M/S Forech India Ltd vs Jsw Jaigarh Port Ltd
- Court
- Bombay High Court
CNR No : HCBM020305302015
2026:BHC-OS:22764
Gitalaxmi 901-ARBP-1775-2015-J.docx
IN THE HIGH COURT OF JUDICATURE AT BOMBAY
ORDINARY ORIGINAL CIVIL JURISDICTION
ARBITRATION PETITION NO. 1775 OF 2015
M/S. FORECH INDIA LIMITED,
a Company incorporated under the provisions of
the Companies Act, 1956 and having its
registered office at Hilton House, S-23, Green
Park Extension, New Delhi – 100 016.
...PETITIONER
Versus
JSW JAIGARH PORT LIMITED,
a Company incorporated under the provisions of
The Company Act, 1956 and having its registered
office at JSW Centre, Bandra-Kurla Complex,
Bandra (East), Mumbai – 400 051.
...RESPONDENT
Mr. Sharan Jagtiani, Senior Counsel a/w Mrs. Jyoti A. Singh,
Ms. Sankalpita Mullick, Mr. Sakil Ansari & Mr. Ritwik Kulkarni
i/b AJA Legal, learned counsel for the Petitioner.
Mr. Karl Tamboly a/w Mr. Arup Pereira, Mr. Huzefa
Nasikwala, Mr. Freddy Daruwala, Mr. Idris Balasinorwala &
Ms. Farzana Rine i/b Nasikwala Law Office, learned counsel
for the Respondent.
CORAM : ARUN R. PEDNEKER, J.
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RESERVED ON : 8 OCTOBER, 2026.
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PRONOUNCED ON : 19 OCTOBER, 2026.
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JUDGMENT :
1. Heard learned counsel appearing for the parties and
perused the records.
2. By the present Petition under Section 34 of the Arbitration
and Conciliation Act, 1996 (“the Act”), the Petitioner challenges the
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Arbitral Award dated 12 August, 2015 passed by the Arbitral
Tribunal in a reference made by this Court in Arbitration Application
No. 132 of 2013, whereby the Arbitral Tribunal has directed the
Petitioner to pay the Respondent/Claimant a sum of Rs.
2,16,44,423/- (Rupees Two Crores, Sixteen Lakhs, Forty-four
Thousand, Four Hundred and Twenty-three) together with the
interest at the rate of 12% per annum (from the date of claim till
payment of the entire contract value (minus) the value of
performance Bank Guarantee), which was encashed by the
Respondent/Claimant.
3. Learned Arbitral Tribunal by the impugned Award has also
rejected the Petitioner’s counter-claim of Rs. 20,40,180/-, the claim
towards encashment of the performance Bank Guarantee furnished
by the Petitioner to the Respondent/Claimant and the damages.
4. The brief facts giving rise to the Petition are that, in the
year 2011, the Respondent/Claimant issued an enquiry letter with
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respect to supply of EP Belts for its coal handling system at Jaigarh
Port, along with the technical specifications.
5. The Petitioner engaged in the business of EP Belt
manufacturing, submitted its offer for supply of EP Belts to the
Respondent/Claimant.
6. Pursuant to further negotiations between the parties, the
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Respondent/Claimant issued a Letter of Intent dated 19 July, 2011
to the Petitioner for manufacture and supply of EP conveyor Belts
(EP Belts), in accordance with the technical specifications and scope
set out in Annexure-I to the Letter of Intent.
7. Pursuant to the Letter of Intent, the said two Purchase
Orders were placed by the Respondent/Claimant with the Petitioner.
In terms of the contract between the parties, EP Belts were supplied
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under two Purchase Orders; first Purchase Order dated 21 July,
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2011 and second Purchase Order dated 19 August, 2011.
8. The details of Purchase Orders are set out herein below :-
21.07.2011 Purchase Order PO/JSWJPL/11-12/2675
(First Purchase Order)
Total Basic Value –
Rs. 1,20,01,800/-
(i) Conveyor Belt - EP Belt Width -
1800mm, Belt Rating - 800/4, Grade -
M24, Thickness Top/Bottom –
5mm/2mm
Excise Duty –
Rs. 12,36,186/-
(Quantity Ordered – 690 mts.)
CST – Rs. 6,94,994/-
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(ii) Conveyor Belt - EP Belt Width -
1800mm, Belt Rating - 1250/4, Grade –
M24, Thickness Top/Bottom - 5mm/2mm
Total Rs. 1,39,32,980/-
(Quantity Ordered – 1400 mts.)
Total Basic Value –
Rs. 84,00,000/-
19.08.2011 Purchase Order PO/JSWJPL/11-12/2779
(Second Purchase Order)
Excise Duty – Rs.
8,65,200/-
Conveyor Belt - EP Belt Width - 1800mm,
Belt Rating – 1250/4, Grade - M24,
Thickness Top/Bottom – 5mm/2mm
CST – Rs. 4,86,423/-
(Quantity Ordered – 1400 mts.)
Total Rs. 97,51,623/-
9. The Petitioner also furnished performance Bank Guarantee
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dated 29 September, 2011 for Rs. 12,00,180/-, valid upto 14 April,
2013 qua the first Purchase Order and a performance Bank
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Guarantee dated 9 December, 2011 for Rs. 8,40,000/- valid upto
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30 May, 2013 for the second Purchase Order.
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10. Prior to dispatch of EP Belts on 21 September, 2011 and
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22 September, 2011, joint inspection of EP Belts was conducted by
the representatives of Petitioner and Respondent/Claimant at the site
of Petitioner. Thereafter, the items under Purchase Orders were
dispatched.
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11. On 17 October, 2011, certain objections were raised vide
letter by the Respondent/Claimant, which are noted below :-
i) During laying of 220 metres roll, waviness was noticed in ply in
a width of about 400 mm and the wave form can be clearly
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seen on the belt surface. On other roll, these wave form is
noticed at about 200 mm width
ii) On one of the roll at the edge of the belt for a width of about
70mm only three plies could be seen.
Due to above facts, the Petitioner has to stop replacement of
belting and only one belt having length of 220 metres has gone on
installation.
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12. On 21 October, 2011, Mr. I. P. Singh, Manager (Technical)
of the Petitioner, visited the site of Respondent/Claimant at Jaigarh
Port and observed that the alleged defects were superficial, noting
that they generally occurred with higher width belts and would not
adversely affects the performance of the belt during operation.
Thereafter, the Respondent/Claimant proceeded with installation of
the said belts on their Conveyor System.
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13.
On 2 November, 2011, a meeting took place between Mr.
I. P. Singh, representing the Petitioner’s side and Mr. Jigshu Shah,
Assistant General Manager of the Respondent/Claimant, wherein the
Petitioner provided clarifications regarding the waviness and use of 3
plies instead of 4 plies on the edge.
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14. On 11 April, 2012, a portion of EP Belt of apprximately
260 metres installed on R2A conveyor, was replaced by the Claimant,
as it had developed air pockets stretching across 260 metres length
and spanning width of about 100 mm along the bottom side of the
belt.
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15. On 15 May, 2012, the Respondent/Claimant sent an e-
mail to the Petitioner stating that they have not received any
replacement belt. The Petitioner was called upon to replace 800
metres of the belts, which they alleged to be defective.
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16.
On 30 September, 2012 and 1 October, 2012, the belting
installed on R2A conveyor developed similar defects and resulted in
the replacement of 150 metres length within the warranty period.
