Arbitral Award of Damages for Loss of Profit on short closure of the contract
The appellant and GPL were partners in a Joint Venture for development of power plant. The appellant and the respondent no.1 claimant had Consortium Agreement dated 27.8.2012.
On 9.2.2013 and 11.2.2013, GPL issued Award Letters to the appellant, which, in turn, issued two LoAs to the Respondent no.1 on 2.3.2013.
The contractual relations of the appellant and the respondent no.1 continued till 26.10.2013. The respondent no.1 continued to perform the work, and the appellant continued the benefit of services.
On 19.4.2014, GPL awarded the same scope of work to another company without terminating the contract of the respondent no.1 and without giving any intimation.
GPL short-closed the contract with the appellant on account of changes in the management of the appellant. Respondent no.1 was admittedly kept in the dark about the short closure.
The appellant stayed from the meetings and the exchange with the respondent no.1 from October 2013 to April 2014.
The respondent no.1 filed petition for injunction against invocation of bank guarantee and also issued a notice for invocation of arbitration to the appellant for Rs.101,68,18,000/-.
The Arbitral Award for Rs.5,09,49,625/- to the respondent no.1 with interest and damages of Rs.5 crores for loss of profit was passed on 17.12.2016.
The Commercial Court dismissed section 34 petition of the appellant.
HELD that the Opportunity costs, as a consequential damage, is a remedy to which every business person is entitled to in commercial contracts. The expectation aligns with the doctrine of business prudence and the primary objective of a person to enter into commercial transactions with another.
The loss would encompass the effect and consequences of the breach which was within the contemplation of the parties at the time of entering into the contractual relationship.
Termination / short -closure of the contract without the appellant notifying the respondent no.1 amounted to a material breach.
The finding of material breach would automatically trigger section 73 of the Contract Act, 1872, which provides for compensation for loss or damage consequent to breach of the contract. Section 73 of the Act declares that the party who suffers from the consequences of a broken contract is entitled to receive compensation for any loss or damage caused by the party who has caused the breach.
Judgment dated 23.4.2025 of the Division Bench of the High Court of Telangana in COMCA No.29 of 2022 of M/s. NCC Limited Vs. M/s. Elecon EPC Projects Limited
