Delhi High Court Upholds Nominal Damages In Arbitration, Reiterates Proof Of Actual Loss Under Section 73 Contract Act

The Court was dealing with a petition filed by Hazel Mercantile Ltd. challenging an arbitral award passed in a dispute with Indian Oil Corporation Ltd. (IOCL) concerning supply of Acetic Acid.

The dispute arose out of a commercial arrangement for supply of Acetic Acid pursuant to a tender issued by Indian Oil Corporation Limited (IOCL). Hazel Mercantile Limited (HML), whose bid was accepted, was issued a Purchase Order for supply of 13,000 metric tonnes (MT) at a fixed price. The contract contemplated delivery on a “staggered basis” in accordance with IOCL's monthly or weekly purchase schedules, for a period of one year or till completion of the entire quantity, whichever was earlier.

By the end of the contractual period, approximately 6,504 MT had been supplied, leaving a balance of about 5,201 MT. HML alleged that this shortfall constituted breach of contract by IOCL and commenced arbitration proceedings seeking compensatory damages.

Arbitral Award

The arbitral tribunal held that IOCL had breached the contract. However, it found that the claimant failed to establish actual loss. The tribunal noted:

· There was no exclusive stock maintained for IOCL

· The petitioner maintained a common pool of stock for multiple customers

· Stock records showed insufficient quantities on several dates

· There was no contractual requirement to maintain full stock in advance

Accordingly, the tribunal rejected the main claim for damages as well as ancillary claims and awarded only ₹25,000 as nominal damages, along with interest at 9% per annum, and ₹12 lakh towards litigation costs.

HML challenged the award under Section 34 primarily on the ground of perversity, contending that the tribunal ignored material evidence showing sufficient stock.

High Court's Findings

The High Court noted that there was no challenge to the finding of breach, and the dispute was confined to the quantum of damages.

Relying on Unibros v. All India Radio, the Court reiterated that:

· Proof of actual loss is essential for claiming damages under Section 73

· In absence of such proof, only nominal damages may be awarded

The Court further observed that:

· The petitioner failed to prove that it maintained exclusive or sufficient stock for IOCL

· The claim based on price difference alone was insufficient, particularly as the purchase price was not disclosed

· The arbitrator's findings were based on evidence and were plausible

Emphasizing the limited scope of interference under Section 34, the Court held that it cannot re-appreciate evidence or sit in appeal over the arbitral award.

Holding that the arbitral award did not suffer from perversity or patent illegality, the Court dismissed the petition and upheld the grant of nominal damages.

Case Details

Case Title: OMP (COMM.) No. 36 of 2023 – Hazel Mercantile Ltd. v. Indian Oil Corporation Ltd.

For Petitioner: Mr. Bishwajit Dubey, Mr. Akshit Awasthi & Mr. Vivek Sharma, Advs.
For Respondent: Ms. Vineeta Meharia, Senior Counsel, along with Mr. Amit Meharia, Ms. Tannishtha Singh and Mr. Sambhav, Advs.

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