Bombay High Court Stays Arbitral Award, Emphasizing Need For Proof Of Actual Loss In Damages Claim

Bombay High Court Stays Arbitral Award, Emphasizing Need For Proof Of Actual Loss In Damages Claim

Bombay High Court Justice R.I. Chagla has stayed an arbitral award, citing the arbitrator's violation of established legal principles. The court highlighted that, according to settled law, a claim for damages requires proof of actual loss, which the arbitrator overlooked when granting damages to the claimant.

Alkem Laboratories Limited, the applicant/petitioner, approached the Bombay High Court seeking an unconditional stay on the award and filed the interim application.

The applicant contended that the arbitrator's classification of the claim as damages rather than as a price was erroneous. It emphasized the arbitrator's failure to assess evidence of loss when granting damages, opting instead to calculate damages based on the price of MELGAIN vials.

Moreover, it was argued that the arbitrator neglected to adhere to the legal prerequisite of "proof of loss" when granting damages for the non-purchase of the minimum purchase volume (MPV) of MELGAIN. The contention was that in the absence of liquidated damages specified in the Marketing and Distribution Agreement (MDA), any unliquidated damages should have been determined based on actual loss or harm, which the claimant did not substantiate.

The assertion was made that the burden of proof to demonstrate loss rested on the claimant, who purportedly failed to fulfil it.

Furthermore, it contended that despite the arbitrator's recognition of the claim as one for damages, the actual award seemed to be founded on the price, employing criteria such as "least financial exposure" and "strict obligations." It stressed that the arbitrator's reliance on the total price payable for MELGAIN vials without accounting for manufacturing costs was flawed. Inconsistencies in the award were highlighted, wherein the arbitrator asserted the claimant's entitlement to damages but computed the award exclusively based on price.

The High Court deemed the case to be exceptional, unique, and compelling, thus justifying an unconditional stay of the money award or decree issued in the award. Despite recognizing on multiple occasions that the claimant's claim was for damages rather than price, the award proceeded to compute damages using the price payable for the product MELGAIN as per the Minimum Purchase Volumes (MPV).

The High Court affirmed the well-established legal principle that proof of actual loss is indispensable in a claim for damages. Nevertheless, it was noted that the arbitrator appeared to have disregarded this requirement, as there was no assessment of whether there existed adequate evidence of actual loss before awarding the claim for damages.

Additionally, the High Court determined that even if damages were to be assessed according to the price of the Minimum Purchase Volume (MPV) outlined in the Marketing and Distribution Agreement (MDA), there was a fundamental flaw in the calculation. The arbitrator failed to take into account manufacturing costs and expenses related to manpower, which should have been subtracted from the total awarded price.

The High Court held that the award suffered from perversity and patent illegalities. The arbitrator has disregarded established legal principles regarding the necessity of proving actual loss for claims of damages. Therefore, the High Court ordered an unconditional stay of the award.