The Delhi High Court has set aside an arbitral award in a dispute between Indian Sugar Exim Corporation Ltd. and Sakuma Exports Ltd., holding that damages cannot be awarded in the absence of proof and cannot be based on conjecture.
Justice Avneesh Jhingan allowed a petition under Section 34 of the Arbitration and Conciliation Act, 1996 and quashed the award dated June 9, 2023.
The dispute arose out of a contract for supply of over 8,400 metric tonnes of sugar for export. The arbitral tribunal had held that the supplier failed to perform its obligations and awarded damages including ₹1.4 crore towards loss of profit and ₹2 crore linked to a claim raised by a foreign buyer due to non-supply.
The High Court, however, found that the claimant failed to substantiate its losses. It held that although some degree of estimation is permissible in assessing damages, such assessment cannot be based purely on guesswork where evidence is capable of being produced. The Court noted that no books of accounts or supporting documents were placed on record to establish actual loss.
On the claim relating to the foreign buyer, the Court observed that mere issuance of a debit note does not establish that loss was suffered, particularly in the absence of proof that the amount was paid or adjusted. It also found that reliance on a credit note as an admission of liability was misplaced, especially since the credit note was withdrawn shortly after its issuance and was not specifically tied to the contract in question.
While upholding the tribunal’s finding that there was no novation of the contract and that the petitioner had failed to supply the contracted quantity, the Court held that mere breach does not entitle a party to damages in the absence of proof, and set aside the award in entirety.
Terming the tribunal’s findings on damages as perverse and suffering from patent illegality, the Court held that the award was contrary to public policy and liable to be set aside.
Accordingly, the High Court allowed the petition and set aside the arbitral award in its entirety, reiterating that damages under contract law must be grounded in evidence and cannot be awarded on assumptions.
Appearances:
For the Petitioner: Mr. Jayant Mehta, Sr. Adv. with Ms. Shruti Sabharwal, Ms. Avlokita Rajvi, Mr. Lakshya Khanna, Mr. Bakhshind Singh and Ms. Sidhika Nagrath, Advs.
For the Respondent: Mr. Rajeeve Mehra, Sr. Adv. with Mr. V AnushRaajan, Ms. Shreya V Mehra and Mr. Pradyumn Yadav, Advs
