2022:DHC:4080-DB

IN THE HIGH COURT OF DELHI AT NEW DELHI

% Judgment delivered on: 07.10.2022

+ FAO(OS) (COMM) 92/2020 & CM APPL. 4216/2021 & CM
APPL. 4217/2021

IJM GAYATRI JV ..... Appellant

versus

NATIONAL HIGHWAYS AUTHORITY OF

INDIA ..... Respondent

Advocates who appeared in this case:

For the Appellant : Mr. Angad Mehta, Adv.

For the Respondent : Mr. Manish K. Bishnoi and Mr. Nirmal

Parsad, Advs.

CORAM
HON’BLE MR JUSTICE VIBHU BAKHRU
HON'BLE MR JUSTICE AMIT MAHAJAN

JUDGMENT

VIBHU BAKHRU, J

1. M/s IJM-Gayatri (JV) (hereinafter ‘IJM’) has filed the present

appeal under Section 37(1)(c) of the Arbitration and Conciliation Act
(hereinafter ‘the A&C Act’) impugning a judgement dated 12.05.2020
(hereinafter ‘the impugned judgement’) passed by the learned Single
Judge, whereby National Highway Authority of India’s (hereinafter
‘NHAI’) application under Section 34 of the A&C Act, seeking to set

FAO(OS)(COMM) 92/2020 Page 1 of 32

 2022:DHC:4080-DB

27. Paragraph nos. 4.3.7 and 4.3.8 of the impugned award are
relevant and set out below:-
“4.3.7 Thus the facts and circumstances of this case allow
to compensate loss of profit with 10% or 15% of
work cost executed in the extended period as upheld
in law cases, Dwaraka Das Vs. State of MP and
another AIR 1999 Supreme Court 1031, M/s. A T.
Brij Paul Singh Vs State of Gujarat AIR 1984
SUPREME COURT 1703 and Mohd. Salamatullah
Vs Government of Andhra Pradesh AIR 1977
SUPREME COURT 1481. With the fact and
circumstances of the case, it is felt justified to
compensate the contractor for his loss of earning
during forced overstay at site for the default of the
Employer at the rate of 10% of cost of remaining
work.

4.3.8 Further, the AT is of the opinion that the Claimant

should have done about 20% more of the work
executed during the extended period, up to the
stipulated date of completion as
concluded in Para E 4. In view of this the AT has
decided to reduce the Compensation for Loss of
Profit by 20%. The cost of work executed during
extended period is Rs 995, 928,597.
Compensation for loss of profit @ 10% of Rs
995,928,597 comes Rs.9,95,92,860/-, which on
reduction by 20% becomes Rs.7,96,74,288”

28. IJM’s claim for loss of profits is premised on the basis that had
the contract been completed within the original period as contemplated,
IJM would have deployed its resources in another contract to earn
further profits. Since IJM was deprived of its profit, that it would have
earned, it is liable to be compensated for the same. Clearly, in order to

FAO(OS)(COMM) 92/2020 Page 14 of 32

 2022:DHC:4080-DB

sustain a claim of such damages, it was necessary for IJM to establish

(a) that the contract had been delayed and extended solely for the reason
attributable to NHAI; (b) that there were opportunities to take up other
contracts and execute the same; (c) that it could have executed those
contracts profitably; and (d) that IJM could not take up those contracts
because its resources were held up in executing the Agreement.

29. As noted above, the Arbitral Tribunal had accepted that the delay
in the execution of work was on account of NHAI and this finding is
not called into question. Insofar as the availability of another profitable
contract is concerned, IJM had produced the details of other tenders that
had been invited during the relevant period. The Arbitral Tribunal had
accepted that opportunity for bidding for the other contracts existed
during the relevant year. The Arbitral Tribunal also accepted that 10%
was a reasonable profit margin in contracts of similar nature on the basis
of MoRTH Data Book, which provided analysis for estimating the costs
of similar contracts. Admittedly, the MoRTH Data Book was a valuable
guide for estimating the value of similar contracts.

