the 15 September 2017 arbitral award and the Additional District Judge's order upholding it. The Division Bench observed:

“We do not find the award of the arbitrator to be suffering from any lack of reasoning, absence of any material in support of the claim, or any infirmity in the above noted facts and circumstances, to arrive at a conclusion regarding the amount to be quantified towards loss of profit. We therefore find no reason to interfere with the award of the sole arbitrator or the order passed by the Court considering the appeal under Section 34 of the 1996 Act.”

The Union of India had awarded the tender to K.P. Trading and Company on 22 November 2010 for reconstruction of a Sea Dyke under the Tsunami Rehabilitation Scheme. The work was scheduled to commence on 1 December 2010 and conclude by 31 August 2011. However, the site was not handed over to the contractor and the work never commenced.

The Union invoked Clause 3A to foreclose the contract only on 23 March 2015. The contractor raised a total claim of Rs. 3.27 crore before the arbitrator. The arbitrator awarded Rs. 24.30 lakh, including Rs. 12.86 lakh towards loss of profit. The Union challenged the award under Section 34 before the Additional District Judge, South Andaman District. The challenge was dismissed and the 15 September 2017 award was affirmed.

Before the High Court, the Union argued that the loss of profit claim lacked an evidentiary basis and could not have been allowed after the contractor's separate claim for damages had been rejected.

The Bench found that the Union's breach was undisputed since the work could not commence because the employer failed to provide the site. It held that the breach gave rise to a claim for loss of profits under Section 73 of the Contract Act, which was distinct from the claim for damages towards idling machinery, labour and other expenses.

It noted that the arbitrator had adopted a reasonable basis for quantifying the loss of profit by awarding 3.75% of the net contract amount, instead of mechanically accepting the entire amount claimed. It observed:

“Thus, it cannot be said that the arbitrator has arrived at the quantification in respect of loss of profits arbitrarily or in a whimsical manner. The approach appears to be bonafide, fair and reasonable without being actuated by any extraneous consideration.”

Further, the Bench rejected the Union's argument that rejection of the separate damages claim necessarily barred the loss of profit claim. It held that the two claims related to different heads of loss and were required to be assessed on different parameters.

Accordingly, the High Court dismissed the appeal and upheld the arbitral award as well as the Additional District Judge's order refusing to interfere with it under Section 34.

For Appellant: Advocate Rakesh Kumar

For Respondent: Advocate Tapan Kumar Das