M/S Dewan And Sons And Ors vs M/S Harsh International

Court
Delhi High Court

$~50
* IN THE HIGH COURT OF DELHI AT NEW DELHI
Date of decision: 13.05.2026
+ O.M.P. (COMM) 237/2026, I.A. 13336/2026 (Stay), I.A.
13337/2026 (exemption), I.A. 13338/2026 (Seeking permission
to file pen drive containing photographs and video recordings),
I.A. 13339/2026 (For impleadment) & I.A. 13340/2026 (Delay
of 24 days in Re-filing the appeal)


M/S DEWAN AND SONS AND ORS ....Petitioners
Through: Mr. Gaurav Gaur, Mr. Nitin K
Gupta, Mr. Punit Singla, Mr.
Prasoon Kumar, Ms. Pranjal
Vyas, Ms. Ayushi Arya, Ms.
Samriddhi Tiwari, Mr. Sanchay
Mehrotra and Mr. Parth Kansal,
Advocates
versus

M/S HARSH INTERNATIONAL .....Respondent
Through: Mr. Nitin Mittal and Mr.
Kailash Chander, Advocates

CORAM:
HON'BLE MR. JUSTICE HARISH VAIDYANATHAN
SHANKAR

% JUDGMENT (Oral)

1. The present Petition, filed under Section 34 of the Arbitration
1
and Conciliation Act, 1996 , seeks to challenge the Arbitral Award
2
dated 11.12.2025 read with the amended Award dated 09.02.2026 ,
passed by the learned Sole Arbitrator.
2. Since the learned counsel appearing on behalf of the Petitioners
has raised only narrow and limited contentions in the present Petition,

1
A&C Act
2
Impugned Award
Signature Not Verified
Digitally Signed
By:HARVINDER KAUR
BHATIA
Signing Date:19.05.2026
15:19:01
O.M.P. (COMM) 237/2026 Page 1 of 33

and thus, with the consent of the parties, the present Petition has been
taken up for final hearing and is being disposed of finally by this
Court today.
SUBMISSIONS OF BEHALF OF THE PARTIES:
3. At the outset, learned counsel appearing on behalf of the
Petitioners submits that the Impugned Award is ex facie non-est in the
eyes of law inasmuch as Rule 4(x) of the Delhi Micro and Small
3
Enterprises Facilitation Council Rules, 2007 contemplates that the
4
Delhi Micro and Small Enterprises Facilitation Council may
either itself act as an Arbitrator for final settlement of the dispute or
refer the matter to an institution for conducting arbitration in
accordance with the provisions of the A&C Act.
4. Learned counsel for the Petitioners further contends that a
conjoint reading of Rule 4(x) and Rule 4(xii) of the aforesaid Rules
makes it abundantly clear that even where the dispute is referred to an
institution for the purposes of arbitration, such institution is merely
required to conduct the arbitral proceedings and submit its report to
the Council within the stipulated time. The aforesaid Rules 4(x) and
(xii) of the DMSEFC Rules are reproduced herein under for ready
reference:
“ Rule - 4. Procedure to be followed in the discharge of
functions of the Council.
*
(x)When such conciliation does not lead to settlement of the
dispute, the Council shall either itself act as an Arbitrator for final
settlement of the dispute or refer it to an institute for such
arbitration, in accordance with the provisions of the Arbitration and
Conciliation Act, 1996. The supplier or the buyer may, either in
person or through his lawyer registered with any court, present his
case before the Council or the institute during the arbitration

3
DMSEFC Rules
4
Council
Signature Not Verified
Digitally Signed
By:HARVINDER KAUR
BHATIA
Signing Date:19.05.2026
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proceedings The institute shall submit its report to the Council
within such time as the Council may stipulate.
*
(xii) The Council shall make an arbitral award in accordance with
Section 31 of the Arbitration and Conciliation Act, 1996 and within
the time specified in sub-section (5) of Section 18 of the Act. The
award shall be stamped in accordance with the relevant law in
force. Copies of the award shall be made available within seven
days of filing of an application.”

5. Learned counsel, in this light, submits that the statutory scheme
of the DMSEFC Rules vests the ultimate authority to render and
pronounce the arbitral award exclusively with the Council itself, in
accordance with Section 31 of the A&C Act. Consequently, it is
contended that the Impugned Award, having been rendered by the
institution itself and not by the Council, is rendered wholly without
authority of law and is therefore liable to be set aside.
6. In this regard, learned counsel for the Petitioners places reliance
on the Judgement of the Punjab and Haryana High Court in Indian Oil
Corporation Limited and Ors. vs. Haryana Micro and Small
5
Enterprise Facilitation Council, Chandigarh and Ors. , in particular
Paragraph Nos. 104, 110, 111, 112, 114, 121 and 125 thereof, which
read as follow:
“104. It is the specific case of the respondents that the Facilitation
Council has been itself passing the final award and the
Arbitrator/facilitator/expert, as the case may be, are only entrusted
to submit the report to the Council. The facilitator not being
competent to pass an award, there proceedings are thus in
accordance with the statute and there is no violation of the Statute.
*
110. Hence, an expression used has to be seen from the context of
the statute, the object of the statute, the consequence of the
expression and also as to whether the construction would further
the object. The doctrine of workability mandates a constitutional
court to harmoniously construct the provisions so as to make them
workable and not to give rise to a roadblock.

5
2023 SCC OnLine P&H 1443
Signature Not Verified
Digitally Signed
By:HARVINDER KAUR
BHATIA
Signing Date:19.05.2026
15:19:01
O.M.P. (COMM) 237/2026 Page 3 of 33

111. Applying the above tests, the suggestion of the petitioner that
no external aid can be sought by the council, if conducting the
arbitration itself, tends to fail the object of the statute, if accepted.
The petitioners have failed to point out how the statutory objective
would be defeated or any right would be prejudiced by seeking a
report from an independent third party more so when none of the
petitioners have alleged or suggested any bias, malice or prejudice.
Besides, the act of the facilitation council in seeking a report is
more in the nature of the completion of the procedural requirement
while the substantive power to pass the award is retained by the
Facilitation Council and the final award under section 18(3) of the
Act of 2006 is passed by it. Barring a few awards, there is no award
under challenge that has been authored by the Sole arbitrator.
Hence, there is no reason for this court to assume that the awards
are in fact being passed by the sole arbitrator(s) and not by the
Council itself.
112. At the same time, in so far as the Institute of Arbitration, as
stipulated in the Act of 2006 is concerned, so far there is no
Arbitration institute that has been recognized or graded in the
States of Punjab and Haryana. Hence, even though the act
contemplates conduct of arbitration by such institute, however, in
reality, the same are required to be conducted by the Council itself.
*
114. The petitioners are rather swayed in their arguments more by
the use of expression Arbitrator(s) in the appointment and also in
section 18(3) of the Act of 2006. A mere use of such an expression
cannot automatically bring in the rigors of the Arbitration and
Conciliation Act, 1996. It is well settled that when there is a
general reference in the Act in question to some earlier Act, but
there is no specific mention of the provisions of the former Act,
then it is a case of legislation by reference and even the amending
laws of the former Act may become applicable. However, where
the provisions of the Act are specifically referred to and
incorporated in the latter statute, then those provisions alone are
applicable. This is the principle of legislation by incorporation.
Thus even though certain provisions of the Arbitration and
Conciliation Act, 1996 may be applicable by reference, however,
the reference should not result in defeating the object and purpose
of the Act of 2006. The procedural provisions of the Act of 1996
are thus to come to the aid of the Act of 2006 and not over shadow
the same to occupy the field despite the Act of 2006 being a special
statute. Hence, notwithstanding the nomenclature used as
Arbitrator/sole arbitrator, he continues to remain as a facilitator in
view of the letter of engagement and cannot travel beyond the
terms of his appointment.
*
121. The expression “Arbitrator” as used in the Rules of 2007
which stands substituted by the expression “Experts” in Rule 6(12)
Signature Not Verified
Digitally Signed
By:HARVINDER KAUR
BHATIA
Signing Date:19.05.2026
15:19:01
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of the Rules of 2021 thus remains a designation only for the
defined object and purpose and does not confer authority to pass an
award under the Arbitration and Conciliation Act, 1996. The role of
the facilitator in the present case being restricted to submit a
comprehensive report on the totality of claims, such person
engaged/appointed thus has not been given the adjudicatory power
to pass an award as per Section 18(5) of the Act of 2006. Rather
Rule 4(19) mandated the Facilitation Council to pass the award.
Similarly, Rule 6(11) of the Rules of 2021 also stipulate that the
Council shall consider the arbitral finding/report/recommendations
and thereafter pass the final award/order in the manner. Hence, the
power and authority to pass the final award has always been vested
with and is being exercised by the Facilitation Council itself. The
initial confusion brought about by use of the expression Facilitator
in the Rules of 2021 and such expression can be used as an external
aid to interpretation of the erstwhile provision as well. The
strenuous attempt made by petitioners to read the provisions of
The Arbitration and Conciliation Act, 1996into the Act of 2006 and
to contend that the same are inherently imbibed in the Act of 2006
is clearly a misadventure.
*
125. In view of the above, there is no prohibition in the engagement
of an arbitrator/expert/facilitator, as the case may be, under the Act
of 2006 or the Rules framed thereunder, for submission of a report
to the Facilitation Council. The Arbitrator so appointed is however
not competent to pass an enforceable award as no such power has
been conferred upon him under the Rules or the statutory scheme
and only the Council is competent to pass the final award. Since the
arbitrator/expert/facilitator is only acting under the aegis of the
Council, which is in fact the Arbitrator, the adjudication has to be
done by it. If any such award has actually been passed by the Sole
Arbitrator, the same is thus beyond the terms of engagement even
as per the respondents themselves.”

