Flowmore Limited vs M/S Skipper Limited
- Court
- Delhi High Court
IN THE HIGH COURT OF DELHI AT NEW DELHI
% Judgment reserved on: 24.09.2026
Judgment pronounced on: 28.10.2026
# CNR No. DLHC010905742023
+ FAO(OS) (COMM) 31/2023, CM APPL. 5215/2025&CM
APPL. 25260/2025
FLOWMORE LIMITED .....Appellant
Through: Mr. Jayant Mehta, Sr. Adv. Mr.
Arvind Nigam, Sr. Adv. With
Ms. Pratishtha Vij, Adv.
versus
M/S SKIPPER LIMITED .....Respondent
Through: Mr. Nikhil Nayyar, Sr. Adv.
with Mr. Saurav Gupta and Ms.
Sugandha Batra, Advs.
CORAM:
HON'BLE MR. JUSTICE AVNEESH JHINGAN
HON'BLE MS. JUSTICE SHAIL JAIN
J U D G M E N T
AVNEESH JHINGAN, J.:
1. This appeal is filed assailing the judgment dated 02.02.2023
passed by the learned Single Judge in a petition under Section 34 of
the Arbitration and Conciliation Act, 1996 (for short ‘the Act’).
2. The appellant/Flowmore Limited placed a purchase order on the
respondent/M/S Skipper Limited for manufacture and supply of
structure material for Jharkhand Urja Sancharan Nigam Limited (for
brevity ‘JUSNL’). Dispute arose between the parties and arbitration
was initiated at the instance of the respondent which culminated in the
impugned award dated 05.07.2022. A sum of Rs.8,15,05,674/- along
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with interest @ 10% per annum from the date of disposal of the
finished goods as scrap till the passing of the award and @8% post
award was awarded. The counter claim of the appellant was
dismissed. The objections petition filed by the appellant under Section
34 of the Act was dismissed on 02.02.2023 and hence, this appeal.
3. The turn of events as occurred in timeline are as under:
3.1 On 20.02.2019, the appellant invited an offer from the
respondent for structural material required for the Jharkhand Urja
Sancharan Nigam Ltd. (JUSNL). The respondent submitted the offer
on 23.02.2019. The appellant issued purchase order dated 02.03.2019
(for short ‘PO’) for a total price of Rs.27,72,31,560/- for manufacture
and supply of fabricated and hot-dip galvanized tower parts, stubs,
cleats, MS templates, earthing tower material and fasteners, in
connection with the JUSNL project.
3.2 On 07.03.2019, the respondent sought amendments
/clarifications in the PO, in relation to drawings, shop drawings, bill of
material (BOM) and manufacturing clearance. On 08.03.2019 the
appellant responded to the issues raised and stated that the respondent
could obtain approval of drawings/documents directly from the
JUSNL and could send its technical person to Ranchi for further
technical discussion. On 30.05.2019 the appellant while providing the
drawings, BOM of the tower structures and fasteners asked the
respondent to arrange proto inspection. The appellant also directed
manufacture of stubs and templates and inspection thereof.
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3.3. On 01.06.2019, the appellant requested proto inspection. The
respondent reverted that similar prototype had already been made for
Simplex-JUSNL project and requested for waiver of prototype. As per
Clause 16 of the PO the respondent had to furnish an Advance Bank
Guarantee (ABG) equivalent to10% of the basic amount and after that
the appellant was to release the 10% advance payment. The
respondent on 07.06.2019 furnished an ABG of ₹2,34,94,200/- but the
corresponding advance payment was not made by the appellant.
3.4 Again on 11.06.2019 the respondent sought waiver of prototype
assembly for the stubs and templates. The appellant in response
sought documents finally approved and signed by JUSNL. By e-mail
dated 14.06.2019 the appellant requested prototype inspection for
each type of tower, stubs and templates. Out of purchase order placed
for eight lines, activities relating to three lines were kept in abeyance
owing to issues concerning allocation of route by JUSNL.
3.5 On 19.06.2019, the appellant permitted mass production of
stubs and templates for five transmission-line locations and sought an
inspection call. An email dated 01.07.2019 seeking status of the
inspection calls was sent by the appellant. The respondent furnished
the revised proforma invoices by emails dated 01.07.2019 and
05.07.2019 for approximately Rs.1.28 crore and Rs.1.13 crore
respectively.
