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2025 SCC OnLine Cal 3945

In the High Court of Calcutta

(BEFORE SOUMEN SEN AND BISWAROOP CHOWDHURY, JJ.)

State of West Bengal and Others … Appellants;

Versus
S.K. Maji … Respondent.
FMA No. 573 of 2024
Decided on March 5, 2025
Advocates who appeared in this case :
Arindam Mondal and Ms Srijani Mukherjee, Advocates, for the
Appellants;
Soumik Ganguly, Tanmoy Mukherjee, Souvik Das and Ms Chandana
Chakraborty, Advocates, for the Respondent.
The Judgment of the Court was delivered by
SOUMEN SEN, J.— The present appeal arises out of an impugned
judgment and order dated 25-2-2021 passed by the learned
Commercial Court at Asansol under Section 34 of the Arbitration and
Conciliation Act, 1996 (hereinafter referred to as “the said Act”).
2. Shorn of details the facts of the case enumerate that the
respondent contractor carries on business under the trade name and
style of M/s S.K. Maji having its principal place of business in Tamluk,
Purba Medinipur, executing various engineering works under contract
with various departments including the State of West Bengal, which is
the appellant herein.
3. The Government of West Bengal through the Superintending
Engineer, Public Works Department, Paschim Medinipur published a
notice inviting tender being NIT No. 15 of 2009-2010 on 24-2-2010 for
construction of District Health Administrative Building at Bankura at an
estimated sum of Rs 1,69,25,089. Time for submission of tender was
fixed on 29-3-2010. The respondent contractor participated in the said
tender and submitted his tender on the same date and within the
stipulated time. The tender of the respondent contractor was accepted
and the acceptance was communicated by letter dated 29-6-2010. The
contractor was requested to take up work immediately and complete it
in conformity with the terms and conditions of the contract within a
stipulated period of 18 months with effect from 6-7-2010 i.e. within 5-
6-2012. The aforementioned Memo dated 29-6-2010 was treated as a
formal work order and the contractor was directed to proceed with the
work only after having conducted from assessment and
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predetermination of the tender quantity and was also allowed to visit

the site of work.
4. Disputes having arisen between the parties, by letter dated 13-1-
2014 the executive engineer terminated the work order and the tender
was rescinded under Clause 3(a) of the Agreement No. 2 of 2010-2011.
Subsequently, the respondent contractor invoked arbitration for settling
of such disputes between the parties. Shri Tapan Kumar Roy
Chowdhury, Superintending Engineer was appointed as the sole
arbitrator in this matter and he passed the arbitral award dated 3-7-
2017 as follows in respect of the 9 claims of the claimant-respondent:
Sl. Amount as per claimant's Awarded amount
No. claim
1. Claim 1 of Rs 4,51,462 Rs 4,23,615.00 p.
2. Claim 2 of Rs 2,50,000 Rs 1,88,665.00 p.
3. Claim 3 of Rs 16,92,489 Rs 9,66,711.00 p.
4. Claim 4 of Rs 18,90,060 Rejected, Rs Nil
5. Claim 5 of Rs 21,06,384 Rejected, Rs Nil
6. Claim 6 of Rs 7,14,227 Rejected, Rs Nil
7. Claim 7 of Rs 1,43,250 Rejected, Rs Nil
8. Claim 8 of Rs 15,17,750 Rs 5,11,000.00 p.
9. Claim 9 of Rs 1,50,000 Rejected, Rs Nil
5. In the impugned judgment and order dated 25-2-2021 passed by
the learned Commercial Court, the learned Judge found no reason for
interference with the findings of the learned arbitrator for Claims 1 to 7
and 9 but set aside the Claim 8 relating to payments towards labour
force and establishment during the stoppage of work for which the
claimant had claimed a sum of Rs 15,17,750. Considering the fact that
the arbitrator had allowed this claim with reference to the prevailing
labour wages during stoppage of work and awarded Rs 5,11,000 even
after noting that the contractor had not submitted any document being
the labour licence from the Labour Department in terms of the contract
during the arbitral process, the learned Judge held that the actual loss
suffered by the contractor in this regard could not have been
ascertained in the absence of the requisite documents. The learned
Commercial Court held that in the present facts and circumstances
awarding this amount tantamounted to wandering outside the terms of
the contract and awarding such sum in convention thereof had shocked
the conscience of the court and hence, the award on such ground was
set aside.
6. With regard to Claim 1 regarding refund of security deposit, the
respondent contractor had contended in the statement of claim that
total Security Deposit of Rs 4,51,462 had been withheld by the
appellant. From the documents, the learned arbitrator found having
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regard to the measurement books and bill copy that a sum of Rs