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17. On 4 October, 2012, the Respondent/Claimant sent an e-
mail to the Petitioner stating that the problem had developed on the
entire length of 800/4 rating belting and that the alleged defects had
extended to the R2A Conveyor System, on which the said rating belt
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had been installed by the Petitioner. On 23 October, 2012, both the
performance Bank Guarantees furnished by the Petitioner were
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encashed by the Respondent/Claimant. Thereafter on 24
December, 2012, the Respondent/Claimant issued an arbitration
notice to the Petitioner in connection with the disputes that had
arisen between the parties. Thereafter an arbitral application was
filed, this Court appointed an Arbitrator and the Arbitrator passed an
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Arbitral Award on 12 August, 2015.
18. Challenging the Arbitral Award, Mr. Sharan Jagtiani,
learned senior counsel for the Petitioner submits that the Arbitral
Award is patently contrary to the contract between the parties, which
form the basis of incorrect finding of manufacturing defects.
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19. Learned senior counsel for the Petitioner submits that the
Petitioner was required to supply the conveyor belt of IS 1891 to be
used on conveyor system of technical parameters and specifications
of Indian Standard (IS) 11592. The contract required the Petitioner
to manufacture and supply belting, which would adhered to
standards provided in IS 1891 for the use and operation on a
Conveyor System that would be operated in accordance with IS
11592.
20. Learned senior counsel for the Petitioner submits that the
Arbitrator has awarded the cost of entire conveyor belt, even though
only 150 metres of 800/4 rating belting and 710 metres of 1250/4
rating belting were replaced. The cost paid was awarded on the
entire belting although there was no evidence that the entire belt was
replaced or that another belting system was purchased by the
Respondent/Claimant. There is no evidence for finding that the
Respondent/Claimant replaced the belts by placing orders with other
suppliers.
21. Learned senior counsel for the Petitioner submits that the
Arbitral Award ignores vital evidence in arriving at the finding that
the belting did not conform to technical specifications of the
Conveyor System. The contract between the parties required the
Petitioner to manufacture conveyor belts as per the technical
specifications provided by the Respondent, i.e. for a Conveyor
System that would operate as per the provisions of IS 11592, and not
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as would function on the actual Conveyor System of the Respondent,
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the details of which were not known to the Petitioner until 2 May,
2012. The Arbitral Tribunal has arrived at a finding in para 29 of the
Arbitral Award that the Petitioner has not led any evidence to show
that the belting supplied by it meets the technical specifications
specified by the Respondent/Claimant. The Arbitral Tribunal has
observed that there was no satisfactory evidence that the belts
supplied by the Petitioner meet the technical specifications specified
by the Respondent, the following vital, admitted documents were
ignored :
a. Joint Inspection Report for joint inspection of 800/4 and
125014 rating belting supplied under the purchase order dated
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21 July, 2011;
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b. Test Certificate dated 14 October, 2011 for 1250/4 rating
belting;
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c. Test Certificate dated 1 November, 2011 for 125014 rating
belting and
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d. Test Certificate dated 9 November, 2011 for 1250/4 rating
belting.
Therefore, the above finding in para 29 of the Arbitral Award
ignores vital and satisfactory evidence produced by the Petitioner in
the form of joint inspection reports and test certificates, which
establish that the belting supplied by the Petitioner met every
technical specification specified by the Respondent and, in fact, far
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exceeded the requisite quality parameters stipulated by IS 1891 (Part
I).
22. Learned senior counsel for the Petitioner submits the
Arbitral Award has applied different and unequal standards in
considering the evidence led by witnesses of the Petitioner. In para
25 of the Arbitral Award, the Arbitral Tribunal has disregarded the
evidence of the Petitioner’s witnesses on maximum speed of belting
under IS 11592 on the criteria that both witnesses are in-house
witnesses. On the contrary, in para 21 of the Arbitral Award, the
Arbitral Tribunal has placed reliance on oral evidence of the
Respondent’s witness Mr. Yeshwant Vaman Dhond, also an in-house
witness, to conclude that the Respondent’s Conveyor System did not
transgressed any of the parameters prescribed by IS 11592. The
Learned Arbitral Tribunal has on the one hand disregarded the oral
evidence of the Petitioner’s witnesses on account of being in-house
witnesses while on the other hand it has heavily relied upon the oral
evidence of the Respondent’s witnesses, who were also in-house
witnesses (CW-1 Mr. Vaman Yeshwant Dhond was DGM Operation &
Maintenance of the Respondent organisation and CW-2 Mr. Babu
Reddy was General Manager (Commercial) of the Respondent
organisation).
23. Learned senior counsel for the Petitioner submits the
Arbitral Tribunal has on the one hand, disregarded the oral evidence
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of the Petitioner’s witness Mr. Bhattacharya (RW-2), on account of
him not being an expert in Conveyor Systems, while on the other
hand, the Arbitral Tribunal has relied upon the oral evidence of the
Respondent’s witness (CW-1) Mr. Dhond in relation to the
Respondent’s Conveyor System allegedly operating in accordance
with IS 11592, despite the said witness also not being an expert in
Conveyor Systems. The Arbitral Tribunal has disregarded the
evidence of the Petitioner’s witness Mr. Bhattacharya (RW-2), merely
on the ground that he is engaged in the manufacture of conveyor
belts and is not an expert in Conveyor Systems, while entirely
ignoring the crucial fact that it goes to the root of the matter that his
dealing with the manufacture of conveyor belts is intended for the
use in Conveyor System. Although the Arbitral Tribunal noted in
paragraph 18 of the Arbitral Award that the Petitioner has also led
the oral evidence of Mr. Krishan Agarwal, Director of the Petitioner
(RW-1), the Arbitral Tribunal has entirely disregarded the evidence
of the said witness of the Petitioner, despite he being an Industrial
Engineer by qualification having ample experience in the field of
conveyor belt manufacturing.
24. Learned senior counsel for the Petitioner submits that there
is no evidence on finding that the Respondent replaced the belts by
placing orders with other suppliers or that any loss was caused to the
Respondent. In para 30 of the Arbitral Award, the Arbitral Tribunal
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has recorded a finding that : “The Claimant had to replace the belts
supplied by the Respondent by placing orders with other suppliers.”
25. The said finding is contrary to the Respondent’s own case.
In respect of the 150 metres of 800/4 rating belting replaced
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between 30 September, 2012 and 1 October, 2012, the
Respondent’s witness has stated in his oral evidence that the said
length of 150 metres was replaced by removing belting from a
different installation/conveyor of the Respondent. In respect of a
length of 710 metres of 1250/4 rating belting that was replaced by
the Respondent, it is nowhere the case or claim of the Respondent
that this length of belting was replaced by procuring belting from
other suppliers. Furthermore, the Respondent has produced no
evidence whatsoever (documentary or oral) in support of a case that
it has sourced belting from other suppliers for replacing belting
supplied by the Petitioner. No evidence has been led in support of
the finding in the impugned Arbitral Award that the Respondent had
replaced the belting by placing orders with other suppliers.
26. It is submitted that the total value on the purchase, (minus)
the value of encashed Bank Guarantee was directed to be paid to the
claimant along with the interest. It is submitted that even assuming
that the belts supplied by the Petitioner developed manufacturing
defects, compensation should have been limited only to the specific
portion that developed defects and required replacement, rather than
of entire belt.
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27. The chart provided hereinbelow for reference as to the
length of belts replaced :-
Sr. Quantity
Particulars
No. (Length)
1. Length of 800/4 rating belting supplied 690 metres
2. Length of 1250/4 rating belting supplied 2800 metres
(A) TOTAL LENGTH OF BELTING SUPPLIED 3490 metres
3. Length of 800/4 rating belting replaced by the Respondent 150 metres
4. Length of 1250/4 rating belting replaced by the Respondent 710 metres
TOTAL LENGTH OF BELTING ALLEGEDLY REPLACED BY
(B) 860 metres
THE RESPONDENT
LENGTH OF BELTING SUPPLIED BY THE PETITIONER
WHICH THE RESPONDENT HAS NOT REPLACED ON
ACCOUNT OF ALLEGED DEFECTS
(C)
2630 metres
3490 − 860 =
Calculation : (A) − (B) = (C)
2630 metres
28. It was an admitted position before the Arbitrator that the
selective portion/length of the belting can be cut out and replaced if
the defects are found and that the entire length of the belting
supplied does not need to be replaced.
