NEO METALIKS LTD vs KESSELS ENGINEERING WORKS PVT LTD
- Court
- Calcutta High Court
In the High Court at Calcutta
Ordinary Original Civil Jurisdiction
Commercial Division
The Hon’ble Mr. Justice Sabyasachi Bhattacharyya
AP-COM/245/2024
IA No: GA/1/2022
Kessels Engineering Works Pvt. Ltd.
Vs.
Neo Metalicks Limited
With
EC/143/2021
Neo Metaliks Ltd.
Vs.
Kessels Engineering Works Pvt. Ltd.
For the Kessels Engineering : Mr. Pradeep Chhindra, Adv.(VC),
Mr. Pratik Ghose, Adv.,
Mr. Avishek Roy Chowdhury, Adv.,
Mr. Parth Dhawan, Adv.,
Ms. Pratibha Rathi, Adv.
For the Neo Metaliks : Mr. Sakya Sen, Sr. Adv.,
Mr. Pranit Bag, Adv.,
Mr. Dhruv Chadha, Adv.,
Mr. Sidhartha Sharma, Adv.,
Mr. Rishav Dutt, Adv.,
MD. Danish Taslim, Adv.,
Ms. Patrali Ganguly, Adv.
Heard on : 29.08.2024, 25.09.2024, 26.09.2025,
24.10.2025, 14.11.2025, 28.11.2025,
05.12.2025, 19.12.2025, 09.01.2026,
20.02.2026, 27.02.2026, 27.03.2026
& 10.04.2026.
Reserved on : 10.04.2026.
Judgment on : 15.05.2026.
2
Sabyasachi Bhattacharyya, J.:-
1. AP-COM/245/2024 is an application under Section 34 of the Arbitration
and Conciliation Act, 1996 (hereinafter referred to as ―the 1996 Act‖)
assailing an arbitral award dated July 22, 2020, as amended on February
22, 2021, passed by a three-member Arbitral Tribunal. EC/143/2021 is an
application for enforcement of the said award. The Presiding Arbitrator and
one of the other co-Arbitrators passed a separate ‗majority‘ award while the
other co-Arbitrator penned his dissenting award subsequently.
2. For the sake of convenience, the application under Section 34 is taken up
for adjudication first, since the connected enforcement application will be
subject to its outcome.
3. The challenge has been preferred on several grounds, two of which are
threshold in nature, hitting at the very root of the arbitral award. The first
limb of such grounds is that the majority award is vitiated by fraud and/or
corruption and is liable to be set aside under Section 34(2)(b) of the 1996
Act; the second being premised on the alleged violation of Section 31(2) of
the 1996 Act, since no reason for the abstinence of the dissenting Arbitrator
from putting his signature on the majority award is disclosed in the award.
4. The second set of grounds pertains to the merits of the case. The first
component of such challenge is that the arbitral award is contrary to the
express terms of the contract entered into between the parties on December
15, 2004 for manufacturing, supply and commissioning of a Bleed Cum
Condensing Steam Turbine Generator Set (TG Set) by Kessels to Neo
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Metaliks, the claimant/respondent for captive power generation by the latter
in its plant. Kessels argues that in the impugned award, the Arbitral
Tribunal rewrote the contract between the parties and added words to
Clause 14 of the contract, which is the guarantee clause. Thirdly, the
majority award on the extinction of price is completely contrary to the
evidence-on-record. Fourthly, the majority award on extra expenditure on
electricity, diesel and petrol is also completely contrary to the records. The
majority award, it is contended, is tainted by patent perversity since it
overlooked material evidence and granted claims without those being
substantiated by cogent evidence.
5. That apart, it is alleged that the majority award failed to consider that Neo
Metaliks was estopped by conduct from making any claim that the machine
was defective. The award is also challenged on the ground of perversity,
since positive evidence of Kessels was allegedly ignored in the majority
award.
6.
Learned counsel for Kessels (respondent/petitioner) argues that the
Presiding Arbitrator, in whose first person the majority award was written,
was not in a mental and physical position to pass the award at the relevant
juncture. It is submitted that the award was reserved by the Tribunal, after
ten years of arbitral proceeding, the records of which goes into more than
twenty volumes, on January 18, 2020.
7. Kessels, the petitioner herein and respondent in the arbitral proceedings,
submitted its written submissions on February 28, 2020.
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8. Between April 21 and May 28, 2020, the Presiding Arbitrator was
hospitalised. After being released, he was again hospitalised between June
14 and July 20, 2020.
9. The claimant Neo Metaliks submitted its written submissions before the
Tribunal on June 11, 2020, immediately prior to such second phase of
hospitalisation.
10. The award was passed on July 22, 2020, that is, on the second day after the
discharge of the Presiding Arbitrator on July 20, 2020. It is argued that the
Presiding Arbitrator could not have passed the award within a day of being
discharged from the hospitalization as he was seriously unwell for a period
of two months during the Covid-19 period.
11. It is argued that the Presiding Arbitrator was admitted in the hospital on
April 21, 2020 in the first place due to worsening symptoms of Lewy Body
Disease (LBD), which is a progressive brain degenerative disease. He
collapsed on April 24, 2020 and had to have a tube inserted in his trachea
for the airways to remain open, was sedated and put on ventilator the same
day, having tested Covid positive. Such symptoms increased since December
2019, just prior to the award being reserved. Therefore, it is contended that
from April 21, 2020 and perhaps even sometime earlier, the Presiding
Arbitrator was not in a shape of reading, writing, consulting and certainly
not writing a 120-page award.
