M/S UNIBROSversusALL INDIA RADIO

                 [2023] 14 S.C.R. 683 : 2023 INSC 931



                            CASE DETAILS

                             M/S UNIBROS
                                     v.
                          ALL INDIA RADIO
                      (Civil Appeal No. 6895/2023)
                          OCTOBER 19, 2023
      [S. RAVINDRA BHAT AND DIPANKAR DATTA, JJ.]

                             HEADNOTES

      Issue for consideration: Arbitral award in question if in conflict with
the public policy of India and; whether a claim on account of loss of profit
is liable to succeed merely on the ground that there has been delay in the
execution of the construction contract, attributable to the employer.
      Arbitration and Conciliation Act, 1996 – s.34(2)(b) – “Public
policy of India” – Appellant awarded work contract by the respondent
– Disputes between the parties owing to the delay in work, referred to
Arbitrator – Vide First Award, appellant was awarded sum towards
loss of profit (Claim No.12) – Award set aside by High Court, claims
remitted to the Arbitrator – Second Award was passed maintaining
the award for loss of profit and interest to the appellant vide First
Award – Respondent filed petition u/s.34 for setting aside the second
Award – Single Judge allowed the objection, rejected the appellant's
claim inter alia holding that there was no sufficient evidence presented
by the appellant to establish the claimed loss of profit – Order affirmed
by Division Bench:
      Held: Second Award is equally in conflict with the public policy of
India as the First Award – While remitting Claim No.12 for reconsideration,
the Arbitrator was warned not to be influenced by the factors that weighed
in his mind while making the First Award – Arbitrator was also required to
proceed only on the basis of the evidence – However, the Arbitrator went
on to ignore the judicial decision of the High Court with impunity – The
factors which weighed in the Arbitrator’s mind in the first round and the
second round are one and the same – To avoid any charge of being branded
                                    683
684           SUPREME COURT REPORTS                         [2023] 14 S.C.R.


as a mirror image of the First Award insofar as Claim No.12 is concerned,
the Second Award appears to have been expressed in language and form
different from the earlier one without, however, there being any change
in substance – A judicial decision of a superior court, which is binding
on an inferior court, has to be accepted with grace by the inferior court
notwithstanding that the decision of the superior court may not be palatable to
the inferior court – This principle, ex proprio vigore, would be applicable to
an arbitrator and a multi-member arbitral tribunal as well, particularly when
it is faced with a judicial decision (either u/s.34 or s.37 of the Act) ordering
a limited remand – In the wake of authority of judicial determination made
by the Courts of law, any award of an arbitrator or a tribunal that seeks to
overreach a binding judicial decision does conflict with the fundamental
public policy and thus, cannot be sustained – Further, a claim for damages,
whether general or special, cannot as a matter of course result in an award
without proof of the claimant having suffered injury – Arbitral award in
question is patently illegal in that it is based on no evidence and is, thus,
outrightly perverse; therefore, again, it is in conflict with the “public policy
of India” as contemplated by s.34(2)(b) – No merit in the appeal. [Paras
13, 14 and 20]
      Arbitration – Claim for loss of profit arising from a delayed
contract or missed opportunities from other available contracts –
Claimant to substantiate the presence of a viable opportunity through
compelling evidence demonstrating that had the contract been executed
promptly, the contractor could have secured supplementary profits
utilizing its existing resources elsewhere – Nature and quality of such
evidence:
      Held: Will be contingent upon the facts and circumstances of each
case – However, it may generally include independent contemporaneous
evidence such as other potential projects that the contractor had in the
pipeline that could have been undertaken if not for the delays, the total
number of tendering opportunities that the contractor received and declined
owing to the prolongation of the contract, financial statements, or any clauses
in the contract related to delays, extensions of time, and compensation for
loss of profit – This list is not exhaustive and may include any other piece of
evidence that the court may find relevant – In adjudging a claim towards loss
of profits, the court may not make a guess in the dark; the credibility of the
               M/S UNIBROS v. ALL INDIA RADIO                             685