29. It is also submitted that the Petitioner had supplied belts of
different lengths. It is further submitted that although the
Respondent/Claimant made a claim for the replacement of entire
belting, the warranty obligation of the Petitioner in respect of the
belting supplied was limited to the free replacement/free repair of
portion, which could be defective or unserviceable.
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30. Even if assuming that the belts have developed defects, the
best case scenario of Respondent’s claim for replacement of the
belting is the cost of the specific portion of belting supplied by the
Petitioner, which the Respondent claims to have replaced.
31.
Learned senior counsel for the Petitioner has relied upon
judgments, which are noted below :-
1
a. Associate Builders v/s. Delhi Development Authority ;
b. Ssangyong Engineering and Construction Company Limited
2
v/s. National Highways Authority of India (NHAI) ;
c. Dyna Technologies Private Limited v/s. Crompton Greaves
3
Limited ;
d. Ivory Properties & Hotels Private Limited v/s. Vasantben
Ramniklal Bhuta since deceased through legal heirs and
4
Others ;
5
e. Union of India v/s. Recon, Mumbai ;
f. Kailash Nath Associates v/s. Delhi Development Authority and
6
Another ;
g. Essar Procurement Services Ltd. (formerly known as Essar
1
(2015) 3 Supreme Court Cases 49.
2
(2019) 15 Supreme Court Cases 131.
3
(2019) 20 Supreme Court Cases 1.
4
2024 SCC OnLine Bom 1900.
5
2020(6) Mh.L.J. 509.
6
(2015) 4 Supreme Court Cases 136.
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Projects Limited) A Company registered under the provisions
of the Companies Act, 1956, having its Registered Office at 77,
C.P. Ramaswamy Rd., Abhiramapuram, Chennai-600 018 and
Corporate office at Essar House, Mahalaxmi, Mumbai v/s.
Paramount Constructions A Partnership firm registered under
the Indian Partnership Act, 1932 carrying on business, inter
alia office at Paramount Complex, Gotri Road, Race Course,
7
Vadodara-390 007 ;
8
h. Wockhardt Hospitals Ltd. v/s. Dr. Nitish Vyas ;
9
i. Union of India v/s. Ahluwalia Contracts (India) Limited ;
j. Edifice Developers and Project Engineers Ltd. v/s. Essar
10
Projects (India) Ltd. ;
k. Batliboi Environmental Engineers Limited v/s. Hindustan
11
Petroleum Corporation Limited and Another ;
12
l. Bharat Coking Coal Ltd. v/s. L.K. Ahuja and
m. Godrej and Boyce Manufacturing Company Limited v/s. Remi
13
Sales and Engineering Limited .
7
2016 SCC OnLine Bom 9697.
8 rd
Commercial First Appeal No. 27 of 2026 decided on 3 September, 2026.
9
2025 SCC OnLine Del 4066.
10
2013 SCC OnLine Bom 5.
11
(2024)2 Supreme Court Cases 375.
12
(2004)5 Supreme Court Cases 109.
13
2025 SCC OnLine Bom 5334.
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32. Per contra , Mr. Karl Tamboly, learned counsel for the
Respondent/Claimant submits that the Arbitrator is the final
authority to decide the matter on facts and based on the
documentary and oral evidence placed on record. The Arbitral
Tribunal concluded that the belts supplied by the Petitioner were
defective and has awarded the entire cost of the belts and has
refused the claim of loss and profits, as no evidence was provided for
the same. Learned counsel submits that the Arbitral Award does not
suffer from any patent illegalities, nor is it in conflict with the Public
Policy of India, as per provisions of the Arbitration and Conciliation
Act, 1996.
33. Learned counsel for the Respondent/Claimant submits that
the Petitioner seeks to review and revisit the merits of dispute, which
has clearly been arbitrated and adjudicated and that the Petition is,
therefore, liable to be dismissed at the very threshold. The defects
pointed out, were inherent defects in the belts and existed even prior
to the installation of the belting. The Petitioner has admitted that
the defects were observed even prior to the installation of the belting
and the belting was only installed subject to the warranties, without
any conditions or restrictions, embodied in the Purchase Order and
Letter of Intent. Under the said warranty, the Petitioner was legally
bound to replace the entire defective belting and/or refund the
purchase price, especially since the entire belting was replaced due to
the frequent defects and stoppage within the warranty period, as
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averred in the statement of claim and duly considered by the
Arbitrator in granting the refund of the entire purchase price.
34. Learned counsel for the Respondent/Claimant submits that
the Respondent/Claimant had invited tenders for the design,
installation and supply of the belting subject to the specifications of
the system and the Petitioner had done so without any reservations
or restrictions at the time of supply and installation of the belting for
the Respondent/Claimant, as per the design of its conveyor belting
system. The Respondent/Claimant submits that the Claimant is well
within its right under the contract to seek a refund of the entire
purchase price of the defective belting and that the Arbitrator rightly
granted such relief under the Arbitral Award. On merits of the claim,
even Letter of Intent clearly provides in clause @ 8 (Limit of liability)
that the liability shall be a maximum of 100% of the contract price.
Further clause 16 of the Purchase Order also provides that the
liability shall be limited to 100% of the total contract price. Thus,
Arbitrator has not erred in holding that the Petitioner would be liable
for the aggregate value of the belting, in view of the facts stated
above, after deducting the value under the Bank Guarantees
encashed by the Respondent/Claimant.
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35. It is submitted that on 21 October, 2011, Mr. I. P. Singh,
Petitioner’s Representative visited the site at Jaigarh Port, where he
noticed that the belts had defects and had developed waviness.
However, he alleged that the defects were merely superficial and
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assured Respondent/Claimant that the defect would have no effect
on the belts performance during the operation. He further assured
the Respondent/Claimant that the belts would perform satisfactorily
with full guarantee for agreed life of the belting, as stipulated in the
Purchase Order. It was admitted by the Petitioner that only 3 plies
were visible over the length of 70 mm at the end of 800/4 rating
belting roll. In any event, the Respondent/Claimant was covered by
the warranty, without any specific exclusions, for the entire life of
the belt. Further the technical specifications given by the
Respondent/Claimant, set out the defects, which are noted below :-
“ a. Belt shall be suitable to withstand the tension specified and
support the load.
b. Belt shall confirm to latest revision of IS 1891 (Part I), IS
11592 and other relevant Indian Standards. For the belts the
fabrics shall be of single width covering total belt width and
there shall not be any joint (longitudinal).
c. Belting shall be suitable for heavy-duty application. Synthetic
belt shall be cut edge type. ”
36. It is submitted that the total belt length of 1200 metres was
installed on the conveyor R2A in the month of October 2011. In
April 2012, the Respondent/Claimant noticed that in total length of
260 metres, there were air pockets, each measuring of the width of
100 mm of length on the bottom side of the belt. This length of 260
metres of air pockets were cut and replaced by the
Respondent/Claimant. The Respondent/Claimant by its e-mail of
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11 April, 2012 informed the Petitioner about the defect in the belt
supplied by it. Photographs of defective belts were also attached to
the e-mail. The Respondent/Claimant further also requested the
Petitioner to replace the defective belt, which was covered under the
warranty and also depute the representative to study the problem.