12. During the period of hospitalization in April–May, 2020, the Presiding
Arbitrator suffered from altered mentation, post-cardiac arrest status and
ventilator support, which led to altered state of mind, confusion, amnesia
5
and disorientation as to space, time and self. He also suffered from Hypoxic
Encephalopathy, that is, brain injury due to lack of oxygen to the brain, and
had a history of Parkinsons Disease, being on medication for the same. He
received multiple blood transfusions and had to be hospitalized multiple
times, with high fever on occasions, being diagnosed with Urinary Tract
Infection (UTI) and Lower Respiratory Tract Infection (LRTI). The infections
were so severe that his kidney functions were compromised, and several
bacterial infections were detected in his chest and urine. Thus, it was not
possible for the Presiding Arbitrator to process the voluminous data involved
in writing the award, being mentally and physically incapacitated, and had
no opportunity for consultation, discussions and deliberations with the
other Arbitrators or application of mind. Hence, it is contended that the
Presiding Arbitrator blindly signed the awards on dotted lines. The co-
Arbitrator who signed the majority award was appointed by Neo Metaliks
itself. Such mindless signing of the award, it is argued, is nothing short of
playing fraud or corruption on Kessels.
13. It is argued that the ingredients of fraud have been pleaded in the Section
34 Application. Additionally, it is argued that Section 34(2)(b) of the 1996
Act empowers the court of its own to find if fraud exists on the basis of the
materials before the court, even de hors any pleading per se .
14. In support of such proposition, learned counsel cites Devas Employees
Mauritius Pvt. Ltd. v. Antrix Corporation Ltd. , reported at 2023 SCC OnLine
Del 1608 , Union of India v. Rashmi Metaliks , reported at 2023 SCC OnLIne
6
Cal 2272 and WBSIDC v. Kaushalya Infrastructure, reported at 2023 SCC
OnLine Cal 2142 .
15. For the proposition that fraud/corruption always takes place in secrecy and
therefore ought to be inferred from the surrounding circumstances, taken
altogether, learned counsel appearing for Kessels cites Maharashtra State
Board of Secondary Education v. K.S. Gandhi & Ors. , reported at (1991) 2
SCC 716 and MSEB v. National Transport Company , reported at 1992 Mah LJ
1505 .
16. Learned counsel for Kessels, the award debtor/petitioner, next contends
that Section 31(1) of the 1996 Act is couched in mandatory form, requiring
an arbitral award to be made in writing and signed by all the members of
the Arbitral Tribunal. Thus, signing of the award is not a ministerial act or
empty formality which can be dispensed with. A conjoint reading of sub-
sections (1), (2), (3) and (5) of Section 31 makes it clear that in case of a
Tribunal consisting of three Arbitrators, the majority award ought to state
the reasons for any omitted signature of the third Arbitrator.
17. Section 29(1) of the 1996 Act, it is contended, states that only the majority
award is the award in the eye of law and therefore makes it even more
significant that the reason for not signing is contained in the majority award
itself.
18. The rationale behind Section 31(2) is the need to ensure that all the
members of the Tribunal have had an opportunity to participate in the
decision-making process of preparing the award. It ought to be apparent
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from the record that all three Arbitrators have deliberated on the making of
the award before it is pronounced and delivered to the parties.
19. The reason for omission of the signature, it is argued, has to be relevant and
adequate and only mentioning the fact that the award is not signed by the
third Arbitrator is not sufficient.
20. In Dakshin Haryana Bijli Vitran Nigam Limited v. Navigant Technologie s,
reported at (2021) 7 SCC 657 , it is submitted, it was held that the minority
award has to be pronounced on the same day as the majority award, as the
Tribunal becomes functus officio thereafter. Thus, the reason for non-
signing of the majority award has to be demonstrated on record at the time
of the pronouncement of the majority award, upfront and not implied in the
award.
21. In the present case, the majority award contains no reason for the omission
of signature of the dissenting Arbitrator, whereas in the minority award, the
third Arbitrator recorded that he was only informed on July 22, 2020 that
the Presiding Arbitrator and the other co-Arbitrator allowed the claims of the
claimant, being unable to agree with which the dissenting Arbitrator had
decided to write a separate award, which was delivered on July 30, 2020.
Therefore, it is submitted that the third Arbitrator could not have any
participation/discussion with the other Arbitrators prior to preparation of
the award, which is a sine qua non for any arbitral award. The very grain of
arbitration, it is argued, requires a consolidated decision-making process to
be a sine qua non and the third Arbitrator, who was actually appointed by
8
the court and was not a nominee Arbitrator of the petitioner, had to be
consulted in the true sense of the term.
22. In support of such contention, learned counsel cites the following
judgments:
(i) , reported at
ISC Projects Private Ltd. v. Steel Authority of India Limited
2025 SCC OnLine Del 1133 ;
(ii) Abu Hamid Zahiea Ala v. Golam Sarwar , reported at 1916 SCC OnLine
Cal 183 ;
(iii) Maharashtra State Electricity Distribution Company Ltd. and Others v.
Deltron Electronics , reported at (2017) 2 Mah LJ 605 ;
(iv) Mahanagar Telephone Nigam Ltd v. Siemens Public Communication
Network Ltd , reported at (2005) 80 DRJ 584 ; and
(v) Project Director, National Highways Authority of India Shri Krishna Pal
Sinh Chauhan v. Jogendar Parsottam Shetiya and Others , reported at
2021 SCC OnLine Guj 3179 .
23. The argument of Neo Metaliks, to the effect that the pronouncement of a
separate minority award by the third Arbitrator itself was the reason for
omission of his signature in the majority award, is refuted by learned
counsel appearing for Kessels on the ground that it is contrary to the
express words of Section 31(2), which requires a reason to be contained in
the majority award. Secondly, the reason has to show that the dissenting
Arbitrator was consulted prior to making of the award and not merely reflect
his disagreement with the majority award. Moreover, once the award is
pronounced, the disagreement is of no value.
