Delhi High Court
Associated Builders, Engineers ... vs Union Of India (Uoi) on 26 September, 2002
Equivalent citations: 2003 42 SCL 137 Delhi
Author: K Gupta
Bench: K Gupta
JUDGMENT
K.S. Gupta, J.
1. Petitioner filed petition being suit
No. 364/94 under Sections 14 & 31 of the
Arbitration Act, 1940 (for short the 'Act')
seeking direction to respondents 1 & 2 to file
the award and proceedings in Court and by the
order dated 26th April, 1994, notice was ordered
to be issued to respondent No.2 for 29th July,
1994. In the meantime, on arbitrator's filing
the award and proceedings registered as Suit
No. 1380/94, notice was ordered to be issued to
both the parties to file objections, if any,
within statutory period, returnable on 7th
September, 1994. IA No. 7834/94 is the objections
filed on 26th August, 1994 under Sections 16, 30
& 33 of the Act by respondent No.1/UOI which is
being contested by filing reply by the
petitioner.
2. In said objection petition, although
respondent No.1 had taken diverse grounds for
setting aside the award dated 27th January, 1994
but during the course of argument, Sh. Sanjay Jain
appearing for the said respondent had only
pressed the ground taken in Sub-para (c) of para
No.1 thereof. It is alleged in this sub-para
that the arbitrator erroneously ignored the costs
of cement and steel to be supplied by respondent
No.1 under Clause 10 of the contract while
calculating the net tender amount. Submission
advanced by Sh. Jain was that in the agreement
being No. 13/ EEPCND/90-91 forming part of
arbitrator's file, amount of Rs. 10, 96, 754/- has
been shown as the estimated cost while
Rs. 17,11,340.33 as the tender amount. Said
amount of estimated cost was calculated after
allowing deduction for Rs. 6,14,000/- being the
total sum of costs of cement and steel to be
supplied by respondent No.1 to the petitioner.
According to Sh. Jain, expected reasonable profit
of 10% ought to have been awarded on the said
estimated cost instead of tender amount. On
the other hand, relying on the decision in
Dwaraka Das v. State of Madhya Pradesh and
Anr. 1999 (3) Arb. L.R. 291 (SC), it was
contended by Sh. B.K. Dewan for petitioner that the
arbitrator had rightly awarded Rs. 1, 45, 464/-
calculated @ 10% of the tender/contract amount
towards expected reasonable profit to the
petitioner. Award dated 27th January, 1994 would
show that amount of Rs. 14, 54,639/- on which
estimated reasonable profit of 10% had been
calculated, was arrived at after making
deductions @ 15% towards profit and overhead
expenses from the contract amount of
Rs. 17, 11,340,33. In Dwaraka Das' case (supra),
one of the points which fell fro consideration
was whether appellant was entitled to profit of
10% on Rs. 2 lacs which was the value of contract?
While dealing with that point, it was held in
para No. 9 of the report (on pages 295-96):-
"This Court in A.T. Brijpal Singh and
Ors. v. State of Gujarat, while
interpreting the provisions of
Section 73 of the Contract Act, has
held that damages can be calimed by a
contractor where the government if
proved to have committed breach by
improperly rescinding the contract
and for estimating the amount of
damages court should made a broad
evaluation instead of going into
minute details. It was specifically
held that where in the works
contract, the party entrusting the
work committed beach of contract,
the contractor is entitled to claim
the damage for loss of profit which
he expected to earn by undertaking
the works contact. Claim of
expected profits is legally
admissible on proof of the breach of
contract by the erring party. It was
observed:
'What would be the measure of
profit would depend upon facts
and circumstances of each case.
But that there shall be a
reasonable expectation of profit
is implicit in a works contract
and its loss has to be
compensated by way of damages if
the other party to the contract
is guilty of breach of contract
cannot be gainsaid. In this case
we have the additional reason for
rejecting the contention that for
the same type of work, the work
site being in the vicinity of
each other and for identical type
of work between the same parties,
a Division Bench of the same High
Court has accepted 15 per cent of
the value of the balance of the
works contract would not be an
unreasonable measure of damages
for loss of profit.
Now if it is well-established
that the respondent was guilty of
breach of contract inasmuch as
the rescission of contract by the
respondent is held to be
unjustified, and the plaintiff
contractor had executed a part of
the work contract, the contractor
would be entitled to damages by
way of loss of profit. Adopting
the measure accepted by the High
Court in the facts and
circumstances of the case between
the same parties and for the same
type of work at 15 per cent of
the value of the remaining parts
of the work contract, the damages
for loss of profit can be
measured.'
To the same effect is the judgment in
Mohd. Salamatullah and Ors v.
Government of Andhra Pradesh. After
approving the grant of damages in
case of breach of contract, the Court
further held that the appellant court
was not justified to interfere with
finding of fact given by the trial
Court regarding quantification of the
damages even if it was based upon
guess work. In both the cases
referred to hereinabove, 15% of the
contract price was granted as damages
to the contractor. In the instant
case, however, the trial court had
granted only 10% of the contract
price, which we feel was reasonable
and permissible, particularly when
the High Court had concurred with the
finding of the trial Court regarding
breach of contract by specifically
holding that "we therefore see no
reason to interfere with the finding
recorded by the trial Court that the
defendants by rescinding the
agreement committed breach of
contract." It follows therefore as
and when the breach of contract is
held to have been proved being
contrary to law and terms of the
agreement, the erring party is
legally bound to compensate the other
party to the agreement. The
appellate Court was, therefore, not
justified in disallowing the claim of
the appellant for Rs. 20,000/- on
account of damages as expected profit
out of the contract which was found
to have been illegally rescinded."
3. Applying the ratio of this decision, the
submission referred to above advanced on behalf
of respondent No.1 that profit of 10% ought
to have been calculated on aforesaid estimated
cost instead of contract amount, deserves to be
repelled being without any merit. Arbitrator had
rightly awarded expected reasonable profit of 10%
on Rs. 14,54,639/- being the amount of contract to
the petitioner.
4. Consequently, IA No. 7834/94 is dismissed
and award dated 27th January, 1994 is made the
rule of Court. In case respondent No.1 fails to
pay the decretal amount to the petitioner within
a month from today, the petitioner will be
entitled to future interest @ 18% per annum. No
order as to costs.