3.6 On 22.07.2019 the inspection of the material stated to be ready
was sought by the appellant. The respondent submitted that raw
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material is lined up for stubs, prototype of towers is under production
but inspection can be done only after receipt of advance. The
appellant alleged that despite the stipulated delivery schedule neither
prototype inspection was arranged for each tower nor of
stubs/templates. The respondent reiterated that the advance was not
released against the manufacturing clearance and sought advance for
arranging inspection of the stubs and templates.
3.7 On 25.07.2019 the appellant cancelled the PO and returned the
ABG on 30.07.2019.
3.8 Owing to dispute the respondent filed a petition under Section 9
of the Act seeking interim measures for the dispute arising from the
cancellation of the PO. The Court appointed the sole arbitrator on
27.01.2020. The respondent filed claims amounting to
Rs.11,68,50,536/- towards the principal value of manufactured goods,
interest, loss of business opportunity and loss of interest on the ABG.
The appellant filed a counter-claim of Rs.26,45,12,721/- for loss on
account of interest charged by JUSNL, liquidated damages and other
losses resulting from failure of the respondent to perform the
contractual obligations. The impugned arbitral award was passed
awarding Rs. 8,15,05,674/- to the respondent along with interest
@10% per annum from 01.02.2020 till passing of the award and post
award interest @8% per annum. The counter claims were dismissed.
3.9 The petition under Section 34 of the Act filed by the appellant
was dismissed vide judgement dated 02.02.2023 and the award was
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upheld.
3.10 In appeal under Section 37 of the Act the judgment dated
02.02.2023 was set aside on 29.05.2023 and the matter was remanded
to the learned Single Judge for fresh adjudication. The respondent
succeeded before the Supreme Court and by order dated 09.12.2024
the judgment passed under Section 37 of the Act was set aside and the
present appeal was restored to its original position for adjudication.
The order of the Supreme Court dated 09.12.2024 is reproduced
below:
“Leave granted.
Heard the learned counsel appearing for the parties.
We have perused the impugned judgment. We find that
there was absolutely no reason for the Division Bench to
remand the application under Section 34 of the
Arbitration and Conciliation Act, 1996 (for short, “the
Arbitration Act”) to the learned Single Judge. It appears
to us that the Appellate Court while exercising the
powers under Section 37 of the Arbitration Act has not
done its duty. All questions which are discussed in the
impugned judgment could have been decided by the
Division Bench itself. If such orders of remand are
passed, the same will defeat the very object of enacting
the Arbitration Act.
We, therefore, set aside the impugned judgment dated
29th May, 2023 and restore FAO (OS) (COMM) No.
31/2023 to its original number before the Division Bench
of the High Court of Delhi. The restored Appeal shall be
listed before the roster Bench on 10th January, 2025 for
fixing a date for hearing. Both the parties who are
represented today shall appear before the roster Bench on
that day and no further notice will be served upon them.
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A copy of this order shall be forwarded by the Registry
of this Court to the Registrar (Judicial) of the High Court
of Delhi who shall ensure that the restored Appeal is
listed on 10th January, 2025.
All questions are left open to be decided in the appeal.
The Appeal is, accordingly, allowed.”
4. Learned senior counsel for the appellant submits that the
arbitrator ignored the contractual terms and material evidence while
awarding ₹8,15,05,674/- to the respondent, the award suffers from
patent illegality and is perverse.
4.1 The submission is that the claim was allowed in absence of an
evidence substantiating actual loss suffered as is contemplated in the
decision of the Supreme Court in Kailash Nath Associates v. DDA
(2015) 4 SCC 136 and Fateh Chand v. Balkishan Das AIR 1963 SC
1405 .
4.2 It is submitted that prototype inspection was a prerequisite for
mass production. The waiver of the inspection sought by the
respondent was never granted. The manufacturing clearance if any, by
email dated 01.06.2019 covered only stubs and templates not tower
structures. No clearance for mass production under Clause 38 of the
PO was issued for the towers. The argument is that email of the
respondent dated 23.07.2019 stating that the proto of tower was still
under production contradicted the claim that goods to be supplied
were manufactured.