9
24. Regarding the contention of Neo Metaliks that the reason for omission of
signature has been furnished in the amended award of February 22, 2021 is
controverted by Kessels on the ground that the mere recording of the fact
that the third Arbitrator has published his award separately is not sufficient
reason under Section 31(2). Such reason has to be aligned to the purpose of
introduction of the Section, showing that the minority Arbitrator has been
consulted during the process of preparation of the award, which is not
reflected even in the amended award.
25. It is next reiterated that the reason for non-signing of the award ought to be
contained in the majority award itself, on a conjoint reading of sub-sections
(1) and (2) of Section 31 of the 1996 Act. For such proposition, learned
counsel cites Government of India v. Acome , reported at 2008 SCC OnLine
Del 808 . It is argued that such non-signing by the third Arbitrator goes to
the root of the matter and vitiates the majority award as a whole.
26. On merits, learned counsel for Kessels argues that the Tribunal based its
reliefs solely on the Guarantee Clause in the contract (Clause 14). Even for
the purpose of implied warranty, the award refers to 18 months as described
in the Guarantee Clause, treating the implied warranty as express warranty.
27. It is contended that Clause 1.4 of Schedule-I of the Contract clearly provides
that the machine would be considered to be examined on safe hand over for
commercial operation and performance testing. Thus, the finding of the
Tribunal that the scope of commissioning continued even after such point of
time was patently contrary to Clause 14. In the absence of any mention in
the agreement that the scope of commissioning shall be deemed to be
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continuous rated performance, the Tribunal committed a patent illegality in
holding so contrary to the Guarantee Clause itself.
28. It is argued that the admitted case of the parties is that the machinery was
supplied to Neo Metaliks on December 28, 2006. The first limb of Clause 14
stipulates the warranty period as 18 months from the date of successful
commissioning or 24 months from the date of dispatch of machinery,
whichever is earlier. Thus, even if taken to be 24 months from the date of
supply, that is till December 28, 2008, the TG Set-in-question was rejected
under the warranty clause much thereafter, only on July 27, 2009. Thus,
no claim for the breach of warranty survived after December 28, 2008 and
any claim thereafter was beyond the terms of the contract. The Tribunal, it
is submitted, completely overlooked the second limb of Clause 14, fixing the
warranty period till 24 months after the dispatch of the machinery.
29. During the period of warranty, repairs were effected to the concerned TG
Set, charges of which were paid by Neo Metaliks without raising any demur,
thus waiving the right to claim breach of warranty.
30. Even for the purpose of implied warranty, the majority award traces the
claim to the terms of the express warranty of 18 months, thereby testing the
implied warranty also on the parameter of the express warranty. This clearly
brings the case either under Section 16(2), proviso, or Section 16(4) of the
Sale of Goods Act, 1930 (for short the ―1930 Act‖).
31. Additionally, Section 16(4) of the 1930 Act clearly states that if there is any
express condition/warranty which is inconsistent with any implied
condition/warranty, it is the former which shall prevail. Thus, since in the
11
instant case Clause 14 of the agreement clearly stated that the effectiveness
of the machine is covered for a period of either 18 months from date of
commissioning or 24 months from the date of supply, the same is clearly
contrary to any implied condition/warranty of merchantable quality for
more than what is provided for in the contract. Hence, no claim can be
entertained beyond the guarantee period. Learned counsel relies on Dickson
v. Zizinia and Another reported at S.C. 20 L.J.C.P. 73 in support of such
argument .
32. Moreover, there was no manufacturing defect in the TG set attributable to
any fault in the merchantable quality for various reasons. First, the machine
was operated and run for staggered periods of 80 days, 65 days, 29 days, 47
days, 32 days and 20 days, which is a substantial period of time. Secondly,
the machine was commissioned on December 28, 2006 and was in
possession of the purchaser, Neo Metaliks and used till July 27, 2009, that
is, for more than two and a half years, much beyond the guarantee period.
Thirdly, the property in the goods had already passed to the purchaser as
mentioned in Clause 7.1 of the agreement. Also, the repairing charges were
paid by the purchaser/M/s. Neo Metaliks without any protest and demur,
although the vendor (Kessels) was bound to provide services of repairs free
of cost during the warrantee period. Moreover, there was a Performance
Bank Guarantee (PBG) by Kessels to Neo Metaliks which was never invoked
by the latter at any point of time, clearly indicating that there was no
manufacturing defect in the machine per se .
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33. Clause 14 of the contract, it is argued, only refers to ―successful
commissioning‖ which was interpreted in the majority award to mean
―continuous‖ functioning of the machine without any snag for months, even
in the absence of the said term in the clause itself.
34. By the logic of the majority award, every break in the functioning of the
machine would break the chain of continuous running, the consequence of
which would be that it would amount to decommissioning or no successful
commissioning on every such occasion, which is an absurd interpretation
which ought to shock the conscience of the court. By such reasoning, no
machine would ever be commissioned on the slightest of break in
functioning. Such perverse interpretation, it is argued, can clearly be gone
into by the court under Section 34 of the 1996 Act, as enunciated in DMRC
Ltd. v. Delhi Airport Metro Express (P) Ltd. , reported at 2024 SCC OnLine SC
522 . A perverse interpretation of the contract which does not make sense to
a person of ordinary prudence, it is argued, would make it patently illegal.
35.
Learned counsel for Kessel further argues that that the majority award on
the extinction of price of the machine is completely contrary to the evidence
on record. Whereas the respondent, as claimant, has been awarded an
amount of Rs.1,33,50,000/- for the turbine TG Set on the alleged billing
break-up provided by Kessels, the award failed to note that as per the
evidence of CW2, the invoice itself mentions the price of the turbine to be
Rs.40,00,000/-. Thus, the claim could have been awarded up to only such
actual price of the turbine. This shows a complete non-application of mind
which is patently illegal.