The Petitioner had sent Mr. I.P. Singh on two occasions for
inspection of the belting and he has not disputed the fact of waviness
and air pockets. The Petitioner sought to explain away this defect of
waviness saying that it does not affect the performance and by
wrongly putting the blame on the Respondent/Claimant that it is
operating the Conveyor System at a speed of over 3 metres per
second (“m/s”) and having troughing angle of 45 degrees on the
belting.
37. It is further submitted that the Petitioner vide e-mail dated
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15 May,2012 has clearly admitted that there was defect in the
belting (development of air pocket in 1250/4 rating belting though it
wrongly sought to blame the speed of the Respondent/Claimant’s
Conveyor System and its troughing angle of 45 degrees).The
Petitioner attempted to misguide the Respondent by recommending
the steel cord belting for speeds of conveyor higher than 3.5 m/s.
The Petitioner has made an attempt to shift the entire blame on the
Respondent/Claimant for the reasons that have resulted in defects in
belting. The Petitioner admittedly refused to replace its defective
belting. The Claimant has denied that 150 metres 800/4 rating
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belting referred to by the Claimant by its e-mail of October 2011
formed part of 220 metres 800/4 rating belting referred to by the
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Claimant’s e-mail dated 4 October, 2012.
38. It is also submitted that the Arbitral Tribunal considered the
contents of IS 1891 (Part-I) and IS 11592 in comprehensive detail,
assessed evidence given by the parties and rightly concluded in
paragraph 25 of the Award that Conveyor System was being
operated in accordance with the specifications prescribed under IS
11592 (providing for speed of 4.5 m/s and troughing angle of 45
degrees considering the material used by the Respondent/Claimant).
It is submitted that the Arbitral Tribunal also saw through the
Petitioner’s feeble attempts to “cherry pick” data from the standards
in question to suit its own ends and has considered the standards
holistically. It is submitted that this clearly shows that the Petitioner
is blowing hot and cold on the issue of selection of conveyor belting
in accordance with IS 11592, merely to absolve itself of its warranty
obligation under the warranty for supply of defective belting. It is
submitted that the Arbitral Tribunal duly considered IS 1891, IS
11592 and also the Purchase Orders and the warranty clause therein,
as the foundation for grant of the Arbitral Award.
39. Learned counsel for the Respondent/Claimant has relied
upon various judgments, which are noted below :-
a. Board of Control for Cricket in India v/s. Kochi Cricket Private
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14
Limited and Others ;
b. Hindustan Construction Company Limited and Another v/s.
15
Union of India and Others ;
c. Sepco Electric Power Construction Corporation v/s. Power
16
Mech Projects Limited ;
17
d. Rajkot Municipal Corporation v/s. M/s. Jay Hind Project Ltd. ;
e. Delhi Airport Metro Express Private Limited v/s. Delhi Metro
18
Rail Corporation Limited ;
f. Ramesh Kumar Jain v/s. Bharat Aluminium Company Limited
19
(BALCO) ;
20
g. M/s. S. F. Engineer v/s. Metal Box India Ltd. and Another ;
21
h. Associate Builders v/s. Delhi Development Authority ;
i. Mcdermott International Inc. v/s. Burn Standard Co. Ltd. and
22
Others ;
23
j. MMTC Limited v/s. Vedanta Limited ;
14
(2018)6 Supreme Court Cases 287.
15
(2020)17 Supreme Court Cases 324.
16
(2026)3 Supreme Court Cases 701.
17 th
R/Special Civil Application No. 19550 of 2022 decided on 8 January, 2024.
18
(2022)1 Supreme Court Cases 131.
19
2025 SCC OnLine SC 2857.
20 th
Civil Application No. 4189 of 2014 decided on 28 March, 2014.
21
(2015)3 Supreme Court Cases 49.
22
(2006)11 Supreme Court Cases 181.
23
(2019)4 Supreme Court Cases 163.
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k. Dyna Technologies Private Limited v/s. Crompton Greaves
24
Limited ;
l. Konkan Railways Corporation Limited v/s. Chenab Bridge
25
Project Undertaking ;
m. Madhya Pradesh Power Generation Company Limited and
26
Another v/s. Ansaldo Energia Spa and Another ;
n. OPG Power Generation Private Limited v/s. Enexio Power
27
Cooling Solutions India Private Limited and Another ;
o. National Highways Authority of India v/s. ITD Cementation
28
India Limited ;
p. Ssangyong Engineering and Construction Company Limited
29
v/s. National Highways Authority of India (NHAI) ;
30
q. UHL Power Company Limited v/s. State of Himachal Pradesh
and
r. PSA Sical Terminals Private Limited v/s. Board of Trustees of
31
V.O. Chidambranar Port Trust Tuticorin and Others .
24
(2019)20 Supreme Court Cases 1.
25
(2023)9 Supreme Court Cases 85.
26
(2018)16 Supreme Court Cases 661.
27
(2025)2 Supreme Court Cases 417.
28
(2015)14 Supreme Court Cases 21.
29
(2019) 15 Supreme Court Cases 131.
30
(2022)4 Supreme Court Cases 116.
31
(2023)15 Supreme Court Cases 781.
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40. Upon considering the rival submissions and perusal of the
records in detail, the following questions arise for consideration
before this Court :-
1. Whether the Arbitral Tribunal has considered the evidence
adduced by both the parties and has rendered a finding that
the operation of conveyor belting system supplied by the
Petitioner was defective or whether such a finding has been
arrived at by disregarding the evidence given by the Petitioner’s
witness ?
2. Whether the Arbitral Award has travelled beyond the terms
of contract, i.e. the warranty clause, which provides for
replacement/maintenance of defective parts by granting claim
for the entire belting system and thereby violated the
provisions of Sections 12, 13 and 59(2) of the Sale of Goods
Act, 1930 and Section 73 of the Indian Contract Act, 1872,
thereby making the Award violating the statutory provisions
and beyond the contract?
3. Whether the Arbitrator has treated all the parties equally,
i.e. whether the Arbitrator has rejected the evidence of
similarly placed witness of one party, while accepting evidence
of similarly placed witness of the other party and thereby, the
Arbitral Award is in violation of provisions of Sections 18 and
34(2A) of the Arbitration and Conciliation Act, 1996 ?
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4. Whether the Arbitral Award suffers from patent illegalities ?
41. The relevant law on interference of Arbitral Award under
Section 34 of the Arbitration and Conciliation Act, 1996 is noticed
below :-
a. Associate Builders ( supra )
“ 19....
74. In the result, it is held that:
(A)(1) The court can set aside the arbitral award under
Section 34(2) of the Act if the party making the
application furnishes proof.
(2) The court may set aside the award:
...
(ii) if the arbitral procedure was not in accordance with:
(a) the agreement of the parties, or
(b) failing such agreement, the arbitral procedure was not
in accordance with Part I of the Act.
However, exception for setting aside the award on the
ground of composition of Arbitral Tribunal or illegality of
arbitral procedure is that the agreement should not be in
conflict with the provisions of Part I of the Act from which
parties cannot derogate.
(c) If the award passed by the Arbitral Tribunal is in
contravention of the provisions of the Act or any other
substantive law governing the parties or is against the
terms of the contract.
(3) The award could be set aside if it is against the public
policy of India, that is to say, if it is contrary to:
(a) fundamental policy of Indian law; or
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(b) the interest of India; or
(c) justice or morality; or
(d) if it is patently illegal.
(4) It could be challenged:
(a) as provided under Section 13(5); and
(b) Section 16(6) of the Act.
31. The third juristic principle is that a decision which is
perverse or so irrational that no reasonable person would have
arrived at the same is important and requires some degree of
explanation. It is settled law 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
(ii) ignores vital evidence in arriving at its decision, such
decision would necessarily be perverse.
