Madhya Pradesh High Court
Mukesh Kumar Singhal vs Nagar Palika Parishad on 7 February, 2006
ORDER S.S. Jha, J.
1. Following question of law is involved in the aforesaid revisions :
Whether in the absence of any proof, contractor is entitled to claim loss on account of infructuous overhead expenses and loss of profit ?
2. Tribunal while rejecting the claim for loss of profits and overheads placed reliance upon the judgment of this Court in the case of M/s. Saluja Construction Co. v. State of M.P. Civil Revision No. 2136/1995, decided on 7-9-1999 and held that the claimant must prove the actual loss of profit and on failure to prove loss of profit, contractor is not entitled for loss of profit. It is held in Para 36 of the Award as under:
In this case, petitioner has claimed Rs. 50000/- as loss of profit but has not produced any evidence to prove extent of profit. He has claimed loss of profit on fixed percentage basis. It is true that contractor is not expected to prove the actual loss towards profit but he should have placed the material to show on what basis he estimates a particular percentage of profit. In the present case, petitioner has not placed any material on record on the basis of which he is claiming loss of profit of unexecuted work. In view of Clause 14 of the agreement also petitioner cannot claim loss of profit in this case. In M/s. Saluja Construction Co. v. State of M.P. (Civil Revision No. 2136 of 1995), decided on 7-9-1999 by M.P. High Court, Apex Court judgment of Dwarkadas v. State of M.P. has been discussed and explained. Thus, the legal position is made clear that to prove loss of profit the contractor is required to produce some evidence oral or documentary. In the present case, petitioner has failed to produce any evidence to prove loss of profit hence in our considered view the petitioner is not entitled for any amount towards loss of profit. Therefore, his claim of Rs. 50000/- towards loss of profit is disallowed.
3. In Civil Revision No. 129 of 2003, the Arbitration Tribunal has rejected the claim of the petitioner as he has failed to produce any evidence to prove loss of profit relying upon judgment of this Court in the case of State of M.P. v. Smt. Gyan Kaur Civil Revision No. 608 of 1989, decided on 17-8-1999 and Saluja Construction Co. Ltd. (supra), and Full Bench decision of the Arbitration Tribunal in the case of Bishnuprasad Agrawal v. M.P. State Tourism Development Corporation Reference Case No. 85/95, decided on 19-9-2002. It is further held that claim for loss of overhead and loss of profit cannot be allowed in the absence of cogent and reliable evidence.
4. In Civil Revision No. 79 of 2003, Arbitration Tribunal while placing reliance upon Full Bench judgment of the Tribunal which has taken note of the judgments in the cases of M/s. Saluja Construction and Shrimati Gyan Kaur (supra), has held that in the absence of any evidence to prove loss of profit claimant is not entitled for the claim on head of loss of profit.
5. Counsel for the petitioner has referred to the Apex Court's judgment, the case of Dwarka Das v. State of M.P. and submitted that the law has been settled by the Apex Court that since the contractor is granted only ten per cent of the contract price towards loss of profit, it was found to be reasonable and permissible. Referring to Section 73 of the Contract Act, it is held in Para 9 of the judgment that as and when breach of contract is held to have been proved being contrary to law and terms of the agreement, the erring party is legally bound to compensate the other party to the agreement and it was, therefore, held that the Appellate Court was not justified in disallowing the claim of the petitioner on account of damages as expected profit out of the contract which was found to have been illegally rescinded. While referring to the earlier judgment in the case of A.T. Brij Pal Singh v. State of Gujarat and interpreting the provisions of Section 73 of the Contract Act, it is held that damages can be claimed by the 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.
6. Apex Court's judgment in the case of Dwarka Das (supra) was considered by this Court in the cases of M/s. Saluja Construction Company (supra), and this Court held that the ratio of the judgment of Dwarka Das (supra), also requires some proof by way of evidence must be produced by the contractor to prove his loss of profit or other expenses. It was held in Para 22 of the judgment as under :
In our considered opinion, the case of Dwarka Das of Supreme Court (supra), does not lay down that contractor is completely absolved from his burden to lead evidence in support of his claim and he has to be awarded damages or compensations on such heads on a fixed formula or at 10% of the contract price. The Supreme Court in the case of Dwarkadas (supra), upheld the grant of claim at 10% of prime cost on the head of loss of profit and in doing so it has stated that the contractor could not be expected to prove actual loss suffered by him. The decision of the Supreme Court, however, cannot be read as laying down that the contractor is not expected in all eventualities to lead any evidence as to on what basis he claims a particular amount towards loss of profit and overhead expenses.
7. Counsel for the petitioner then submitted that Indore Bench of this Court in the case of State of M.P. and Ors. v. Arjun Kumar 2004 Arb. W.LJ. 446 (MP), has held that the later Division Bench decision has not noticed the earlier Division Bench decision and, therefore, the judgments in the cases of M/s. Saluja Construction and Smt. Gyan Kaur have not been relied upon as judgment in the case of State of M.P. v. Madho Singh Civil Revision No. 1342/99, decided on 10-9-1998 was not taken note of by the subsequent Division Bench judgments and it has been held that later Division Bench has not followed the earlier judgment and allowed the claim for loss of profit without evidence. Counsel for the petitioner submitted that there is conflict of views in the judgments.