3,03,112 was deducted from 1st RA Bill and a sum of Rs 1,20,503 was
deducted towards security deposit from 2nd RA Bill, thus totalling to a
sum of Rs 4,23,615 which was awarded towards security deposit under
Claim 1.
7. As for Claim 2 regarding outstanding dues against the value of
the work executed, the respondent contractor had claimed a sum of Rs
2,50,000. The learned arbitrator duly considered the measurements
books, store indent and bill copies to form the conclusion that the
claimant was entitled to a sum of Rs 1,88,665. Such conclusion did not
suffer from surmise and speculation in the view of the learned Judge,
Commercial Court in the instant case wherein the respondent contractor
was not held responsible for non-execution of the job in totality.
8. The learned Commercial Court found no reason for interference
with the said findings of the sole arbitrator with respect to the award
made on these two claims and such findings being well-reasoned and
not illegal, perverse or arbitrary we do not find any reason to intervene
on such grounds as well.
9. The primary issue raised in this instant appeal is whether the
claim for loss of profit at 15 per cent amounting to Rs 16,92,289 raised
in the statement of claim (Claim 3) could have been awarded by the
learned sole arbitrator in the absence of any proof either oral or
documentary.
10. Mr Arindam Mondal, the learned counsel on behalf of the
appellant has submitted that the statement of claim did not contain the
necessary pleadings for establishing loss of profit. Unless loss was
pleaded and established by proof, an award on loss of anticipated profit
could not have been passed. Such submissions have been buttressed
with the aid of Unibros v. All India Radio1; Bharat Coking Coal Ltd. v.
2 3
L.K. Ahuja ; Batliboi Environmental Engg. Ltd. v. HPCL and H.J. Baker
4
and Bros. Inc. v. MMTC Ltd. which have been discussed hereinbelow.
The learned counsel has stressed on the fact that even in the case of
anticipated loss, the same has to be established as the same is a sine
qua non for claiming loss of profit. In this regard, reliance was placed
5
on Kanchan Udyog Ltd. v. United Spirits Ltd. It was strenuously argued
that the claimant was not interested in proceeding with the work
beyond the stipulated period of the contract and had never sought for
even a single extension of time and had expressed willingness to leave
the work. Instead, the claimant had himself sought for Hon'ble
termination of the contract as would be apparent from the letters of the
contractor dated 30-5-2012, 11-6-2013, 26-7-2013 and 13-11-2013.
11. Per contra, Mr Soumik Ganguly, on behalf of the respondent
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contractor has submitted that there was a delay on the part of the
appellant in supplying the necessary drawings, issuing steel materials
of required quantities, giving the specific instructions for progress of
work in absence of structural drawings and the presence of an electric
post at the site of work which hampered the progress of work in
question. In this regard the learned counsel for the contractor placed
reliance on the observation of the learned Commercial Court to the
effect that the appellant in spite of having sufficient authority under the
contract had neither issued any instructions regarding the work nor
made any attempt to overcome the difficulties of construction and had
not even replied to the claimant's written information. They could have
avoided the unpleasant situation and the work could have been
completed. Furthermore, due to such substantial delay in progress of
work the price of the job work had escalated substantially for which the
present claimant-respondent had asked for Hon'ble termination of the
work order or in the alternative to allow the claimant to complete the
job work at the new price rate apropos the escalation of the work
schedule. In this regard our attention has been drawn to the letter
dated 30-5-2012 and 11-6-2013 whereby the contractor brought the
attention of the executive engineering to the fact that the price of
materials and wages of labourers had increased during the long delay of
work and considering the fact that tender was of the year 2008 it was
not possible for the claimant contractor to continue the work in the year
2013-2014 at the earlier rate of work for which they had already prayed
for Hon'ble termination of the tender and to be relieved of the contract.
12. Before the Arbitral Tribunal, the respondent contractor had
claimed an amount of Rs 16,92,489 towards profit at a rate of 15 per
cent over the unexecuted value of work. While adjudicating such claim
the arbitrator recorded that the contractor (claimant therein) had time
and again written letters to the appellant about difficulties in continuing
the work due to late availability of drawings, requirement of steel
materials, non-removal of the electric post, payment of bills but neither
had the Engineer-in-Charge responded to such letters nor was there
any vigilance of the work by the departmental officers. Long after the
expiry of the stipulated period of the contract, the Engineer-in-Charge
recorded the fact of suspension of work and requested the claimant to
complete the work within the extended date of validity of the tender.
13. The arbitrator noted that the contractor's duty to be discharged
was dependent upon the appellant's duty under the contract especially
when the contractor had informed him about the hindrances at the
worksite and hence, the appellant had failed in discharging the duties
conferred upon them under the contract for completion of a time-bound
government project. In this regard the learned arbitrator has observed:
“Due to failure from the part of the respondent, claimant was
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restrained for completing the entire work and as such the claimant
failed to earn his profit over the unexecuted value of the work. The
claimant as per his calculation recorded the value of the unexecuted
work is for a sum of Rs 1,12,83,262.14 p., whereas, according to the
respondents after considering the documents and also the financial
statement the value of the unexecuted work comes at Rs
1,14,58,486. But after considering all the documents disclosed by
respondents, according to my calculation while considering the value
of the outstanding dues, total value of the unexecuted value of the
work comes at for a sum of Rs 1,13,73,069. This amount includes
cost of construction, overhead and profit to the contractor. The
claimant has claimed profit as 15 per cent but there is no mention
about cost of establishment and in my considered view this should
be 5 per cent as such the claimant is entitled to 10 per cent profit
over the unexecuted value of the work which comes at Rs 9,66,711.
That apart, the decision cited by the learned advocate of the
claimant supports 10 per cent profit as also the paragraph placed
from the book of G.T. Gajria on Building and Engineering Contract in
India. As such the claimant is entitled to a sum of Rs 9,66,711 on
this account.”
14. There lies a fundamental difference between claims raised by
contractors against employers for loss of profit and loss of profitability.
While loss of profit indicates claims for loss of expected profit due to
unexecuted work resulting from an illegal or premature termination of
the contract, loss of profitability of loss of business signifies claims for
reduction in the estimated profit margin due to prolongation of the
contract or claims for loss of opportunity to take up other projects
during the extended period where the contractor could have earned a
profit. Loss of profit and loss of profitability are often mistakenly used
interchangeably which has been noted by the Delhi High Court in Ajay
6
Kalra v. DDA as follows: (SCC OnLine Del para 137)
“137. ‘Loss of Profits’ and ‘Loss of Profitability’ has often been
interchangeably used in recovery cases. The former stands for the
loss incurred due to the non-completion/prevention from completing
of the contract on account of breach committed by the respondent.
The latter refers to the loss incurred due to the delay in the project
attributable to the respondent, due to which the claimant has lost
the opportunity to earn profits through other projects after the
contractual period.”
15. It is now an established position of law that claims for loss of
profitability are not generally allowed in the absence of evidence to
prove such loss. The view of the courts on this issue is explicit through
judgments like Unibros case1; Bharat Coking Coal Ltd. case2 and
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3
Batliboi Environmental Engg. Ltd. case , as has also been relied upon
by the appellants in this matter. However, reliance on such cases is not
apposite in the present case since those conflate the concepts of loss of
profit and loss of business. It is pertinent to note here that even though
the Supreme Court used the expression “loss of profits” in essence the
claim was that of “loss of profitability” and thus, the requirement to
prove actual loss was mandated only for losses arising out of delay and
should not be misunderstood to be applicable to loss of profits for
unexecuted works.
16. In Unibros case1 the Supreme Court was faced with a similar
situation wherein the appellant's claim for loss of profit stemmed from
the delay attributable to the respondent in completing the project. It
had also been established that the loss of profit claimed was based on
the ground 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. The court
observed as under: (SCC OnLine SC para 15-20)
“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 Coking Coal Ltd. case2,
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: (SCC p. 118, para 24)
‘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 utilising its existing resources elsewhere.
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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 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,
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again, it is in conflict with the ‘public policy of India’ as

