Contractual limits on arbitral relief: damages, VAT and interest may fail where supply, loss and express prohibitions are not proved.

An arbitral award may be vulnerable where it grants payment for undelivered goods without proof that the claimant was ready to supply, without evidence of actual loss, and despite a contractual short-closure option within the permissible margin. VAT and additional VAT cannot be awarded for goods not supplied where the contract bars benefit from levy changes after the original delivery period. Interest is also not recoverable where the bid document expressly excludes any claim for interest, because Section 31(7) of the Arbitration and Conciliation Act, 1996 yields to party agreement. The text emphasises that relief beyond the contractual bargain and unsupported damages can attract judicial interference under Section 34.

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Issues: (i) Whether the arbitral award granting the price of undelivered goods for the short-closed quantity was vitiated for want of proof of readiness to supply, absence of actual loss, and the purchaser's contractual option to short close within the permissible margin; (ii) Whether the award of VAT and additional VAT was barred by the contract and unsustainable in respect of goods not supplied; and (iii) Whether the award of interest was contrary to the contractual prohibition and therefore beyond the arbitrator's jurisdiction.

Issue (i): Whether the arbitral award granting the price of undelivered goods for the short-closed quantity was vitiated for want of proof of readiness to supply, absence of actual loss, and the purchaser's contractual option to short close within the permissible margin?

Analysis: The award granted the price of 2,596 items although those goods were never supplied. No sufficient evidence was discussed to show that the claimant had kept the materials ready at the relevant time. The claim of loss was also unsupported, and the record indicated that the claimant had stated it would be ready to supply the balance quantity only after four months. The contract further contained an option clause permitting the purchaser to take a short closure up to 30%, and the disputed quantity fell within that margin. In that situation, the purchaser could not be treated as having breached the contract by refusing to accept the balance quantity. The award on this component ignored the contractual framework and the requirement of proof of actual loss under the law of damages.

Conclusion: The award on the price claim was unsustainable and liable to be interfered with.

Issue (ii): Whether the award of VAT and additional VAT was barred by the contract and unsustainable in respect of goods not supplied?

Analysis: VAT is ordinarily levied on supplies actually made and collected in relation to goods supplied. Since the balance goods were not supplied at all, the basis for granting VAT on those goods was absent. The arbitral tribunal also overlooked the contractual denial clause, which barred benefit on account of statutory levy changes after expiry of the original delivery period. The supply period had been extended several times, and the VAT components related to a period beyond the original delivery period. The VAT awards therefore conflicted with the contract and lacked a factual foundation.

Conclusion: The VAT components of the award were barred by the contract and could not stand.

Issue (iii): Whether the award of interest was contrary to the contractual prohibition and therefore beyond the arbitrator's jurisdiction?

Analysis: The bid document contained an express bar that no claim would lie against the purchaser in respect of interest. Section 31(7) of the Arbitration and Conciliation Act, 1996 permits interest unless otherwise agreed by the parties. Here, the parties had expressly agreed to exclude such liability. The arbitrator was therefore bound by the contractual prohibition and could not award pendente lite or other interest contrary to that bar.

Conclusion: The interest component was contrary to the contract and beyond the arbitrator's authority.

Final Conclusion: The arbitral award was set aside in its entirety as the challenged components were found to be contrary to the contract, unsupported by proof of loss, and vitiated by patent illegality within the scope of judicial review under Section 34.

Ratio Decidendi: An arbitral award cannot survive judicial scrutiny when it grants relief beyond the contractual bargain, awards damages without proof of actual loss, or allows interest in the face of an express contractual prohibition.

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