32. A good working test of perversity is contained in two
judgments. In Excise and Taxation Officer-cum-Assessing
Authority v. Gopi Nath & Sons15, it was held: (SCC p. 317, para
7)
“7. ... It is, no doubt, true that if a finding of fact is
arrived at by ignoring or excluding relevant material or by
taking into consideration irrelevant material or if the
finding so outrageously defies logic as tosuffer from the
vice of irrationality incurring the blame of being perverse,
then, the finding is rendered infirm in law.”
In Kuldeep Singh v. Commr. of Police 16, it was held:
(SCC p. 14, para 10)
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“10. A broad distinction has, therefore, to be maintained
between the decisions which are perverse and those
which are not. If a decision is arrived at on no evidence or
evidence which is thoroughly unreliable and no
reasonable person would act upon it, the order would be
perverse. But if there is some evidence on record which is
acceptable and which could be relied upon, howsoever
compendious it may be, the conclusions would not be
treated as perverse and the findings would not be
interfered with.”
42. In the 1996 Act, this principle is substituted by the "patent
illegality" principle which, in turn, contains three subheads:
42.1. (a) A contravention of the substantive law of India would
result in the death knell of an arbitral award. This must be
understood in the sense that such illegality must go to the root
of the matter and cannot be of a trivial nature. This again is
really a contravention of Section 28(1)(a) of the Act, which
reads as under:
“28. Rules applicable to substance of dispute.-(1) Where
the place of arbitration is situated in India -
(a) in an arbitration other than an international
commercial arbitration, the Arbitral Tribunal shall decide
the dispute submitted to arbitration in accordance with
the substantive law for the time being in force in India;"
42.2. (b) A contravention of the Arbitration Act itself would be
regarded as a patent illegality for example if an arbitrator gives
no reasons for an award in contravention of Section 31(3) of the
Act, such award will be liable to be set aside.
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42.3. (c) Equally, the third subhead of patent illegality is really a
contravention of Section 28(3) of the Arbitration Act, which
reads as under:
"28. Rules applicable to substance of dispute.-(1)-(2)...
(3) In all cases, the Arbitral Tribunal shall decide in
accordance with the terms of the contract and shall take
into account the usages of the trade applicable to the
transaction."
This last contravention must be understood with a caveat. An
Arbitral Tribunal must decide in accordance with the terms of
the contract, but if an arbitrator construes a term of the contract
in a reasonable manner, it will not mean that the award can be
set aside on this ground. Construction of the terms of a contract
is primarily for an arbitrator to decide unless the arbitrator
construes the contract in such a way that it could be said to be
something that no fair-minded or reasonable person could do. ”
b. Ssangyong Engineering And Construction Company Limited
( supra )
“ 37. Insofar as domestic awards made in India are concerned,
an additional ground is now available under sub-section (2-A),
added by the Amendment Act, 2015, to Section 34. Here, there
must be patent illegality appearing on the face of the award,
which refers to such illegality as goes to the root of the matter
but which does not amount to mere erroneous application of the
law. In short, 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
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ground of patent illegality.
41. What is important to note is that a decision which is
perverse, as understood in paras 31 and 32 of Associate Builders
(2015)3 SCC 49, 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. Thus, 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 on the ground of patent illegality.
Additionally, 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. ”
c. Dyna Technologies Private Limited ( supra )
“ 25. Moreover, umpteen number of judgments of this Court
have categorically held that the courts should not interfere with
an award merely because an alternative view on facts and
interpretation of contract exists. The courts need to be cautious
and should defer to the view taken by the Arbitral Tribunal even
if the reasoning provided in the award is implied unless such
award portrays perversity unpardonable under Section 34 of the
Arbitration Act.
34. The mandate under Section 31(3) of the Arbitration Act is to
have reasoning which is intelligible and adequate and,
whichrean in appropriate cases be even implied by the courts
from a fair reading of the award and documents referred to
thereunder, if the need be. The aforesaid provision does not
require an elaborate judgment to be passed by the arbitrators
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having regard to the speedy resolution of dispute.
35. When we consider the requirement of a reasoned order,
three characteristics of a reasoned order can be fathomed. They
are: proper, intelligible and adequate. If the reasonings in the
order are improper, they reveal a flaw in the decision-making
process. If the challenge to an award is based on impropriety or
perversity in the reasoning, then it can be challenged strictly on
the grounds provided under Section 34 of the Arbitration Act. If
the challenge to an award is based on the ground that the same
is unintelligible, the same would be equivalent of providing no
reasons at all. Coming to the last aspect concerning the
challenge on adequacy of reasons, the Court while exercising
jurisdiction under Section 34 has to adjudicate the validity of
such an award based on the degree of particularity of reasoning
required having regard to the nature of issues falling for
consideration. The degree of particularity cannot be stated in a
precise manner as the same would depend on the complexity of
the issue. Even if the Court comes to a conclusion that there
were gaps in the reasoning for the conclusions reached by the
Tribunal, the Court needs to have regard to the documents
submitted by the parties and the contentions raised before the
Tribunal so that awards with inadequate reasons are not set
aside in casual and cavalier manner. On the other hand,
ordinarily unintelligible awards are to be set aside, subject to
party autonomy to do away with the reasoned award. Therefore,
the courts are required to be careful while distinguishing
between inadequacy of reasons in an award and unintelligible
awards. ”
d. MMTC Limited ( supra )
“ 10. Before proceeding further, we find it necessary to briefly
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revisit the existing position of law with respect to the scope of
interference with an arbitral award in India, though we do not
wish to burden this judgment by discussing the principles
regarding the same in detail. Such interference may be
undertaken in terms of Section 34 or Section 37 of the
Arbitration and Conciliation Act, 1996 (for short "the 1996
Act"). While the former deals with challenges to an arbitral
award itself, the latter, inter alia, deals with appeals against an
order made under Section 34 setting aside or refusing to set
aside an arbitral award.
11. As far as Section 34 is concerned, the position is well-settled
by now that the Court does not sit in appeal over the arbitral
award and may interfere on merits on the limited ground
provided under Section 34(2)(b)(ii) Le. if the award is against
the public policy of India. As per the legal position clarified
through decisions of this Court prior to the amendments to the
1996 Act in 2015, a violation of Indian public policy, in turn,
includes a violation of the fundamental policy of Indian law, a
violation of the interest of India, conflict with justice or
morality, and the existence of patent illegality in the arbitral
award. Additionally, the concept of the "fundamental policy of
Indian law" would cover compliance with statutes and judicial
precedents, adopting a judicial approach, compliance with the
principles of natural justice, and Wednesbury³ reasonableness.
Furthermore, "patent illegality" itself has been held to mean
contravention of the substantive law of India, contravention of
the 1996 Act, and contravention of the terms of the contract.
12. It is only if one of these conditions is met that the Court may
interfere with an arbitral award in terms of Section 34(2)(b)(ii),
but such interference does not entail a review of the merits of
the dispute, and is limited to situations where the findings of the
arbitrator are arbitrary, capricious or perverse, or when the
conscience of the Court is shocked, or when the illegality is not
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trivial but goes to the root of the matter. An arbitral award may
not be interfered with if the view taken by the arbitrator is a
possible view based on facts. (See Associate Builders v. DDA.
Also see ONGC Ltd. v. Saw Pipes Ltd.; Hindustan Zinc Lid. v.
Friends Coal Carbonisation; and McDermott International Inc. v.
Burn Standard Co. Ltd.)
13. It is relevant to note that after the 2015 Amendment to
Section 34, the above position stands somewhat modified.
Pursuant to the insertion of Explanation 1 to Section 34(2), the
scope of contravention of Indian public policy has been modified
to the extent that it now means fraud or corruption in the
making of the award, violation of Section 75 or Section 81 of
the Act, contravention of the fundamental policy of Indian law,
and conflict with the most basic notions of justice or morality.