evidence, therefore, is the evidence of the credibility of such claim – Thus,
for claims related to loss of profit, profitability or opportunities to succeed,
one would be required to establish that there was a delay in the completion
of the contract; that such delay is not attributable to the claimant; that the
claimant’s status as an established contractor, handling substantial projects;
and credible evidence to substantiate the claim of loss of profitability – In
the present case, the fourth condition, namely, the evidence to substantiate
the claim of loss of profitability remains unfulfilled. [Paras 17, 19]
    Arbitration – Contractor's claims for loss of profit – Hudson’s
formula:
      Held: Hudson’s formula though has attained acceptability and is well
understood in trade, however, it does not apply in a vacuum – Hudson’s
formula, as well as other methods used to calculate claims for loss of off-
site overheads and profit, do not directly measure the contractor's exact
costs – Instead, they provide an estimate of the losses the contractor may
have suffered – While these formulae are helpful when needed, they alone
cannot prove the contractor's loss of profit – They are useful in assessing
losses, but only if the contractor has shown with evidence the loss of profits
and opportunities it suffered owing to the prolongation. [Para 18]

       LIST OF CITATIONS AND OTHER REFERENCES

      Associated Builders vs. Delhi Development Authority (2015) 3 SCC 49:
2014 [13] SCR 895; Bharat Cooking Coal Limited vs. L.K. Ahuja (2004) 5
SCC 109: 2004 [3] SCR 1105; The Project Director, NHAI vs. M. Hakeem
and Another (2021) 9 SCC 1: M/s AT Brij Paul Singh & Ors. vs. State of
Gujarat (1984) 4 SCC 59: McDermott International Inc. vs. Burn Standard
Co. Ltd. and Ors (2006) 11 SCC 181: 2006 [2] Suppl. SCR 409; ONGC
Ltd. vs. Saw Pipes Ltd (2003) 5 SCC 705: 2003 [3] SCR 69 – referred to.
       OTHER CASE DETAILS INCLUDING IMPUGNED
              ORDER AND APPEARANCES
     CIVIL APPELLATE JURISDICTION : Civil Appeal No.6895 of 2023.
     From the Judgment and Order dated 09.12.2019 of the High Court of
Delhi at New Delhi in FAOOS No.229 of 2010.
686           SUPREME COURT REPORTS                         [2023] 14 S.C.R.


      Appearances:
    Sameer Rohatgi, Jagdish Vats, T.S. Chaudhary, Kartikey Singh, Sachin
Gupta, Advs. for the Appellant.
     Sanjay Jain, A.S.G., Piyush Beriwal, Sabarish Subramanian, Mrs. Bani
Dikshit, Raghav Sharma, Padmesh Mishra, T.S. Sabarish, Ms. Harshita
Sukhija, Amrish Kumar, Advs. for the Respondent.
       JUDGMENT / ORDER OF THE SUPREME COURT

                               JUDGMENT

      DIPANKAR DATTA, J.
      1. Leave granted.
      2. This appeal, at the instance of M/s Unibros (“appellant”, hereafter),
registers a challenge to the judgment and order dated 9th December, 2019
in FAO (OS) 229/2010 passed by the High Court of Delhi (“High Court”,
hereafter) dismissing an appeal carried by the appellant under section 37 of
the Arbitration and Conciliation Act, 1996 (“the Act”, hereafter). Vide the
impugned judgment, a Division Bench affirmed the judgment and order of
a learned Single Judge dated 25th February, 2010 whereby an objection of
the All India Radio (“respondent”, hereafter) under section 34 of the Act
was allowed resulting in setting aside of an arbitral Award dated 15 th July,
2002 to the extent it awarded loss of profit to the appellant.
     3. The relevant facts, discerned from the records, reveal that the
appellant was awarded a work contract by the respondent to carry out
construction of Delhi Doordarshan Bhawan, Mandi House, Phase-II, New
Delhi. The work was scheduled to commence on 12th April, 1990 and reach
completion on 11th April, 1991; however, it suffered a delay of roughly 42½
months and was finally completed on 30th October, 1994. Disputes and
differences emerged between the parties owing to such delay, which were
subsequently referred to an Arbitrator (“Arbitrator”, hereafter) for resolution.
     4. The trajectory of the case, leading to the present stage, is set out
hereunder:
      a)   Arbitration proceedings having been initiated, the Arbitrator
           vide award dated 11th February, 1999 (“First Award”, hereafter)
    M/S UNIBROS v. ALL INDIA RADIO                            687
          DIPANKAR DATTA, J.