7. Further, as a second contention, learned counsel appearing on
behalf of the Petitioners submits that at the time when the disputes are
stated to have arisen between the parties, the Respondent had not
obtained registration under the Micro, Small and Medium
6
Enterprises Development Act, 2006 , and that the MSME
registration certificate was obtained only subsequently.

6
MSMED Act
Signature Not Verified
Digitally Signed
By:HARVINDER KAUR
BHATIA
Signing Date:19.05.2026
15:19:01
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8. Learned counsel thus contends that, in the absence of a valid
MSME registration, on the date of accrual of the cause of action, the
Respondent could not have invoked the jurisdiction of the Council
under Section 18 of the MSMED Act, even though the Respondent
may have been registered under the MSMED Act at the stage when
the disputes came to be referred for arbitration.
9. In order to substantiate the aforesaid contention, the learned
counsel for the Petitioners again places reliance on Indian Oil
Corporation Limited (supra) , particularly Paragraph No. 136 thereof.
The same reads as follows:
“ 136. So far as the issue No. 4 regarding the Facilitation Council
having jurisdiction to entertain the dispute instituted before it
which relate to the period prior to the registration of the claimant as
a Micro, Small and Medium Enterprise under the Act of 2006 or
the dispute having been brought before it in relation to the date of
invoice/claim being after getting the registration is concerned, the
said issues do not require any further examination. The Hon'ble
Supreme Court has already laid down in the matter of Silpi
Industries case (supra), as well as the judgments referred to above
that date of registration as Micro, Small and Medium Enterprises is
the cardinal date for assuming jurisdiction qua a dispute brought
before the Council. The date of the invoice is thus inconsequential.
If the supplier was not registered with the competent authority as a
Micro, Small and Medium Enterprise on the date when the contract
was entered into, merely because it was registered as on the date
when invoice was raised, would not confer jurisdiction of the
Facilitation Council to adjudicate the payment dispute under the
Act of 2006.”

10. Learned counsel for the Petitioners, in the backdrop of
foregoing reliance, contends that the reference by the Council was
therefore illegal and the Impugned Award rendered as a consequence
thereof, is non est in the eyes of law and unsustainable.
11. Coming to the merits of the Impugned Award, learned counsel
appearing on behalf of the Petitioners further submits that various
communications and objections addressed by the Petitioners raising
Signature Not Verified
Digitally Signed
By:HARVINDER KAUR
BHATIA
Signing Date:19.05.2026
15:19:01
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the aforesaid issues were completely disregarded by the learned
Arbitrator while rendering the Impugned Award. It is thus contended
that the Impugned Award suffers from patent illegality and non-
consideration of material objections going to the root of the matter,
thereby warranting interference by this Court in exercise of its
jurisdiction under Section 34 of the A&C Act.
12. Learned counsel for the Petitioners further draws the attention
of this Court to Issue Nos. i, v, vi and viii, as framed and decided by
the learned Arbitrator. The relevant portions of the Impugned Award
are reproduced herein under for ready reference:
“ 24. ….. This Arbitral tribunal has framed the following issues:
i. Whether the Claimant is entitiled to an award for a sum of
Rs. 2,05,38,385/- or any part thereof;
*
v. Whether any material supplied by Claimant to the
Respondent were defective as claimed by the Respondent?
vi. Whether the Respondent had to pay Rs. 2,29,73,611/-
(3,00,000 USD) or any other amount to Warmart Inc. USA
on account of defective goods/materials supplied by the
Claimant?
*
viii. Whether the Respondent Nos. 2 to 4 are in any manner
liable for the claims of the Claimant or any part thereof?
*
40. Without prejudice to its contention with regard to
arbitrability of the claim and its contention that the claim was
barred by limitation, the Respondents have refuted the claim on
merits on the purported ground that the goods were defective.
41. The invoices are not disputed. Supply of goods covered by
the invoices is also not disputed. Having regard to the defence of
the Respondents to the claim of the Claimant, it is not necessary
to discuss the entire evidence adduced on behalf of the parties.
42. The entire claim of the Claimant has been contested on the
ground that goods supplied were not upto specification and were
substandard. It is mainly contended that the Respondent sold the
goods purchased from the Claimant to Walmart INC. of USA,
hereinafter referred to as „Walmart‟. Walmart rejected the goods
as defective. According to the Respondents, the Respondent No. 1
had to face loss of goodwill and business losses. The Respondent
No. 1 had been forced to settle the claim of Walmart upon
payment of Rs. 2,29,73,611/-.
Signature Not Verified
Digitally Signed
By:HARVINDER KAUR
BHATIA
Signing Date:19.05.2026
15:19:01
O.M.P. (COMM) 237/2026 Page 7 of 33

43. According to the Respondent, the Claimant was made
aware of rejection by Walmart of goods, which the Respondent
No. 1 had purchased from the Claimant. It is further contended
that the Claimant accepted that the goods were defective.
Accordingly, the Claimant did not ask for further payment for
over three years and also did not initiate proceedings till
14.11.2022.
44. The Respondent has also contended that some goods were
returned. These goods were covered by the following debit notes,
which the Claimant has suppressed. The debit notes are as
follows:
i. Debit Note No. 104 dated 06.02.2019 - Rs. 24,270/-
ii. Debit Note No. 87 dated 06.09.2019 - Rs. 5,33,430/-
iii. Debit Note No. 88 dated 06.09.2019 - Rs. 3,03,955/-
iv. Debit Note No. 89 dated 06.09.2019 - Rs. 6,39,751/-
45. Even assuming that some goods were returned and debit
notes were issued, the total amount of those debit notes on which
reliance has been placed by the Respondents adds to Rs.
15,01,406/- out of total claim of Rs. 2,05,39,385.82p. After giving
credit to part payments received and credit notes on sales return,
the Respondent No. 1 admittedly received goods amounting to
Rs. 1,90,37,979.82p.
46. Mr. Mittal has strenuously argued that the debit notes
referred to above have not been proved nor the return of the
goods purportedly covered by the debit notes. However, as
observed above, the Respondents have adduced the evidence of
three witnesses, Mr. Surender Gandhi (RW-1), Mr. Vikas
Aggarwal (RW-2) and Mr. Sanjay Singh (RW-3). RW-2 has
given evidence with regard to the debit notes and this Arbitral
Tribunal finds no reason to disbelieve the evidence of RW-2
which is also corroborated by RW-1.
47. The question is whether the Respondent No. 1 is liable to
pay Rs. 1,90,37,979.82p to the Claimant. The stainless steel
utensils/goods were admittedly accepted. RW-3, in cross-
examination, in answer to Question 26 stated that when he
checked the goods received from the Claimant, no defects were
noticed.

