Mukundakam Sharma, J.
1. By this judgment and order I propose to dispose of the petition filed by the petitioner under Section 34 of the Arbitration and Conciliation Act, 1996.
2. The respondent No. 1 was awarded a work contract for construction of Delhi Doordarshan Bhawan, Mandi House, Phase-II, by the petitioner. While executing the aforesaid contract allotted by the petitioner to the respondent some disputes arose between the parties, which were referred to the sole arbitration of Sh. K.D. Bali pursuant to the arbitration Clause 25 incorporated in the agreement, the relevant portion of which reads as follows:-
"Except where otherwise provided in the contract all questions and disputes relating to the meaning of the specifications, designs, drawings and instructions hereinbefore mentioned and as to the quality of workmanship of materials used on the work or as to any other question claim, right matter or thing whatsoever in any way arising out of or relating to the contact, designs, drawings, specifications, estimates, instructions orders or these conditions or otherwise concerning the works or the execution or failure to execute the same whether arising during the abandonment thereof shall be referred to the sole arbitration of the person appointed by the Chief Engineer".
3. The arbitrator entered into the reference, received evidence adduced by the parties and thereafter made and published his award on 11.2.99. The aforesaid arbitration proceedings were conducted under the provisions of the Arbitration and Conciliation Act, 1996. Being aggrieved by the aforesaid award passed by the Arbitrator, the petitioner filed a petition under Section 34 of the Arbitration and Conciliation Act, 1996 in this court, which was placed before me for my consideration.
4. I have heard Mr. Y.K. Jain, Senior Advocate appearing for the petitioner and also Mr. Rajesh Lakhanpal, counsel appearing for the respondent, on the aforesaid petition.
5. Mr. Jain, appearing for the petitioner submitted that the award passed by the arbitrator is not in accordance with the substantive law in force in the country. In support of his contention he referred to the provisions of Section 34(2)(iv) and Section 28 of the Arbitration and Conciliation Act, 1996. During the course of his submissions, the submitted that although objections have been submitted by the petitioner in respect of all the claims that have been allowed by the arbitrator in favor of the respondent but he would confine his main thrust as against the award passed by the arbitrator in respect of claim No. 12. The said award passed by the arbitrator as against claim No. 12 was challenged on the ground that the said award was passed by the arbitrator against the public policy of India and also because the same is not in consonance with the substantive law in force in the country. It was submitted by him that a bare perusal of the award, particularly the discussion made in claim No. 12 and allowing such claim by the arbitrator would indicate that the same is not only contrary to law but also in conflict with the discussion of the arbitrator himself recorded earlier in respect of Claim Nos. 10 & 11. It was further submitted by him that the agreement between the parties does not lay down any formal or particular amount that could be claimed by a contractor in case of delay in completing the contractual work even though delay may have been caused on the part of the petitioner and in absence of such a stipulation in the agreement, the provisions of the Contract Act alone would be applicable in accordance with law. It was also submitted by him that under the provisions of Section 73 of the Contract Act, the Contractor could have claimed actual damages alone on account of the delay in completion of the contractual work that too on production of sufficient evidence and, therefore, the arbitrator having held that there was no evidence to allow any specific amount under claim Nos. 10 & 11 which were claims based on Section 73 of the Contract Act could not have determined the alleged loss of profit without any agreement and also in absence of any evidence in that regard.
6. Counsel appearing for the respondent, however, refuted the aforesaid contentions and submitted that none of the aforesaid grounds satisfies the requirement of Section 34 of the Arbitration and Conciliation Act, 1996. It was submitted by him that the grounds taken by the petitioner while challenging the award are prima facie vague and incorrect and they do not fall under the scope of section 34 of the Arbitration and Conciliation Act, 1996. In support of his contention counsel relied upon the decision of the Supreme Court in OLYMPUS SUPERSTRUCTURES PVT.LTD. v. MLEENA VIJAY KHETAN AND ORS. .
He submitted that the award passed by the arbitrator as against Claim No. 12 also cannot be said to be beyond the scope of the arbitration clause nor the said award could be in any manner said to be in conflict with the public policy of India.