decided various claims and counter-claims filed by the parties.
Claim Nos. 10, 11, and 12 were collectively addressed under
section 73 of the Indian Contract Act, 1872 (“Contract Act”),
as they all centred around the issue of delay and the resultant
losses. Vide Claim No. 10, the appellant claimed a sum of Rs.
50,00,000.00 (Rupees fifty lakh) owing to the marked escalation
in prices/rates for the work executed beyond the stipulated
contract period. Vide Claim No. 11, the appellant implored the
Arbitrator to award Rs. 41,00,000.00 (Rupees forty-one lakh)
to cover substantial expenses associated with the establishment,
machinery, centring/shuttering, and other vital aspects of the
project. Additionally, vide Claim No. 12, the appellant urged
that a compensation of Rs. 2,00,00,000.00 (Rupees two crore)
be granted as redress for the loss of profit endured due to the
appellant’s protracted retention on the contract without any
corresponding increase in monetary benefits earned. Despite the
Arbitrator’s rejection of Claim Nos. 10 and 11, the appellant was
awarded a sum of Rs. 1,44,83,830 (Rupees one crore, forty-four
lakh, eighty-three thousand, eight hundred and thirty) towards
Claim No. 12, along with an interest of 18% per annum under
Claim No. 13 from 12th May, 1997 to the date of actual payment.
The Arbitrator supported this award based on the undisputed
fact that the delay in completing the work beyond the stipulated
contract period was caused by the respondent and against the
stipulated contract period of 12 months, the appellant was
retained by the respondent for the execution of the work for an
additional period of 3½ years leading to loss of the appellant’s
profit earning capacity during the said extended period. The loss
of profit was worked out based on a profit allowance of 7½% per
year, which the Arbitrator held to be reasonable in a civil works
contract. Applying Hudson’s formula, the Arbitrator arrived at the
final compensation for loss of profit, the computation of which
is outlined below:
 Period of delay                       42.5 months
 Contract value                        Rs. 5,45,27,386.00
 Contract period                       12 months
688          SUPREME COURT REPORTS                        [2023] 14 S.C.R.



            Contractor’s profit (7 ½ % per year) Rs. 40,89,554.00
            Contractor’s expected profit per Rs. 3,40,796.00
            month
            The total amount of loss of profit The total period of delay
                                              x Contractor’s expected
                                              profit per month
                                                  Rs. 1,44,83,830.00
      b)   Aggrieved by the aforesaid First Award, primarily to the extent it
           awarded Rs.1,44,83,830.00 towards loss of profit to the appellant,
           the respondent filed an objection under section 34 of the Act
           before the High Court impugning the decision pertaining to
           Claim Nos. 12 and 13. Vide judgment and order dated 20th May,
           2002, the First Award was set aside and the aforesaid claims were
           remitted to the Arbitrator for re-consideration and for passing a
           fresh award. The operative part of the judgment passed by the
           learned Single Judge reads thus:
                “24. *** Except for placing on record the Hudson’s formula
                and a passage from the book law (sic, Law) on Building
                and Engineering Contracts, no other evidence is placed on
                record by the respondent to show that the profit percentage
                as claimed towards loss of profit was a realistic one at that
                times and consequently there was no change in the market
                and also that the work of at least the same general level of
                profitability would have been available to the respondent
                at the end of the stipulated contract period. Therefore,
                evidence in respect of the said claim appears to be definitely
                not available on record. In absence of any credible evidence
                and when claims under Claim Nos. 10 & 11 were rejected
                on the ground that no sufficient evidence had been placed on
                record by the respondent indicating increase in the prices/
                rates for the work executed after the stipulated contract
                period and also on account of establishment, machinery,
                centering/shuttering etc., Claim No.12 was allowed by
                the arbitration (sic, arbitrator) without even considering
         M/S UNIBROS v. ALL INDIA RADIO                              689
               DIPANKAR DATTA, J.

