For Claims of Damages, Proof of Actual Loss is Sine Qua Non” – Bombay High Court Stays Arbitral Award

The Bombay High Court has granted an unconditional stay on an arbitral award in a dispute concerning breach of contract and damages, emphasizing the necessity of proving actual loss in claims for damages.

Facts & Issues: The case involves Alkem Laboratories Limited and Issar Pharmaceuticals Pvt. Limited, centered on a dispute over a Marketing and Distribution Agreement (MDA) for a product named MELGAIN. The key issue was the arbitrator’s award of damages to Issar Pharmaceuticals for Alkem’s alleged breach of contract regarding minimum purchase volumes, despite no proof of actual loss being provided.

Court’s Assessment:

Contradiction in Arbitral Award: The court observed that while the arbitrator acknowledged the need for proving actual loss in damages, the award was paradoxically based on the product price, not the actual loss, failing to consider necessary deductions like manufacturing costs.

Burden of Proof Not Met: Alkem’s counsel argued that the claimant failed to show any proof of loss, a crucial element in damage claims. The court noted this was in direct contradiction to settled legal principles.

Unique Nature of Contract Overlooked: The court criticized the arbitrator’s approach, noting a flawed application of legal principles to the unique contract (MDA), leading to an incorrect computation of damages.

Reference to Precedents: The judgment referred to various precedents underlining the necessity of proving actual loss in damage claims, emphasizing that this forms the essence of a valid claim for damages under contract law.

Decision: The High Court, acknowledging these substantial legal missteps, granted an unconditional stay on the arbitral award, finding it to be patently illegal and perverse. The hearing of the arbitration petition was expedited.

Date of Decision: 5 February 2024

Alkem Laboratories Limited Vs Issar Pharmaceuticals Pvt. Limited