V.Narayana Raju Vs the Department of Telecommunications

Appeal under Section 37 of Arbitration Act, against^{theorderdated} 01.12.2005 passed in O.P.No.200 of 1995, on the file of the Court of Principal Senior Civil Judge, Vijayawada, Krishna District.

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This appeal coming on for hearing and upon perusing the grounds of appeal, the Judgment and Decree ofifhe Lower Court and the material papers in the Petition and upon hearing thl arguments of Sri V S R Anjaneyulu, Advocate for the Appellant, and of Sri K L N Swamy,^Advocate for the Respondent.

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This Court doth Order and decree as follows:

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That the appeal be and is hereby allowed;

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That the order of the Principal Senior Civil Judge, Vijayawada, dated 01.12.2005, passed in O.P.n6.200 of 1995, be and is hereby set aside and;

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That the Award of the Arbitrator be and is hereby affirmed^totheextent of the compensation awarded by the Arbitrator under^thehead “business loss”;

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That there be no order as to costs in this appeal.

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Sd /- S.V.S.R. MURTHY -k'j;_T JOINT R,EGISTRAR //TRUE COPY// IV SECTION OFFICER

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To

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The Principal Civil Judge (Senior Division), Vijayawada, Krishna District. .

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Three CD Copies TK TF

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HIGH COURT

DATED:06/05/2025

DECREE

CMA.No.700 of 2007

5{ 2 5 JUL 2(175
^>«^eaT£BSS^

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ALLOWING THE CMA

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IN THE HIGH COURT OF ANDHRA PRADESH AT AMARAVATI

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TUESDAY, THE SIXTH DAY OF MAY TWO THOUSAND AND TWENTY FIVE

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PRESENT

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HONOURABLE SRI JUSTICE R RAGHUNANDAN RAO AND HONOURABLE DR JUSTICE K MANMADHA RAO

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CIVIL MISCELLANEOUS APPEAL No.700 of 2007

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Appeal under Section 37 of Arbitration Act, against the order dated 01.12.2005 passed in O.P.No.20C) of 1995, on the file of the Court of Principal Senior Civil Judge, Vijayawada, Krishna District. \ ?

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Between:

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V.Narayana Raju, S/o.Not -Known, Hindu aged about 50 years, Contractor, R/o. H .No.48-13-28/A, Janakirama Street, Srinagar, Visakhapatnam.

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...Appellant/Respondent

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AND

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Union of India, Department of Telecommunications, Civil Division rep by its Executive Engineer, Vijayawada.

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...Respondent/Petitioner

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Counsel for the Appellant : Sri V S R Anjaneyulu

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Counsel for the Respondent : Sri K L N Swamy

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The Court made the following:

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RRR,J & Dr. KMR,J C.M.A.No.700 of 2007

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APHC010112092007

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T,

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IN THE HIGH COURT OF ANDHRA PRADESH AT AMARAVATI (Special Original Jurisdiction)

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[3525]

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TUESDAY, THE SIXTH DAY OF MAY TWO THOUSAND AND TWENTY FIVE

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PRESENT

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THE HONOURABLE SRI JUSTICE R RAGHUNANDAN RAO THE HONOURABLE DR JUSTICE K MANMADHA RAO CjVIL MISCELLANFQus appeal No:70Q of ?nn7

Between:

V.narayana Raju

...appellant

AND

The Department Of Telecommunicatio ns

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...RESPONDENT

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Counsel for the Appellant:

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1.VS ranjaneyalu

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Counsel for the Respondent:

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1.KL N SWAMY

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The Court made the following ORDER:

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(Per Hon ble Sri Justice R. Raghunandan Rao)

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Heard Sri V.S.R. Anjaneyulu, learned Senior Counsel appearing for the appellant and Sri K.L.N. Swamy, learned Standing Counsel appearing for the respondent.

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The appellant herein had entered into an agreement dated 13.11.1990 with the respondent herein for construction of MAX-I building at

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RRR,J & Dr. KMR.J C.M.A.No.700 of 2007

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Tanuku. Howaver, th© contract failed even before the work could commence. Both sides contended that the failure of the contract was on account of the actions of the other side.

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The dispute was referred to arbitration, under the provisions of Arbitration and Conciliation Act, 1940. The Arbitrator, appointed in the case, passed an award dated 24.07.1995.

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The Arbitrator held that the contract could not be executed due to the fault of the respondent.

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The appellant had raised 10 claims before the Arbitrator. The Arbitrator rejected claim Nos.1 to 6. Claim Nos.7 & 8 were allowed and interest on the amounts awarded, at the rate of 12% per annum was also granted. Claim No.9 was for an amount of Rs.3,75,000/- under the head “business loss”. This claim was also accepted by the Arbitrator, who awarded the amount of Rs.3,75,000/- to the appellant. Aggrieved by the Award, the respondent herein had moved the Principal Senior Civil Judge, Vijayawada, by way of O.P.No.200 of 1995. The trial Court, by its order, dated 01.12.2005, had upheld the entire award except the claim of Rs.3,75,000/towards business loss.

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Aggrieved by the said judgment, to the extent of the claim of business loss being disallowed, the appellant has filed the present civil miscellaneous appeal.

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RRR.J & Dr. KMR,J “ C.M.A.No.700of2007

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The respondent did not file any appeal against the said judgment of the trial Court and the judgment has become final^{inrelationtoalltheother} amounts awarded under the Award dated 24.07.2995.