48. The Respondent No. 3, Mr. Surender Gandhi (RW-1)
adduced evidence by way of an affidavit. Instead of making
statements only on facts, of which he had knowledge, he has
made submissions inter alia as to maintainability of the claim and
the liability of the Respondents. He has also made statements,
which cannot be true to his knowledge. He has stated that MSME
Registration Certificate is dated 14.12.2021 and has verified the
affidavit as true and correct to his knowledge. It is doubtful how
much credence can be given to such an affidavit.
49. Be that as it may, RW-1 has stated in a nutshell that the
Respondent started to receive complaints regarding defective
Signature Not Verified
Digitally Signed
By:HARVINDER KAUR
BHATIA
Signing Date:19.05.2026
15:19:01
O.M.P. (COMM) 237/2026 Page 8 of 33

pieces from Walmart and orders from Walmart were stopped.
This adversely impacted the goodwill and reputation of the
Respondent No. 1. The Claimant had to settle with Walmart by
payment of Rs. 2,29,73,611/-. The Claimant had accepted the
factum of substandard quality of goods. The Respondent had,
therefore, stopped payment of the invoices of the Claimant due to
complaints about the quality, which became visible after goods
reached USA and were not visible at the time of delivery to the
Respondent. Therefore, the Respondent is not liable to pay claims
as raised by the Claimant.
50. In the instant case, the invoices clearly provided that the
due date of payment was 15 days. It was the intention of the
parties that the Respondent No. 1 would not accept delivery of
goods that were defective. In any case, such goods should have
been returned immediately, not later than 15 days, being the time
for payment, failing which, interest would be chargeable.
51. In the instant case, the goods were admittedly never
returned. They were accepted. They were further sold to Walmart.
The Claimant had nothing to do with the transaction between the
Respondents and Walmart. The Claimant was never given the
opportunity to examine the goods. In any case, the Respondent
No. 1 was bound to pay for goods which have been accepted.
There is no cogent evidence as to whether the goods allegedly
found defective by Walmart were at all supplied by the Claimant
or even if supplied by the Claimant, the stage at which the goods
developed the defects. There is no evidence of reasonable care at
the time of transportation. There is nothing in writing from the
Respondent to the Claimant till 03.02.2020 even though the last
invoice is of August, 2019. All that has been relied upon by the
Respondent is correspondence between Walmart and the
Respondents with which the Claimant has nothing to do. In
answer to Question 68 in cross-examination, RW-1 admitted that
on the date of payment of 3 lac USD i.e. Rs. 2,29,73,611/- to
Walmart, a sum of Rs. 1,90,70,167/- was due from the
Respondent No. 1 to the Claimant. RW-1 stated that “We still
accepted loss of the difference amount of Rs. 2,29,73,611/- and
Rs. 1,90,70,167/-.” In Question 69, RW-1 was asked whether he
made any demand from the Claimant of the aforesaid amount.
The answer was that the Claimant knew about the defect of the
merchandise.
52. It is difficult to accept that there would be no demand in
writing in respect of a claim in the region of Rs. 2 crores. It is
well settled that sale of goods is governed by the Sale of Goods
Act, as contended by Mr. Gupta. Under Section 15, where sale is
by description, there is an implied condition that the goods shall
correspond with the description. Subject to provisions of the Sale
of Goods Act or of any other Act for the time being in force, there
is no implied warranty or condition as to the quality or fitness
Signature Not Verified
Digitally Signed
By:HARVINDER KAUR
BHATIA
Signing Date:19.05.2026
15:19:01
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except in circumstances specified in sub-sections (1) to (4) of
Section 16 of the Sale of Goods Act. None of the conditions of
sub-sections (1) to (4) of Section 16 of the Sale of Goods Act are
attracted. On the other hand, as observed above, the goods were
not only accepted but further sold. Property in the goods passed to
the Respondent under Section 19 of the Sale of Goods Act, when
the goods were accepted. RW-3, the expert employee, deposed
that he had checked the goods but no defects were noticed. RW-2
only spoke about accounts of the Respondent No. 1 and the
preparation of debit notes. Except for his evidence with regard to
the debit notes referred to above, his evidence is of no relevance
to the claim in this arbitration. They pertain to internal
accounting.
53. The transactions between the Respondent and Walmart
were admittedly independent transactions between the
Respondent and Walmart with which the Claimant had absolutely
nothing to do. Once the Claimant supplied the goods to the
Respondent, property in the goods passed from the Claimant to
the Respondent and liability accrued to make payment for the
goods sold.
54. The submission of the Respondent that the claim is hit by
Section 19 inasmuch as the Claimant has failed to show any proof
of demand or invoice amounts from the Respondent is
misconceived. Section 19 does not contain any such mandate. On
the other hand, it is the Respondent who has not given any notice
of breach of warranty either express or implied. As the Claimant
was not a party to the transactions between the Respondent and
Walmart and the Respondent has not even proved that the goods
sold to Walmart were in fact supplied by the Claimant to the
Respondent, any payment made by the Respondent to Walmart is
inconsequential. The payment has not been made upon intimation
to or with approval of the Claimant. There may have been some
inaccuracies in the evidence of Mr. Surender Goel, however, the
inaccuracies in themselves do not establish supply of sub-
standard goods by the Claimant to the Respondent. What is more
important is that the goods were never returned. If the goods had
been returned, the sale might have been tested by an expert.
Furthermore, the goods might even have been sold and scrapped
for the purpose of mitigation of losses/damages. This Arbitral
Tribunal is of the view that the defence of the Respondent is only
an afterthought. Having accepted the goods and even sold the
goods to a third-party, the Respondent cannot turn around and
contend that the goods were defective. The Claimant will thus be
entitled to the price as claimed. Issue Nos. 1 & 5 are answered
accordingly.
55. In paragraph 5 of the Statement of Defence, the
Respondents have contended that all transactions were between
the Claimant and the Respondent No. 1 and that there is no
Signature Not Verified
Digitally Signed
By:HARVINDER KAUR
BHATIA
Signing Date:19.05.2026
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allegation or averment against the Respondent Nos. 2 to 4. As
such, the Respondent Nos. 2 to 4 are not personally liable for the
alleged claim of the Claimant.
56. Admittedly, the Respondent Nos. 2 to 4 are partners of the
Respondent No. 1. In his affidavit of evidence affirmed on
06.07.2024 and filed before this Tribunal, Mr. Surender Gandhi
S/o Shri Somnath Gandhi, being the Respondent No. 3, has
admitted that he is the partner of the Respondent No. 1. In the
said affidavit, there is a certificate signed by Mr. Somnath
Gandhi, Respondent No. 2 as partner of Respondent No. 1,
authorizing Mr. Surender Gandhi, partner, to represent and act on
behalf of the firm in these proceedings. It is also not denied that
the Respondent No. 4 is a partner. The certificate of Mr. Somnath
Gandhi authorizing Mr. Surender Gandhi to represent and act for
and on behalf of the firm states that M/s Dewan and Sons is a
partnership firm registered under the Partnership Act having its
office at Fazalpur Delhi Road, Moradabad. Unlike a company
incorporated under the Companies Act, where the shareholders
are distinct entities, all the partners of the partnership are liable in
case of a Partnership Firm. The Respondent Nos. 2 to 4, by virtue
of being partners, are responsible for the acts of the Respondent
No. 1. Issue No. 8 is answered accordingly in favour of the
Claimant and against the Respondents.
57. Since the Claimant was in no way involved in the
transactions between the Respondents and Walmart, it is not
necessary for this Arbitral Tribunal to decide whether the
Respondents have to pay a sum of 3 lac USD equivalent to Rs.
2,29,73,611/- to Walmart. Even assuming that the Respondents
made such payment, such payment in itself does not entitle the
Respondents to withhold the dues of the Claimant. Issue No. 6 is
dealt with accordingly.”

