Supreme Court Strikes Down Arbitral Award for Loss of Profit – Conflict with Public Policy

07 May 2024 8:19 AM

By: Admin

In a significant ruling, the Supreme Court of India has struck down an arbitral award related to a claim for loss of profit in a construction contract, citing a conflict with public policy. The judgment, delivered on 19th October 2023, highlights the importance of adhering to established legal principles and the need for credible evidence to support such claims.

The bench, comprising Justices Dipankar Datta and S. Ravindra Bhat, found that the second arbitral award, which upheld the claim for loss of profit, was in direct conflict with the public policy of India. The court emphasized that public policy includes compliance with fundamental legal principles and precedents.

In the judgment, the court observed, "The award in question is patently illegal as it is based on no evidence and is, thus, outrightly perverse; therefore, it is in conflict with the 'public policy of India' as contemplated by Section 34(2)(b) of the Arbitration and Conciliation Act."

The case revolved around a construction contract that experienced delays not attributable to the claimant. The claimant, an established contractor handling substantial projects, sought compensation for loss of profit due to the project's prolonged completion. However, the court found that the claimant failed to provide credible evidence to substantiate the loss of profitability.

The judgment underscores the necessity for claimants to establish four key conditions for a successful claim of loss of profit: the presence of delay in contract completion, a lack of attribution of the delay to the claimant, the claimant's status as an established contractor, and the provision of credible evidence to support the loss of profit claim.

The court's decision reaffirms the principle that arbitration awards must adhere to fundamental legal principles and precedents and must not be based on unsupported claims. It highlights the importance of evidence-based decisions in arbitration proceedings.

This ruling serves as a reminder of the significance of public policy considerations in arbitral awards and sets a precedent for future cases involving claims for loss of profit in construction contracts.

Date of Decision: 19 October 2023.

M/S UNIBROS vs ALL INDIA RADIO