13
36. The majority award, it is submitted, erroneously recorded that there was no
cross-examination on this point of any witness, thereby overlooking specific
questions put to the CW1 as to how he is deposing that the extinction price
is Rs.1,33,50,000/-, to which he said that he cannot comment on it as it is
a commercial matter. Moreover, unless the claimant stands on its legs, there
was no need to cross-examination of any of the witnesses. The majority
award failed to note such discrepancy and blindly approved the claim.
37. That apart, it is argued that the turbine is still lying in the possession of the
purchaser/Neo Metaliks, having never been returned to the vendor. Also,
Rs.38,00,000/- was never paid to Kessels for supply of the TG Set, a counter
claim in which regard was raised by Kessels and was denied by the majority
award on the pretext that the machinery was unable to perform up to its
guaranteed potential.
38. Learned counsel next contends that the majority award on extra expenditure
on diesel, petrol and electricity is also completely contrary to the record,
thus illegal. Although Exhibit 107 was relied on by the Tribunal for granting
the claim for increased cost of electricity, the claimant‘s witness, one Mr.
Kesharvanee, resiled from the exhibit in his cross-examination, deposing
that he does not know anything pertaining to the table reflected therein as
those were matters relating to commercial aspect and he could not depose
on the same.
39. Again, Exhibit 108, which was relied on by the Tribunal for grant of
increased cost due to expenses incurred on high-class diesel, was resiled
14
from by the said Mr. Kesharvanee in his cross-examination on similar
grounds.
40. Exhibit 115 is comprised of internal ledgers of the claimant, for
substantiating the table at Exhibit 108. Since the primary document itself
was resiled from, the document in support of the same could not have been
taken note of. In any case, it is argued that internal self-serving documents
in the form of ledgers cannot tantamount to evidence against a third party.
The ledger was also not substantiated by the claimant‘s witness by
supporting documents. The witness also could not have first-hand
knowledge of whether the generator was being used to generate electricity or
not. In the ledgers as well, substantial amount of Furnace Oil is also
reflected. Furthermore, there is no material to show whether the diesel was
used for generating electricity or for other purposes like running cars or
other equipment.
41. Ashok Kumar Aggarwal, CW2, further stated that the electricity sourced
from Damodar Valley Corporation (DVC) was cheaper as compared to the
diesel generator sets. But no steps were taken by the claimant for
mitigation of losses on that count. In the absence of any proof of steps
being taken by the claimant towards mitigation of losses, no damages could
be awarded in favour of the claimant at all. The balance sheet for the year
2008-09 was produced by Mr. Ashok Kumar Aggarwal, CW2, which showed
that the claimant had not shown any expenditure on electricity and fuel in
the expenditure for the year 2008-09. Thus, the claims relating to the same
were false.
15
42. That apart, it is argued that the expenditure on electricity or diesel can
never be damages for the alleged breach of contract for the reason that such
cost is factored into the price of the final product, that is, pig iron produced
by the purchaser. Hence, it amounts to unjust enrichment of Neo Metaliks
inasmuch as the said cost is any way recovered from the sale of pig iron.
Thus, such damages could not be saddled on Kessels.
43. It is further argued by Kessels that the correct means of determining
damages was to calculate the difference between cost of production of
electricity by the TG Set and by other means. Instead, the Tribunal directed
the entire cost of electricity for the concerned period to be paid by Kessels.
44. The concept of restitution cost does not apply, it is argued, as it refers to the
disgorgement of unjust enrichment, no case regarding which has been
pleaded.
45. Neo Metaliks has not made out any case that it could not run its plant
commercially in the absence of the TG Set. Moreover, the logbook of Neo
Metaliks itself showed that the TG Set was being operated after being
commissioned. The balance sheet of the company also shows that it was
selling pig iron in the year 2007 and 2008, thus reflecting that the
commercial operations of the plant had started and it was operating in the
said years.
46. Additionally, learned counsel for Kessels argues that Section 59, sub-
sections (1) and (2) of the 1930 Act provides that in case of violation of
warranty, the claimant can either claim extinction of price or damages
suffered due to such violation. As per sub-section (2), further damages on
16
the basis of the very same breach of warranty can be claimed in addition to
extinction of price; however, the claim for electricity consumption is not for
further damages arising out of the alleged breach of any warranty by
Kessels.
47. Learned counsel for Kessels next argues that Neo Metaliks, the claimant,
was estopped by its conduct from making any claim on the basis that the
machine was defective. The Performance Bank Guarantee furnished by the
vendor Kessels was never invoked by the claimant/Neo Metaliks during the
period of guarantee, for which it was valid, thus waiving any right of
claiming on the basis of manufacturing defect on the machine. That apart,
repair charges were paid every time when repairs were carried out to the
machine during the guarantee period without any demur or protest by Neo
Metaliks, whereas Kessels was bound to provide such service free of cost
during the guarantee period. Thus, the question of manufacturing defect in
the machine ought to be ruled out.
48.
Learned counsel for Kessels further contends that positive evidence adduced
by it was ignored by the Tribunal. For example, even after the replacement
of the turbine-in-question with a new one, Neo Metaliks is still depending
substantially on the procurement of electricity through the DVC, which
would be evident from a table furnished by Kessels. Hence, during the
period of 2010 till 2014 (four years), the period for which damages on
account of electricity was awarded, roughly the same amount of money was
spent by Neo Metaliks as after replacement by a new turbine.