13. Learned counsel for the Petitioners thus submits that the
invoices pertaining to the goods allegedly rejected by Walmart were
never accepted in the eyes of law and, therefore, the findings returned
by the learned Arbitrator to the effect that the goods stood accepted
and that the liability to pay the invoice amounts had crystallized are
contrary to the material placed on record.
14. Learned counsel for the Petitioners, in the backdrop of the
aforesaid findings, submits that the learned Arbitrator failed to
consider the specific contention raised on behalf of the Petitioners
Signature Not Verified
Digitally Signed
By:HARVINDER KAUR
BHATIA
Signing Date:19.05.2026
15:19:01
O.M.P. (COMM) 237/2026 Page 11 of 33

with regard to non-acceptance of the invoices on account of the
alleged defective nature of the goods supplied.
15. It is further submitted that the issue concerning payment of GST
could only have arisen upon acceptance of the invoices and the
underlying goods, whereas, according to the Petitioners, the goods in
question stood rejected after complaints were received from Walmart
in the USA.
16. It is thus contended that the Impugned Award suffers from
patent illegality and perversity apparent on the face of the record,
thereby warranting interference by this Court under Section 34 of the
A&C Act.
17. Per contra, learned counsel appearing on behalf of the
Respondent defends the Impugned Award and advanced submissions
in support thereof, contending that the findings returned by the learned
Arbitrator are based on proper appreciation of the material placed on
record and do not warrant any interference by this Court in the
exercise of its limited jurisdiction under Section 34 of the A&C Act.

ANALYSIS:
18. This Court has heard learned counsel for the parties and, with
their able assistance, carefully perused the material available on
record, including the pleadings, documents, and the judicial
precedents relied upon and cited across the Bar.
19. At the outset, it is apposite to note that this Court is conscious
of the limited scope of its jurisdiction while examining an objection
petition under Section 34 of the A&C Act. The contours of judicial
intervention in such proceedings have been authoritatively delineated
Signature Not Verified
Digitally Signed
By:HARVINDER KAUR
BHATIA
Signing Date:19.05.2026
15:19:01
O.M.P. (COMM) 237/2026 Page 12 of 33

and settled by a consistent and evolving line of precedents of the
Hon‟ble Supreme Court.
20. In this regard, a three-Judge Bench of the Hon‟ble Supreme
Court, after an exhaustive consideration of a catena of earlier
decisions, in OPG Power Generation (P) Ltd. v. Enexio Power
7
Cooling Solutions (India) (P) Ltd. , while dealing with the grounds of
conflict with the public policy of India and patent illegality, grounds
which have also been urged in the present case, made certain pertinent
observations, which are reproduced hereunder:
“ Relevant legal principles governing a challenge to an arbitral
award
30. Before we delve into the issue/sub-issues culled out above, it
would be useful to have a look at the relevant legal principles
governing a challenge to an arbitral award. Recourse to a court
against an arbitral award may be made through an application
for setting aside such award in accordance with sub-sections (2),
(2-A) and (3) of Section 34 of the 1996 Act. Sub-section (2) of
Section 34 has two clauses, ( a ) and ( b ). Clause ( a ) has five sub-
clauses which are not relevant to the issues raised before us.
Insofar as clause ( b ) is concerned, it has two sub-clauses,
namely, ( i ) and ( ii ). Sub-clause ( i ) of clause ( b ) is not relevant to
the controversy in hand. Sub-clause ( ii ) of clause ( b ) provides
that if the Court finds that the arbitral award is in conflict with
the public policy of India, it may set aside the award.
Public policy
31. “Public policy” is a concept not statutorily defined, though it
has been used in statutes, rules, notification, etc. since long, and
is also a part of common law. Section 23 of the Contract Act,
1872 uses the expression by stating that the consideration or
object of an agreement is lawful, unless, inter alia, opposed to
public policy. That is, a contract which is opposed to public
policy is void.
*
35. In Renusagar Power Co. Ltd. v. General Electric Co. , 1994
Supp (1) SCC 644 , a three-Judge Bench of this Court observed
that the doctrine of public policy is somewhat open—textured
and flexible. By citing earlier decisions, it was observed that
there are two conflicting positions which are referred to as the
“narrow view” and the “broad view”. According to the narrow