4.3 As regards the advance, the appellant submits that the 10%
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advance under Clause 16 of the PO was subject to the requisite
manufacturing clearance, furnishing of ABG and issuance of the
porforma invoice. The ABG furnished by the respondent was not
corresponding to the limited manufacturing clearance given and
therefore non-payment of the advance was not a breach by the
appellant.
4.4 The contention is that proforma invoices, production statements
and procurement of raw material was not proof that the goods to be
supplied were actually manufactured, particularly when no finished
goods were offered for inspection. The award of ₹8,15,05,674/- was
based on the assumption that goods worth ₹15.13 crore were
manufactured, the deduction towards scrap and nuts and bolts does
not cure this defect. Moreover, it was not considered that the
respondent was supplying similar goods to other suppliers and it was
not a scrap.
5. Per contra appellant seeks re-appreciation of evidence and this
is beyond the scope of Section 37 of the Act. The arbitrator after
considering the contract, correspondence between the parties and the
material on record passed a detailed and reasoned award. The findings
of the arbitrator is a plausible view and there is no patent illegality or
perversity calling for interference.
5.1 The submission is that the PO did not make prototype
inspection a condition for manufacture or advance payment. In any
event, the arbitrator relying upon the correspondence dated
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30.05.2019 and 19.06.2019 found that the appellant had waived the
requirement by granting manufacturing clearance and prototype
inspection.
5.2 As regards the advance, Clause 16 of the PO provided for 10%
advance against an ABG and proforma invoice. The respondent
furnished the ABG of ₹2.34 crore and sought payment but the
appellant failed to release the advance. The finding that the goods to
be supplied were manufactured is on the basis of production records,
procurement documents and contemporaneous evidence not merely on
proforma invoices. Moreover, the arbitrator awarded ₹8.15 crore after
making deductions towards scrap and nuts and bolts, The submission
is that the Section 9 petition filed by the respondent seeking delivery
of the manufactured goods also supports the finding. The argument is
that entire evidence produced was discussed in detail in the impugned
award.
5.3 The contention is that initially contract was for eight lines but
by email dated 14.06.2019 lines were reduced to five and by email
dated 30.05.2019 clearance for manufacturing was given.
5.4 Learned senior counsel for the respondent relies upon the
decision of the Supreme Court in Ramesh Kumar Jain v. Bharat
Aluminium Company Ltd. 2025 SCC OnLine SC 2857 to support the
contention that there cannot be re-appreciation of evidence in appeal
and erroneous application of law is not a patent illegality. To fortify
the contention that a plausible view taken by the arbitrator should not
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be interfered with, the decision of the Supreme Court in Prakash
Atlanta (JV) v. National Highways Authority of India2026 SCC
OnLine SC 98 is pressed into service.
6. Heard the learned counsel for the parties at length and perused
the record with their able assistance.
7. Before proceeding further, it would be relevant to quote clauses
1, 10, 16 and 38 of PO.
“1. PRICES : Rs.27,72,31,560/- (Rs. Twenty Seven
Crores Seventy Two Lacs Thirty One Thousand Five
Hundred Sixty Only) inclusive of Proto assembly
charges, Earthing of Tower Materials, GST but
exclusive of transportation charges.
(1) Rate for MS Red Oxide Templates Rs.58,000/
MT as per our actual requirement shall be confirm
shortly.
(2) Further Technical information like detail BOQ &
drawing required you may contact Mr. N.K. Ojha at
our Bihar Branch Office. Total Approx. Qty. @3597
MT, individual item annexure-I enclosed.
10. INSPECTION OF GOODS : The material shall
be subject to final Inspection and testing by
Buyer/Client/Client’s Engineer/TPI and no extra
charges shall be paid on this account. The Supplier
shall raise formal Inspection call in Buyer’s format at
least 3 days in advance. They Buyer reserves the right
for Inspection of goods at the point of assembly /or
delivery. If the good manufactured are not in
accordance with the approved drawings, specifications
as per JUSNL and as per purchase order, the Buyer
reserves the right to reject the goods in whole or in
part. In such an even the Buyer shall be free to buy the
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goods from any other source and the Supplier shall be
liable to reimburse the Buyer of any additional cost
incurred in doing so.
