Section 73 damages require proof of actual loss; expense certificates without quantification of loss are insufficient evidence.

The Petitioner (Union of India) awarded an e-tender to the Respondent for the construction of 100 Family Quarters at ITBP Campus, New Delhi.

The contract, executed in 2017, stipulated a 12-month completion period.

Although the work was completed after a delay of 452 days, the Petitioner granted repeated extensions without attributing the delay to the Respondent.

Disputes regarding withheld amounts, GST reimbursements, penalties, and prolongation costs were referred to arbitration, resulting in an award dated 17.02.2023.

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

1. Whether the Arbitrator could direct the release of withheld amounts for milestones and award interest despite Clause 2 of the contract?

2. Whether the award of a 3% difference between GST and VAT was sustainable without proof of actual payment?

3. Whether the refund of a penalty for delay in a sample flat was valid in the absence of proven loss to the Petitioner?

4. Whether damages for prolongation costs could be awarded based solely on a Chartered Accountant's certificate under Section 73 of the Contract Act?

5. Whether the Court has the power to set aside only severable parts of an arbitral award?

The Court applied Section 34 of the Arbitration and Conciliation Act, 1996, regarding the limited scope for setting aside awards.

It relied on Section 73 of the Indian Contract Act, 1872, which mandates that a party claiming damages must prove actual loss or damage unless quantification is impossible.

The Court followed Kailash Nath Associates v. DDA, which holds that proof of loss is not dispensed with if it can be established.

The Court followed Unibros v. All India Radio, which requires credible evidence to substantiate loss of profit.

Regarding severability, the Court applied the principle from Gayatri Balasamy v. ISG Novasoft Technologies Ltd., permitting the setting aside of "invalid" portions of an award while preserving the "valid" ones.

The Court found that since the Petitioner extended the time without blaming the Respondent, milestones should have been rescheduled under Clause 5.4, justifying the refund of withheld amounts.

However, the award of interest on this refund was set aside as Clause 2 of the contract explicitly prohibited interest on withheld amounts.

Regarding the GST claim, the Court held it was unsustainable because the Respondent failed to prove actual payment of the 3% difference, and the Arbitrator’s speculative "split" of taxes ignored that Service Tax was repealed upon the introduction of GST.

The Court upheld the refund of the sample flat penalty, noting the Petitioner failed to prove any actual loss caused by the delay, consistent with the Kailash Nath doctrine.

Regarding prolongation damages, the Court ruled that a CA certificate merely showing expenses is not proof of actual loss under Section 73; the Arbitrator’s assessment was based on assumptions and lacked a legal foundation.

Finally, the Court determined that the invalid portions of the award were severable and could be set aside without nullifying the entire award.

(i) The release of amounts withheld for milestones is upheld, but the interest on such amounts is set aside.

(ii) The final bill amount is corrected to Rs. 54,44,112/- due to a clerical error.

(iii) The 3% GST difference award and the prolongation damages are set aside for lack of proof of actual loss.

(iv) The refund of the sample flat penalty is upheld as no loss was proven.

(v) The litigation costs and general interest (9%) remain upheld.