          whether the respondent has placed credible and reliable
          evidence as required to be proved. ***
          25. *** Not only there was lack of credible and required
          evidence placed on record by the respondent in support
          of Claim No.12 as set out in the extracts from the book
          Law of Building and Engineering Contracts, and (sic) the
          arbitrator also took into consideration such factors which
          could not and should not be (sic, have) influenced his
          mind. Therefore, the award was passed by the arbitrator
          against the fundamental policy of Indian Law attracting the
          provisions of Section 34 (2)(b) (ii) of the Act. I set aside the
          award given by the arbitrator against Claim No.12 and remit
          the same for re-consideration by the arbitrator and to pass
          a fresh award in respect of the said claim without being in
          any manner influenced by such factors and on the basis of
          the evidence available on record. Since the award passed
          by the arbitrator is set aside to the aforesaid extent, the
          award of interest in Claim No. 13 in respect of the amount
          of Claim No. 12 also stands set aside and quashed and the
          same are remitted for reconsideration and decision. Subject
          to the aforesaid modifications in the award, the remaining
          part of the award is upheld.”
                                                        (emphasis ours)
c)   The Arbitrator passed a fresh award dated 15th July, 2002 (“Second
     Award”, hereafter) maintaining the award for loss of profit and
     interest to the appellant vide First Award. By referring to the
     communications between the parties, the Arbitrator reiterated
     that the respondent had failed to provide the complete site and
     drawings within the stipulated contract period, leading to delays.
     As per established legal principles, the party responsible for the
     breach of the contract is liable for reasonably foreseeable losses.
     Considering the appellant’s status as an established contractor,
     handling substantial projects, the Arbitrator inferred that it was
     reasonable to assume earning of expected profits elsewhere by
     the appellant. Employing the doctrine that within a contract, gains
690          SUPREME COURT REPORTS                          [2023] 14 S.C.R.


           prevented qualify as loss sustained, the Arbitrator observed that
           the appellant was not required to establish the exact amount of
           gain or loss with absolute certainty; instead, presenting fairly
           persuasive and the best available evidence under the particular
           circumstances of the case would suffice.
      d)   The respondent filed a petition under Section 34 of the Act,
           seeking to set aside the Second Award. The learned Single
           Judge of the High Court vide judgment and final order dated
           25th February 2010 allowed the objection under Section 34
           and rejected the appellant’s claim under Claim No. 12 with an
           observation that there was no sufficient evidence presented by the
           appellant to establish the claimed loss of profit; the lack of records
           regarding the alleged utilization of men, material, machinery,
           overheads, and other resources in the contract performance that
           could have otherwise been used for other profitable contracts
           raised doubts about the legitimacy of the claimed losses under
           Claim No. 12. With an observation that the Union of India was
           forced into litigation due to the appellant’s misconceived claim,
           the Single Judge awarded costs of Rs. 50,000.00 (Rupees fifty
           thousand) in favour of the respondent, payable within four weeks
           from the date of the final order and interest of 9% per annum in
           case of non-compliance. Findings returned by the learned Single
           Judge are extracted below:
                “4. I have gone through the entire Award. The Award … as
                a loss under this Claim 12.
                5. In this view of the … in the arbitration proceedings.
                7. *** I accept the objections to the Award and the Award
                dated 15.7.2002 of the Arbitrator is set aside and the claim
                of the contractor under Claim 12 will accordingly stand
                dismissed. In the facts and circumstances of the case, I
                award costs of Rs.50,000/- in favour of the petitioner and
                against the respondents… Accordingly, in the facts of the
                present case, I deem it fit to award interest on the costs.”
      e)   Dissatisfied with the findings of the learned Single Judge, the
           appellant preferred an appeal before the Division Bench of the
                M/S UNIBROS v. ALL INDIA RADIO                            691
                      DIPANKAR DATTA, J.