7
(2025) 2 SCC 417
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view, courts cannot create new heads of public policy whereas
the broad view countenances judicial law making in these areas.
In the field of private international law, it was pointed out,
courts refuse to apply a rule of foreign law or recognise a
foreign judgment or a foreign arbitral award if it is found that
the same is contrary to the public policy of the country in which
it is sought to be invoked or enforced. However, it was clarified,
a distinction is to be drawn while applying the rule of public
policy between a matter governed by domestic law and a matter
involving conflict of laws. It was observed that the application
of the doctrine of public policy in the field of conflict of laws is
more limited than that in the domestic law and the courts are
slower to invoke public policy in cases involving a foreign
element than when a purely municipal legal issue is involved. It
was held that contravention of law alone will not attract the bar
of public policy, and something more than contravention of law
is required.
*
37. What is clear from above is that for an award to be against
public policy of India a mere infraction of the municipal laws of
India is not enough. There must be, inter alia, infraction of
fundamental policy of Indian law including a law meant to serve
public interest or public good.
*
40. In ONGC Ltd. v. Western Geco International Ltd. , (2014) 9
SCC 263, paras 35, 38 & 39 , which also related to the period
prior to the 2015 Amendment of Section 34(2)( b )( ii ), a three-
Judge Bench of this Court, after considering the decision
in ONGC Ltd. v. Saw Pipes Ltd. , (2003) 5 SCC 705 , without
exhaustively enumerating the purport of the expression
“fundamental policy of Indian law”, observed that it would
include all such fundamental principles as providing a basis for
administration of justice and enforcement of law in this country.
The Court thereafter illustratively referred to three fundamental
juristic principles, namely:
( a ) that in every determination that affects the rights of a citizen
or leads to any civil consequences, the court or authority or
quasi-judicial body must adopt a judicial approach, that is, it
must act bona fide and deal with the subject in a fair, reasonable
and objective manner and not actuated by any extraneous
consideration;
( b ) that while determining the rights and obligations of parties
the court or Tribunal or authority must act in accordance with
the principles of natural justice and must apply its mind to the
attendant facts and circumstances while taking a view one way
or the other; and
( c ) that its decision must not be perverse or so irrational that no
reasonable person would have arrived at the same.
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41. In Associate Builders v. DDA , (2015) 3 SCC 49 , a two-
Judge Bench of this Court, held
that audialterampartem principle is undoubtedly a fundamental
juristic principle in Indian law and is enshrined in Sections 18
and 34(2)( a )( iii ) of the 1996 Act. In addition to the earlier
recognised principles forming fundamental policy of Indian law,
it was held that disregarding:
( a ) orders of superior courts in India; and
( b ) the binding effect of the judgment of a superior court would
also be regarded as being contrary to the fundamental policy of
Indian law.
Further, elaborating upon the third juristic principle (i.e. qua
perversity), as laid down in ONGC Ltd. v. Western Geco
International Ltd. , (2014) 9 SCC 263 , it was observed that
where:
( i ) a finding is based on no evidence; or
(ii) an Arbitral Tribunal takes into account something irrelevant
to the decision which it arrives at; or
(iii) ignores vital evidence in arriving at its decision, such
decision would necessarily be perverse [ Associate Builders
case , (2015) 3 SCC 49, para 31 ].
To this a caveat was added by observing that when a court
applies the “public policy test” to an arbitration award, it does
not act as a court of appeal and, consequently, errors of fact
cannot be corrected; and a possible view by the arbitrator on
facts has necessarily to pass muster as the arbitrator is the
ultimate master of the quantity and quality of evidence to be
relied upon when he delivers his arbitral award. It was also
observed that an award based on little evidence or on evidence
which does not measure up in quality to a trained legal mind
would not be held to be invalid on that score. Thus, once it is
found that the arbitrator's approach is not arbitrary or capricious,
it is to be taken as the last word on facts.
The 2015 Amendment in Sections 34 and 48
42. The aforementioned judicial pronouncements were all prior
to the 2015 Amendment. Notably, prior to the 2015 Amendment
the expression “in contravention with the fundamental policy of
Indian law” was not used by the legislature in either Section
34(2)( b )( ii ) or Section 48(2)( b ). The pre-amended Section
34(2)( b )( ii ) and its Explanation read:
*
44. By the 2015 Amendment, in place of the old Explanation to
Section 34(2)( b )( ii ), Explanations 1 and 2 were added to remove
any doubt as to when an arbitral award is in conflict with the
public policy of India.
45. At this stage, it would be pertinent to note that we are
dealing with a case where the application under Section 34 of
the 1996 Act was filed after the 2015 Amendment, therefore the
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newly substituted/added Explanations would apply
[ SsangyongEngg. & Construction Co. Ltd. v. NHAI , (2019) 15
SCC 131 ].
46. The 2015 Amendment adds two Explanations to each of the
two sections, namely, Section 34(2)( b )( ii ) and Section 48(2)( b ),
in place of the earlier Explanation. The significance of the newly
inserted Explanation 1 in both the sections is two-fold. First, it
does away with the use of words : ( a ) “ without prejudice to the
generality of sub-clause (ii) ” in the opening part of the pre-
amended Explanation to Section 34(2)(b)(ii); and (b) “ without
prejudice to the generality of clause (b) of this section ” in the
opening part of the pre-amended Explanation to Section
48(2)( b ); secondly, it limits the expanse of public policy of India
to the three specified categories by using the words “ only if ”.
Whereas, Explanation 2 lays down the standard for adjudging
whether there is a contravention with the fundamental policy of
Indian law by providing that a review on merits of the dispute
shall not be done. This limits the scope of the enquiry on an
application under either Section 34(2)( b )( ii ) or Section 48(2)( b )
of the 1996 Act.
47. The 2015 Amendment by inserting sub-section (2-A) in
Section 34, carves out an additional ground for annulment of an
arbitral award arising out of arbitrations other than international
commercial arbitrations. Sub-section (2-A) provides that the
Court may also set aside an award if that is vitiated by patent
illegality appearing on the face of the award. This power of the
Court is, however, circumscribed by the proviso, which states
that an award shall not be set aside merely on the ground of an
erroneous application of the law or by reappreciation of
evidence.
48. Explanation 1 to Section 34(2)( b )( ii ), specifies that an
arbitral award is in conflict with the public policy of India, only
if :
( i ) the making of the award was induced or affected by fraud or
corruption or was in violation of Section 75 or Section 81; or
( ii ) it is in contravention with the fundamental policy of Indian
law; or
( iii ) it is in conflict with the most basic notions of morality or
justice.
49. In the instant case, there is no allegation that the making of
the award was induced or affected by fraud or corruption, or was
in violation of Section 75 or Section 81. Therefore, we shall
confine our exercise in assessing as to whether the arbitral award
is in contravention with the fundamental policy of Indian law,
and/or whether it conflicts with the most basic notions of
morality or justice. Additionally, in the light of the provisions of
sub-section (2-A) of Section 34, we shall examine whether there
is any patent illegality on the face of the award.
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50. Before undertaking the aforesaid exercise, it would be
apposite to consider as to how the expressions:
( a ) “in contravention with the fundamental policy of Indian
law”;
( b ) “in conflict with the most basic notions of morality or
justice”; and
( c ) “patent illegality” have been construed.
In contravention with the fundamental policy of Indian law
51. As discussed above, till the 2015 Amendment the expression
“in contravention with the fundamental policy of Indian law”
was not found in the 1996 Act. Yet, in Renusagar Power Co.
Ltd. v. General Electric Co. , 1994 Supp (1) SCC 644 , in the
context of enforcement of a foreign award, while construing the
phrase “contrary to the public policy”, this Court held that for a
foreign award to be contrary to public policy mere contravention
of law would not be enough rather it should be contrary to:
( a ) the fundamental policy of Indian law; and/or
( b ) the interest of India; and/or
( c ) justice or morality.
*
55. The legal position which emerges from the aforesaid
discussion is that after “the 2015 Amendments” in Section
34(2)( b )( ii ) and Section 48(2)( b ) of the 1996 Act, the phrase “in
conflict with the public policy of India” must be accorded a
restricted meaning in terms of Explanation 1 . The expression “in
contravention with the fundamental policy of Indian law” by use
of the word “fundamental” before the phrase “policy of Indian
law” makes the expression narrower in its application than the
phrase “in contravention with the policy of Indian law”, which
means mere contravention of law is not enough to make an
award vulnerable. To bring the contravention within the fold of
fundamental policy of Indian law, the award must contravene all
or any of such fundamental principles that provide a basis for
administration of justice and enforcement of law in this country.
56. Without intending to exhaustively enumerate instances of
such contravention, by way of illustration, it could be said that:
( a ) violation of the principles of natural justice;
( b ) disregarding orders of superior courts in India or the binding
effect of the judgment of a superior court; and
( c ) violating law of India linked to public good or public
interest, are considered contravention of the fundamental policy
of Indian law.
However, while assessing whether there has been a
contravention of the fundamental policy of Indian law, the
extent of judicial scrutiny must not exceed the limit as set out
in Explanation 2 to Section 34(2)( b )( ii ).
*
Patent illegality
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65. Sub-section (2-A) of Section 34 of the 1996 Act, which was
inserted by the 2015 Amendment, provides that an arbitral
award not arising out of international commercial arbitrations,
may also be set aside by the Court, if the Court finds that the
award is visited by patent illegality appearing on the face of the
award. The proviso to sub-section (2-A) states that an award
shall not be set aside merely on the ground of an erroneous
application of the law or by reappreciation of evidence.
66. In ONGC Ltd. v. Saw Pipes Ltd. , (2003) 5 SCC 705 , while
dealing with the phrase “public policy of India” as used in
Section 34, this Court took the view that the concept of public
policy connotes some matter which concerns public good and
public interest. If the award, on the face of it, patently violates
statutory provisions, it cannot be said to be in public interest.
Thus, an award could also be set aside if it is patently illegal. It
was, however, clarified that illegality must go to the root of the
matter and if the illegality is of trivial nature, it cannot be held
that award is against public policy.
67. In Associate Builders v. DDA , (2015) 3 SCC 49 , this Court
held that an award would be patently illegal, if it is contrary to:
( a ) substantive provisions of law of India;
( b ) provisions of the 1996 Act; and
( c ) terms of the contract [See also three-Judge Bench decision of
this Court in State of Chhattisgarh v. SAL Udyog (P) Ltd. ,
(2022) 2 SCC 275 ].
The Court clarified that if an award is contrary to the substantive
provisions of law of India, in effect, it is in contravention of
Section 28(1)( a ) of the 1996 Act. Similarly, violating terms of
the contract, in effect, is in contravention of Section 28(3) of the
1996 Act.
68. In SsangyongEngg. & Construction Co. Ltd. v. NHAI ,
(2019) 15 SCC 131 this Court specifically dealt with the 2015
Amendment which inserted sub-section (2-A) in Section 34 of
the 1996 Act. It was held that “patent illegality appearing on the
face of the award” refers to such illegality as goes to the root of
matter, but which does not amount to mere erroneous
application of law. It was also clarified that what is not
subsumed within “the fundamental policy of Indian law”,
namely, the contravention of a statute not linked to “public
policy” or “public interest”, cannot be brought in by the
backdoor when it comes to setting aside an award on the ground
of patent illegality [See SsangyongEngg. & Construction Co.
Ltd. v. NHAI , (2019) 15 SCC 131 ]. Further, it was observed,
reappreciation of evidence is not permissible under this category
of challenge to an arbitral award [See SsangyongEngg. &
Construction Co. Ltd. v. NHAI , (2019) 15 SCC 131 ].
Perversity as a ground of challenge
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69. Perversity as a ground for setting aside an arbitral award was
recognised in ONGC Ltd. v. Western Geco International Ltd. ,
(2014) 9 SCC 263 . Therein it was observed that an arbitral
decision must not be perverse or so irrational that no reasonable
person would have arrived at the same. It was observed that if an
award is perverse, it would be against the public policy of India.
70. In Associate Builders v. DDA , (2015) 3 SCC 49 certain tests
were laid down to determine whether a decision of an Arbitral
Tribunal could be considered perverse. In this context, it was
observed that where:
( i ) a finding is based on no evidence; or
( ii ) an Arbitral Tribunal takes into account something irrelevant
to the decision which it arrives at; or
( iii ) ignores vital evidence in arriving at its decision, such
decision would necessarily be perverse.
However, by way of a note of caution, it was observed that when
a court applies these tests it does not act as a court of appeal and,
consequently, errors of fact cannot be corrected. Though, a
possible view by the arbitrator on facts has necessarily to pass
muster as the arbitrator is the ultimate master of the quantity and
quality of evidence to be relied upon. It was also observed that
an award based on little evidence or on evidence which does not
measure up in quality to a trained legal mind would not be held
to be invalid on that score.
71. In SsangyongEngg. & Construction Co. Ltd. v. NHAI ,
(2019) 15 SCC 131 , which dealt with the legal position post the
2015 Amendment in Section 34 of the 1996 Act, it was observed
that a decision which is perverse, while no longer being a
ground for challenge under “public policy of India”, would
certainly amount to a patent illegality appearing on the face of
the award. It was pointed out that an award based on no
evidence, or which ignores vital evidence, would be perverse
and thus patently illegal. It was also observed that a finding
based on documents taken behind the back of the parties by the
arbitrator would also qualify as a decision based on no evidence
inasmuch as such decision is not based on evidence led by the
parties, and therefore, would also have to be characterised as
perverse [See SsangyongEngg. & Construction Co.
Ltd. v. NHAI , (2019) 15 SCC 131 ].
72. The tests laid down in Associate Builders v. DDA , (2015) 3
SCC 49 to determine perversity were followed
in SsangyongEngg. & Construction Co. Ltd. v. NHAI , (2019)
15 SCC 131 and later approved by a three-Judge Bench of this
Court in Patel Engg. Ltd. v. North Eastern Electric Power
Corpn. Ltd. , (2020) 7 SCC 167 .
73. In a recent three-Judge Bench decision of this Court in
DMRC Ltd. v. Delhi Airport Metro Express (P) Ltd. , (2024) 6
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SCC 357 , the ground of patent illegality/perversity was
delineated in the following terms: (SCC p. 376, para 39)
“ 39 . In essence, the ground of patent illegality is available
for setting aside a domestic award, if the decision of the
arbitrator is found to be perverse, or so irrational that no
reasonable person would have arrived at it; or the
construction of the contract is such that no fair or
reasonable person would take; or, that the view of the
arbitrator is not even a possible view. A finding based on
no evidence at all or an award which ignores vital
evidence in arriving at its decision would be perverse and
liable to be set aside under the head of “patent illegality”.
An award without reasons would suffer from patent
illegality. The arbitrator commits a patent illegality by
deciding a matter not within its jurisdiction or violating a
fundamental principle of natural justice.”
Scope of interference with an arbitral award
74. The aforesaid judicial precedents make it clear that while
exercising power under Section 34 of the 1996 Act the Court
does not sit in appeal over the arbitral award. Interference with
an arbitral award is only on limited grounds as set out in Section
34 of the 1996 Act. A possible view by the arbitrator on facts is
to be respected as the arbitrator is the ultimate master of the
quantity and quality of evidence to be relied upon. It is only
when an arbitral award could be categorised as perverse, that on
an error of fact an arbitral award may be set aside. Further, a
mere erroneous application of the law or wrong appreciation of
evidence by itself is not a ground to set aside an award as is
clear from the provisions of sub-section (2-A) of Section 34 of
the 1996 Act.
75. In Dyna Technologies (P) Ltd. v. Crompton Greaves Ltd. ,
(2019) 20 SCC 1 , paras 27-43, a three-Judge Bench of this
Court held that courts need to be cognizant of the fact that
arbitral awards are not to be interfered with in a casual and
cavalier manner, unless the court concludes that the perversity of
the award goes to the root of the matter and there is no
possibility of an alternative interpretation that may sustain the
arbitral award. It was observed that jurisdiction under Section 34
cannot be equated with the normal appellate jurisdiction. Rather,
the approach ought to be to respect the finality of the arbitral
award as well as party's autonomy to get their dispute
adjudicated by an alternative forum as provided under the law.
*
Scope of interference with the interpretation/construction of a
contract accorded in an arbitral award
84. An Arbitral Tribunal must decide in accordance with the
terms of the contract. In a case where an Arbitral Tribunal
passes an award against the terms of the contract, the award
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would be patently illegal. However, an Arbitral Tribunal has
jurisdiction to interpret a contract having regard to terms and
conditions of the contract, conduct of the parties including
correspondences exchanged, circumstances of the case and
pleadings of the parties. If the conclusion of the arbitrator is
based on a possible view of the matter, the Court should not
interfere [See: SAIL v. Gupta Brother Steel Tubes Ltd. , (2009)
10 SCC 63; Pure Helium India (P) Ltd. v. ONGC , (2003) 8
SCC 593; McDermott International Inc. v. Burn Standard Co.
Ltd. , (2006) 11 SCC 181; MMTC Ltd. v. Vedanta Ltd. , (2019)
4 SCC 163 ]. But where, on a full reading of the contract, the
view of the Arbitral Tribunal on the terms of a contract is not a
possible view, the award would be considered perverse and as
such amenable to interference [ South East Asia Marine Engg.
& Constructions Ltd. v. Oil India Ltd. , (2020) 5 SCC 164 ].
Whether unexpressed term can be read into a contract as an
implied condition
85. Ordinarily, terms of the contract are to be understood in the
way the parties wanted and intended them to be. In agreements
of arbitration, where party autonomy is the grund norm , how the
parties worked out the agreement, is one of the indicators to
decipher the intention, apart from the plain or grammatical
meaning of the expressions used [ B ALCO v. Kaiser Aluminium
Technical Services Inc. , (2016) 4 SCC 126 ].
86. However, reading an unexpressed term in an agreement
would be justified on the basis that such a term was always and
obviously intended by the parties thereto. An unexpressed term
can be implied if, and only if, the court finds that the parties
must have intended that term to form part of their contract. It is
not enough for the court to find that such a term would have
been adopted by the parties as reasonable men if it had been
suggested to them. Rather, it must have been a term that went
without saying, a term necessary to give business efficacy to the
contract, a term which, although tacit, forms part of the contract
[ Adani Power (Mundra) Ltd. v. Gujarat ERC , (2019) 19 SCC
9 ].
87. But before an implied condition, not expressly found in the
contract, is read into a contract, by invoking the business
efficacy doctrine, it must satisfy the following five conditions:
( a ) it must be reasonable and equitable;
( b ) it must be necessary to give business efficacy to the contract,
that is, a term will not be implied if the contract is effective
without it;
( c ) it must be obvious that “it goes without saying”;
( d ) it must be capable of clear expression;
( e ) it must not contradict any terms of the contract [ Nabha
Power Ltd. v. Punjab SPCL , (2018) 11 SCC 508 , followed
in Adani Power case , (2019) 19 SCC 9 ].
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(emphasis supplied)