17
49. Even otherwise, it is argued that the machine was run constantly at high
vibration levels, leading to its malfunctioning. Thus, the machine was not
inherently defective but mishandled by Neo Metaliks. The machine was
operated at unusually high levels of vibration for days on end without any
justification, which is borne out by the logbook notings of Kessels as well as
the cross-examination of Mr. Bharat Sawhney. The security system was
bypassed by the people in charge on behalf of Neo Metaliks, violating the
safety protocol of the machine and tampering with its functioning, the
consequence of which cannot be borne by the vendor Kessels.
50. Unskilled manpower was used to handle the machine, it is alleged, which
led to defects in the TG Set. Out of the 54 people shown in the list of
personnel who were handling the machine and functioning in the CPP Plant
of Neo Metaliks at the relevant period, most did not have the relevant
experience (at least more than five years) and 15 were freshers. The
attending in shifts shows who were handling the TG Set. The logbook of Neo
Metaliks, it is submitted, clearly shows that a supervisor of its own plant
mentioned that there were no Shift-in-Charges during the shifts of running
of the CPP. The evidence of RW2, Bharat Bhushan Sawhney and RW3
categorically states that the machine was being run by inexperienced
persons, which could not be controverted by any contrary evidence.
51. Thus, it is argued that the majority award ought to be set aside both on the
threshold issues as well as on merits.
52. Learned senior counsel appearing for the claimant/respondent Neo Metaliks
argues that the allegation of fraud made by Kessels is on the basis of
18
assumption and presuppositions, such as the award was written by the
Presiding Arbitrator only after the second stint of hospitalization and that a
judgment is written only after submission of written notes of arguments and
prior to submission of the same, no discussion or deliberation begun.
53. It is pointed out that the arbitral proceeding was continued for a
considerable period spanning over 89 sittings and oral arguments were
concluded as long back as on January 18, 2020. Detailed minutes were
prepared for each sitting when oral arguments were made. Thus, there is no
reason to assume that the Arbitrators were required to wait for written notes
before commencing the writing of the award.
54. The Presiding Arbitrator was hospitalised in the first phase almost three
months after conclusion of oral arguments, primarily on account of a
cardiac arrest resulting in altered mentation. However, during discharge
from the first stint of hospitalization, there was no mention of altered
mentation. Rather, the Presiding Arbitrator was found to be ―well
conscious‖.
55. During the second stint of hospitalization, there was even no mention of any
―altered mentation‖ and the discharge summary showed that the Presiding
Arbitrator was neurologically stable. Learned senior counsel submits that
Kessels has failed to disclose as to when and how it obtained confidential
medical records of the Presiding Arbitrator. The challenge to the physical
and mental capacity of the Presiding Arbitrator, it is submitted, is a mere
afterthought.
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56. No objection to continuance of the proceedings were raised by Kessels,
despite having several opportunities to be aware of the alleged incapacity of
the Presiding Arbitrator.
57. This is borne out by the fact that Neo Metaliks submitted its stamp papers
to the Tribunal on July 6, 2020 during the second stint of hospitalization of
the Presiding Arbitrator. The application of Neo Metaliks under Section 33
of the 1996 Act for amendment of the award was heard on several
occasions, on which Kessels was duly represented. Notably, on February
29, 2021, Kessels recorded its no objection to the application. Despite
having thus actively participated in the proceeding under Section 33, having
undertaken such objection, it is argued that Kessels is now estopped from
raising the plea as to the physical and mental incapacity of the Presiding
Arbitrator at the relevant period.
58. Learned senior counsel submits that Kessels has a history of making such
unfounded allegations in respect of the instant proceedings. In fact, the
Delhi High Court, by an order dated July 8, 2024, had rejected Kessels‘
application to terminate the mandate of the Tribunal on account of the ill-
health of the Presiding Arbitrator.
59. Learned senior counsel next contends that Kessels has not pleaded the
particulars of alleged fraud and have failed to discharge the burden of proof
which is substantially heavy in allegations of fraud. It is not the case of
Kessels that Neo Metaliks is party to the alleged fraud.
60. Learned senior counsel cites in this regard the judgments in Kapur Vysya
Bank v. Srei Equipment Finance Limited (AP-COM /947/2024) and Union of
20
India & Ors. v. Rahul Kumar Thakur (AP-COM/657/2024) . Learned senior
counsel also relies on A.L. Narayanan Chettyar and Anr. v. Official Assignee
of the High Court of Rangoon , reported at 54 LW 606 and Union of India v.
Chaturbhai M. Patel and Co., reported at (1976) 1 SCC 747.
61. It is argued that finding of fraud in the making of an award, in effect, casts a
direct aspersion on the Presiding Arbitrator and he ought to have been given
an opportunity to explain his position in regard to the allegations. Learned
senior counsel cites in support of such proposition Kothari Industrial
Corporation Limited v. Southern Petrochemicals Industries Corporation Limited
reported at (2021) SCC OnLine Mad 5325 and Medeor Hospital Limited
Formerly Rockland Hospitals Limited v. Ernst and Young LLP reported at
(2023) 5 HCC (Del) .
62. With regard to the violation of Section 31(2) of the 1996 Act, learned senior
counsel appearing for Neo Metaliks argues that, as per the said provision,
the signature of two members in case of a three-member Tribunal is
sufficient, so long as the reason for non-signing of the third member ―is
stated‖. The said requirement has been substantially complied with in the
present case. In support of such argument, learned senior counsel submits
that the very publication of a minority award by the dissenting Arbitrator
furnishes a reason for non-signing of the majority award by such dissenting
Arbitrator. Moreover, the amended award dated February 22, 2021 further
records the passing of a separate minority award. Also, Kessels itself has
treated the amended award dated February 22, 2021 as the final award
under challenge in the instant proceedings.
