In May 2025, the Hon'ble High Court of Delhi, in the case of Union of India vs. Ahluwalia Contracts (India) Ltd1., (hereinafter referred to as the 'Ahluwalia case') adjudicated on the issue pertaining to the denial of claims for loss of overheads/profitability by the Arbitral Tribunal. Even though the issue forming the subject matter of the case had been a part of a number of previously determined cases, it reignited the debate on whether such claims were justifiable in cases where the project duration was unreasonably prolonged and whether the quantum of losses could be justified by any nature of proof.
Facts Forming the Case
The petition before the High Court of Delhi was preferred under Section 37 of the Arbitration and Conciliation Act, 1996 (hereinafter referred to as the 'Arbitration Act'), for challenging the impugned order of the Hon'ble Single Judge Bench by way of which, the Arbitral Award denying certain claims, including the claim for the loss of overheads/profitability, was partly reversed. The dispute arose out of the project, 'Package-III Electrical Services at AIIMS, Patna under the Pradhan Mantri Swasthya Suraksha Yojana', where, due to the certain issues, including the timely handing over of an encumbrance-free project site, the completion date was extended. It was the case of the Respondent/Claimant that the prolongation of work caused additional expenditure in terms of resource mobilization and site office maintenance, in pursuance of which, compensation was claimed.
A total of 17 claims were filed in arbitration, out of which the Respondent succeeded in 9 while 8 claims, including the claim for loss of profitability, were rejected. Aggrieved by the rejection, the Respondent approached the High Court under Section 34 of the Arbitration Act. The Hon'ble Single Judge of the High Court reversed the Award against all claims but one, on the ground that they 'were in the nature of damages/prolongation cost and were based on the delay caused by the appellant in the execution of the work'.
Perusal of the Prevailing Precedents
Claims for loss of profitability/turnover have formed the subject matter of a number of disputes before various courts, where Courts have unilaterally expressed an opinion that builders/contractors are entitled to such claims to compensate the inadvertent loss associated with the delays in projects caused on the account of the authorities. In the various judgments, Courts have laid down the basic principles guiding such claims, and the elements required to establish them.
One such case was Batliboi Environmental Engineers Limited v. Hindustan Petroleum Corporation Limited2, where the Hon'ble Supreme Court held that in claims for overheads in the form of workforce expenses which could have been deployed in other contracts, the builder/contractor must prove that "there was other work available that he would have secured if not for the delay, by producing invitations to tender which was declined due to insufficient capacity to undertake other work." It was further held that the same may also be established through the books of accounts, demonstrating a loss of turnover, emerging from the delay in project, and not from any other extraneous causes. A failure to prove such a loss of turnover resulting from the delay was held to only entitle the builder/contractor to the payment of interest on the capital employed, sans the profit which should be paid.
In another case, vis-à-vis, Unibros v. All India Radio3, the Hon'ble Court held that for the claims pertaining to the loss of profits, profitability, or opportunities to succeed, the following must be established, namely:
- There was a delay in the completion of the contract;
- The delay was not attributable to the Claimant;
- The Claimant is known for being an established contractor handling substantial projects; and
- The presence of reliable evidence in support of the claim for loss of profitability4
The aforementioned precedent was also preceded by the case of Bharat Coking Coal Ltd. v. L.K. Ahuja5, where the Hon'ble Court held that, in project delays, one must establish that the amount received under the contract could have been utilized for some other business holding a profit earning potential. In the absence of such a plea being raised and established, it was observed that, the claim for loss of profits cannot be granted.
It is pertinent to note that the judgments being the guiding force on the claims for profitability, also formed a part of the study taken by the Hon'ble High Court of Delhi in the Ahluwalia Case. Subsequently, the Hon'ble Division Bench observed a sheer failure of the Respondent to adduce any form of evidence for substantiating its profitability loss, thus, failing to establish the same. Pursuant to this, the impugned judgment, reversing the award, in so far as the claim for profitability was concerned, was set aside.
Understanding Project Delays and Profitability Claims
India is home to a wide range of builder and contractor companies, varying in sizes and scales. The country in itself holds great potential to develop high value projects and supporting an overall infrastructural growth on account of the economic focus. However, due to its unique geographical positioning, coupled with its developing nature, construction projects in India are prone to distinctive challenges, which may delay project completion.
That said, it is undeniable that in many instances, project delays are a result of the inability of the Authority to hand an encumbrance free project site over to the contractor within the expected timeline, thus causing a delay in the completion from the very initial stage. Such delays are also common in projects where the number of government authorities are more than one, thus, requiring an inter-departmental liaison for ensuring an obstacle-free project development.
In situations like these, claims pertaining to the loss of profitability/turnover may turn out to hold an underrated value for protecting the rights of contractors, especially for those builder/contractors, who belong to mid and small-scale range and have limited personnel and resources, thereby restraining the number of projects which may be undertaken by them during a specific time at once.
Claims for profitability may not only have the potential of aiding the contractors, but may also invoke a responsibility on part of the Authorities to uphold its part of the responsibilities under project contracts, thereby, maintaining project timelines.
Indian Regulations and the Loss of Profitability
It may be pertinent to note that the claims for loss of profitability or even an overall delay in project completion are not uncommon. Attaining project permits, mobilizing adequate resources, and undertaking the work in line with the regulations of different states, may act as a challenge for many large-scale projects. While there may be a possibility that time may reduce the quantum or nature of claims in projects, there may also be a possibility, that various decisions of authorities may cause a significant rise in the nature of such claims, ultimately, causing a loss of public revenue.
An example of such a contentious decision may be the circular issued by the National Highways Authority of India in June 2025, by way of which, the involvement of a Supervising Engineer was limited to 10 highway construction projects at a time. The circular, having its own pros and cons, brought about a new argument in the debate concerning the loss of profitability, where it was observed that the implementation of the circular would mean that any delays in project completion may incapacitate the Engineer from being included in another similar project, thereby limiting the use of resources of a company, ultimately causing unforeseen losses in turnover.
A notable development was also, however, observed in the recent Reserve Bank of India (Project Finance) Directions, 2025, under which, the Regulatory Body imposed stringent conditions on the deferment of the date of commencement of commercial operations (DCCO), reducing it to 3 years for infrastructure projects and 2 years for non-infrastructure projects. This reduction of time, while acting as a challenge in the case of long-drawn litigations, may however, reduce the profitability claims by establishing strict responsibilities of parties to project contracts, for maintaining project timelines.
In any case, while the aforementioned decisions merely provide for a glimpse into the future of project development in India, the legal framework governing the claims of the loss of profitability/turnover may foresee certain changes, whether in terms of the nature of claims or the evidence adduced. For now, however, while the Ahluwalia case was held against the contractor for want of proof, it may well be ascertained that if any builder/contractor is able to establish a loss of turnover in accordance with the conditions put forward by the Supreme Court, their claim may stand the test of time.
Footnotes
1. Union of India v. Ahluwalia Contracts (India) Ltd, FAO (OS) (COMM) 108/2023 and CM Nos. 26534/2023 & 26535/2023, before the High Court of Delhi.
2. Batliboi Environmental Engineers Limited v. Hindustan Petroleum Corporation Limited, 2023 INSC 850.
3. Unibros v. All India Radio, 2023 INSC 931.
4. Ibid.
5. Bharat Coking Coal Ltd. v. L.K. Ahuja, (2004) 5 SCC 109.
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