8. Now, we have to examine whether there is any conflict between the two judgments.
9. In the case of Arjun Kumar (supra), Division Bench of this Court at Indore, has held in Para 8 as under :
We have gone through the aforesaid judgments, mentioned above. From the subsequent judgments of the Division Bench in the matter of M/s. Saluja Construction (supra) and Smt. Gyan Kaur (supra), it appears that the earlier judgment of this Court in the matter of Madhosingh (supra) was not brought to its notice. The earlier view of the Division Bench was that overheads can be paid to the Contractors on the basis of the report of Major Irrigation Projects of India, which contemplated as to how much dues are to be paid. In this context, reference has been made to Paragraph 2.36.1, which is reproduced hereinbelow:
An allowance of 10% would be an adequate for the contractor's actual expenses on supervisory establishments, travelling expenses, insurances of damages of plant and injury to labour.
Here also after going through the impugned award and the record, we are of the view that reasonable amount of overheads has been awarded to the claimants, which have been worked at 8% of the prime costs. Even though the Tribunal could have awarded @ 10% of the prime costs, but on account of various facts and circumstances of the case, it found the claim of overheads, which is based on proper appreciation of evidence. We find that no case for interference is made out. The Revision being devoid of any merit or substance is hereby dismissed.
Division Bench relied upon Para 2.36.1 the report of Majoy Irrigation Project of India, wherein it is mentioned that an allowance of 10% would be an adequate for the contractor's actual expenses on supervisory establishments, travelling expenses, insurances of damages of plant and injury to labour, Division Bench held that on going through the Award and the record, a reasonable amount of overheads has been awarded to the claimants which is worked out at 8% of the prime costs of the construction costs, revision of the State was dismissed.
10. Having considered the aforesaid Division Bench judgment, we find that the Division Bench in this judgment of Arjun Kumar has not taken note of interpretation given by Division Bench in the case of Dwarka Das (supra). It was not necessary for the Division Bench refer to earlier judgments of this Court when the law has been settled by the Apex Court. Normally, judicial discipline demands that when conflicting opinions are given by difference Division Benches, dispute shall be referred to Larger Bench.
11. Further, the ratio laid down in the case of Dwarka Prasad (supra) as interpreted by the Division Bench has been settled by another judgment of the Apex Court in the case of Bharat Coking Coal Ltd. v. L.K. Ahuja It is held in Para 24 of the judgment as under :
Here the claim for escalation of wage bills and price for materials compensation has been paid and compensation for delay in the payment of the amount payable under the contract or for other extra works is to be paid with interest thereon, it is rather difficult for us to accept the proposition that in addition 15% of the total profit should be computed under the heading "loss of profit". 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 work. What he should establish in such a situation is that had he received the amount due under the contract, he could have utilized 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. This aspect was well settled in Sunley(B) and Co. Ltd. v. Cunard White Star Ltd. (1940) 1 KB 740 by the Court of Appeal in England. Therefore, we have no hesitation in deleting a sum of Rs. 6,00,000 awarded to the claimant.
12. In the case of Saluja Construction (supra), Division Bench of this Court has taken note of previous Division Bench decisions of this Court on the same question in the cases of State of M.P. v. Recondo Ltd. 1993 A.T.L.R. 557 (M.P.) and M.P. Rajya Setu Nigam v. Jain Construction Co. 1993 A.T.L.R. 574 (M.P.), wherein for want of evidence, a nominal sum of Rs. 50000/- has been awarded towards loss of profit and total amount awarded inclusive of the above mentioned two heads of claim was Rs. 117966/- with interest at the rate of 12% per annum from the date of claim petition. Thus, it is not true that in the case of Saluja Construction (supra), previous judgments were not considered. Division Bench has considered the import of the previous judgments and examined the case in the light of Dwarka Das (supra). Previous Division Bench judgments including the judgment of Madho Singh (supra), were decided prior to the decision of Dwarka Das (supra), and now the question is further settled by the Apex Court in the case of Bharat Coking Coal Ltd. (supra).
13. Since the question of law has been settled by the Apex Court in the case of Dwarka Das (supra) and Bharat Coking Coal Ltd. (supra), it is not necessary now to refer the question to the Larger Bench. Judgment in the case of Saluja Constructions has considered and interpreted the judgment of the Apex Court in the case of Dwarka Das (supra), and since recent judgment of the Apex Court in the case of Bharat Coking Coal Ltd. (supra), has also held that in the absence of any pleading and evidence, arbitrator could not have awarded damages towards loss of profit, therefore, it is held that the contractor is expected to lead evidence to prove his loss of profit and overhead expenses. In the light of the judgment of the Apex Court in the case of Bharat Coking Coal Ltd. (supra), Division Bench judgment in the case of Arjun Kumar (supra) is no longer a good law.
14. Recently, Division Bench of this Court has also taken a similar view in the case of M/s. S.K. Premachandani and Co. Engineers and Contractors v. State of M.P. Civil Revision No. 1970/97, decided on 24-1-2005.
15. As discussed above, we find that since the contractor has failed to discharge the burden to prove loss of profit on account of termination of contract, Arbitration Tribunal has committed no error in dismissing the claim for loss of profit. In the absence of specific proof of loss of overhead or loss of profit, it was not possible for the Tribunal to allow damages on such heads. Tribunal has rightly rejected the claim in the light of the ratio of Bharat Coking Coal Ltd. (supra).
16. In the result, all the three revisions fail and are dismissed. There shall be no order as to costs.