contemplated by Section 34(2)(b) of the Act.”
(emphasis supplied)
1
17. The Supreme Court in Unibros case placed reliance on Bharat
2
Coking Coal Ltd. case , wherein the court on similar lines had observed
that it was not uncommon for contractors to claim loss of profit as a
result of reduced turnover due to work completion delays. In such
cases, however, they should prove that if they had received the sum
due under the contract, they could have used it to fund another
business venture in which they could have profited. Unless such a plea
was raised and substantiated, the claim for loss of profits could not be
granted.
18. Furthermore, in Batliboi Environmental Engg. Ltd. case3 another
Division Bench of the Supreme Court observed in para 23 as follows:
(SCC p. 399, para 23)
“23. Ordinarily, when the completion of a contract is delayed and
the contractor claims that he/she 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, 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.”
(emphasis supplied)
19. However, if the contract is delayed due to breaches on the part
of the employer the contractor would be entitled to recover his profit on
the basis of reasonable expectation of profits which could be earned if
not for the illegal termination of the contract.
7
20. A.T. Brij Paul Singh v. State of Gujarat , which has also been
relied upon by the respondent contractor, concerned a works contract
wherein the contractor had claimed damages for loss of expected profit
on the remaining work on account of wrongful termination of the
contract by the Government. The Supreme Court observed that where
in a works contract the party entrusting the work committed a breach
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of the contract, the contractor would be entitled to claim damages for