21. The principal contention advanced on behalf of the Petitioners
is that, in terms of Rules 4(x) and (xii) of the DMSEFC Rules, the
learned Arbitrator could not have independently rendered the
Impugned Award and was only required to submit a report to the
Council, which alone was competent to render the final Award. In this
regard, the learned counsel for the Petitioners has placed considerable
reliance upon the judgment of the Punjab and Haryana High Court in
Indian Oil Corporation Limited (supra) .
22. The aforesaid contention, unfortunately, fails to inspire the
confidence of this Court and does not commend acceptance by this
Court.
23. This Court has also carefully perused the aforesaid Judgement;
the relevant Paragraphs whereof are reproduced hereinbefore.
24. Further, this Court has also perused the relevant provisions of
the MSMED Act and the DMSEFC Rules.
25. At this juncture, this Court deems it apposite to advert to the
scheme and scope of Section 18 of the MSMED Act, and in particular
Section 18(3) thereof. The said provision expressly stipulates that
where the conciliation proceedings initiated under Section 18(2) of the
MSMED Act fail to culminate in a settlement between the parties, the
Council is empowered either to itself undertake the arbitral process or
to refer the dispute to any institution or centre providing alternate
dispute resolution services for the purposes of arbitration.
26. The said provision further mandates that, upon such reference,
the proceedings would thereafter be governed by the provisions of the
A&C Act, as if the arbitration were pursuant to an arbitration
agreement within the meaning of Section 7(1) of the A&C Act.
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Section 18 of the MSMED Act is reproduced herein below for ready
reference:
“ 18. Reference to Micro and Small Enterprises Facilitation
Council . -
( 1 ) Notwithstanding anything contained in any other law for the
time being in force, any party to a dispute may, with regard to any
amount due under section 17, make a reference to the Micro and
Small Enterprises Facilitation Council.
( 2 ) On receipt of a reference under sub-section ( 1 ), the Council
shall either itself conduct conciliation in the matter or seek the
assistance of any institution or centre providing alternate dispute
resolution services by making a reference to such an institution or
centre, for conducting conciliation and the provisions of sections 65
to 81 of the Arbitration and Conciliation Act, 1996 (26 of 1996)
shall apply to such a dispute as if the conciliation was initiated
under Part III of that Act.
( 3 ) Where the conciliation initiated under sub-section ( 2 ) is not
successful and stands terminated without any settlement between
the parties, the Council shall either itself take up the dispute for
arbitration or refer it to any institution or centre providing alternate
dispute resolution services for such arbitration and the provisions
of the Arbitration and Conciliation Act, 1996 (26 of 1996) shall
then apply to the dispute as if the arbitration was in pursuance of an
arbitration agreement referred to in sub-section( 1 ) of section 7 of
that Act.
( 4 ) Notwithstanding anything contained in any other law for the
time being in force, the Micro and Small Enterprises Facilitation
Council or the centre providing alternate dispute resolution services
shall have jurisdiction to act as an Arbitrator or Conciliator under
this section in a dispute between the supplier
located within its jurisdiction and a buyer located anywhere in
India.
( 5 ) Every reference made under this section shall be decided within
a period of ninety days from the date of making such a reference.”
(emphasis supplied)

