Hypothetical or Unreal Loss of Profit Impermissible under Indian Law
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Hypothetical or Unreal Loss of Profit Impermissible under Indian Law
In Union of India v. Ahluwalia Contracts (India) Ltd., a Division bench of the Hon’ble Delhi High Court has on May 9, 2025 clarified the scope of claiming damages for loss of profit due to contractual delay. The Court held that such claims cannot be “hypothetical and unreal” and must be substantiated by evidence so as to prove actual loss of opportunity to reap profits. The ratio engaged by the Delhi High Court was twofold.
Firstly, the Court acknowledged the law settled in Bharat Coking Coal Ltd. v. L.K. Ahuja, Batliboi Environmental Engineers Limited v. Hindustan Petroleum Corporation Limited and Anr., and M/s Unibros v. All India Radio, wherein the Supreme Court held that a loss of profit must be proved through compelling evidence of the opportunities missed by the claimant. Thus, observing that the Respondent had not led any evidence to sustain its claim for loss of profit during the prolongation of the period, the Division bench refused to interfere with the conclusion of the Arbitral Tribunal holding that the claim for loss of profit is unreal and hypothetical.
Secondly, the Division bench re-emphasised on the established contours of Section 34 of the Arbitration and Conciliation Act, 1996 to state that there are limited grounds under which interference with the Arbitral Award is warranted. The decision of an Arbitral Tribunal cannot be faulted so long its view is plausible, as it is the final adjudicator of the disputes between the parties. Thus, upholding the sanctity of the Arbitral Tribunal, the Court held that the interference of the Ld. Single judge with the Arbitral Award (by setting aside rejection of claim by the Arbitral Tribunal) was unwarranted and unsubstantiated as the Respondent was not entitled to the said damages under law or terms of the contract.
Damages cannot amount to windfall gains- The reported judgment rationalises the heads under which claims can be sought in event of a breach of contract between the parties. The judgment serves as a sound precedent fostering the legislative intent of only compensating for the loss sustained, and not awarding an unsubstantiated bounty to the claimant.