Failure to Proof Actual Loss and Purchase Price Precludes Damages Under Section 73 of the Contract Act

The Petitioner (Hazel Mercantile Ltd.) was awarded a purchase order (PO) by the Respondent (IOCL) on 25.05.2018 for the supply of 13,000 MT of Acetic Acid on a staggered basis.

Due to a plant shutdown and subsequent refusal by IOCL to accept the balance quantity (approx. 5,201.64 MT), the Petitioner invoked arbitration.

The Arbitrator found IOCL in breach of contract but awarded only nominal damages of Rs. 25,000/-, rejecting claims for storage charges and loss based on price differences.

The Petitioner challenged this award under Section 34 of the Arbitration and Conciliation Act, 1996, alleging patent illegality and non-consideration of evidence regarding stock availability.

1. Whether the Arbitral Award suffered from patent illegality or perversity due to the awarding of only nominal damages despite a finding of breach.

2. Whether the Petitioner successfully proved actual loss under Section 73 of the Indian Contract Act to warrant substantial damages.

The court applied Section 73 of the Indian Contract Act, 1872, which requires a claimant to prove actual loss for a claim of damages; where loss is not established, only nominal damages may be awarded.

It relied on Unibros v. All India Radio (2023) to emphasize that "credible evidence" is mandatory to substantiate claims of loss of profit or profitability.

Regarding judicial review, the court followed the standards set in Associate Builders v. DDA (2015) and Patel Engineering Ltd. v. NEEPCO (2020), which restrict interference under Section 34 of the Arbitration and Conciliation Act, 1996 to cases of "patent illegality" or "perversity," prohibiting a merits-based re-appreciation of evidence or sitting in appeal.

The court observed that while breach by IOCL was established, the Petitioner failed to prove specific financial loss.

The Arbitrator’s finding—that the Petitioner maintained a "common pool" of acid rather than an exclusive stock for IOCL—was supported by the deposition of CW-1.

Since the PO did not mandate maintaining dedicated stock and provided 4-7 days for supply, the Petitioner's claim for storage charges was rightfully rejected.

Critically, the court noted that the Petitioner sought damages based on the difference between the contract price and the eventual sale price to third parties but withheld the original purchase price.

Without the purchase price, the court held it impossible to determine if an actual loss was suffered or if the transaction remained profitable despite market fluctuations.

Thus, the Arbitrator’s exercise of discretion to award nominal damages was a "plausible view".

It affirmed that the Petitioner failed to establish actual loss or the maintenance of exclusive stock for the Respondent.

The Court sustained the award of Rs. 25,000/- as nominal damages with 9% interest and the rejection of storage/PBG expense claims.

Under Section 34, the Court cannot re-appreciate evidence when the Arbitrator’s conclusion is a possible one.