27. A conjoint and harmonious reading of Section 18(3) of the
MSMED Act, along with the DMSEFC Rules framed thereunder,
leaves no manner of doubt that the statutory framework itself
contemplates two distinct and independent modes for adjudication of
disputes after failure of conciliation proceedings, namely :
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(i) The Council itself assuming the role of the arbitral tribunal and
conducting the arbitration; or
(ii)
The Council referring the dispute to an institution or centre
providing alternate dispute resolution services for the purposes of
conducting arbitration in accordance with law.
28. In the present case, it is an admitted and undisputed position
that the disputes between the parties were referred by the Council to
8
the Delhi International Arbitration Centre . There is also no
dispute that the said institution is an established arbitral institution
providing alternate dispute resolution services and squarely falls
within the ambit and meaning of an “ institution or centre providing
alternate dispute resolution services ” as contemplated under Section
18(3) of the MSMED Act.
29. Once such a statutory reference is made by the Council to an
arbitral institution under Section 18(3) of the MSMED Act, the
arbitral proceedings necessarily thereafter proceed independently in
accordance with the provisions, procedure, and statutory framework
contemplated under the A&C Act. The arbitral institution, or the
learned Arbitrator acting under its aegis, derives authority directly
from the statutory reference contemplated under Section 18(3) of the
MSMED Act, read with the provisions of the A&C Act.
Consequently, the arbitral tribunal is fully competent and empowered
to adjudicate the disputes and render an arbitral award in accordance
with the law.
30. Significantly, neither the MSMED Act nor the provisions of the
A&C Act envisage any intermediate or hybrid procedure whereby the
arbitral institution merely renders a recommendatory report or opinion

8
DIAC
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BHATIA
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to the Council for eventual approval, confirmation, or pronouncement
of an award by the Council itself. No such statutory requirement,
procedure, or supervisory mechanism can be culled out either from the
language of Section 18(3) of the MSMED Act or from the scheme of
the A&C Act.
31. The submission advanced on behalf of the Petitioners, to the
effect that the learned Arbitrator was merely required to submit a
report to the Council and lacked competence to independently render
the Impugned Award, therefore runs contrary to the plain statutory
scheme and the legislative intent underlying Section 18(3) of the
MSMED Act.
32. If the interpretation sought to be advanced on behalf of the
Petitioners were to be accepted, the same would effectively render
redundant and unworkable the very statutory mechanism permitting
reference of disputes to arbitral institutions under Section 18(3) of the
MSMED Act. Such an interpretation would defeat the legislative
object of enabling specialized arbitral institutions to independently
undertake adjudicatory functions in disputes arising under the
MSMED Act and would amount to reading into the statute a
procedure which the legislature has consciously not provided.
33. Furthermore, it is a settled principle of statutory interpretation
that subordinate legislation, including the DMSEFC Rules, cannot be
interpreted in a manner that defeats, curtails, dilutes, or overrides the
substantive statutory scheme embodied under the parent enactment.
The Rules framed under the MSMED Act are necessarily subordinate
to the provisions of the MSMED Act itself and must therefore receive
a construction that advances and harmonizes with the legislative intent
underlying Section 18(3) of the MSMED Act. Any interpretation of
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BHATIA
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the Rules which has the effect of rendering ineffective or nugatory the
statutory power of the Council to refer disputes to arbitral institutions,
or which curtails the authority of such institutions to render arbitral
awards, cannot be sustained in law.
34. Viewed from the aforesaid perspective, this Court finds no
merit whatsoever in the contention advanced on behalf of the
Petitioners that the learned Arbitrator lacked competence to render the
Impugned Award or was merely required to submit a report to the
Council.
35. This Court also finds that the strenuous reliance placed by the
Petitioners upon the judgment of the Punjab and Haryana High Court
in Indian Oil Corporation Limited ( supra ) is misplaced in the facts of
the present case. In the said matter, the controversy arose in the
context of a panel of arbitrators/facilitators appointed by the State
Government under the specific framework prevailing therein, where
the Court was examining the nature and extent of authority exercisable
by such facilitators under the applicable Rules.
36. However, in the present case, the disputes were not referred to
any such panel of facilitators functioning under the direct
administrative control of the Council. Rather, the disputes stood
referred to DIAC, an independent arbitral institution, which thereafter
conducted the arbitral proceedings in accordance with the provisions
of the A&C Act and rendered the Impugned Award. The factual and
statutory framework governing the present proceedings is therefore
materially distinct from the one considered in Indian Oil Corporation
Limited ( supra ).
37. In the aforesaid considered view of the matter, the first principal
contention advanced on behalf of the Petitioners, namely that the
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BHATIA
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learned Arbitrator lacked the competence or jurisdiction to render the
Impugned Award and was merely required to submit a report to the
Council, is found to be wholly devoid of merit and is, accordingly,
rejected.
38. The next contention advanced on behalf of the Petitioners
pertains to the Respondent allegedly not being registered under the
MSMED Act at the time when the disputes are stated to have arisen
between the parties. In this regard, reliance has once again been placed
upon the decision in Indian Oil Corporation Limited ( supra ) to
contend that the benefit of the statutory mechanism under Section 18
of the MSMED Act could not have been invoked in the absence of
registration under the MSMED Act at the relevant point in time.
39. A conjoint reading of Section 2(n) of the MSMED Act, which
defines the expression “ supplier ”, being the central category of
entities for whose benefit the statutory mechanism under Sections 15
to 19 of the MSMED Act has been enacted, together with Section 8 of
the MSMED Act, particularly sub-section (1) thereof, demonstrates
that the legislative framework principally envisages the filing of a
memorandum by enterprises, especially micro and small enterprises,
in the manner prescribed thereunder.
40. The scheme and structure of the MSMED Act clearly indicate
that, for the purpose of availing the statutory benefits, protections and
remedies contemplated under Sections 15 to 19 of the MSMED Act,
particularly in relation to micro and small enterprises, the filing of the
memorandum under Section 8 constitutes the material and relevant
statutory requirement. The provisions of the MSMED Act do not
contemplate any separate, additional or independent requirement of
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BHATIA
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“ registration ” in the strict or technical sense sought to be canvassed
by the Petitioners.
41. A plain and meaningful reading of Section 2(n) of the MSMED
Act makes it evident that a “ supplier ” means a micro or small
enterprise that has filed a memorandum with the authority referred to
under Section 8(1) of the MSMED Act. Correspondingly, Section 8
merely prescribes the statutory mechanism and procedure for filing
such a memorandum and does not impose any further condition of
certification, approval or formal registration as a prerequisite for
recognition as a “ supplier ” under the MSMED Act.
42. Therefore, in the considered opinion of this Court, once the
memorandum contemplated under Section 8 is filed, particularly by a
micro or small enterprise, such enterprise becomes entitled to invoke
and avail the statutory benefits provided under Sections 15 to 19 of the
MSMED Act. The legislative scheme does not support the contention
advanced by the Petitioners that a separate registration certificate,
independent certification process, or any additional formality beyond
the filing of the memorandum is mandatory either for claiming the
status of a “ supplier ” under the MSMED Act or for availing the
benefits contemplated under Chapter V of the Act, especially those
contained in Sections 15 to 19 thereof. Sections 2(n) and 8 of the
MSMED Act are reproduced hereunder for ready reference:
“ 2. ….
(n) “ supplier ” means a micro or small enterprise, which has filed a
memorandum with the authority referred to in sub-section (1) of
section 8, and includes,-
(i) the National Small Industries Corporation, being a company,
registered under the Companies Act, 1956 (1 of 1956);
(ii) the Small Industries Development Corporation of a State or a
Union territory, by whatever name called, being a company
registered under the Companies Act, 1956 (1 of 1956);
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(iii) any company, co-operative society, trust or a body, by
whatever name called, registered or constituted under any law
for the time being in force and engaged in selling goods
produced by micro or small enterprises and rendering services
which are provided by such enterprises;
*
8. Memorandum of micro, small and medium enterprises .-
(1) Any person who intends to establish, —
( a ) a micro or small enterprise, may, at his discretion; or
( b ) a medium enterprise engaged in providing or rendering of
services may, at his discretion; or
( c ) a medium enterprise engaged in the manufacture or production
of goods pertaining to any industry specified in the First
Schedule to the Industries (Development and Regulation) Act,
1951 (65 of 1951),
shall file the memorandum of micro, small or, as the case may be,
of medium enterprise with such authority as may be specified by
the State Government under sub-section (4) or the Central
Government under sub-section (3):
Provided that any person who, before the commencement of this
Act, established,-
( a ) a small scale industry and obtained a registration certificate,
may, at his discretion; and
( b ) an industry engaged in the manufacture or production of goods
pertaining to any industry specified in the First Schedule to the
Industries (Development and Regulation) Act, 1951 (65 of
1951), having investment in plant and machinery of more than
one crore rupees but not exceeding ten crore rupees and, in
pursuance of the notification of the Government of India in the
erstwhile Ministry of Industry (Department of Industrial
Development) number S.O. 477(E), dated the 25th July, 1991
filed an Industrial Entrepreneur's Memorandum,
shall within one hundred and eighty days from the commencement
of this Act, file the memorandum, in accordance with the
provisions of this Act.
(2) The form of the memorandum, the procedure of its filing and
other matters incidental thereto shall be such as may be notified by
the Central Government after obtaining the recommendations of the
Advisory Committee in this behalf.
(3) The authority with which the memorandum shall be filed by a
medium enterprise shall be such as may be specified, by
notification, by the Central Government.
(4) The State Government shall, by notification, specify the
authority with which a micro or small enterprise may file the
memorandum.
(5) The authorities specified under sub-sections (3) and (4) shall
follow, for the purposes of this section, the procedure notified by
the Central Government under sub-section (2).”
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BHATIA
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(emphasis supplied)