21
63. Without prejudice to the aforesaid argument, learned senior counsel
submits that mere non-signing by the dissenting Arbitrator ought not to
result in the award being set aside as a whole. Section 29(1) of the 1996 Act
provides for decisions of a Tribunal to be made by the majority. The
contravention of Section 31(2), at best, amounts to a procedural irregularity
not going to the root of the matter. Admittedly, the purported non-signing
by the dissenting Arbitrator has not resulted in any conceivable harm to the
parties and no situation has arisen where the parties or this Court is
unaware as to the reason for non-signing of the dissenting Arbitrator.
64. In this regard, reliance is placed on a Delhi High Court judgment in MMTC
Limited v. Aust Grain Exports Pty. Ltd. [OMP (COMM) 6/2022] .
65. On merits, learned senior counsel for Neo Metaliks argues that an
application under Section 34 is not a regular appeal and the grounds
provided in Section 34 of the 1996 Act are not attracted in the present case,
in view of the claims awarded to Neo Metaliks being based on cogent
reasoning and evidence and a reasonable interpretation of the contract
clauses.
66. Learned senior counsel cites Ssaynong Engg. & Construction Co. Ltd. v.
NHAI , reported at (2019) 15 SCC 131 , and Associate Builders v. DDA ,
reported at (2015) 3 SCC 49 in support of such contention.
67. The Tribunal, it is contended, recorded that the machine-in-question was
not free from defect and could not be satisfactorily run by the claimant to
meet the purpose for which the contract was entered into and the claimant
raised complaints regarding the running of the machines from time to time,
22
which is an admitted position. Thus, the TG Set could not be commissioned
and had to be rectified and/or repaired several times. Such findings are
based on exhibits and documents on record. Hence, there was no
―successful commissioning‖ of the machine at any point of time, as a natural
consequence of which there was breach of the condition under the contract
to supply the turbine to operate at a running capacity, enabling the
claimant to generate electricity to run its captive power plant.
68. Hence, the Tribunal found that Kessels is guilty of committing breach of the
condition and Neo Metaliks has elected to treat the breach as a breach of
warranty and the conditions for invoking Section 59 of the 1930 Act has
been fulfilled. Hence, the claimant/Neo Metaliks is entitled to sue for
extinction of the price.
69. The Tribunal rejected the contention of Kessels that the non-functioning of
the TG Set could be attributed to improper start up and running, noting
that Kessels‘ engineers were present at the site but never indicated any
improprieties in respect of start-up and running. The argument of non-
functioning of the TG Set being attributable to higher vibration levels was
rejected by the Tribunal due to lack of evidence in support of such case.
Rather, Neo Metaliks produced several logs (Exhibits 637 and 667)
complaining of vibration levels to Kessels, which were not replied to.
70. It is argued that such findings are based on appreciation of evidence and do
not call for any interference as no perversity or patent illegality has been
disclosed.
23
71. Learned senior counsel argues that the Tribunal properly interpreted the
Guarantee Clause by distinguishing between mere commissioning and
―successful‖ commissioning. The clause would not be satisfied by merely
putting machine and running it but would also require that it ran
successfully for a period of at least 18 months at running capacity. Such
stipulation was intended by the parties to the contract keeping in mind the
admitted intended lifespan of the machine to be 25 years.
72. The above interpretation, it is argued, cannot be said to lead to an absurdity
or being unreasonable for the above reasons. The Tribunal, it is submitted,
arrived at findings of fact based on appreciation of evidence to the effect that
the short periods of non-idle time and its continued failure after each run
itself showed that the TG Set supplied by Kessels was incapable of
performing as per the contract and therefore could not have been
commissioned. Sporadic running of the TG Set on the basis of the chart
provided, established that it was not running satisfactorily.
73.
As regards the award of the claim on account of repair and maintenance, it
is argued that there was no dispute with respect of the quantum of costs
claimed by Neo Metaliks on account of maintenance and repair, which was
duly noted by the Tribunal. Despite not having reserved such right, Neo
Metaliks was entitled to claim a refund of repairing cost, since the repairer
of the machine was the manufacturer itself, and knowing the defects of the
machine, it was expected to capable of repairing the same. However, despite
having received repair charges, Kessels failed to repair the machine
24
properly. The same points were raised before the Tribunal but were turned
down and cannot be re-agitated under Section 34 of the 1996 Act.
74. Learned senior counsel next argues that the claims with regard to increased
costs of electrical energy and additional expenditure on high-speed diesel oil
were substantiated by ample evidence. The Tribunal found that Neo
Metaliks was entitled to claim damages in addition to the extinction price
since the damages in the present case were not in the nature of loss of profit
but on account of increasing expenses for buying energies/diesel oil, which
the claimant could have avoided had the machine run effectively and in
accordance with the parameters contained in the contract. The estimation
of extra cost of energy was determined only after installation of the new
turbine on January 8, 2010 which estimation was calculated on the basis of
the money which could have been reduced from Rs.9/43 per KWH to
Rs.2.57 per KWH if the TG Set supplied by Kessels could function property
and in accordance with the contract.
75.
For granting electricity charges, a chart, summarising the increased
expenditure on electricity on account of non-functioning TG Set and
monthly bills raised by DVC (underlying invoices) were taken into
consideration by the Tribunal, which noted that the figure summarised in
the chart was the difference between the total bill amounts and the
minimum contract value.
76. As regards the costs of high-speed diesel oil, a chart summarising the
increased expenditure on account of requirement, being Exhibit 107, as well
as the ledger entries, evincing the consumption/payment of the high-speed
25
oil (Exhibit 115) were taken into account by the Tribunal which, upon a
careful perusal of the evidence, noted that there was no cross-examination
effectively made by Kessels‘ counsel to Neo Metaliks‘ witness on such count.