16. PAYMENT TERMS :
10% Advance payment of basic amount against
submission of Advance Bank Guarantee During
Manufacturing Clearance of equivalent amount of
advance payment along with Proforma Invoice
incorporate HSN code and bank details.
90% Payment of basic amount + GST and freight as
actual payment shall be made through L/C for 180/120
days. 45 days interest will be borne by you and beyond
45 days interest will be borne by us.
L/C will be issued after completion of inspection and
before issuance of DI from JUSNL which shall be
forwarded to you for dispatch. You will have to submit
the following documents with L/C for negotiation:
(a) Commercial Invoice- 2 sets
(b) Photo copy of LR against materials dispatched
(c) Delivery Challan duly signed accepted & against
materials certified by us.
(d) LC credit period will start after reconciliation of
all materials reached at sites.
38. MANUFACTURING CLEARANCE: The
Supplier shall start the manufacturing of material only
after getting written Manufacturing Clearance (MC)
from Buyer. The quantity cleared in MC shall only be
manufactured by Supplier. Any material manufactured
without getting the MC from Buyer shall be rejected.”
8. The arbitrator dealt with the issue which party breached the PO
dated 02.03.2019. Considering the emails exchanged between the
parties, meeting held on 02.04.2019, Ex. RW-1/X1andEx. RW-1/X6
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and the admission of RW-4 Mr. Prakash Behra during cross-
examination that the appellant was obligated to provide structural
drawings, the arbitrator held that the appellant had to prepare and
furnish the drawings. Further that the respondent received the
approved structural drawing by 30.05.2019 and there was no
possibility of supplying the goods within the stipulated time.
9. The second aspect was whether the appellant granted waiver for
proto inspection for stubs and templates. The trail of communication
started from the email dated 31.05.2019 sent by the appellant directing
the respondent to develop shop floor drawings and arrange for proto
inspection call. On 01.06.2019 the respondent by email enclosed the
corrected documents of prototype of stubs and templates for Simplex-
JUSNL project and sought waiver of proto assembly thereof. On the
very same day the appellant replied and asked for approved copy of
the proto for stubs and templates given by JUSNL. The entire
correspondence between Simplex-JUSNL was sent by the respondent
on 03.06.2019 and the approved BOM for stubs and templates was
sent on 11.06.2019. The appellant asked the respondent on 11.06.2019
to send documents duly signed and bearing seal by JUSNL but no
response was received from the respondent.
10. The arbitrator held that there was no specific condition for
inspection of prototype although the manufacturing of prototype was
within the scope of the work of the PO. The manufacturing and
inspection of prototype was to be done prior to obtaining the
manufacturing clearance and proto inspection was implied part of the
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contract. The impugned award records that there is no document
indicating categorical waiver granted for prototype inspection. These
findings are not disputed by either of the parties.
11. The arbitrator proceeded to decide whether the appellant
waived inspection of prototype and this is also the bone of
controversy in the present appeal. The arbitrator deduced that the
appellant by the email dated 19.06.2019, permitted mass production of
stubs and templates for five locations and seeking of proforma invoice
was an implied waiver of prototype inspection.
11.1 It would be fruitful at this stage to reproduce the relevant
portion of the email of the appellant dated 14.06.2019:
“ 14.06.2019
Dear Sir,
Find attached herewith the requirement of stubs &
templates for our JUSNL Projects. You may raise proto
inspection call for each type of tower stubs & templates
immediately.
For Prefix
i) All Tower materials upto Bottom Cross Arm including
their Extension will be HT materials and Prefix as
proposed by M/s. Skipper is OK.
ii) All Tower materials beyond. as proposed above in
para 2(i) above including Template will be MS materials
and Prefix to be modified accordingly by M/s. Skipper.
Also you may arrange proto inspection call for DA, DB,
DC & DD type tower and you may arrange revised
Proforma Invoice accordingly.
You may hold the all activities of following liens due to
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JUSNI has been not allotted route for survey, due to
forest area involve and the same shall be inform you later
on. Detail Annexure also attached here with your
reference.”