43. Learned counsel appearing on behalf of the Petitioners has been
unable to point out any specific provision under the MSMED Act
which mandates that, apart from the filing of the memorandum
contemplated under Section 8, a micro or small enterprise must
additionally obtain any separate certificate of registration or fulfil any
further statutory formality before it can be regarded as a “ supplier ”
within the meaning of Section 2(n) of the MSMED Act. In the
absence of any such statutory prescription, the interpretation sought to
be advanced by the Petitioners cannot be accepted, particularly when
the language employed under Sections 2(n) and 8 is clear,
unambiguous and self-contained.
44. In any event, the objections sought to be raised by the
Petitioners would necessarily require an examination of disputed
factual aspects, including the status of the Respondent enterprise, the
nature and character of the commercial transactions entered into
between the parties, and the stage at which the memorandum under
Section 8 of the MSMED Act came to be filed. Such issues fall
squarely within the domain of factual adjudication undertaken by the
learned Arbitrator.
45. The learned Arbitrator has already considered and dealt with the
said objections while adjudicating the disputes between the parties,
particularly in Paragraph Nos. 28 to 30 of the Impugned Award. This
Court, while exercising its limited jurisdiction under Section 34 of the
A&C Act, cannot reappreciate the evidence or undertake a fresh
examination of such factual determinations.
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BHATIA
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46. The same position would equally govern the subsequent
contention advanced on behalf of the Petitioners regarding the alleged
non-consideration by the learned Arbitrator of the communications
exchanged between the parties concerning the purported defective
nature of the goods supplied, as well as the ancillary dispute relating
to payment of GST, as the learned counsel for the Petitioners
advanced before this Court.
47. The submissions sought to be urged by the Petitioners, on these
aspects, in essence, pertain to the appreciation and interpretation of the
evidentiary material forming part of the arbitral record and do not
disclose any patent illegality or jurisdictional infirmity apparent on the
face of the Impugned Award.
48. A perusal of the Impugned Award demonstrates that the learned
Arbitrator has extensively examined the rival pleadings and
submissions advanced by the parties as well as the documentary
material placed on record, before arriving at the findings recorded
therein. The relevant portions of the Impugned Award, extracted in the
preceding part of this judgment, clearly indicate due consideration of
the correspondence exchanged between the parties, the conduct of the
parties during the subsistence of the transactions, and the surrounding
factual circumstances relevant for adjudication of the disputes.
49. The findings returned by the learned Arbitrator, particularly
with regard to the acceptance of the goods supplied, the absence of
any contemporaneous or timely rejection thereof, the lack of
immediate protest concerning the alleged defects, and the conclusion
that the transactions between the Respondent and Walmart were
independent and distinct from the contractual obligations inter se the
parties herein, are all findings founded upon appreciation of evidence
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BHATIA
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and material available on record. Such findings fall squarely within
the domain of factual adjudication entrusted to the learned Arbitrator.
50. Merely because another interpretation of the evidence may also
be possible, or because the Petitioners seek to place a different
construction upon the material on record, would not constitute a valid
ground for interference under Section 34 of the A&C Act.
51. It is well settled that the jurisdiction exercised by this Court
under Section 34 of the A&C Act is supervisory and not appellate in
nature. This Court does not sit in appeal over the findings rendered by
the learned Arbitrator, nor can it reassess or reappreciate the
evidentiary record as though exercising appellate jurisdiction.
Interference with an arbitral award is permissible only within the
limited contours statutorily recognized under Section 34 of the A&C
Act, namely where the award is shown to suffer from patent illegality
appearing on the face of the award, perversity going to the root of the
matter, or conflict with the fundamental policy of Indian law. In the
absence of any such infirmity having been demonstrated by the
Petitioners, no ground for interference with the Impugned Award is
made out.
DECISION:
52. In view of the foregoing discussion, and having regard to the
facts and circumstances of the present case, this Court does not find
the Impugned Award to suffer from any patent illegality, perversity,
jurisdictional error, or any other infirmity warranting interference
within the limited scope of jurisdiction under Section 34 of the A&C
Act.
53. Consequently, no ground for setting aside the Impugned Award
is made out and, accordingly, the present Petition stands dismissed.
Signature Not Verified
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BHATIA
Signing Date:19.05.2026
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54. The present Petition, along with pending Application(s), if any,
is disposed of in the aforesaid terms.
55. No Order as to Costs.

HARISH VAIDYANATHAN SHANKAR, J.
MAY 13, 2026/rk/DJ
Signature Not Verified
Digitally Signed
By:HARVINDER KAUR
BHATIA
Signing Date:19.05.2026
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