           High Court under Section 37 of the Act. While dismissing the
           appeal vide the impugned judgment, the Division Bench was of
           the view that no evidence was produced on behalf of the appellant
           to support the plea of loss of profit during the period when the
           work was prolonged; findings returned by the Arbitrator are,
           therefore, contrary to law, more particularly the Contract Act
           which governs matters related to loss of profit. Having found no
           infirmity or illegality, the judgment of the learned Single Judge
           was confirmed, and the appeal was dismissed, being devoid of
           any merit.
     SUBMISSIONS OF THE PARTIES
      5. Taking exception to the decisions of the Single Judge as well as the
Division Bench, Mr Sameer Rohatgi, learned counsel appearing on behalf
of the appellant advanced the following submissions:
     a)    The learned Arbitrator had arrived at a just and reasoned
           conclusion after carefully perusing the materials and evidence on
           record and in the absence of any perversity or caprice, the courts
           cannot interfere with the award. Relying on Associated Builders
           vs. Delhi Development Authority1, learned counsel submitted
           that the arbitrator is the sole judge of the quality and quantity of
           evidence and the High Court, under section 34 of the Act, cannot
           act as a first appellate or a revisional court by interfering with
           arbitral awards in the absence of perversity.
     b)    Bharat Cooking Coal Limited vs. L.K. Ahuja2 was placed in
           support of the contention that the High Court has a limited scope
           of interference in awards passed by an arbitrator. Learned counsel
           placed reliance on the specific excerpt of this Court’s decision,
           which is extracted below for facility of reference:
                 “11…When the arbitrator has applied his mind to the
                 pleadings, the evidence adduced before him and the terms
                 of the contract, there is no scope for the court to reappraise


1   (2015) 3 SCC 49
2   (2004) 5 SCC 109
692            SUPREME COURT REPORTS                         [2023] 14 S.C.R.


                   the matter as if this were an appeal and even if two views
                   are possible, the view taken by the arbitrator would prevail.
                   So long as an award made by an arbitrator can be said to
                   be one by a reasonable person no interference is called for.
                   However, in cases where an arbitrator exceeds the terms
                   of the agreement or passes an award in the absence of any
                   evidence, which is apparent on the face of the award, the
                   same could be set aside.”
       c)    According to Section 34, an award cannot be modified but can
             only be set aside under specific grounds outlined in the provision.
             Unlike the Arbitration Act of 1940, which explicitly allowed
             for modification, the Act of 1996, modelled on the UNCITRAL
             Model Law on International Commercial Arbitration 1985, does
             not grant the court the power to modify awards under Section
             34. This aligns with the legislative intent of minimizing judicial
             intervention in arbitral awards. Reliance in support of the said
             contention was placed on The Project Director, NHAI vs. M.
             Hakeem and Another3;
       d)    M/s AT Brij Paul Singh & Ors. vs. State of Gujarat4 was relied
             upon to submit that a contractor is entitled to damages for loss
             of expected profit on the remaining work and only a broad
             evaluation is required to assess the amount of damages instead
             of going into minute details; and
       e)    Hudson’s formula has received legal acceptance and is generally
             used by courts and other judicial bodies in awarding loss of
             profit. Learned counsel further submitted that Hudson’s formula
             works on the numbers and figures contemplated in the contract
             as envisaged by the parties at the time of signing of the contract
             rather than the actuals during the ongoing work. Therefore,
             the actual number of men, material and machinery allocated
             by the appellant for the work bears no relevance whatsoever
             in calculating the loss of profit incurred by the appellant due