30. The learned Single Judge set aside the impugned award for,
essentially, two reasons. First, the learned Single Judge found that the
claim of loss of profits overlapped IJM’s claim for overhead
expenditure during the extended period (Claim no. 3). And second, that
IJM had failed to produce any evidence to establish the loss actually
suffered.

31. This Court is unable to accept that IJM’s claim for loss of profit
overlaps its Claim no.3 (claim for compensation for additional overhead

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 2022:DHC:4080-DB

any evidence. The learned Single Judge held that it was necessary for
IJM to establish the loss that it had suffered and it is not open for the
Arbitral Tribunal to enter an award in IJM’s claim without any evidence
establishing the same.

43. As noted above, in order to succeed in its claim for loss of profits,
it was necessary for IJM to establish that there were opportunities to
take up other contracts, which could be executed profitably. And, it
could not take up other contracts as its resources had been held up in
the contract in question.

44. Insofar as the other opportunities are concerned, the Arbitral

Tribunal had noted that IJM had established that there were bidding
opportunities for other contracts during the relevant period. IJM
established that it was open for it to bid for other contracts relating to
road works/bridge works. IJM was also required to establish that it
could not bid for other projects because its resources had been held up
in executing the Agreement. It was, thus, necessary for IJM to establish
that it had no spare capacities to take up any other contract. However,
it does not appear that there is any discussion in the impugned award on
this aspect. It is also relevant to note that IJM was a special purpose
vehicle, therefore, the question of spare capacity will have to be
considered in the context of its JV partners. If the constituent JV
partners of IJM had spare capacity, it would not be open for IJM to
contend that it was prevented from taking other projects as its resources
had been held up in executing the Agreement.

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 REPORTABLE
2023INSC850
IN THE SUPREME COURT OF INDIA

CIVIL APPELLATE JURISDICTION

CIVIL APPEAL NO. 1968 OF 2012

BATLIBOI ENVIRONMENTAL ENGINEERS

LIMITED ..... APPELLANT

VERSUS

HINDUSTAN PETROLEUM CORPORATION

LIMITED AND ANOTHER ..... RESPONDENTS

JUDGMENT
SANJIV KHANNA, J.

This appeal by way of special leave by Batliboi Environmental

Engineers Limited1 takes exception to the judgment dated

02.11.2007, whereby the Division Bench of the High Court of

Judicature at Bombay allowed the appeal2 filed by Hindustan

Petroleum Corporation Limited3 under Section 37 of the Arbitration

and Conciliation Act, 19964, and thereby has set aside the arbitral

award dated 23.03.1999.

1
For short, BEEL.
2
Appeal No. 227 of 2001 in Arbitration Petition No. 280 of 1999.
3
For short, HPCL.
4
For short, A&C Act.

C.A. No. 1968 of 2012 Page 1 of 50

 in the award. S.No.7 fails to taken into consideration the

seven-month period, which as per the award has to be added.

(ii) The figure of Rs.90,47,871/- would have been relevant, in

absence of work done and in fact payments post 01.09.1993.

However, it is an accepted and admitted position that

payment of Rs.2,92,07,619.13p was made on different dates

between 01.09.1993 till 30.03.1996 upon completion of the

proportionate value of the work. Claim on account of loss of

profits/profitability and overheads, as has been explained

above and also elucidated herein-after with reference to

several judgments and treatise, is payable if and when there

is an increase in cost of off-site and on-site overheads due to

delay in completion of work post the agreed or contractual

period which is caused by the employer.13 Further, loss on

account of profit earning capacity is paid when the

contractor’s profit earning capacity is affected due to it being

retained longer in the contract in question, without

corresponding increase in the monetary benefit earned and

13
In this case, as noticed, the contract bars claims for compensation for losses due to
enhancement/escalation of costs etc. We make no comments in this regard. Interpretation and validity
of such clauses is not subject matter of this appeal. When such clauses, which are apparently one-
sided and absolve breach with immunity, are subjected to judicial scrutiny, the courts/tribunals
invariably tend to interpret the clauses in a restrictive manner to grant just and fair relief. Courts should
be slow to interfere, unless the award falls within the ambit of the parameters set out in Section 34 of
the A&C Act.

