22 May 2024 Arbitration Law >> Business & Commercial Law   |   Contract Law >> Corporate Law  

A recent court case saw a challenge to an arbitration award where the petitioner was ordered to pay Rs. 24,54,458.33 to the respondent for breaching a Memorandum of Understanding (MoU). The key dispute centred on Rs. 20,000,000 awarded as compensation for lost profits, which the Petitioner argued lacked any evidentiary basis.

The MoU involved the construction of a mall with a designated space for the respondent to operate a multiplex. The disagreement arose when the Petitioner allegedly entered into a contract with a third party, essentially terminating the Respondent's involvement in the project. The Respondent took the matter to arbitration, claiming the termination was illegal and resulted in lost profits.

The court agreed with the Petitioner's argument regarding the loss of profit amount. The court pointed out inconsistencies in the arbitrator's reasoning. The arbitrator acknowledged the speculative nature of the Respondent's claim about future profits but still awarded them Rs. 20 lakhs as "reasonable loss of profit." This contradiction, the court ruled, rendered the award "perverse and illegal."

Citing established legal principles, the court emphasized that a party claiming loss of profits needs to demonstrate evidence of actual losses incurred. This includes proving the existence of a lost opportunity, attempts to seize that opportunity, and the resulting financial loss. The court highlighted past judgments where calculations without concrete evidence were deemed insufficient for awarding loss of profits.

In conclusion, the court allowed the petition and set aside the entire arbitration award. This means the original Rs. 24,54,458.33 judgment is no longer enforceable. Additionally, each party will bear their own legal costs associated with the case. This verdict serves as a reminder of the importance of well-supported claims and sound reasoning in arbitration proceedings, particularly when dealing with speculative damages like loss of future profits.

  Arbitration and Conciliation Act, 1996    Indian Contract Act, 1872