3     (2021) 9 SCC 1
4     (1984) 4 SCC 59
                  M/S UNIBROS v. ALL INDIA RADIO                          693
                        DIPANKAR DATTA, J.

           to the breach of contract by the respondent, else Hudson’s
           formula would be rendered redundant. Reliance was placed on
           McDermott International Inc. vs. Burn Standard Co. Ltd. and
           Ors5 to draw support.
      6. Mr. Sanjay Jain, learned Additional Solicitor General (“ASG”,
hereafter) appearing on behalf of the respondent submitted that the arbitral
award was passed in an arbitrary and whimsical manner, and was rightly
rejected both by the Single Bench and the Division Bench. Urging this Court
to dismiss the appeal and confirm the decisions of the Division Bench as
well as the Single Judge, the ASG advanced the following submissions:
     a)    The present case being that of delay simpliciter, Hudson’s formula
           will have no application to award any amount for loss of profit
           without the aggrieved party leading any evidence as a condition
           precedent to the application of the said formula.
     b)    The application of Hudson’s formula hinges upon three essential
           conditions:
           i.     Firstly, the profit awarded to the contractor must have been
                  realistically attainable elsewhere had it been free to leave
                  the contract at the appropriate time;
           ii.    Secondly, the contractor should not have consistently
                  underestimated his costs during pricing, ensuring that the
                  profit percentage was genuinely viable at that point;
           iii.   Thirdly, there should have been no subsequent changes
                  in the market, such that work of a comparable level of
                  profitability would have been available to the contractor
                  at the time of the conclusion of the contract.
     c)    It was further submitted that to fulfil the aforesaid conditions,
           satisfactory and cogent evidence is a sine qua non even if the loss
           is not of a remote or imaginary nature. In the absence of cogent
           evidence substantiating a genuine loss of profit or opportunity,


5   (2006) 11 SCC 181
694          SUPREME COURT REPORTS                        [2023] 14 S.C.R.


           it would be unjustifiable to permit the contractor to capitalize
           solely on the application of a formula.
      d)   In the present case, the ASG submitted, no evidence was led by
           the appellant, far less, any credible or cogent evidence, to prove
           that it was capable of earning such price elsewhere by way of
           any other contract that was available to it at that time, which it
           could not execute due to prolongation of the contract; such an
           award, being perverse, conflicts with the public policy of India
           under Section 34(2)(b)(ii) of the Act.
      e)   The Arbitrator’s actions present a perplexing situation: while
           dismissing Claim Nos. 10 (compensation for increased prices/
           rates after the contract period) and 11 (compensation for the
           establishment, machinery, centring/shuttering, etc.) due to the
           absence of credible evidence, the Arbitrator, on the other hand,
           proceeded to grant damages for loss of profit under Claim No.
           12. This prompts a crucial question: If there was insufficient
           evidence to support Claim Nos. 10 and 11, what other evidence
           could possibly justify awarding loss of profit under Claim No.
           12?
      f)   Mechanical application of Hudson’s formula would serve no
           purpose and burden the exchequer was the ASG’s concluding
           submission.
      ANALYSIS AND FINDINGS
      7. We have considered the submissions advanced by learned counsel
for the parties and also perused the materials on record.
      8. The appeal is directed towards dismissal of the appellant’s claim
for compensation relating to loss of profits (Claim No. 12). It is undeniably
established that the appellant’s claim for loss of profit stems from the delay
attributed to the respondent in completing the project. It is further evident
that the loss of profit sought in the present case is primarily based on the
grounds that the appellant, having been retained longer than the period
stipulated in the contract and its resources being blocked for execution of
the work relatable to the contract in question, it could have taken up any
other work order and earned profit elsewhere.
                 M/S UNIBROS v. ALL INDIA RADIO                               695
                       DIPANKAR DATTA, J.