loss of profit which he expected to earn by undertaking the works
contract. What would be the measure of profit and what proof should be
tendered to sustain the claim are different matters but the claim under
this head is certainly admissible. But that there shall be a reasonable
expectation of profit is implicit in a works contract and its loss has to be
compensated byway of damages if the other party to the contract is
guilty of breach of contract cannot be gainsaid. (Also see Satyendra
Nath Bose v. Bibhuti Bhusan Bhar8) It was observed in this regard that:
[A.T. Brij Paul Singh case, (SCC OnLine Cal paras 10 and 11)]
“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 byway 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….
11. 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 works contract, the contractor would be
entitled to damages byway 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 works contract,
the damages for loss of profit can be measured.”
This decision was also followed by the Supreme Court in Dwaraka
9
Das v. State of M.P.
21. To the same effect is the judgment in Mohd. Salamatullah v.
10
State of A.P. After approving the grant of damages in case of breach
of contract, the court further held, that the appellate 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.
22. A Division Bench of the Delhi High Court in Cobra Instalaciones Y
Servicios, S.A. & Shyam Indus Power Solution (P) Ltd. v. Haryana
11
Vidyut Prasaran Nigam Ltd. upheld the quantification of damages by
an arbitrator through “honest guesswork” or a “rough and ready
method” since it was difficult to quantify the precise amount of loss
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suffered by the party.

