- (1.) Heard Mr. Gupta, learned counsel appearing for the appellant and Mr. Markanda, learned senior counsel appearing for the contractor-respondent. Mr. Gupta, appearing for the appellant, argues that the learned arbitrator has not disclosed the process of reasoning while dealing with Claim 9 inasmuch as the award mentions application of a "formula" for calculation of damages with respect to overhead expenses but does not identify or amplify which is this "formula" to achieve the purpose for which it was used. Mr. Markanda, the learned senior counsel then explains that the formula adopted is in fact the Hudson formula judicially recognised in India and accepted in Indian and international precedents. He refers to the recognition of the Hudson formula by the Supreme Court in McDermott International Inc. v. Burn Standard Co. Ltd. and others, 2006 11 SCC 181. The court observed, while dealing with the Hudson, Emden and the Eichleay formulae in determination of compensation for loss resulting from expenditure incurred on overheads by a contractor due to delay in completion of work, as under (paras 116 and 117, page 318 of SCACTC : page 533 of Arb. LR): "There is nothing in Indian Law to show that any of the formulae adopted in other countries is prohibited in law or the same would be inconsistent with the law prevailing in India. As computation depends on circumstances and methods to compute damages, how the quantum thereof should be determined is a matter which would fall for the decision of the arbitrator. We, however, see no reason to interfere with that part of the award in view of the fact that the aforementioned formula evolved over the years, is accepted internationally and, therefore, cannot be said to be wholly contrary to the provisions of the Indian Law."
(2.) Though the Hudson formula is not free from criticism as noticed in the judgment, yet it would lie in the wisdom of the arbitrator to apply one or the other formula to make an award. In this regard, he Supreme Court observed in McDermott (paras 113 and 114, page 318 of SCACTC : page 533 of Arb. LR): "We do not intend to delve deep into the matter as it is an accepted position that different formulae can be applied in different circumstances and the question as to whether damages should be computed by taking recourse to one or the other formula, having regard to the facts and circumstances of a particular case, would eminently fall within the domain of the arbitrator. If the learned arbitrator, therefore, applied the Emden formula in assessing the amount of damages, he cannot be said to have committed an error warranting interference by this court."
(3.) Therefore, when the calculation is set out in figures in the award under Claim No. 9, by the learned arbitrator [Justice R.K. Nehru (Retd.)] he had in fact applied the Hudson formula without actually saying so. The Hudson formula is an equation applied in the way: The profit percentage divided by 100, multiplied by the contract value, and then multiplied by delay then the figure arrived at would be divided by the period calculated in weeks or months. To express it in simple way, it is like this, a contractor is awarded damages for delay based upon the originally estimated margin, divided by the originally estimated period of construction performance, multiplied by the extra period taken for performance of work and in this way the figure so worked out is the quantum awardable. There is then nothing palpably wrong with the calculation done awarding compensation of Rs. 47,70,125 to the respondent as the principal amount, by applying one of the well recognised formulae. The learned arbitrator had a choice and was under no legal obligation or compulsion to "delve deep into the matter... (as)... different formulae can be applied in different circumstances" as explained in McDermott and afford reasons in the award as to why he chose the Hudson equation in preference to the other two. In McDermott case the learned arbitrators had applied the Emden formula.;