      9. The contentions advanced on behalf of the appellant tasks us to
resolve a recurring issue which, while not unprecedented, has consistently
confronted the courts leading it to navigate various circumstances under
which a claim for loss of profit may be allowed in cases of delay simpliciter
in the execution of a contract.
      10. However, the contentions so raised, need not detain us for too long.
Quite apart from the appeal raising the question as to whether a claim on
account of loss of profit is liable to succeed merely on the ground that there
has been delay in the execution of the construction contract, attributable
to the employer, the question that first needs to be answered on facts and
in the circumstances is whether the Second Award is in conflict with the
public policy of India (as held by the learned Single Judge, since affirmed
by the Division Bench) .
     11.What would constitute “public policy of India” has been lucidly
explained by this Court in ONGC Ltd. vs. Saw Pipes Ltd6:
      “31…, the phrase ‘public policy of India’ used in Section 34 in context
      is required to be given a wider meaning. It can be stated that the concept
      of public policy connotes some matter which concerns public good
      and the public interest. What is for public good or in public interest
      or what would be injurious or harmful to the public good or public
      interest has varied from time to time. However, the award which is,
      on the face of it, patently in violation of statutory provisions cannot be
      said to be in public interest. Such award/judgment/decision is likely
      to adversely affect the administration of justice.”
      12. Subsequent decisions of this Court have interpreted “public policy
of India” to include, among others, compliance with fundamental policy
of Indian law, statutes and judicial precedents, need for judicial approach,
compliance with natural justice, Wednesbury unreasonableness and patent
illegality. We may refer to the decision in Associated Builders (supra) in
this behalf.
      13. Having read the Second Award, we have no hesitation to hold that it
fares no better than the First Award, for, it is equally in conflict with the public



6   (2003) 5 SCC 705
696           SUPREME COURT REPORTS                           [2023] 14 S.C.R.


policy of India. We have noticed from the order dated 20 th May, 2002 of the
learned Single Judge that while remitting Claim No.12 for re-consideration,
the Arbitrator was warned not to be influenced by the factors that weighed in
his mind while making the First Award. The Arbitrator was also required to
proceed only on the basis of the evidence on record. Yet, regrettably, what
we find is that the Arbitrator went on to ignore the judicial decision of the
High Court with impunity. He once again emphasized on delay caused by
the respondent in completion of the works entrusted to the appellant by
not providing complete site and drawings within the stipulated contract
period and that non-handing over of site certainly constituted fundamental
breach of contract vitiating the entire contract. He then referred to Hudson’s
espousal of fundamental breach of contract which, according to him, was
the standard text in all engineering and building contracts. It is, therefore,
apparent that the factors which weighed in the Arbitrator’s mind in the first
round and the second round are one and the same. To avoid any charge of
being branded as a mirror image of the First Award insofar as Claim No.12
is concerned, the Second Award appears to have been expressed in language
and form different from the earlier one without, however, there being any
change in substance.
      14. It is elementary, though it has to be restated, that a judicial decision
of a superior court, which is binding on an inferior court, has to be accepted
with grace by the inferior court notwithstanding that the decision of the
superior court may not be palatable to the inferior court. This principle, ex
proprio vigore, would be applicable to an arbitrator and a multi-member
arbitral tribunal as well, particularly when it is faced with a judicial decision
(either under section 34 or section 37 of the Act) ordering a limited remand.
In the wake of authority of judicial determination made by the Courts of law,
any award of an arbitrator or a tribunal that seeks to overreach a binding
judicial decision, in our opinion, does conflict with the fundamental public
policy and cannot, therefore, sustain.
      15. Considering the aforesaid reasons, even though little else remains to
be decided, we would like to briefly address the appellant’s claim of loss of
profit. In Bharat Cooking Coal (supra), this Court reaffirmed the principle
that a claim for such loss of profit will only be considered when supported
by adequate evidence. It was observed:
                M/S UNIBROS v. ALL INDIA RADIO                               697
                      DIPANKAR DATTA, J.

