Andhra Pradesh High Court - Amravati
V.Narayana Raju vs The Department Of Telecommunications on 6 May, 2025
Author: R Raghunandan Rao
Bench: R Raghunandan Rao
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RRR,J & Dr. KMR,J
C.M.A.No.700 of 2007
APHC010112092007
IN THE HIGH COURT OF ANDHRA PRADESH
AT AMARAVATI [3525]
(Special Original Jurisdiction)
TUESDAY, THE SIXTH DAY OF MAY
TWO THOUSAND AND TWENTY FIVE
PRESENT
THE HONOURABLE SRI JUSTICE R RAGHUNANDAN RAO
THE HONOURABLE DR JUSTICE K MANMADHA RAO
CIVIL MISCELLANEOUS APPEAL No:700 of 2007
Between:
V.narayana Raju ...APPELLANT
AND
The Department Of Telecommunications ...RESPONDENT
Counsel for the Appellant:
1. V S R ANJANEYALU
Counsel for the Respondent:
1. K L N SWAMY
The Court made the following ORDER:
(Per Hon‟ble Sri Justice R. Raghunandan Rao)
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.
2. 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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Tanuku. However, the 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.
3. 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.
4. The Arbitrator held that the contract could not be executed due to
the fault of the respondent.
5. 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.
6. 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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7. The respondent did not file any appeal against the said judgment
of the trial Court and the judgment has become final in relation to all the other
amounts awarded under the Award dated 24.07.2995.
8. The appellant had claimed business loss, on the ground that the
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 1 . 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.
9. The trial Court went into the facts of the case, and held that in the
case before the Hon‟ble Supreme Court, the contract had been partly
completed. Whereas in the present case, work had not started at all and as
such the judgment of the Hon‟ble Supreme Court would not be applicable.
10. Sri V.S.R. Anjaneyulu, learned Senior Counsel appearing for the
appellant would contend that the said judgment is applicable to the facts of the
present case.
11. Sri K.L.N. Swamy, appearing for the respondent, would contend
that no money could have been awarded, without proof of loss and the claim
of the appellant, under the head "business loss" is a speculative claim without
1
AIR 1984 SC 1703 = (1984) 4 SCC 59= 1984 SCC OnLine SC 147
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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.
13. 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:
"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 a national
basis, the evidence given in litigation on many occasions
suggests that the head-office over heads and profit is between
3 to 7 % of the total price of cost‟ which is added to the tender.
In other words, the High Court was of the view that the claim
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 that the
bare statement of the partner of the contractor's firm that they
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 that the
appellant has not proved by any primary documents the basis
of its pricing for the purpose of quotation in reply to the tender
and more so when it has quoted at 7 % less than the original
estimated cost and in this view of the matter the claim for loss
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 has to be
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..........
11. 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 plaintiff-
contractor 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.
14. 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.
15. 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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16. The principle laid down by the Hon‟ble Supreme Court is that
when there is a breach of contract by the employer, the contractor would be
entitled to claim damages on account of loss of profit. This claim is essentially
a claim that the contractor would have made a profit, if he had been allowed to
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 contract or whether the
contractor did not even commence the work.
17. In such circumstances, the claim of the appellant could not have
been rejected.
18. 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 the Award of the
Arbitrator to the extent of the compensation awarded by the Arbitrator under
the head "business loss". There shall be no order as to costs.
As a sequel, pending miscellaneous petitions, pending if any, shall
stand closed.
________________________
R.RAGHUNANDAN RAO, J.
_____________________ DR. K. MANMADHA RAO Js 8 RRR,J & Dr. KMR,J C.M.A.No.700 of 2007 HON'BLE SRI JUSTICE R. RAGHUNANDAN RAO & HON'BLE DR. JUSTICE K. MANMADHA RAO C.M.A.No:700 of 2007 (per Hon‟ble Sri Justice R. Raghunandan Rao) 6th May, 2025 Js