11.2 The relevant portion of the e-mail of the appellant dated
19.06.2019 is as under:
“ 19.06.2019
Dear Sir.
In continuation of mail, you may go ahead of mass
production for stubs & templates for five locations
transmission line as per attachment & arrange inspection
call at the earliest.”
xxx
“ 19.06.2019
Dear Sir,
Find also here with stamp and signature for stubs &
templates to start for mass production.”
12. The language of the email dated 19.06.2019 is clear that a ‘go-
ahead’ for mass production of stubs and templates for five locations
was given and stamps and signatures were provided to start mass
production of stubs and templates only and not of towers.
13. The appellant by email dated 01.07.2019 inquired about the
status of inspection call of stubs and templates and also the status of
proto inspection for each type of tower.
14. The email of the appellant dated 14.06.2019 sought prototype
inspection of the stubs, template and towers. Taking case of the
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respondent at highest, the email dated 19.06.2019 gave a ‘go-ahead’
for mass production of stubs and templates only but there was no
mention for waiver of proto inspection call of the towers.
15. Vide email dated 30.05.2019 the appellant had asked to arrange
for proto inspection for tower structures. The finding of the arbitrator
that the requirement of proto inspection was waived by the appellant
is without any basis. There is no evidence to substantiate the waiver of
proto inspection of the towers. The conclusion arrived at suffers from
patent illegality.
16. It is a trite law that ignoring of vital evidence or a finding based
on no evidence suffers from patent illegality. Reliance in this regard
be placed on the judgment of the Supreme Court in Delhi Metro Rail
Corporation Ltd. V. Delhi Airport Metro Express Pvt. Ltd. 2024
INSC 292, the relevant para is as under:
“38. In Associate Builders vs. Delhi Development
22
Authority , a two-judge Bench of this Court held that
although the interpretation of a contract is exclusively
within the domain of the arbitrator, construction of a
contract in a manner that no fair-minded or reasonable
person would take, is impermissible. A patent illegality
arises where the arbitrator adopts a view which is not a
possible view. A view can be regarded as not even a
possible view where no reasonable body of persons
could possibly have taken it. This Court held with
reference to Sections 28(1)(a) and 28(3), that the
arbitrator must take into account the terms of the
contract and the usages of trade applicable to the
transaction. The decision or award should not be
perverse or irrational. An award is rendered perverse or
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irrational where the findings are (i) based on no
evidence; (ii) based on irrelevant material; or (iii)
ignores vital evidence. Patent illegality may also arise
where the award is in breach of the provisions of the
arbitration statute, as when for instance the award
contains no reasons at all, so as to be described as
unreasoned. A fundamental breach of the principles of
natural justice will result in a patent illegality, where
for instance the arbitrator has let in evidence behind the
back of a party. In the above decision, this Court
observed:
“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
(iii) ignores vital evidence in arriving at its
decision,
such decision would necessarily be perverse.
…
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.”
40. 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
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24
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 his
jurisdiction or violating a fundamental principle of
natural justice.”
(emphasis supplied)
17. The request of the appellant to raise a proforma invoice for five
transmission lines is not a proof of granting manufacturing clearance
on 19.06.2019 or that the requirement of proto inspection was waived.
The raising of proforma invoice was as per the terms and conditions
of the PO in Clause 16. It was only one of the step to be followed in
the process of releasing advance payment and shall not construe to be
manufacturing clearance or waiver of proto inspection.
18. Clause 16 of the PO provided for the advance payment of 10%
of the basic amount against submission of the ABG and proforma
invoice during manufacturing clearance. The ABG was furnished by
the respondent on 07.06.2019, revised proforma invoice was given on
24.07.2019 but the appellant did not release the advance. Clause 38 of
the PO stipulated that manufacturing of the material shall start only
after written manufacturing clearance from the appellant. A combined
effect of Clauses 1, 10, 16 and 38 of the PO as rightly held by the
arbitrator rightly is that the advance was to be paid by the appellant
during the manufacturing clearance but before starting of the
manufacturing. In other words manufacturing could not have been
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started without receipt of advance. Relying upon the finding recorded
that the appellant had waived proto inspection and granted
manufacturing clearance by email dated 19.06.2019, it was held that
the stage for release of 10% advance payment had arisen. The
conclusion is on the basis that the appellant had granted mass
production clearance for stubs, templates and towers and waived proto
inspection. As discussed earlier there was neither a ‘go-ahead’ for
mass production of towers nor the proto inspection of towers was
waived.
