Case Note & Summary
The Municipal Corporation of Greater Bombay (MCGM) challenged an arbitral award under Section 34 of the Arbitration and Conciliation Act, 1996. The dispute arose from a construction contract for grade separators at Gadkari Chowk, Mumbai, entered into on 2 December 2004. The MCGM suspended work on 26 February 2005, never revoked the suspension, and later deemed the contract terminated. The contractor, Nagarjuna Construction Company Limited, raised claims which were referred to arbitration. The arbitral tribunal partly allowed three claims: reimbursement of expenses for performance guarantee (Rs.1,35,880), infructuous expenses for casting yard and moulds (Rs.1,36,421), and loss of overheads and profits (Rs.1,17,53,180). The MCGM challenged the award, arguing that the loss of profits claim was not supported by evidence and was contrary to the contract. The court upheld the first two claims as genuine and not against public policy. However, it set aside the award for loss of profits, holding that the contractor failed to prove that it would have earned profits but for the termination. The court noted that the contractor had not commenced substantial work and that the contract did not provide for loss of profits in case of termination. The court also found that the arbitral tribunal had not applied the correct legal principles regarding burden of proof. The petition was partly allowed, with the award for loss of profits set aside and the rest upheld.
Headnote
A) Arbitration - Section 34 Challenge - Public Policy - Reimbursement of Expenses - The arbitral tribunal awarded Rs.1,35,880 for expenditure actually incurred for performance guarantee and Rs.1,36,421 for payment to a consultant firm. The court held that these claims were genuine and not open to challenge under Section 34 of the Arbitration and Conciliation Act, 1996, as they did not contravene public policy. (Paras 2-3) B) Arbitration - Loss of Profits - Burden of Proof - The arbitral tribunal awarded Rs.1,17,53,180 for loss of overheads and profits. The court set aside this award, holding that the contractor failed to prove that it would have earned profits but for the termination, and that the award was based on no evidence and was contrary to the terms of the contract. (Paras 4-6)
Issue of Consideration
Whether the arbitral award granting loss of overheads and profits to the contractor is contrary to the terms of the contract and the evidence on record, and whether it is liable to be set aside under Section 34 of the Arbitration and Conciliation Act, 1996.
Final Decision
The court partly allowed the petition. The award for Claim No.8 (loss of overheads and profits) was set aside. The awards for Claim No.1 and Claim No.5 were upheld.
Law Points
- Arbitration
- Section 34 of Arbitration and Conciliation Act
- 1996
- Public Policy
- Loss of Profits
- Burden of Proof
- Reimbursement of Expenses
- Infructuous Expenses
