Damages under Section 73 require proof of actual loss; assessment based on conjecture constitutes patent illegality.

The Petitioner (Indian Sugar Exim) contracted to supply 8,419 MT of sugar from Morna Sugar Mill to the Respondent (Sakuma Exports) by May 31, 2019 (the "Morna Contract")

The Respondent intended to supply this sugar to a foreign buyer in the UAE, who later claimed damages of USD 498,800 due to non-supply

The Respondent issued a debit note of Rs. 3.61 Crores to the Petitioner

On March 17, 2020, the Petitioner issued a credit note for Rs. 2 Crores but withdrew it the following day, citing a lack of supporting documentation from the Respondent

The Arbitral Tribunal awarded the Respondent Rs. 1.40 Crores for loss of profit and Rs. 2 Crores for the foreign buyer's claim

The Petitioner challenged this award under Section 34 of the Arbitration and Conciliation Act, 1996.

1. Whether the Morna Contract was novated or substituted by subsequent agreements involving different sugar mills.

2. Whether the Arbitral Tribunal’s quantification of damages for loss of profit based on "guesswork" was legally sustainable under Section 73 of the Contract Act.

3. Whether the award of Rs. 2 Crores based on a withdrawn credit note constituted a perverse finding or patent illegality.

The Court applied Section 34 of the Arbitration and Conciliation Act, 1996, which permits setting aside an award on grounds of patent illegality, perversity, or violation of public policy

It relied on Section 73 of the Indian Contract Act, 1872, emphasizing that damages for breach of contract require proof of actual loss or damage sustained

The Court followed Unibros v. All India Radio, establishing that loss of profit cannot be awarded on assumptions without proof of actual loss

cited Associate Builders v. DDA regarding the limited scope of judicial interference in arbitral awards

Regarding novation, the Court upheld the Tribunal’s finding that the Morna Contract remained valid as the subsequent mill-specific contracts did not match the original quantity and were independent transactions

However, the Court found the award of Rs. 1.40 Crores for loss of profit to be flawed.

While some guesswork is permissible in quantifying damages, it cannot replace evidence when such evidence (like books of accounts) is available but not produced

The Respondent failed to prove net profit by accounting for freight and expenses

Regarding the Rs. 2 Crore claim, the Court noted the Tribunal ignored evidence that the Petitioner withdrew the credit note within 24 hours due to the Respondent's failure to provide substantiating documents

Furthermore, there was no proof that the Respondent had actually paid or adjusted the foreign buyer's debit note

The Tribunal's conclusion that the credit note was an "admission" was deemed perverse as it ignored the context of the "UP default" which covered multiple contracts, not just Morna

It held that the award suffered from patent illegality and perversity because damages were awarded on sheer conjecture without proof of actual loss, and a withdrawn credit note was incorrectly treated as a binding admission of liability

All pending applications were disposed of