23. Subsequently, in MSK Projects India (JV) Ltd. v. State of
Rajasthan12, the Supreme Court clearly stated that a claim of expected
profits is legally admissible on proof of the breach of contract by the
erring party, as a reasonable expectation of profit is implicit in a works
contract and its loss has to be compensated byway of damages once
the breach on part of the other party is established and no other proof
of loss shall be required. It was observed therein as follows: (SCC pp.
586-587, paras 38 and 39)
“38. In common parlance, ‘reimbursement’ means and implies
restoration of an equivalent for something paid or expended.
Similarly, ‘compensation’ means anything given to make the
equivalent. (See State of Gujarat v. Shantilal Mangaldas13; Tisco Ltd.
14
v. Union of India ; Ghaziabad Development Authority v. Balbir
15
Singh and HUDA v. Raj Singh Rana16). However, in Dwaraka Das v.
9
State of M.P. it was held that a claim by a contractor for recovery of
amount as damages as expected profit out of contract cannot be
disallowed on ground that there was no proof that he suffered actual
loss to the extent of amount claimed on account of breach of
contract.
7
39. In A.T. Brij Paul Singh v. State of Gujarat , while interpreting
the provisions of Section 73 of the Contract Act, 1972, this Court
held that damages can be claimed by a contractor where the
Government is proved to have committed breach by improperly
rescinding the contract and for estimating the amount of damages,
the court should make 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 breach of
contract, the contractor is entitled to claim the damages for loss of
profit which he expected to earn by undertaking the works contract.
Claim of expected profits is legally admissible on proof of the breach
of contract by the erring party. It was further observed that: (SCC
pp. 64-65, para 10)
‘10. … What would be the measure of profit would depend upon
the 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 byway of damages if the other
party to the contract is guilty of breach of contract cannot be
gainsaid.’”
(emphasis supplied)
17
24. In Deo Kumar Saraf v. Union of India , this Court on the issue
of awarding loss of profits in a case of wrongful termination of the
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contract by the respondent had held as follows: (SCC OnLine Cal para
7)
“7. The ratio of the two decisions in Satyendra Nath Bose v.
Bibhuti Bhusan Bhar8 and A.T. Brij Paul Singh v. State of Gujarat7 is
that once the court has held that there is a breach of works contract
the contractor would be entitled to damages byway of loss of profit
and the measure of damages if proved, the damage would be
awarded on that basis. But if the damage is not satisfactorily proved,
still the contractor would be accorded the benefit of every reasonable
presumption as to loss of damages. The court's jurisdiction to award
damages cannot be confined to the evidence on records only. The
court is entitled to allow damages on any other reasonable basis,
even on the basis of mere guess work. In the present case, the
petitioner had claimed 11 per cent profit. The arbitrator, if he has not
satisfied as to the rate claimed, certainly had the jurisdiction to
reduce the rate on the basis of pure guess work or on the basis of
average rate of profit allowed to the contractor by the respondent in
respect of works contracts. As the arbitrator was satisfied regarding
the wrongful termination of the contract by the respondent, it was
his duty to find out the average rate of profit allowed by the
respondent in respect of works contracts to accord all reasonable
benefit to the petitioner for loss of profit for compensating the
contractor for glaring breach of contract committed by the
respondent in the present case. In view of the law as laid down by
the aforesaid two cases, the finding of the arbitrator that in spite of
termination of contract being wrongful, the damage could not be
awarded due to unsatisfactory evidence on record, is a clear error of
law apparent on the face of the record, as the arbitrator was bound
to compensate the loss of profit even on the basis of his pure guess
work. The arbitrator also legally misconducted himself and the
proceeding by his failure to exercise his jurisdiction to award
damages on the facts of this case resulting in miscarriage of justice.”
(emphasis supplied)
25. It is a general principle of law of contract that in case of breach
of contract, the injured must be put back in the same position that he
would have been if he had not sustained the wrong. Once the
contractor has established an illegal and unjustified termination of
contract and a breach thereof on the part of the employer, which was
also a finding of fact by the sole arbitrator in the present case, the
contractor cannot be further obligated to establish a loss suffered on
account of such breach, because a reasonable expectation of profit is
implicit in a works contract. [See MSK Projects India (JV) Ltd. case12].
Therefore, any loss occasioned due to illegal termination of works
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contract, has to be compensated byway of damages once the breach on