7. In support of the contention that the award passed by the arbitrator towards loss of profit is justified, counsel relied upon the extracts from the book on Law on Building and Engineering Contracts, which also incorporates the Hudson's Formula. He submitted that as per the norms, the profit element in the trade is 10% and in accordance with the formula referred to as Hudson's Formula, the claim of the respondent for loss of profit would come to more than an amount of Rs.1,44,83,830/-, which was awarded by the Arbitrator and, therefore, the said award cannot be said to be either against the public policy of India or as against the Substantive law in force in the country.
8. In the light of the aforesaid rival submissions of the counsel appearing for the parties, I may proceed to decide the merit of the present petition.
9. The main thrust of the arguments of the learned counsel for the petitioner was in respect of Claim No. 12, although he faintly submitted that the award passed by the arbitrator in respect of other claims in favor of the respondent is also erroneous. Under the Arbitration Act, 1940, objections as against an award could be filed under Section 30 and 33 of the Arbitration Act of 1940. After the Arbitration and Conciliation Act, 1996 was enacted some changes have been brought in with respect to the concept of filing an objection as against an award. Under the Act of 1996 an award passed by the arbitrator can be set aside on the specified grounds as set out under Section 34 of the Act. Therefore, under the Act of 1996 an award can be set aside only if any of the clauses mentioned under Section 34(2) of the Act is attracted. A comparative reading of the provisions of Sections 30 and 33 of the Arbitration Act, 1940 and Section 34 of the Arbitration and Conciliation Act, 1996 would make it crystal clear that the scope and extent of filing the objection for setting aside the award made under the Arbitration Act, 1940 was much more than the one filed thorough a petition under Section 34 of the Arbitration and Conciliation Act, 1996. The said position is reiterated by the Supreme Court in its decision in Olympus Superstructures Pvt. Ltd. (supra). IN para 17 of the said judgment, the Supreme Court has categorically observed that under the 1996 Act the scope of the provisions for setting aside the award is far less than the same under Section 30 or Section 33 of the Arbitration Act of 1940.
10. It is the stand of the counsel appearing for the petitioner that even if all the objections raised in the objection filed under Section 34 of the Arbitration and Conciliation Act, 1996 cannot be enquired into and investigated upon under the aforesaid provisions yet at least to the extent of the award passed regarding Claim No. 12 could be interfered with by this court exercising its power under Section 34 of the Act of 1996.
11. The main thrust of the counsel appearing for the petitioner being as against Claim No. 12, it would be appropriate to examine the said award passed by the Arbitrator giving indepth attention to the same. A bare perusal of the discussion of the arbitrator in the award passed by him would show that except for the award passed in respect of Claim No. 12 and in respect of Claim No. 13, under which the arbitrator awarded interest at the rate of 18% p.a., rest of the award do no come within the ambit of Section 34 of the Arbitration and Conciliation Act, 1996 and, therefore, I am not inclined to interfere with the aforesaid award passed by the Arbitrator and the objection filed by the petitioner in respect of the said claim stands rejected. Having held thus, I may now proceed to examine and discuss the award passed by the arbitrator in respect of Claim No. 12 in the light of the submission of the counsel for the parties as the same requires an indepth consideration.
12. CLAIM NO. 12 pertains to a claim by the petitioner for loss of profit, which was estimated by it at Rs. Two crores. The stipulated contract period was from 12.4.90 to 11.4.91. The stipulated date for starting the work as per the agreement was 12.4.90 whereas the date of completion as per the agreement was 11.4.91. However, the actual date of completion came to be 30.10.94 and, therefore, t he delay caused in executing the work was three and a half years. Consequently, against the stipulated contract period of 12 months, the respondent continued to execute the work for additional period of three and a half years. The arbitrator while considering the aforesaid claim considered the said claim along with claim of the respondent against Claim Nos. 10 and
11. Claim NO. 10 was a claim for an amount of Rs. 50,00,000/- on account of increase in the price/rates for the work executed after stipulated contract period, whereas Claim No. 11 was a claim for an amount of Rs. 41,00,000/- on account of establishment, machinery, centring/shuttering etc. The arbitrator while discussing the aforesaid three claims found that the full site was not handed over by the petitioner to the respondent so that the work could be completed within the stipulated contract period and that even around August, 1994 the demolition of a building occupied by the bank as well as barracks was yet to be carried out. After considering the facts on record the arbitrator found that the complete site and drawings had not been made available by the petitioner to the respondent within the stipulated contract period. He also found that hindrance free site was also not made available for about 18 months and, that t he progress of the work also suffered on account of non-availablitlity of funds with the respondent. Upon considering the evidence on record, the arbitrator found that it is established from the records that the reasons of delay rest on the petitioner and that the respondent cannot be blamed for the same. In the light of the aforesaid background fact, the arbitrator considered the feasibility of Claim Nos. 10 and 11.