19. Another angle is that the arbitrator albeit reproduced the email
dated 01.07.2019 of the respondent stating that two types of towers
would be released for proto production on the same day and the
remaining two on the next day but the effect of this email was not
considered. This email fortifies the fact that even as per the
respondent the appellant had not waived proto inspection of towers.
The email of the respondent dated 01.07.2019 is reproduced:
“ 01.07.2019
For Tower Proto: We shall release 2 types of Tower
(Basic Body & +Ombe) for proto production by today
and the balance 2 will be on tomorrow.
Best Regards,
Somnath Bhattacharjee-Skipper Ltd.
Manager (Drawing)”
20. The stand of the respondent throughout was that no proto
inspection was obligated in absence of the advance payment. The
arbitrator held that mass production could not commence without
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manufacturing clearance which was to be preceded by a proto
inspection and payment of 10% advance. In other words the stage of
proto inspection shall be only after receipt of advance, since no
advance was paid by the appellant hence, there was no occasion
arising to waive of prototype inspection. The findings of the arbitrator
in this regard and that there was waiver of proto inspection of tower
are contradictory and liable to be set aside.
21. The Supreme Court in Union of India v. V. Pundarikakshudu
and Sons , (2003) 8 SCC 168 held that an award suffering from
contradictory findings is liable to be set aside.
“31. In this case the District Judge as also the High
Court of Madras clearly held that the award cannot be
sustained having regard to the inherent inconsistency
contained therein. The arbitrator, as has been correctly
held by the District Judge and the High Court,
committed a legal misconduct in arriving at an
inconsistent finding as regards breach of the contract
on the part of one party or the other. Once the arbitrator
had granted damages to the first respondent which
could be granted only on a finding that the appellant
had committed breach of the terms of contract and,
thus, was responsible therefor, any finding contrary
thereto and inconsistent therewith while awarding any
sum in favour of the appellant would be wholly
unsustainable being self-contradictory.”
(emphasis supplied)
22. The arguments that the (i) arbitrator based on the revised
proforma invoice dated 24.07.2019 dealt with the claim of the
respondent for recovery of the principle outstanding amount due as
per the PO; and (ii) that the claim was allowed in absence of evidence
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substantiating actual loss as contemplated in the decision of the
Supreme Court in Kailash Nath Associates v. DDA (supra) and
Fateh Chand v. Balkishan Das (supra) , deserves rejection.
23. The law is well settled that scope of interference under Section
34 of the Act is limited and more so in proceedings under Section 37
of the Act. There cannot be re-appreciation of evidence and the Court
cannot sit in appeal over the findings recorded. Reference in this
regard be made to the following decisions of the Supreme Court.
23.1 In Bombay Slum Redevelopment Corpn. (P) Ltd. v. Samir Narain
Bhojwani , (2024) 7 SCC 218 it was held:
“ 23. We need not dwell on the limited scope of
interference in the petition under Section 34 of the
Arbitration Act. That position is very well settled.
However, as far as the appeal under Section 37(1)( c ) of
the Arbitration Act is concerned, in MMTC
Ltd. v. Vedanta Ltd. [ MMTC Ltd. v. Vedanta Ltd. , (2019)
4 SCC 163 : (2019) 2 SCC (Civ) 293] , in para 14, this
Court held thus : (SCC p. 167)
“ 14 . As far as interference with an order
made under Section 34, as per Section 37, is
concerned, it cannot be disputed that such
interference under Section 37 cannot travel
beyond the restrictions laid down under
Section 34. In other words, the court cannot
undertake an independent assessment of the
merits of the award, and must only ascertain
that the exercise of power by the court under
Section 34 has not exceeded the scope of the
provision . Thus, it is evident that in case an
arbitral award has been confirmed by the
court under Section 34 and by the court in
an appeal under Section 37, this Court must
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be extremely cautious and slow to disturb
such concurrent findings.”
