Contract damages under Section 73 require proof of loss and consideration of mitigation.

DSIR sanctioned financial assistance for SSIL’s technology-development project and disbursed ₹2.40 crore.

Under the Tripartite Agreement, royalty was payable upon commercial production, sale or captive use; a separate clause required SSIL to transfer the technology and know-how to NRDC if commercialisation did not occur within four years of project completion.

The arbitrator rejected the royalty claim because commercialisation had not been established, but found SSIL in breach of the technology-transfer obligation and awarded NRDC ₹2,60,83,200, with interest.

The arbitrator also dismissed SSIL’s counterclaim for return of ₹64,74,000 paid as the first royalty instalment and set that sum off against the damages.

SSIL challenged the award under Section 34 of the Arbitration and Conciliation Act, 1996, including on the ground that damages were awarded without proof of loss.

Whether the arbitrator erred in awarding damages for SSIL’s failure to transfer the technology without determining and assessing loss suffered by NRDC.

Whether the award’s adjustment of SSIL’s ₹64,74,000 payment against the damages could stand once the damages award was set aside.

Section 34 of the Arbitration and Conciliation Act, 1996 limits judicial interference with arbitral awards; a court does not sit in appeal or reappreciate evidence, but may set aside an award for patent illegality going to the root of the matter.

Under Section 73 of the Indian Contract Act, 1872, compensation is recoverable for loss or damage caused by breach, subject to remoteness and the claimant’s duty to mitigate; the claimant must establish the loss, though the amount of a claim need not necessarily be quantified at the pleading stage.

Where actual loss is capable of proof, proof is required; breach alone does not justify an award of substantial compensation.

The arbitrator treated the failure to transfer the technology as a breach and reasoned that damages should place NRDC in the position it would have occupied had the contract been performed.

The High Court held that this measure, by itself, did not establish that NRDC had suffered loss or its extent. The award contained no finding assessing any loss resulting from the non-transfer, nor did it address mitigation as required by Section 73.

Because the damages award therefore lacked a necessary foundation under Section 73, it was liable to be set aside; this conclusion did not require the Court to reappreciate evidence.

It also set aside the adjustment of the ₹64,74,000 payment against those damages.

The judgment’s concluding paragraph states that the award was set aside and leaves NRDC and DSIR at liberty to pursue an appropriate application under Section 11 to constitute a tribunal to prove damages.