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The appellant had claimed business loss, on the ground^thatthe appellant would have made a profit of Rs.3,75,000/-, if the appellant had been allowed to execute the work. This claim was accepted by the Arbitrator, on the basis of the judgment of the Hon’ble Supreme Court in M/s. A.T. BriJ Paul Singh and Bros vs. State of Gujarat V In this judgment, the Hon’ble Supreme Court had held that where a party which entrusted the contract, commits breach of contract, the contractor would be entitled to damages for the loss or profit.

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The trial Court went into the facts of the case, and^{heldthatinthe} case before the Hon’ble Supreme Court, the contract had been partly completed. Whereas in the present case, work had not^{startedatallandas} such the judgment of the Hon’ble Supreme Court would not be applicable. 10. Sri V.S.R. Anjaneyulu, learned Senior Counsel appearing^forthe appellant would contend that the said judgment is applicable^{tothefactsofthe} present case.

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Sri K.L.N. Swamy, appearing for the respondent, would^contend that no money could have been awarded, without proof^{oflossandtheclaim} of the appellant, under the head “business loss” is a speculative claim without

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AIR 1984 SC 1703 = (1984) 4 SCC 59= 1984 SCC Online^SC147

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any basis and the Arbitrator ought not to have awarded the said claim. He would further submit that the view of the trial Court, that the claim was not maintainable, does not require any interference. 12. In the case before the Hon’ble Supreme Court, in the above judgment, the contractor was awarded the work of providing cement concrete surface on a road. The contractor had initially commenced the work but could not complete the work on account of the disputes, which arose between the contractor and the employer. On account of these disputes, a suit was filed for compensation. The suit was dismissed before the trial Court. However, the High Court, while dismissing the appeal, allowed the claim of the contractor for a few items, including loss of profit.

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The Hon’ble Supreme Court affirmed this view of the High Court. The relevant extracts of the judgment of Hon’ble Supreme Court are as follows:

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It was not disputed before us that where in a works contract; the party entrusting the work, commits breach 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 must 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. Leaving aside the judgment of the trial Court which rejected the claim for want of proof, the High Court after holding that the respondent was not justified in rescinding the contract proceeded to examine whether the plaintiff-contractor was entitled to damages under the head ‘loss of profit In this

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connection, the High Court referred to Hudson’s Building^and Engineering’s Contract (1970), tenth edition and observed^that ‘in major contracts subject to competitive tender on^anational basis, the evidence given in litigation on many occasions suggests that the head-office over heads and profit^isbetween 3 to 7 % of the total price of cost’ which is added^tothetender. In other words, the High Court was of the view that^theclaim under this head was admissible. The High Court, however, addressed itself to the question whether adequate proof is tendered to sustain the claim. In this connection, it was observed that the loss of profit when it is sought to be recovered on the percentage basis has to be proved by proper evidence. Having settled the legal position in this^manner,the High Court proceeded to reject the claim observing^thatthe bare statement of the partner of the contractor's firm^thatthey are entitled to damages in the nature of loss of profit @ 20%^of the estimated cost is no evidence for the purpose of establishing the claim. The High Court further observed^thatthe appellant has not proved by any primary documents the^basis of its pricing for the purpose of quotation in reply^tothetender and more so when it has quoted at 7 % less than the original estimated cost and in this view of the matter the claim^forloss of profit is unsustainable. 10. And the second reason to reject the contention is that ordinarily a contractor while submitting his tender in response to an invitation to tender for a works contract reasonably expects to make profits. 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^hastobe compensated by way of damages if the other party to^the

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contract is guilty of breach of contract cannot be gainsaid

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Now if it is well-established that the respondent was guilty of breach of contract in as much as the rescission of contract by the respondent is held to be unjustified, and the plaintiffcontractor had executed a part of the works contract, the contractor would be entitled to damages by way of loss of profit, Adopting the measure accepted by the High Court in the facts and circumstances of the case between the same parties and for the same type of work at 15% of the value of the remaining parts of the work contract, the damages for loss of profit can be measured.

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Once, there is a finding that the respondent was responsible for the breach of contract, the principles enunciated by the Hon’ble Supreme Court, above, would apply and the appellant would be entitled for compensation on account of the loss of business. As pointed out by the Hon'ble Supreme Court, the quantum of compensation is to be ascertained by way of looking into the facts and circumstances of the case.

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The Arbitrator, had arrived at a finding that the entire claim of Rs.3,75,000/- needs to be awarded. The Trial Court rejected that part of the award on the ground that the claim was not maintainable. There is no finding by the trial Court that the quantification of compensation was incorrect. In such circumstances, the said quantification by the Arbitrator would have to be accepted.

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C.M.A.No.700of2007

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The principle laid down by the Hon’ble Supreme^Court is that

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when there is a breach of contract by the employer,^{thecontractorwouldbe} entitled to claim damages on account of loss of profit. This claim is essentially a claim that the contractor would have made a profit,^{ifhehadbeenallowedto} execute the contract. The application of this principle, would not be dependent upon the amount of work executed by the contractor. This principle would apply whether the contract had executed a part of the^{contractorwhetherthe} contractor did not even commence the work.

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In such circumstances, the claim of the appellant could^nothave been rejected.

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Accordingly, we allow the civil miscellaneous appeal setting aside the order of the learned Principal Senior Civil Judge, Vijayawada, dated 01.12.2005, passed in O.P.No.200 of 1995, and affirming^theAward of the Arbitrator to the extent of the compensation awarded by the Arbitrator under

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the head “business loss”. There shall be no order as to costs.

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As a sequel, pending miscellaneous petitions, pending if any, shall

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stand closed.

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Sd /- S.V.S.R. MURTHY

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//TRUE COPY//

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JOINT REGISTRAR A