24. In another decision of this Court in UHL Power Co.
Ltd. v. State of H.P. [ UHL Power Co. Ltd. v. State of
H.P. , (2022) 4 SCC 116 : (2022) 2 SCC (Civ) 401] , in
para 16, it was held thus : (SCC pp. 124-25)
“ 16 . As it is, the jurisdiction conferred on
courts under Section 34 of the Arbitration
Act is fairly narrow, when it comes to the
scope of an appeal under Section 37 of the
Arbitration Act, the jurisdiction of an
appellate court in examining an order,
setting aside or refusing to set aside an
award, is all the more circumscribed .
In MMTC Ltd. v. Vedanta Ltd. [ MMTC
Ltd. v. Vedanta Ltd. , (2019) 4 SCC 163 :
(2019) 2 SCC (Civ) 293] , the reasons for
vesting such a limited jurisdiction on the
High Court in exercise of powers under
Section 34 of the Arbitration Act have been
explained in the following words : (SCC pp.
166-67, para 11)
*
26. The jurisdiction of the appellate court dealing with an
appeal under Section 37 against the judgment in a
petition under Section 34 is more constrained than the
jurisdiction of the Court dealing with a petition under
Section 34. It is the duty of the appellate court to
consider whether Section 34 Court has remained
confined to the grounds of challenge that are available in
a petition under Section 34. The ultimate function of the
appellate court under Section 37 is to decide whether the
jurisdiction under Section 34 has been exercised rightly
or wrongly. While doing so, the appellate court can
exercise the same power and jurisdiction that Section 34
Court possesses with the same constraints.”
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23.2 In Punjab State Civil Supplies Corpn. Ltd. v. Sanman Rice Mills,
2024 SCC OnLine SC 2632 it was held:
“ 16. It is seen that the scope of interference in an appeal
under Section 37 of the Act is restricted and subject to
the same grounds on which an award can be challenged
under Section 34 of the Act. In other words, the powers
under Section 37 vested in the court of appeal are not
beyond thescope of interference provided under Section
34 of the Act.
21. It must also be remembered that proceedings under
Section 34 of the Act are summary in nature and are not
like a full-fledged regular civil suit. Therefore, the scope
of Section 37 of the Act is much more summary in nature
and not like an ordinary civil appeal. The award as such
cannot be touched unless it is contrary to the substantive
provision of law; any provision of the Act or the terms of
the agreement.”
23.3 In Larsen Air Conditioning & Refrigeration Co. v. Union of India,
(2023) 15 SCC 472 it was held:
“ 15. The limited and extremely circumscribed
jurisdiction of the court under Section 34 of the Act,
permits the court to interfere with an award, sans the
grounds of patent illegality i.e. that “ illegality must go to
the root of the matter and cannot be of a trivial nature ”;
and that the 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 ” [ref
: Associate Builders [ Associate Builders v. DDA , (2015)
3 SCC 49 : (2015) 2 SCC (Civ) 204] , SCC p. 81, para
42]. The other ground would be denial of natural justice.
In appeal, Section 37 of the Act grants narrower scope to
the appellate court to review the findings in an award, if
it has been upheld, or substantially upheld under Section
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34.”
( emphasis supplied )
24. The quality of evidence adduced falls within the exclusive
domain of the arbitrator as held by the Supreme Court in Parsa Kente
Collieries Limited. v. Rajasthan Rajya Vidyut Utpadan Nigam
Limited (2019) 7 SCC 236 the relevant para is as under:-
“9.1. In Associate Builders [Associate Builders v.
DDA, (2015) 3 SCC 49 : (2015) 2 SCC (Civ) 204] , this
Court had an occasion to consider in detail the
jurisdiction of the Court to interfere with the award
passed by the Arbitrator in exercise of powers under
Section 34 of the Arbitration Act. In the aforesaid
decision, this Court has considered the limits of power of
the Court to interfere with the arbitral award. It is
observed and held that only when the award is in conflict
with the public policy in India, the Court would be
justified in interfering with the arbitral award. In the
aforesaid decision, this Court considered different heads
of “public policy in India” which, inter alia, includes
patent illegality. After referring Section 28(3) of the
Arbitration Act and after considering the decisions of this
Court in McDermott International Inc. v. Burn Standard
Co. Ltd. [McDermott International Inc. v. Burn Standard
Co. Ltd., (2006) 11 SCC 181] , SCC paras 112-113 and
Rashtriya Ispat Nigam Ltd. v. Dewan Chand Ram Saran
[Rashtriya Ispat Nigam Ltd. v. Dewan Chand Ram Saran,
(2012) 5 SCC 306] , SCC paras 43-45, it is observed and
held that 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. It is further observed and held that construction
of the terms of a contract is primarily for an Arbitrator to
decide unless the Arbitrator construes the contract in such
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a way that it could be said to be something that no fair-
minded or reasonable person could do. It is further
observed by this Court in the aforesaid decision in para
33 that when a court is applying 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. 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 is further observed that
thus 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 this score.”