Such appreciation of evidence, it is argued, ought not to be interfered with
under Section 34 of the 1996 Act.
77. Thus, Neo Metaliks seeks the dismissal of the challenge under Section 34 of
the 1996 Act.
78. From the arguments advanced by the parties, there transpires two
categories of challenge to the award, pertaining respectively to threshold
issues and issues touching the merits of the case.
79. The threshold issues are listed below:
(i) Whether the majority award is vitiated by fraud/corruption;
(ii) Whether the majority award, being violative of Section 31(2) of the 1996
Act, ought to be set aside.
80. The issues on merits are as follows:
(i) Whether the award is contrary to the express terms of the contract,
entailing interference under Section 34 of the 1996 Act;
(ii) Whether the award of claims on extinction of price and extra
expenditure on electricity and high-speed diesel are contrary to law and
evidence;
(iii) Whether the claimant/respondent (Neo Metaliks) was barred by
estoppel from making its claims;
(iv) Whether the counter claim of the petitioner ought to have been allowed.
26
81. The above issues are decided as follows:
T HRESHOLD :
(i) Whether the majority award is vitiated by fraud/corruption
82. The petitioner raises a grave allegation as to the majority award being
tainted by fraud and/or corruption, on the premise that the Presiding
Arbitrator signed on dotted lines, in view of his debilitated mental and
physical condition due to repeated ailments and hospitalization during the
relevant period.
83. Both sides have argued on the standard of proof to be met to establish the
ground of fraud.
84. At the outset, it may be noted that Section 34(1) of the 1996 Act provides
that recourse to a court against an arbitral award may be made only by an
application for setting aside such award in accordance with sub-section (2)
and sub-section (3). Thus, an application under Section 34 is a prerequisite
for the Section 34 Court to set aside an award.
85. However, two distinct sub-sets have been created as to the trigger for such
interference. Whereas sub-section (2)(a) of Section 34 stipulates that an
arbitral award may be set aside by the Court only if ―the party making the
application establishes on the basis of the record of the arbitral tribunal
that...‖, sub-section (2)(b) stipulates that an arbitral award may be set aside
by the Court only if ―the Court finds that...‖.
86. Sub-section (2-A) uses the expression ―may also be set aside‖, thereby
establishing a link with the immediately preceding sub-section (2) by using
27
the link-word ―also‖, thus also requiring an application to be made as a
prerequisite. Under the said sub-section, an award can be set aside if it is
vitiated by patent illegality appearing on the face of the award.
87. Thus, if the award is to be set aside on any of the grounds stipulated in
Clause (a) of sub-section (2), the party making the application under Section
34 has to establish on the basis of the record the grounds stipulated therein.
On the other hand, for an interference under sub-section (2)(b) and sub-
section (2-A), there is no such requirement of the applicant establishing the
grounds but the Court may interfere if it finds , even suo motu , from the
records and/or on the face of the award that any of the grounds provided
therein is established.
88. Since the ground of fraud/corruption comes under Clause (b) of sub-section
(2) of Section 34, although an application is necessary to activate the Court‘s
jurisdiction under Section 34, there is no requirement of the applicant
establishing such ground. Thus, rigours akin to Order VI Rule 4 of the Code
of Civil Procedure, necessitating the particulars of the alleged fraud being
disclosed in the application, are not attracted.
89. However, for the Court to come to a finding of fraud/corruption, higher
standards have to be met than a mere preponderance of probability and
such allegation has to be proved beyond reasonable doubt. Thus, although
the role of the applicant is only confined to bringing to the notice of the
Court the alleged fraud/corruption and the applicant is not necessarily
required to disclose specific details or particulars of fraud, the court itself
has to be satisfied beyond reasonable doubt, from the arbitral records
28
and/or on the face of the award that such high ground of fraud/corruption
has been established.
1
90. Such view finds support in A.L. Narayanan Chettyar (supra) , where the
Privy Council categorically held that an allegation of fraud, like any other
charge of a criminal offence, whether made in a civil or criminal proceeding,
must be established beyond reasonable doubt, and a finding on the question
cannot be based on mere suspicion and conjecture. Again, in Chaturbhai M.
2
Patel (supra) , the Hon‘ble Supreme Court reiterated that ―however
suspicious may be the circumstances, however strange the coincidences and
however grave the doubt, suspicion alone can never take the place of proof‖.
The Hon‘ble Supreme Court went on to observe that ―in our normal life we
are sometimes faced with unexplained phenomenon and strange
coincidences for, as it said, truth is stranger than fiction‖. In such
circumstances, after going through the judgment of the High Court in the
said case, the Hon‘ble Supreme Court recorded its satisfaction that the
appellant had not been able to make out a case of fraud as found by the
High Court.
3
91. A co-ordinate Bench of this Court, in Rahul Kumar Thakur (supra) , held
that since no case of concealment of vital documents or false statements
had been made out, which had a causative link with the facts constituted
1
A.L.Narayanan Chettyar and Anr. v. Official Assignee of the High Court of Rangoon,
reported at 54 LW 606
2
Union of India v. Chaturbhai M. Patel and Co., reported at (1976) 1 SCC 747
3
Union of India & Ors. v. Rahul Kumar Thakur (AP-COM/657/2024)
29
and culminating the award, it could not be said that there was corruption
on the part of the Arbitrator.
92. Thus, the parameters of fraud/corruption have to be construed in the above
backdrop of judicial precedents.
93. In dealing with the allegation of fraud/corruption, certain dates are relevant
in the present case, which are narrated below.
