Authority: High Court at Calcutta, Circuit Bench at Port Blair

Order Date: 05 October 2026

Case Overview

  • Parties: Union of India (Appellant) vs. M/S K.P. Trading and Company (Respondent).
  • Contract: Tender awarded on 22‑Nov‑2010 for reconstruction of a sea dyke under the Tsunami Rehabilitation Scheme; work to commence on 01‑Dec‑2010 and complete by 31‑Aug‑2011.
  • Deposits: Respondent deposited Earnest Money Deposit (EMD) of Rs 5,79,682 on 13‑Sep‑2010 and Performance Guarantee (PG) of Rs 20,17,227 on 18‑Nov‑2010.
  • Site Issue: The site was not handed over to the contractor despite contractual assurance; multiple correspondences (31‑Oct‑2010, 10‑Jan‑2011, 15‑Mar‑2011, 20‑Jul‑2011, 01‑Aug‑2011) show demarcation and NOC delays.
  • Extension: Union granted a provisional extension on 24‑Jul‑2012, moving completion date to 31‑Aug‑2012.
  • Foreclosure: Union invoked Clause 3A of the General Conditions of Contract (GCC) on 23‑Mar‑2015, more than four years after the stipulated commencement date, to terminate the contract.
  • Arbitration: Respondent invoked Clause 25 (arbitration) and, after the Union failed to appoint an arbitrator, moved the High Court under Section 11 of the Arbitration and Conciliation Act, 1996. A sole arbitrator was appointed on 05‑Apr‑2016; a second arbitrator appointed on 14‑Jun‑2016 due to the first’s inability to proceed.
  • Arbitrator’s Findings: Work could not start because the site was not made available; therefore the contractor was not liable for the delay. Clause 3A allowed early exit but was invoked beyond the 1/8‑time limit.
  • Claims Presented: Eight claims totalling Rs 3,27,89,457 were made, including interest on EMD, loss of margin money, head‑office expenses, loss of profit, machinery idling, cost of boulders, interest on awarded amounts, and arbitration costs.
  • Arbitrator’s Award:
  • Claim 1 (EMD interest) allowed at Rs 2,22,876 (8.5% p.a.).
  • Claim 2 (PG margin loss) allowed Rs 1,22,006.
  • Claim 3 (head‑office expenses) allowed Rs 5,00,000.
  • Claim 4 (loss of profit) allowed Rs 12,85,982 (3.75% of net contract amount Rs 4,03,44,539).
  • Claims 5 and 6 (machinery/idling and boulders) disallowed.
  • Claim 7 (interest on awarded amounts) set at 8% p.a. from 18‑Nov‑2015, rising to 9% after 60 days of award issuance.
  • Claim 8 (arbitration costs) allowed Rs 3,00,000.
  • Total award: Rs 24,30,834.
  • Earlier Challenge: The Union previously challenged the award under Section 34 in Other Suit No. 02 of 2018 before the Additional District Judge, South Andaman District; the challenge was dismissed and the award dated 15‑Sep‑2017 affirmed.
  • Current Appeal: Union appealed under Section 37, arguing that Claim 4 (loss of profit) was unsustainable and that Clause 3A was invoked outside the permissible period.
  • Court’s Reasoning:
  • Recognised the Union’s breach in failing to hand over the site and its delayed invocation of Clause 3A.
  • Held that loss‑of‑profit claim was justified as a separate head from damages, based on the net contract amount and the 15% margin clause, and that the arbitrator’s 3.75% quantification was reasonable.
  • Found no patent flaw, lack of reasoning, or illegalities in the arbitrator’s award; cited precedents (Batliboi Environmental Engineers Ltd., Western Geco, Associate Builders) to affirm limited judicial interference.
  • Concluded that the award of Rs 24,30,834 stands and the Union’s appeal lacks merit.

Final Outcome

  • The appeal under Section 37 is dismissed.
  • The arbitrator’s award of Rs 24,30,834 to M/S K.P. Trading is upheld.
  • All pending applications are disposed of.
  • Parties are directed to download a server copy of this order from the official court website.

Topics: Arbitration Award, Government Contract, Loss of Profit