Patent Illegality | For Claim For Damages There Must Be Proof Of Actual Loss: Bombay High Court Stays Arbitral Award

Brief Facts:

The Applicant/Petitioner (Alkem Laboratories Limited) approached the Bombay High Court for unconditional stay on the Award and filed an Interim Application.

The Applicant, argued that the Arbitrator's characterization of the claim as damages rather than for price was flawed. It highlighted the Arbitrator's omission to consider proof of loss while awarding damages, instead relying on the price of MELGAIN vials for calculation.

Furthermore, it contended that the Arbitrator failed to uphold the legal requirement of "proof of loss" when awarding damages for the failure to purchase the Minimum Purchase Volume (MPV) of MELGAIN. It argued that since the Marketing and Distribution Agreement (MDA) did not stipulate liquidated damages, any unliquidated damages should have been based on the actual loss or injury, which the Claimant failed to prove.

It asserted that the burden of proof to demonstrate loss rested on the Claimant, who allegedly failed to discharge it.

Moreover, it argued that despite the Arbitrator's acknowledgment that the claim was one of damages, the actual award appeared to be based on the price, using a measure of "least financial exposure" and "strict obligations." It emphasized that the Arbitrator's reliance on the total price payable for MELGAIN vials without considering the manufacturing costs was defective. It pointed out inconsistencies in the Award where the Arbitrator maintained that the Claimant was entitled to damages but calculated the award solely based on price.

Observations by the High Court:

The High Court noted that the case was exceptional, unique, and compelling, warranting an unconditional stay of the money award or decree issued in the Award. The High Court held that Award, despite acknowledging in various instances that the Claimant's claim pertained to damages rather than price, proceeded to calculate damages based on the price payable for the product MELGAIN as per the Minimum Purchase Volumes (MPV).

The High Court held that it is a well-established in law that for a claim for damages, proof of actual loss is imperative. However, it held that the Arbitrator seemingly overlooked this requirement, failing to assess whether there was sufficient evidence of actual loss before granting the claim for damages.

Moreover, the High Court held that even if the damages were to be measured based on the price of the MPV set out in the MDA, there existed a fundamental flaw in the computation of damages. The Arbitrator neglected to consider manufacturing costs and manpower expenses, which should have been deducted from the total price awarded.

The High Court held that the Award suffered from perversity and patent illegalities. Therefore, the High Court ordered an unconditional stay of the Award.

Case Title: Alkem Laboratories Limited vs Issar Pharmaceuticals Pvt. Limited

Case Number: INTERIM APPLICATION NO. 377 OF 2024 IN COMMERCIAL ARBITRATION PETITION NO. 389 OF 2023

Advocate for the Appellant: Mr. Darius Khambata, Senior Counsel, Mr. Chetan Kapadia, Senior Counsel, Ms. Sreenandini M. Mr. Arun Siwach, Ms. Priyanka Mitra and Mr. Karan Khetani i/by Cyril Amarchand Mangaldas for the Petitioner

Advocate for the Respondent: Mr. Sharan Jagtiani, Senior Counsel a/w Mr. Rohil Bandekar, Ms. Madhavi Nalluri, Mr. Hitesh Kharat, Mr. Suraj S. Ghogare i/by Suraj S. Ghogare for the Respondent.

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