Loss of profit in wrongfully rescinded works contracts may be broadly assessed, and a reasonable arbitral quantification was upheld.

Where a works contract is wrongfully rescinded, loss of profit may be awarded as damages on a broad and reasonable assessment, and the arbitrator's quantification will not be disturbed if it rests on a permissible measure of contract value. Applying that principle, the challenge to computing expected profit on the contract amount rather than on estimated cost was rejected, because the award reflected a reasonable basis for assessing profit. The arbitral award was therefore upheld and made rule of the Court.

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Issues: Whether, in assessing expected reasonable profit under a works contract, the 10% profit component was to be calculated on the estimated cost after deducting the cost of materials to be supplied by the employer, or on the contract amount as awarded by the arbitrator.

Analysis: The claim arose from objections to an arbitral award under the Arbitration Act, 1940. The challenge was confined to the contention that the arbitrator ought to have computed expected profit on the estimated cost rather than on the contract amount. The governing principle applied was that where a works contract is wrongfully rescinded, the contractor is entitled to damages for loss of profit, and such damages may be broadly assessed on the facts of the case. The Court relied on the settled approach that reasonable expectation of profit is implicit in a works contract and that quantification of such profit need not be confined to minute arithmetical scrutiny when the award reflects a reasonable basis.

Conclusion: The objection failed. The arbitrator was in awarding 10% expected reasonable profit on the contract amount of Rs. 14,54,639, and the award was upheld.

Final Conclusion: The award was sustained in full, the challenge to the computation of profit was rejected, and the arbitral award was made rule of the Court with consequential relief in favour of the petitioner.

Ratio Decidendi: In a works contract wrongfully rescinded, expected profit may be awarded as damages on a broad and reasonable assessment, and the arbitral quantification will not be disturbed if it is based on a permissible measure of the contract value.

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