13. So far Claim No. 10 is concerned, it was observed by the arbitrator that merely the fact that the petitioner on consideration of reasons of delay had granted extension of time up to 30.1.94, would not itself debar the respondent for compensation admissible under Section 73 of the Contract Act. However, on persual and consideration of the documents on record, the arbitrator found that the respondent has not substantiated their claim of 50% increase by furnishing adequate proof for the same and, therefore, he held that no specific amount could be awarded in favor of the respondent under the aforesaid claim in absence of adequate proof thereof.;
14. So far Claim No.11 is concerned, the arbitrator also held that the aforesaid claim is also based on Section 73 of the Contract Act and that during the prolonged period of execution of work, the respondent must have been subject to expense towards establishment, machinery etc., which was definitely over and above t heir liability which was meant for the stipulated contract period. It was further held by the arbitrator that the respondent has again not placed on record conclusive documentary evidence to prove the quantum of staff, machinery and expenses incurred in relation thereto and, therefore, no award in favor of the respondent as against the aforesaid claim was passed by the arbitrator.
15. Having disallowed the claims in respect of both the aforesaid claims, the arbitrator proceeded to discuss Claim No. 12. While considering the said claim, the arbitrator held that the respondent had to incur extra expenditure due to increase in the price/rates for the work executed after the stipulated contract period (Claim No. 10) and on account of establishment, machinery, centring/shuttering (Claim No. 11), and also on the other hand they were subjected to loss of profit earning in capacity during the said extended period. Having held thus, the arbitrator proceeded as assess the said loss of profit calculated on the basis of 7.5% profit allowance per year, which worked out to Rs. 1, 44, 83,830/-, which was allowed by the arbitrator holding that the loss of profit is further substantiated by non-making of award in quantitative terms for the due amounts against Claims Nos. 10 and 11 for increase in cost of construction and on account of establishment, machinery, centring and shuttering etc.
16. This part of the award was vehemently challenged before me by the counsel appearing for the petitioner on the ground that no such award could have been made by the arbitrator in absence of substantial evidence on record. Challenge was also made in respect of the award passed by the arbitrator as against Claim No.13, so far the said award relates to grant of interest at the rate of 18% p.a., for the amount awarded in respect of Claim No. 12.
17. Claim Nos. 10 and 11 are based on the provisions of Section 73 of the Contract Act. the aforesaid claims were not entertained by the arbitrator on the ground that there was not sufficient and credible evidence on record to prove the quantum of damages claimed as against the aforesaid claims. The arbitrator, however, allowed claim No. 12 relying on a formula called the "Hudson's Formula". The total value of the contract was Rs. 5, 45, 27, 386/- and the stipulated date of start of the contract was 12.4.90 with the stipulated date of completion as 11.4.91. However, the date of completion of the work had to be extended and the actual completion of the work has been recorded as 30.10.94. It is also the conclusion of the arbitrator that the reasons for delay in execution of work solely rest on the petitioner and, therefore, he proceeded to award damages on account of loss of profit following the Hudson's Formula.
18. Although Hudson's Formula is followed for assessing the damages towards loss of profit but the same could be made applicable only on fulfillment of certain conditions. The aforesaid formula assumes that the profit adjudged for the contractor in his price was inf act capable of being earned by him elsewhere had the contractor been free to leave the contract at the proper time. The same itself involves tow further assumptions, namely, that on average the contractor did not habitually underestimate his costs when pricing, so that the profit percentage was a realistic one at that time and secondly that there was thereafter no change in the market, so that the work of at least the same general level of profitability would have been available to him at the end of the contract period.
19. In the book, Building and Engineering Contracts by Sh. P.C. Markanda and also in the book of Building and Engineering which is relied upon by the respondent, it is stated that satisfactory evidence on the aforesaid matters would be necessary and only on the basis of the same Hudson's Formula shall be applicable. It is also stated therein that the case of Sunley v. Cunard White Star (1940) and a number of cases involving the wrongful detention of ships and consequential loss of charter-party profits, indicate that in the absence of such evidence a contractor who has been delayed will only be entitled to interest on capital employed, and not to loss of profit.