Additionally, sub-section (2-A) has been inserted in Section 34,
which provides that in case of domestic arbitrations, violation of
Indian public policy also includes patent illegality appearing on
the face of the award. The proviso to the same states that an
award shall not be set aside merely on the ground of an
erroneous application of the Taw or by reappreciation of
evidence. ”
e. Madhya Pradesh Power Generation Company Limited and
Another ( supra )
“ 25. The limit of exercise of power by courts under Section 34 of
the Act has been comprehensively dealt with by R.F. Nariman, J.
in Associate Builders v. DDA6. Lack of judicial approach,
violation of principles of natural justice, perversity and patent
illegality have been identified as grounds for interference with
an award of the arbitrator. The restrictions placed on the
exercise of power of a court under Section 34 of the Act have
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been analysed and enumerated in Associate Builders which are
as follows:
(a) The court under Section 34(2) of the Act, does not act as a
court of appeal while applying the ground of "public policy" to
an arbitral award and consequently errors of fact cannot be
corrected.
(b) A possible view by the arbitrator on facts has necessarily to
pass muster as the arbitrator is the sole judge of the quantity
and quality of the evidence.
(c) Insufficiency of evidence cannot be a ground for interference
by the court. Re-examination of the facts to find out whether a
different decision can be arrived at is impermissible under
Section 34(2) of the Act.
(d) An award can be set aside only if it shocks the conscience of
the court.
(e) Illegality must go to the root of the matter and cannot be of
a trivial nature for interference by a court. A reasonable
construction of the terms of the contract by the arbitrator cannot
be interfered with by the court. Error of construction is within
the jurisdiction of the arbitrator. Hence, no interference is
warranted.
(f) If there are two possible interpretations of the terms of the
contract, the arbitrator's interpretation has to be accepted and
the court under Section 34 cannot substitute its opinion over the
arbitrator's view. ”
42. On perusal of the Arbitral Award, it is seen that the
Arbitrator has formulated the following questions for determination
in the claim and counter-claim, which are noted below :-
Sr. No. QUESTIONS
1. Whether the belting supplied by the Respondent to the
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Claimant was in accordance with the technical specifications
of annexure 1 to the Purchase Order?
2. Whether the belting supplied by the Respondent to the
Claimant had manufacturing defects which caused them to
fail shortly after installation?
3. Whether the speed at which the Conveyor was run by the
Claimant and/or the troughing angle used on the Claimant’s
Conveyor System caused specific types of defects such as
waviness and air pockets as alleged by the Respondent?
4. Whether the claimant was entitled to encash the
performance bank guarantees given by the Respondent for
the belting supplied by the Respondent?
5. Whether the encashment by the Claimant of the bank
guarantees given by the Respondent was unauthorised and
illegal?
6. Whether the Claimant was entitled to a refund of the total
purchase price from the Respondent after deducting the
amount of two bank guarantees encashed by the Claimant,
amounting to Rs. 2,16,44,423/- together with interest at
18% per annum or at such other rate as the Tribunal may
deem fit?
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7. Whether the Claimant is entitled to a further sum of Rs.
5,90,249/- being the amount paid by the Claimant for
repairing the defective belting?
8. Whether the Claimant is entitled to claim from the
Respondent a sum of Rs. 5,00,000/- or such other sum as the
tribunal may determine as the legal and other expenses upto
the commencement of arbitration proceedings?
9. Whether the Claimant is entitled to interest at the rate of
18% per annum or at any other rate on the said amounts in
points 6 and 7 above?
10. Whether the claimant is entitled to claim damages/loss of
profit for stoppage/extreme slowing down of transportation
by Conveyor belting system for its power plant, and if so,
what amount?
11. Whether the Claimant is entitled to costs and if so, what
amount?
12. Whether Respondent is entitled to a sum of Rs. 20,40,180/-
together with interest at the rate of 18% per annum or such
other rate as the Tribunal may deem fit for unauthorised
encashment by the Claimant of the bank guarantees given by
the Respondent?
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13. Whether the Respondent is entitled to a sum of Rs.
4,00,000/- or any other sum in respect of legal and other
costs incurred by the Respondent upto the stage of
commencement of the arbitration proceedings?
14. Whether the Respondent is entitled to interest at the rate of
18% per annum or such other sum as the Tribunal may
deem fit on the above amount in point 13?
15. Generally.
43. The claimant has led oral evidence of Mr. Babu Reddy,
General Manager-Commercial of the Claimant (CW-1) and of Mr.
Vaman Yeshwant Dhond, Deputy General Manager-Operation and
Maintenance (CW-2).
44. The Respondent/Claimant has led oral evidence of Mr.
Krishan Aggarwal, Director of the Respondent (RW-1) and Dr. Timir
Baran Bhattacharya, Vice President-Works of the
Respondent/Claimant (RW-2).
45. The Arbitral Tribunal at paragraphs 19 and 20 of its Arbitral
Award has noted the undisputed factual aspects and thereafter at
paragraph 21 discussed the evidence of Mr. Dhond (CW-2) and at
paragraph 22, the contentions of present Petitioner (Respondent
before the Arbitrator) are noted. At paragraph 23, the Arbitrator has
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discussed about IS 11592 of Conveyor Systems and at paragraph 24,
the Arbitrator has discussed about the standard treaties on material
handling by Ishwar and Mulani, where the recommended maximum
belt speed for belts of width 1800 and above is upto 5 m/s. At
paragraph 25, the Arbitral Tribunal holds that from a mere perusal of
IS 11592, it is not possible to come to the conclusion that the
claimant’s conveyor belt system was wrongly designed for the speed
of 4.5 m/s without any evidence to this effect of an expert in
designing of conveyors or Conveyor Systems and the necessary
inputs required under IS 11592 to arrive at the speed limit and the
same is the case with troughing angle of 45 degrees. IS 11592 does
not say that in no case should the speed exceed 3 or 3.5 m/s or the
troughing angle cannot be 45 degrees.
46. The Arbitral Tribunal has observed that the evidence of
Petitioner in this regard does not inspire confidence. Both the
witnesses are in-house witnesses and that Dr. Bhattacharya (RW-2)
has stated that under his supervision, the Respondent’s Technical
Team studied minutely the design parameters of the claimant’s
Conveyor System. However, RW-2 is not an expert in this area. He
deals with manufacture of conveyor belts. The Respondent knew
that it was supplying conveyor belts for the claimant’s conveyor belt
system, which was already in operation. It is thought that the speed
and troughing angle were important for the functioning of its belts, it
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should have so informed the claimant and taken care to ascertain the
same before supplying the belts.
47. The Arbitral Tribunal has held that it has no satisfactory
evidence before it to come to the conclusion that the speed of 4.5
m/s and/or troughing angle of 45 degree alone were responsible or
were at all responsible for the air pockets which developed in the
conveyor belts supplied by the Respondent and which resulted in
failure of the belts and their replacement. In respect of waviness, the
defect was seen at the time of installation itself and hence, cannot be
attributed to the speed or the troughing angle of the conveyor belt
system. Apart from the bare words of the Respondent, there is no
evidence to show that this waviness as well as noticing only 3 plies at
the edge at the time of installation were merely superficial defects
and would not affect the functioning of the Conveyor belt. Anyway,
the Conveyor belt in question also developed air pockets after some
use. To the knowledge of the Respondent, the belts supplied by
them had to be replaced by the Claimant with spare belts or other
belts to keep the Conveyor System functioning.
48. The Arbitral Tribunal has observed that the defects in
question were found within the warranty period. The defects must
be attributed to inherent defects in the belts manufactured and
supplied by the Respondent. The Respondent is bound and liable,
under the terms of the Contract, to replace the belts. The
Respondent has, however, refused to do so. It did offer partial
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replacement at a price set out by it which the Claimant declined.