(emphasis supplied)
25. The arbitrator for holding that the material to be supplied as per
the PO was ready with the respondent, relied upon the details of
purchase filed as C-34; the indent for cutting of angles (C-35);the
fabrication cards (C-38); the production progress statement; and the
correspondence regarding freight charges and the invoice dated
03.07.2019 of respondent. There cannot be re-appreciation of
evidence for determining another possible view, the arbitrator took a
plausible view and calls for no interference. The decision relied upon
by the learned senior counsel for the respondent in Prakash Atlanta
(JV) v. National Highways Authority of India (supra) supports this
proposition.
26. For quantification of loss suffered due to non supply goods
manufactured for the appellant the arbitrator accepted contention of
the respondent that the goods manufactured were customized and to
mitigate the loss the goods were sold as scrap. At the stage of seeking
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waiver of proto inspection the respondent by email dated 01.06.2019
claimed that the goods manufactured for the appellant were similar to
the goods being supplied in another project of Simplex-JUSNL and
the proto inspection be done away with. The respondent breathed hot
and cold simultaneously. On one hand for mitigating losses the
respondent claimed that the goods were customized for the appellant
and are of no use to any other customer. On the other hand for
manufacture of the prototype, the material to be supplied the goods to
be manufactured were similar to the goods to be supplied in another
project of JUSNL. The arbitrator failed to consider the vital evidence
in this regard and acceptance of sale of the manufactured goods in
scrap is vitiated by patent illegality.
27. There is no quarrel with the proposition pressed by the learned
counsel for the respondent by citing the judgment of the Supreme
Court in Ramesh Kumar Jain v. Bharat Aluminium Company Ltd.
(supra) to contend that mere erroneous application of law does not fall
within patent illegality and there cannot be re-appreciation of
evidence. The Supreme Court in this case also held that a crucial
finding unsupported by evidence or consequence of ignoring a vital
evidence may be ground for interference though this is to be applied
cautiously. The relevant paragraph of the judgment is reproduced
below:
“35. Considering the aforesaid precedents, in our
considered view, the said terminology of 'patent
illegality' indicates more than one scenario such as the
findings of the arbitrator must shock the judicial
conscience or the arbitrator took into account matters he
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shouldn't have, or he must have failed to take into
account vital matters, leading to an unjust result; or the
decision is so irrational that no fair or sensible person
would have arrived at it given the same facts. A classic
example for the same is when an award is based on "no
evidence" i.e., arbitrators cannot conjure figures or facts
out of thin air to arrive at his findings. If a crucial finding
is unsupported by any evidence or is a result of ignoring
vital evidence that was placed before the arbitrator, it
may be a ground the warrants interference. However, the
said parameter must be applied with caution by keeping
in mind that "no evidence" means truly no relevant
evidence, not scant or weak evidence. If there is some
evidence, even a single witness's testimony or a set of
documents, on which the arbitrator could rely upon or
has relied upon to arrive at his conclusions, the court
cannot regard the conclusion drawn by the arbitrator as
patently illegal merely because that evidence has less
probative value. This thin line is stood crossed only when
the arbitral tribunal's conclusion cannot be reconciled
with any permissible view of the evidence.”
(emphasis supplied)
28. In view of the above discussion, the impugned award is set
aside. The appeal is allowed.
29. Pending applications stand disposed of.
AVNEESH JHINGAN, J
SHAIL JAIN, J
OCTOBER 28, 2026
‘ha’
Reportable:- Yes
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