Delhi High Court Upholds Arbitral Award Denying Distributor's Loss Of Profit Claim Against Bausch & Lomb

The Delhi High Court has recently upheld an arbitral award passed in favour of Bausch & Lomb India Pvt. Ltd., a leading eye-care products manufacturer. It rejected claims of OSA Vendita Pvt. Ltd., its non-exclusive distributor in Kolkata, for loss of profits.

The court found that the distributorship agreement for the supply of eye-care products did not stipulate any assured or fixed sales commitment. In the absence of such a stipulation, the distributor could not recover losses arising from unsold stock and related investments.

It also affirmed that the arbitral tribunal, being empowered under Section 19 of the Arbitration and Conciliation Act, 1996 to regulate its own procedure, was right in rejecting the belated testimony of a new witness. The tribunal had also refused to accept additional documents sought to substantiate OSA Vendita's claim of business losses.

Justice Subramonium Prasad observed that “the Petitioner's attempt to fasten liability upon the Respondent for indemnification of its business losses is not stipulated in the Agreement. The Respondent cannot be held liable for losses incurred by the Petitioner in the conduct of its own business operations.”

“The Tribunal, upon a considered evaluation of the material on record, has specifically noted the absence of crucial corroborative evidence, including books of accounts and the testimony of relevant witnesses. The inferences so drawn fall squarely within the exclusive domain of appreciation of evidence by the Tribunal and cannot, by any stretch, be recast as a violation of the principles of natural justice so as to invite interference by this Court.,” it added.

The dispute arose from a distributorship arrangement executed on September 24, 2003. Under this arrangement, OSA Vendita was appointed to procure and distribute Bausch and Lomb's eye-care products to retailers in Kolkata at a margin. Sales promotion remained with the manufacturer.

OSA Vendita claimed that it increased its investment, starting with Rs. 30 lakh based on projected monthly sales of ₹20 lakh. It later enhanced its credit limits up to Rs.1.10 crore. This was done on the alleged assurance that such sales would be ensured.

However, when sales did not materialize and inventory accumulated, it sought to recover losses from Bausch and Lomb.

OSA Vendita invoked arbitration under the agreement. After proceedings seated in Delhi, the sole arbitrator by award dated September 27, 2021 rejected its claims for loss of profits, interest and litigation costs. These claims arose from unsold inventory and related investments. This led to the present challenge under Section 34.

Before the Court, OSA Vendita argued that the tribunal wrongly refused to permit a key witness and supporting financial documents at a later stage. It also argued that the procedure adopted violated party autonomy. It said this was particularly so in an ad hoc arbitration where civil court-like procedures could not be followed without prior notice.

Bausch and Lomb countered that no assurance of guaranteed sales was ever given. It also argued that the distributor failed to produce evidence despite repeated opportunities.

Rejecting these contentions, the court clarified that under Section 2(1)(a), arbitration includes both ad hoc and institutional proceedings. No distinction can be drawn to question the tribunal's procedure or constitution on that basis.

It further held that refusal to admit belated evidence after closure of proceedings was justified. Such refusal did not violate principles of natural justice.

On merits, the court noted that Clause 10.3 of the agreement expressly provided that once products were sold to the distributor, Bausch and Lomb had no obligation to take them back.

This applied even in cases of expiry or defect. When read with Clause 2.5 reflecting the arm's length nature of the arrangement, it made clear that the commercial risk of unsold inventory lay with OSA Vendita.

Holding that the tribunal's findings on absence of any contractual assurance and lack of supporting evidence were findings of fact, the court said they were not open to reappreciation under Section 34.

It concluded that the award was a plausible and reasoned decision. The Court dismissed the petition and upheld the arbitral award in favour of Bausch and Lomb India Pvt. Ltd.

For Petitioner (OSA Vendita Pvt. Ltd.): Advocates Abhay Chitravanshi, Raghav Awasthi.

For Respondent (Bausch and Lomb India Pvt. Ltd.): Advocate Mukti Chaudhry.