     “24. ... It is not unusual for the contractors to claim loss of profit arising
     out of diminution in turnover on account of delay in the matter of
     completion of the work. What he should establish in such a situation
     is that had he received the amount due under the contract, he could
     have utilised the same for some other business in which he could have
     earned profit. Unless such a plea is raised and established, claim for loss
     of profits could not have been granted. In this case, no such material
     is available on record. In the absence of any evidence, the arbitrator
     could not have awarded the same.”
                                                                (emphasis ours)
      16. To support a claim for loss of profit arising from a delayed contract
or missed opportunities from other available contracts that the appellant
could have earned elsewhere by taking up any, it becomes imperative for
the claimant to substantiate the presence of a viable opportunity through
compelling evidence. This evidence should convincingly demonstrate that
had the contract been executed promptly, the contractor could have secured
supplementary profits utilizing its existing resources elsewhere.
      17. One might ask, what would be the nature and quality of such
evidence? In our opinion, it will be contingent upon the facts and
circumstances of each case. However, it may generally include independent
contemporaneous evidence such as other potential projects that the contractor
had in the pipeline that could have been undertaken if not for the delays,
the total number of tendering opportunities that the contractor received and
declined owing to the prolongation of the contract, financial statements,
or any clauses in the contract related to delays, extensions of time, and
compensation for loss of profit. While this list is not exhaustive and may
include any other piece of evidence that the court may find relevant, what
is cut and dried is that in adjudging a claim towards loss of profits, the court
may not make a guess in the dark; the credibility of the evidence, therefore,
is the evidence of the credibility of such claim.
      18. Hudson’s formula, while attained acceptability and is well
understood in trade, does not, however, apply in a vacuum. Hudson’s
formula, as well as other methods used to calculate claims for loss of off-
site overheads and profit, do not directly measure the contractor’s exact
costs. Instead, they provide an estimate of the losses the contractor may
698            SUPREME COURT REPORTS                        [2023] 14 S.C.R.


have suffered. While these formulae are helpful when needed, they alone
cannot prove the contractor’s loss of profit. They are useful in assessing
losses, but only if the contractor has shown with evidence the loss of profits
and opportunities it suffered owing to the prolongation.
      19. The law, as it should stand thus, is that for claims related to loss
of profit, profitability or opportunities to succeed, one would be required
to establish the following conditions: first, there was a delay in the
completion of the contract; second, such delay is not attributable to the
claimant; third, the claimant’s status as an established contractor, handling
substantial projects; and fourth, credible evidence to substantiate the claim
of loss of profitability. On perusal of the records, we are satisfied that the
fourth condition, namely, the evidence to substantiate the claim of loss of
profitability remains unfulfilled in the present case.
     20. The First Award was interfered with by the High Court for the
reasons noted above. The Arbitrator, in view of such previous determination
made by the High Court, could have granted damages to the appellant based
on the evidence on record. There was, so to say, none which on proof could
have translated into an award for damages towards loss of profit. A claim for
damages, whether general or special, cannot as a matter of course result in
an award without proof of the claimant having suffered injury. The arbitral
award in question, in our opinion, is patently illegal in that it is based on no
evidence and is, thus, outrightly perverse; therefore, again, it is in conflict
with the “public policy of India” as contemplated by section 34(2)(b) of
the Act.
     21. For the reasons aforesaid, we find no merit in this appeal. The
same stands dismissed. However, cost awarded by the learned Single Judge
is made easy.


Headnotes prepared by:                                          Appeal dismissed.
Divya Pandey