The Letter of Intent as well as the Purchase Orders pursuant to the
Letter of Intent are clearly for supply of Conveyor belts for the
claimant's Conveyor Belt System at Jaigarh Port. The claimant has
given technical specifications required at the time of placing the
order for the belts. The Respondent has not led any satisfactory
evidence to show that the belts supplied by them meet the technical
specifications specified by the claimant.
49. It is further observed that the claimant had to replace the
belts supplied by the Petitioner by placing orders with other
suppliers. In the premises, the claimant was justified in invoking the
Bank Guarantees and therefore, entitled to recover from the
Petitioner, the amount paid by it to the Petitioner for the belts.
50. On perusal of the records, it is seen that there is no
evidence whatsoever, that the Respondent/Claimant has purchased
new conveyor belts, for replacing the belts supplied by the Petitioner
within the warrant period or even thereafter, rather the evidence
indicates that the Respondent/Claimant used the belts supplied by
the Petitioner by making replacement on portion of belts.
51. From perusal of IS 11592 specification document, it is
apparent that the speed of the Conveyor System can be 4.5 m/s, if
the other factors are supportive. In the instant case, considering the
material used, the lump size abrasive factor and air bone factor as
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provided under IS 11592, the maximum speed works out to 3 m/s.
The conveyor belt system being used at 4.5 m/s, which could also be
partially responsible for the defects seen in the belts.
52. The evidence, however given in this regard, has been
rejected on two counts :-
(i) that the witnesses are in-house witnesses and
(ii) that they are not the expert witnesses.
This Court has analysed the evidence only to examine if the
Petitioner had led any evidence on the aspect of the Conveyor
System being run at the speed of 4.5 m/s and variable inputs therein
are not supportive in terms of the charts provided in IS 11592
specifications. This Court do not intend to render any finding
thereon.
53. The witnesses of Petitioner, who are the technical persons,
involved in manufacturing and sale of conveyor belts. The belts
supplied are to be used on Conveyor System. The Petitioner was
called upon to supply conveyor belts meeting the specification of
utilisation of the belt on a Conveyor System of IS 11592. The belts
so produced were in terms of the Letter of Intent meeting the
specification of IS 11592. If IS 11592 itself provides that the lump
size abrasive factor, etc. determines the maximum speed at which the
system is required to be operated and for the material conveyed on
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the claimants Conveyor System with the specified lump size and
other factors as observed later in this judgment, the speed works out
nd
to be 3 m/s. Admittedly by the e-mail dated 2 May, 2012, the
report submitted by the Respondent/Claimant also provides that they
have been using the machine at 4.5 m/s and the lump size and the
abrasive factors are also provided in the report.
54. IS 11592 Conveyor System provided various charts for
input and corresponding speed and the same can be understood by a
technical person, who operates the Conveyor Systems. In the instant
case, an Industrial Engineer, who is in business of manufacturing and
supplying of conveyor belts with sufficient knowledge of Conveyor
Systems, has given evidence.
55. IS 11592 specifications for conveyor belt system provides as
under :-
Clause 7 provides for ‘Conveyor Design Procedure’. Clause
7.2 provides that the known maximum lump size of the material can
be found from Table 3 taking into account the classification of
material as given in Clause 7.3.1. Table 3 provides for ‘Maximum
Lump Sizes in Relation to Belt Width (Clause 7.2)’. In the instant
case, the width of belt is 1800. The lump size used is given in the e-
nd
mail and inspection report of the Respondent/Claimant dated 2
May, 2012. Clause 7.4 provides for speed, which is noted below :-
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“ 7.4 Ascertain speed factor as sum of lump size factor (see
Table 4), air borne factor (see Table 4) and abrasiveness factor
(see Table 5) and select belt speed (see Table 6). ”
Table 4 provides for ‘Lump Size Factor’, Table 5 provides for
‘Abrasiveness Factor’ and Table 6 provides for ‘Maximum
Recommended Belt Speeds (meter per second)’.
56. Considering the lump size, the abrasive factor of the
material used and lump size as provided in the report including
conveyor specifications, submitted by the Mr. Vaman Dhond,
nd
Respondent/Claimant by e-mail dated 2 May, 2012 (at page nos.
234 and 235 of the Compilation of Documents-Volume-2), the
maximum permissible Conveyor System speed works out at 3 m/s.
57.
In the instant case, it is an admitted position that the speed
of Conveyor System was 4.5 m/s. The arguments canvassed by the
Claimant is that if the Conveyor System operates at this speed, i.e.
4.5 m/s, it was a duty of the present Petitioner to make a belt
compliable to the speed of Conveyor System. However, the Purchase
Order was for the conveyor belt of IS 11592.
58. The Arbitral Tribunal has rejected the evidence of Petitioner
on the ground that the witnesses are in-house witnesses and they are
not expert witnesses for Conveyor Systems. The evidence required is
not of an specialized expert in the instant case. Speed depends on
input and the witnesses of Petitioner are technical persons/industrial
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engineers and the witnesses were competent to depose in this regard.
Merely being the in-house witnesses, is not sufficient to discard the
evidence of Petitioner’s witnesses.
59. The Arbitral Tribunal has also held that the Petitioner has
failed to produce any evidence that the conveyor belts supplied by
the Petitioner met the specifications of the Purchase Orders. The
belts were accepted after inspection. Some defects were noticed at
the stage of installation and some while usage. But, the Inspection
Reports do not indicate that the entire conveyor belts supplied were
defective and thus replaced.
60. The question before the Arbitral Tribunal was, ‘Whether the
conveyor belt supplied by the Petitioner met the requirement of the
Purchase Orders, which in turn specified the IS 11592?’ and
secondly, the issue was ‘Whether the defects observed were on
account of operation of Conveyor System or on account of the
inherent defects in the conveyor belt or both ?’ The defect in
conveyor belt was inherent defect or the speed of the Conveyor
Sytem was contributory factor, could have only been ascertained
after considering the evidence of claimant and also the Petitioner’s
evidence. This wholesome rejection of the Petitioner’s evidence
would fall foul as the law laid down in the judgment in the cases of
Associate Builders ( supra ) and Ssangyong Engineering and
Construction Company Limited ( supra ). The wholesome rejection of
one party’s evidence, while accepting evidence the claimant, whose
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witnesses were also in-house, without composite scrutiny shows one
sided appreciation. The Arbitral Tribunal has not engaged with the
evidence of the Petitioner. This is also in violation of the provisions
of the Arbitration and Conciliation Act, 1996 and the law laid in the
case of Dyna Technologies Private Limited ( supra ).
61. In the instant case, the goods, i.e. the conveyor belt is
accepted by the Respondent/Claimant after inspection. Further
defect of waviness was noticed while installing on some portion of
the belt. Certain defects were noticed while usage. The
Respondent/Claimant has continued to use the conveyor belt with
replacement of defective portion of the belt.
62. The total quantity of belts supplied of 800/4 rating is 690
metres and 1250/4 rating is of 2800 metres and total replaced
quantity of belts is 860 metres from the total supplied belts of 3490
metres. There is no evidence that the remaining belts of 2630 metres
were replaced.
63. The present case would fall in breach of warranty and not
of condition of sale as contemplated under Sections 12 and 13 of the
Sale of Goods Act, 1930. There is no rejection of the belt outright or
even, later when the defects are noticed. There is absolutely no
evidence that the belts were replaced. The conveyor belts are used
for the entire warranty period with replacements of parts at certain
portions. This becomes a claim for breach of warranty under Section
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59(2) of the Sale of Goods Act, 1930 and the damage, to be ascertain
as provided under Section 73 of the Indian Contract Act, 1872.