part of the erring party is established. This is obviously subject to the
caveat that the compensation must be reasonable and the parties
should not be allowed to make a windfall profit, by a mere allegation of
breach of contract. However, it is a settled position of law that for
estimating damages, courts are not required to go into the minute
details; a broad evaluation of the same would suffice.
26. In J.G. Engg. (P) Ltd. v. Union of India18 the Supreme Court
upheld the award of loss of profits measured at 10 per cent of the value
of the remaining part of the contract which could not be performed due
to illegal termination of the contract. The measure of profit was
assessed at 15 per cent of the value of the remaining part of the work
7
in A.T. Brij Paul Singh case . The Delhi High Court in R.K. Aneja v.
DDA19 was of the view that the petitioner was entitled to 10 per cent
loss of profit on the balance amount of work left undone without proof
of loss of profit which he expected to earn by executing the balance
work.
27. In the statement of claim, it has been stated that the
respondent contractor had submitted the tender after considering the
profit as 15 per cent over the entire value of the work and considering
the period of the work as 18 months. Owing to failure and negligence
on the part of the appellants herein in discharging their contractual
obligation and further by illegal termination of the contract when time
was no longer as of essence the appellants had restrained the
contractor from executing the work valued at Rs 1,12,83,262.14 and
thus, the claimant had suffered loss to the tune of Rs 16,92,489 being
the 15 per cent profit over the unexecuted value of the work.
28. In the facts of the present case, the arbitrator has given his
reasons for not accepting the said rate of 15 per cent as claimed by the
respondent contractor and instead have awarded loss of profit at the
rate of 10 per cent amounting to Rs 9,66,711 based on the decisions
cited by the claimant as well as the books of G.T. Gajaria. This seems to
be a rational, plausible and possible approach that has been adopted by
the learned arbitrator. The award is also in sync with the authorities
and judicial pronouncements on similar issues.
29. In an application for setting aside of the award under Section 34
of the Arbitration and Conciliation Act, 1996 it is now well settled by
catena of decisions that the court does not act and function as a court
of appeal over the arbitral award and may interfere on merits limited to
the grounds mentioned in Section 34(2) of the said Act. It is relevant
to note that byway of amendment in 2016 sub-section (2-A) has been
inserted in Section 34 which provided that in case of domestic
arbitration violation of public policy of India would also include patent
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illegal ex facie must appear on the face of the award. However, the
ground of patent illegality would not be available in the event an
application for setting aside of the award is filed prior to amendment in
2005 i.e. 23-10-2015 (See Ssangyong Engg. & Construction Co. Ltd. v.
20
NHAI ). The application for setting aside of the award was filed on 1-
11-2017. Byway of clarification in the amendment it was made clear
that the award shall not be set aside merely on the ground of an
erroneous application of law or by reappreciation of evidence which is
merely a reiteration of the earlier views expressed by the Supreme
Court that in deciding the application for setting aside the award the
court is not exercising its jurisdiction as an appellate authority and the
powers of the appellate court would not be available to a court deciding
such an application. The scope of jurisdiction under Sections 34 and 37
of the Act is not akin to normal appellate jurisdiction. The powers of the
court are circumscribed by the limited grounds as mentioned in Section
34. The reason being that the arbitration proceedings are not
considered and comparable to judicial proceedings before the court and
a party can opt for an arbitration before any person who is not required
to have a degree in law or any prior legal experience. Once the parties
have consented to an appointment of an arbitrator it should be
presumed that they have bestowed their faith and trust on the
arbitrator and wanted a decision in an informal manner. This was
recognised in Dyna Technologies (P) Ltd. v. Crompton Greaves Ltd.21 in
which it is observed in para 29:
“29. There is no gainsaying that arbitration proceedings are not
per se comparable to judicial proceedings before the court. A party
under the Indian arbitration law can opt for an arbitration before any
person, even those who do not have prior legal experience as well. In
this regard, we need to understand that the intention of the
legislature to provide for a default rule, should be given rational
meaning in light of commercial wisdom inherent in the choice of
22
arbitration” and reiterated in K. Sugumar v. HPCL at 540 in the
following words: (SCC p. 540, para 2)
“2. …When parties have chosen to avail an alternate
mechanism for dispute resolution, they must be left to reconcile
themselves to the wisdom of the decision of the arbitrator and the
role of the court should be restricted to the bare minimum….”
30. In Vidya Drolia v. Durga Trading Corpn.23 it is stated: (SCC p.
48, para 18)
“18. Arbitration is a private dispute resolution mechanism
whereby two or more parties agree to resolve their current or future
disputes by an Arbitral Tribunal, as an alternative to adjudication by
the court or a public forum established by law. Parties by mutual
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agreement forgo their right in law to have their disputes adjudicated

in the courts/public forum. Arbitration agreement gives contractual
authority to the Arbitral Tribunal to adjudicate the disputes and bind
the parties.”
(emphasis supplied)
31. In Konkan Railway Corpn. Ltd. v. Chenab Bridge Project
24
Undertaking a three-Judge Bench in para 18 stated thus: (SCC p. 93,
para 18)
“18. … Scope of interference by a court in an appeal under Section
37 of the Act in examining an order, setting aside or refusing to set
aside an award, is restricted and subject to the same grounds as the
challenge under Section 34 of the Act.”
(emphasis supplied)
32. The aforesaid view has been reiterated in para 26 in Bombay
Slum Redevelopment Corpn. (P) Ltd. v. Samir Narain Bhojwani25. It
was held thus: (SCC p. 234, para 26)
“26. The jurisdiction of the appellate court dealing with an appeal
under Section 37 against the judgment in a petition under Section
34 is more constrained than the jurisdiction of the court dealing with
a petition under Section 34. It is the duty of the appellate court to
consider whether Section 34 court has remained confined to the
grounds of challenge that are available in a petition under Section
34. The ultimate function of the appellate court under Section 37 is
to decide whether the jurisdiction under Section 34 has been
exercised rightly or wrongly. While doing so, the appellate court can
exercise the same power and jurisdiction that Section 34 court
possesses with the same constraints.”
(emphasis supplied)
33. The award can be interfered only on the limited grounds as
envisaged under the Act. Moreover, when the view taken by the
arbitrator is a possible view the court in deciding an application for
setting aside the award shall not interfere with such a view or
substitute such view with its own view. Once the interpretation given
by the arbitrators are backed by logic and are reasonable the same is
required to be upheld as held in:
26
(i) MMTC Ltd. v. Vedanta Ltd. para 14
27
(ii) UHL Power Co. Ltd. v. State of H.P. paras 18 and 22.
34. The jurisdiction of the court under Section 37 of the Act, as
26
clarified in MMTC Ltd. case and reiterated in Konkan Railway Corpn.
24
Ltd. case is akin to the jurisdiction of the court under Section 34 of
the Act. The scope of interference by a court in an appeal under Section
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37 of the Act, in examining an order setting aside or refusing to set