C.A. No. 1968 of 2012 Page 23 of 50

 without being free to move elsewhere to earn profit which it

might otherwise be able to do. It is not the case of BEEL that

they are entitled to enhance or increase in cost on account of

delay in execution of the work. Pertinently, Claim No. 3 for

compensation of losses incurred due to increase in cost of

material and labour has been specifically rejected, as

escalation in prices/costs are barred by the terms of the

contract.

(iii) The computation of loss under S.No.7 of Rs.90,47,871/- is,

therefore, unsustainable and cannot be justified by any

calculation and in terms of the Contract Act.

(iv) As per the chart, in addition to Rs.90,47,871/-, the arbitrator

has awarded at S.No.12, a further amount of

Rs.66,89,794.68p. on account of loss of overheads and

profits for the extra period of 24 months, that is, till

27.08.1997. The figure as per S.No.12 is arrived at after

reducing pro rata overheads and profits during the extended

period as mentioned in S.No.9. The computation belies and

defies logic. It clearly amounts to double payment towards

compensation and damages, as it fails to notice that the sum

mentioned in S.No.7 of Rs. 90,47,871/- is on account of

compensation towards overheads and profits/profitability.

C.A. No. 1968 of 2012 Page 24 of 50

 damages takes the head office and profit percentage as a

proportion of the contract value. The formula assumes that the profit

judged by the builder/contractor is in fact capable of being earned

by her/him elsewhere had the builder/contractor been free to leave

the contract at the proper time. The formula is couched on three

assumptions. First, that the contractor is not habitually or otherwise

underestimating the cost when pricing; secondly the profit element

was realistic at that time; and lastly, there was no fluctuation in the

market conditions and the work of the same general level of

profitability would be available to her/him at the end of the contract

period. Satisfaction of these assumptions should be ascertained

when we apply Hudson’s formula for computing the damages.

Material should be furnished by the claimant to justify and assure

that the assumptions for applying Hudson’s formula are met.

23. Ordinarily, when the completion of a contract is delayed and the

contractor claims that s/he has suffered a loss arising from

depletion of her/his income from the job and hence turnover of

her/his business, and also for the overheads in the form of

workforce expenses which could have been deployed in other

contracts, the claims to bear any persuasion before the arbitrator or

a court of law, the builder/contractor has to prove that there was

other work available that he would have secured if not for the delay,

C.A. No. 1968 of 2012 Page 27 of 50

 by producing invitations to tender which was declined due to

insufficient capacity to undertake other work. The same may also

be proven from the books of accounts to demonstrate a drop in

turnover and establish that this result is from the particular delay

rather than from extraneous causes. If loss of turnover resulting

from delay is not established, it is merely a delay in receipt of

money, and as such, the builder/ contractor is only entitled to

interest on the capital employed and not the profit, which should be

paid. The High Court of Justice Queen’s Bench Division in the case

of Property and Land Contractors Ltd v. Alfred McAlpine

Homes North Ltd.19 succinctly points the in-exactitude of Hudson’s

formulae, by observing:

“Furthermore the Emden formula, in common with

the Hudson formula (see Hudson on Building
Contracts, (11th edn, 1995) paras 8–182 et seq)
and with its American counterpart the Eichleay
formula, is dependent on various assumptions
which are not always present and which, if not
present, will not justify the use of a formula. For
example the Hudson formula makes it clear that
an element of constraint is required (see Hudson
para 8.185) ie in relation to profit, that there was
profit capable of being earned elsewhere and
there was no change in the market thereafter
affecting profitability of the work. It must also be
established that the contractor was unable to
deploy resources elsewhere and had no possibility
of recovering cost of the overheads from other
sources, eg from an increased volume of the work.
19
(1995) 76 BLR 59.

C.A. No. 1968 of 2012 Page 28 of 50