64. Sections 12, 13 and 59(2) of the Sale of Goods Act, 1930
and Section 73 of the Indian Contract Act, 1872 are quoted below for
ready reference :-
“ 12. Condition and warranty
(1) A stipulation in a contract of sale with reference to goods
which are the subject thereof may be a condition or a warranty.
(2) A condition is a stipulation essential to the main purpose of
the contract, the breach of which gives rise to a right to treat the
contract as repudiated.
(3) A warranty is a stipulation collateral to the main purpose of
the contract, the breach of which gives rise to a claim for
damages but not to a right to reject the goods and treat the
contract as repudiated.
(4) Whether a stipulation in a contract of sale is a condition or a
warranty depends in each case on the construction of the
contract. A stipulation may be a condition, though called a
warranty in the contract.
13. When condition to be treated as warranty
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(1) Where a contract of sale is subject to any condition to be
fulfilled by the seller, the buyer may waive the condition or elect
to treat the breach of the condition as a breach of warranty and
not as a ground for treating the contract as repudiated.
(2) Where a contract of sale is not severable and the buyer has
accepted the goods or part thereof, 5[*] the breach of any
condition to be fulfilled by the seller can only be treated as a
breach of warranty and not as a ground for rejecting the goods
and treating the contract as repudiated, unless there is a term of
the contract, express or implied, to that effect.
(3) Nothing in this section shall affect the case of any condition
or warranty fulfillment of which is excused by law by reason of
impossibility or otherwise.
59. Remedy for breach of warranty.-(1) Where there is a breach
of warranty by file seller, or where the buyer elects or is
compelled to treat any breach of a condition on the part of the
seller as a breach of warranty, the buyer is not by reason only of
such breach of warranty entitled to reject the goods; but he
may-
(a) set up against the seller the breach of warranty in
diminution or extinction of the price; or
(b) sue the seller for damages for breach of warranty.
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(2) The fact that a buyer has set up a breach of warranty in
diminution or extinction of the price does not prevent him from
suing for the same breach of warranty if he has suffered further
damage.
73. Compensation for loss or damage caused by breach of
contract. - When a contract has been broken, the party who
suffers by such breach is entitled to receive, from the party who
has broken the contract, compensation for any loss or damage
caused to him thereby, which naturally arose in the usual course
of things from such breach, or which the parties knew, when
they made the contract, to be likely to result from the breach of
it.
Such compensation is not to be given for any remote and
indirect loss or damage sustained by reason of the breach.
Compensation for failure to discharge obligation resembling
those created by contract.-When an obligation resembling those
created by contract has been incurred and has not been
discharged, any person injured by the failure to discharge it is
entitled to receive the same compensation from the party in
default, as if such person had contracted to discharge it and had
broken his contract.
Explanation. - In estimating the loss or damage arising from a
breach of contract, the means which existed of remedying the
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inconvenience caused by the non-performance of the contract
must be taken into account. ”
65. The Petitioner cannot set up defence of extinction of the
price without returning the goods. The usage of goods by the
claimant and not returning the goods, would amount to waiving of
contract condition under Section 13 of the Sale of Goods Act, 1930
and the breach can be claimed under the warranty. The warranty
clause is provided in the Purchase Orders as Clause 15. The same is
noted below for ready reference :-
“ 15. WARRANTY :
The material to be supplied under this order would carry a
warranty from you for free replacement/free repair(s) of
any part(s) which could be defective or unserviceable
within 12 months from the date of commissioning or 18
months from the date of last dispatch, whichever be earlier.
The warranty period shall automatically get extended for
the period which is required for rectification. ”
66. In the instant case before accepting the belts, admittedly at
the Petitioner’s site, a joint inspection was carried out of the belts
and the Purchase Orders were accepted. Later on during installation,
certain waviness was noticed on the portion of belts and on further
usage of belts, defects were noticed in the portion of belts as
observed above.
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67. Warranty is of free replacement/free repair of any part(s),
which could be defective or unseviceable within the stipulated
period. There is no evidence of entire conveyor belts being defective
of replaced in the warranty period and thus, it was necessary to
restrict the claim to the warranty clause. In the instant case, there is
no proof of loss of profit, for the losses suffered due to defective
belts, as such the Arbitral Tribunal has not granted claim towards the
loss of profits.
68. The Hon’ble Supreme Court in the case of Sepco Electric
32
Power Construction Corporation v/s. GMR Kamalanga Energy Ltd. ,
has observed with regard to the power of Arbitrator with reference to
the clauses of contract as such :-
“ 96. Further clarification of this proposition is brought about
through observations of this Court in a further decision by 3-
Judge Bench in Union of India v. Bharat Enterprise wherein it
was underlined that the existence and powers of an arbitrator
are a creature of the agreement between the parties, and it is
the terms of the contract which serves as a fundamental basis
for the procedure to be adopted by the Arbitral Tribunal.
Therefore, the arbitrator concerned is restricted to the terms of
the contract thereof and cannot go outside its scope or what is,
per se, specified. In words of the Bench, "A disregard of the
specific provisions of the contract would incur wrath of the
award being imperilled. This position cannot be in the region of
dispute."
32
(2026)2 Supreme Court Cases 542.
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97. In order to achieve an enhanced understanding apropos the
scope of the powers and jurisdiction of an arbitrator, a reference
may also be made to a decision of this Court in Associated Engg.
22, which was determined vis-à-vis Section 30 of the Arbitration
Act, 1940 wherein, it was observed that: (SCC pp. 103-105,
paras 24-27)
"24. The arbitrator cannot act arbitrarily, irrationally,
capriciously or independently of the contract. His sole function
is to arbitrate in terms of the contract. He has no power apart
from what the parties have given him under the contract. If he
has travelled outside the bounds of the contract, he has acted
without jurisdiction. But if he has remained inside the
parameters of the contract and has construed the provisions of
the contract, his award cannot be interfered with unless he has
given reasons for the award disclosing an error apparent on the
face of it. ”
69. In the instant case, the Arbitral Award suffers from “Patent
Illegality” as it discards evidence of Petitioner as being in-house and
not being of expert, while accepting similarly placed evidence of
Claimant’s witness and thus violates Section 18 of the Arbitration
and Conciliation Act, 1996. Its the specific case of the Claimant that
they have purchased the entire belt from other sources and there is
no evidence placed on record of purchase or replacement of entire
belt thus, the Arbitral Award contravenes the contract i.e. the
warranty clause. The award also contravenes the substantial law of
India as it violates the provisions of Sections 12, 13 and 59(2) of the
Sale of Goods Act, 1930 and thus suffers from patent illegality, in
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view of the law laid down in the case of MMTC Limited ( supra ),
which is quoted below for reference :-
“ Furthermore, "patent illegality" itself has been held to mean
(a) contravention of the substantive law of India,
(b) contravention of the 1996 Act, and
(c) contravention of the terms of the contract. ”
70. In view of the above, it is not possible for this Court to
accept the submission of Respondent/Claimant that the Arbitral
Award is a reasonable one and merely grants the cost price of the
defective conveyor belts. For the reasons noted above, the Arbitral
Award suffers from patent illegality, and is set aside. Accordingly,
the Arbitral Award pased in the counter-claim is also set aside. The
Arbitration Petition is disposed of with remedy as is available in law.
71.
In the event, the parties apply again for appointment of
Arbitrator, the evidence in the present proceedings may also be used
in addition to any other evidence, the Arbitrator may permit.
[ ARUN R. PEDNEKER, J. ]
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GOPAL
DUSANE
Digitally signed by
BHALCHANDRA
GOPAL DUSANE
Date: 2026.10.21
14:43:29 +0530
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