20. In the present case, the only evidence that was led was the evidence of Hudson's Formula which was applied to the delay caused in completion of the work and thereafter the arbitrator arrived at the assumption of loss of profit of Rs. 1, 44,83,830/- as against the value of the contract of Rs. 5,45,27,383/-. No independent evidence was led by the respondent to prove that the respondent was capable of earning such price elsewhere or that such contract was available but the respondent could not take up such project due to prolongation of the contract. No credible evidence is on record on the basis of which such assessment could be made. The issue, therefore, is whether or not such award passed could be set aside exercising the power under Section 34 of the Act.
21. Learned counsel appearing for the petitioner, submitted that when an award is not in accordance with the substantive law in force in the country, the same would also come within the wide expression "against the public policy of India. Clause 2 (b)(ii) of Section 34 of the Arbitration and Conciliation Act, 1996 provides that the arbitral award, if it is found to be in conflict with the public policy of India, may be set aside by the court. The expression "public policy of India" is also defined in the explanation provided to the above clause. It throws some light as to what is the meaning of the expression "public policy of India". In the explanation it is provided that an award would be treated to be in conflict with the public policy of India if the making of the award was induced or affected by fraud or corruption or was in violation of Section 75 or Section 81.
22. My attention was drawn to the decision of this court in C.V. Jani and Company v. Hindustan Fertilizer Corporation; reported in 2001 (1) AD Delhi 143. In Renusgar Power Co. Ltd. v. General Electric Co.; , the Supreme Court has held that the
enforcement of a foreign award would be refused on the ground that it is contrary to public policy if such enforcement would be contrary to (i) fundamental policy of Indian law (ii) the interests of India and (iii) justice or morality. Although, the aforesaid decision was rendered in the context of a foreign award, but, the said decision does throw some light as to what is envisaged under the aforesaid expression. Said concepts would constitute public policy of India. Therefore, if the award is found to be contrary to any of the aforesaid principles, namely, fundamental policy of Indian law or Indian interest or justice or morality, the same could be held to be contrary to public policy of India.
23. The Contract Act provides that if a contract is arrived at through fraud, the said contract is voidable at the option of t he party whose consent was so obtained under the Indian Law. Similarly, if the award is obtained through the means of corruption, the same is also against the fundamental policy of Indian law and also against justice or morality.
24. In the light of the aforesaid factual and legal proposition, I may now proceed to consider whether the award passed by the arbitrator as against Claim No. 12 cold be set aside under the provisions of Section 34 of the Arbitration and Conciliation Act, 1996. The arbitrator disallowed the claim Nos. 10 and 11 of the respondent on t he ground that there is no sufficient evidence placed by the respondent on record in support of the aforesaid claims. Even so far claim No.12 is concerned, the same is the case. Except for placing on record the Hudson's Formula and a passage from the book 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 time and consequently t here 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 and 11 were rejected on the ground that no sufficient evidence had been placed on record by the respondent indicating increase in the price/rates for the work executed after the stipulated contract-act-period and also on account of establishment, machinery, centring/shuttering etc., Claim No. 12 allowed by the arbitrator without even considering whether the respondent has placed credible and reliable evidence as required to be proved. There is no discussion of any such evidence in the award except for reference to Hudson's Formula. Even in respect of acceptability of Hudson's Formula the very book on which reliance is placed by the respondent provides that such Formula could be applied only when there i sufficient evidence on record of the nature required to justify applicability of the Formula.
25. Besides, although at one stage, the learned arbitrator rejected the Claims No. 10 and 11 for want of sufficient materials and evidence, but while dealing with and allowing Claim No. No.12, he has taken notice of such damages suffered by the respondent on account of increase in the price/rates for the work executed after the stipulated contract period and on account of establishment, machinery, centring/shuttering etc. Such consideration by the arbitrator is definitely against the public policy of India, for no such consideration and factors could influence the mind of the arbitrator, which wee rejected by him while dealing with the claims specifically. Not only there was lack of credible and required evidence place 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, but the arbitrator also took into consideration such factors which could not and should not have influenced his mind. Therefore, the award was passed by the arbitrator against the fundamental policy of Indian law attracting the provisions of Section 342(b)(ii) of the Act. Accordingly, 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 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. The petition under Section 34 of the Act is allowed only to the aforesaid extent. The parties shall bear their own costs.