aside an award, is restricted and subject to the same grounds as the
challenge under Section 34 of the Act. The jurisdiction under Section 34
of the Act is exercised only to see if the Arbitral Tribunal's view is
perverse or manifestly arbitrary. (See Konkan Railway Corpn. Ltd.
24
case ).
28
35. In Somdatt Builders -NCC - NEC(JV) v. NHAI the Supreme
Court in referring to Larsen Air Conditioning and Refrigeration Co. v.
Union of India29 and Reliance Infrastructure Ltd. v. State of Goa30 has
observed that: (SCC OnLine SC para 42)
“It is necessary to remind the courts that a great deal of restraint
is required to be shown while examining the validity of an arbitral
award when such an award has been upheld, wholly or substantially,
under Section 34 of the 1996 Act. Section 37 of the 1996 Act grants
narrower scope to the appellate court to review the findings in an
arbitral award if it has been upheld or substantially upheld under
Section 34. Frequent interference with arbitral awards would defeat
the very purpose of the 1996 Act.”
(emphasis supplied)
36. The aforesaid view has been reiterated in a fairly recent decision
31
in C & C Constructions Ltd. v. IRCON International Ltd. in which it has
been stated that “in appeal, Section 37 of the Act grants narrower
scope to the appellate court to review the findings in an award, if it has
been upheld, or substantially upheld under Section 34”. (emphasis
supplied) The views expressed by the Arbitral Tribunal have been
accepted by Commercial Court at Asansol and therefore the court under
Section 37 would be extremely chary and circumspect in scrutinising
the award.
37. Though the underlying philosophy in arbitration law in this
country has undergone a sea-change from what it was under the
Arbitration Act, 1940 to what it is now under the 1996 Act and several
Supreme Court judgments caution against interpreting the provisions of
the 1996 Act by referring to the 1940 Act, the fundamental basis in
dealing with a challenge to an arbitral award remains unaltered. In the
most traditional approach, the court would not step in to correct every
perceived wrong complained of by a challenger simply on the ground
that since the challenger was a party to an agreement that took the
assessment away from the sovereign forum to a private forum, the
challenger had to live with the decision of the forum of its choice. The
same proposition, put in a different form, is simply this : when there is
a proper submission, whether of fact or of law, to arbitration, it is not
for the court to sit as an ordinary court of appeal over an arbitral award
because the arbitrator has taken a view of law or of fact which a court
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of law may not have taken if such court were trying the dispute. The
everlasting principle, unaffected by the paradigm shift in the arbitration
law in this country, is that except to the extent expressly or by
necessary implication permitted by the governing statute, the court will
not revise, remit or set aside an arbitral award. [See State of W.B. v.
Pam Developments (P) Ltd.32].
38. In light of the distinction between loss of profits and loss of
profitability/loss of business as elucidated hereinbefore and the fact
that in cases of damages claimed by a contractor where the
Government is proved to have committed breach by improperly
rescinding the contract and for estimating the amount of damages, the
court should make a broad evaluation instead of going into minute
details, the respondent contractor in the present case should be
entitled to loss of profit at the rate of 10 per cent as awarded by the
learned sole arbitrator.
39. Hence, the appeal fails and the judgment dated 25-2-2021
passed by the learned Commercial Court at Asansol is upheld.
40. There shall be no order as to costs.
BISWAROOP CHOWDHURY, J.— I agree
———
1
Unibros v. All India Radio, 2023 SCC OnLine SC 1366

