Kanchan Udyog Limited v. United Spirits Limited
Background
Kanchan Udyog had set up a non-alcoholic beverage bottling plant at Dankuni, West Bengal in the mid-1980s under a ten-year "Bottler's Agreement" with United Spirits (then McDowell's), to bottle and sell soft drinks like 'Thrill' and 'Rush' under United Spirits' brands, with United Spirits supplying the concentrate and marketing support. United Spirits terminated the agreement in 1988, and Kanchan Udyog's plant shut down in 1989; Kanchan Udyog sued in 1990 for damages, claiming loss of anticipated profits and the cost of setting up the plant. A trial court decreed the suit in Kanchan Udyog's favour in 1999, but the Calcutta High Court's appellate (Division) Bench reversed this in 2005 and dismissed the suit entirely.
Decision Breakdown
The Supreme Court upheld the dismissal of Kanchan Udyog's suit. It held that Kanchan Udyog's claim for loss of anticipated profits relied on a loan application (Exhibit 'C') submitted to a state financial corporation, which was merely a reproduction of an independent feasibility report that itself had never been proved in evidence, so the profit projections could not form a reliable basis for damages, especially since Kanchan Udyog had itself admitted in writing that it expected to keep making losses for several more years. The Court further found that Kanchan Udyog's own poor financial management, inadequate advertising spend compared to United Spirits, and failure to pay its suppliers, not United Spirits' termination, were the real causes of its business failure, and that by voluntarily sourcing concentrate directly from a third-party supplier for nearly a year without objection or legal challenge, Kanchan Udyog had effectively waived/acquiesced to the changed arrangement. It also held that a party cannot simultaneously claim both "loss of anticipated profits" and "reliance loss" (cost of investment) where, as here, the venture was never shown to be a profitable one in the first place, and that Kanchan Udyog had in any event failed to take reasonable steps to mitigate its losses (e.g., selling the idle plant promptly rather than waiting until 1996).
Lesson Learnt
To win damages for breach of contract, a business cannot rely on its own speculative profit projections from a loan application as proof of lost profits: those projections must be independently and properly proved in court; and a party claiming damages must also show it acted promptly to minimize ("mitigate") its own losses, rather than sitting on an idle asset for years.