2
Bharat Coking Coal Ltd. v. L.K. Ahuja, (2004) 5 SCC 109

3
Batliboi Environmental Engg. Ltd. v. HPCL, (2024) 2 SCC 375 : (2024) 1 SCC (Civ) 182

4
H.J. Baker and Bros. Inc. v. MMTC Ltd., (2023) 4 SCC (Civ) 360 : (2023) 9 SCC 424

5
Kanchan Udyog Ltd. v. United Spirits Ltd., (2017) 8 SCC 237 : (2017) 4 SCC (Civ) 1

6
Ajay Kalra v. DDA, 2023 SCC OnLine Del 8718

7
A.T. Brij Paul Singh v. State of Gujarat, (1984) 4 SCC 59 : AIR 1984 SC 1703

8
Satyendra Nath Bose v. Bibhuti Bhusan Bhar, 1962 SCC OnLine Cal 42 : AIR 1963 Cal 104

9
Dwaraka Das v. State of M.P., (1999) 3 SCC 500 : AIR 1999 SC 1031

10
Mohd. Salamatullah v. State of A.P., (1977) 3 SCC 590 : AIR 1977 SC 1481

11
Cobra Instalaciones Y Servicios, S.A. & Shyam Indus Power Solution (P) Ltd. v. Haryana
Vidyut Prasaran Nigam Ltd., 2024 SCC OnLine Del 2755

12
MSK Projects India (JV) Ltd. v. State of Rajasthan, (2011) 10 SCC 573 : (2012) 3 SCC
(Civ) 818
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13
State of Gujarat v. Shantilal Mangaldas, (1969) 1 SCC 509 : AIR 1969 SC 634

14
Tisco Ltd. v. Union of India, (2001) 2 SCC 41 : AIR 2000 SC 3706

15
Ghaziabad Development Authority v. Balbir Singh, (2004) 5 SCC 65 : (2004) 121 Comp Cas
409 : AIR 2004 SC 2141

16
HUDA v. Raj Singh Rana, (2009) 17 SCC 199 : (2011) 2 SCC (Civ) 136 : AIR 2008 SC 3035

17
Deo Kumar Saraf v. Union of India, (1989) 176 ITR 299 : 1988 SCC OnLine Cal 234 :
(1988) 2 Cal LJ 325

18
J.G. Engg. (P) Ltd. v. Union of India, (2011) 5 SCC 758 : (2011) 3 SCC (Civ) 128

19
R.K. Aneja v. DDA, 1998 SCC OnLine Del 501 : (1998) 2 Arb LR 341

20
Ssangyong Engg. & Construction Co. Ltd. v. NHAI, (2019) 15 SCC 131 : (2020) 2 SCC
(Civ) 213

21
Dyna Technologies (P) Ltd. v. Crompton Greaves Ltd., (2019) 20 SCC 1

22
K. Sugumar v. HPCL, (2020) 12 SCC 539

23
Vidya Drolia v. Durga Trading Corpn., (2021) 2 SCC 1 : (2021) 1 SCC (Civ) 549

24
Konkan Railway Corpn. Ltd. v. Chenab Bridge Project Undertaking, (2023) 9 SCC 85 :
(2023) 4 SCC (Civ) 458

25
Bombay Slum Redevelopment Corpn. (P) Ltd. v. Samir Narain Bhojwani, (2024) 7 SCC 218

26
MMTC Ltd. v. Vedanta Ltd., (2019) 4 SCC 163 : (2019) 2 SCC (Civ) 293

27
UHL Power Co. Ltd. v. State of H.P., (2022) 4 SCC 116 : (2022) 2 SCC (Civ) 401

28
Somdatt Builders -NCC - NEC(JV) v. NHAI, 2025 SCC OnLine Sc 170

29
Larsen Air Conditioning and Refrigeration Co. v. Union of India, (2023) 15 SCC 472

30
Reliance Infrastructure Ltd. v. State of Goa, (2024) 1 SCC 479 : (2024) 1 SCC (Civ) 412

31
C & C Constructions Ltd. v. IRCON International Ltd., (2025) 4 SCC 234

32
State of W.B. v. Pam Developments (P) Ltd., 2017 SCC OnLine Cal 13272

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