After prolonged hearing over almost a decade, spread over 89 sittings,
the Arbitral Tribunal reserved the award on January 18, 2020.
The petitioner herein (respondent before the Tribunal) filed its written
notes of arguments on February 28, 2020 (which was purportedly given
to the dissenting Arbitrator on March 2, 2020).
The Presiding Arbitrator was hospitalised between April 21 and May 28,
2020.
The claimant (present respondent) filed its written notes of arguments
on June 10, 2020.
The Presiding Arbitrator was hospitalised for the second time on June
14, 2020 and was discharged on July 20, 2020.
The majority award was passed immediately thereafter, on July 22,
2020.
94. The plinth of the petitioner‘s contention is that it is to be assumed that the
Tribunal passed its award only after having the written notes of arguments
of both parties, the last of which was filed on June 10, 2020. Since the
Presiding Arbitrator was hospitalised soon thereafter on June 14, 2020 and
remained hospitalised up to July 20, 2020, it was not possible for him to
30
prepare the lengthy award and deliver it on July 22, 2020, only a couple of
days after his second discharge.
95. However, there are certain chinks in the said line of argument.
96. First, although the Presiding Arbitrator was admitted to hospital at the first
instance with altered mentation, when he was discharged on May 28, 2020,
there was no specific note in his discharge papers as to his mental condition
still remaining the same. Thus, at least from May 28, 2020 onwards, there
is no clear sign that the Presiding Arbitrator suffered from altered
mentation. Although he was again hospitalised on April 21, 2020 due to
worsening symptoms of Lewy Body Disease, which is a progressive brain
degenerative disease, there is no specific proof that at the time of his
discharge on May 28, 2020, such debilitation of mental faculties persisted.
97. Notably, at the second instance of hospitalisation between June 14 and July
20, 2020, the reason for hospitalisation was high fever, UTI (Urinary Tract
Infection) and Lower Respiratory Tract Infection. The Presiding Arbitrator‘s
kidneys were malfunctioning and there was bacterial tract infection. He was
apparently discharged with advice to have assisted sitting in the bed and
also to walk with the help of a walker. Hence, the second instance of
hospitalisation was prompted not by any mental disease, but his ailment
operated at a physical level.
98. Hence, at least from May 28, 2020 till July 22, 2020, when the award was
passed, there is no clear proof that the mental condition of the Presiding
Arbitrator was such that he was not capable of authoring the majority
award.
31
99. The second fallacy in the petitioner‘s argument is that it assumes
axiomatically that an arbitrator always commences preparing his/her award
only after the written notes of arguments are filed by the parties. However,
just as judges, the methods adopted by arbitrators as to how they proceed
about writing judgments/awards vary from person to person and all
adjudicators cannot be painted with the same brush.
100. It is to be noted that in the instant case, after the commencement of
arguments in the arbitral proceeding, detailed notes of the nature of
arguments were recorded in the minutes. Hence, it cannot be said beyond
reasonable doubt that the Presiding Arbitrator was not armed with sufficient
material to commence the preparation of the award either after it was
reserved on January 18, 2020 or after the petitioner submitted its written
notes on February 28, 2020. It often happens that an adjudicator starts
preparing the broad outlines of his/her judgment/award even prior to
written notes of arguments being filed by the parties. After all, the written
notes of arguments are supposed to be merely the reflection of oral
arguments already advanced by the parties and ideally cannot add to the
same. Such notes are only to aid the adjudicator in order to ensure that no
points raised by the parties are omitted.
101. Thus, it cannot be automatically assumed that in all cases an Arbitrator
mandatorily has to wait for the last written notes of arguments of the parties
to be filed before even commencing the preparation of the proposed award,
particularly if all the relevant materials were before him, including the oral
32
arguments advanced by the parties as reflected in the minutes of the dates
of hearing.
102. However, this Court would be failing in its duty if a disturbing aspect of the
matter is not considered. There is a palpable confusion of the first person in
the first three paragraphs of the majority award. In the first and second
paragraphs, the first person is used to qualify Mr. Pradip Kumer Dutta,
Senior Advocate, one of the co-Arbitrators. The relevant extracts therefrom
are:
(a) ― the same was referred to the arbitration before myself, Pradip Kumar
Dutta, Senior Advocate and Mr. Ajoy Krishna Chatterjee, Senior
Advocate .
(b) We, the Joint Arbitrators, i.e. myself, Pradip Kumar Dutta, Senior
Advocate and Mr. Ajoy Krishna Chatterjee, Senior Advocate, appointed
Mr. Prodosh Kumar Mullick, Senior Advocate as Third Arbitrator ‖.
103. Not only is the term ―myself‖ used twice to qualify Mr. Pradip Kumar Dutta,
one of the co-Arbitrators, but the courteous omission of the prefix ―Mr.‖ for
himself while it is used for the other co-Arbitrator and the Third Arbitrator,
unerringly indicates that it was Mr. Pradip Kumar Dutta, co-Arbitrator, who
authored the award.
104. However, a marked contradiction is noted immediately thereafter. In the
third paragraph of the majority award, it is stated that by virtue of the
retirement of the said Third Arbitrator, the Joint Arbitrators had appointed
―me, Bhaskar Sen, Senior Advocate‖ as the Third Arbitrator in his place and
stead.
33
105. Such linguistic confusion is suspect, as it creates a doubt in the mind of any
reasonable person as to whether the award was actually authored by one of
the co-arbitrators, Mr. Pradip Kumar Dutta, but subsequently given the
colour of being written by the subsequently appointed Presiding Arbitrator
Mr. Bhaskar Sen, Senior Advocate. There is no clue in the rest of the
majority award as to who authored the same.
106. However, going by the principle laid down by the Hon‘ble Supreme Court in
4
Chaturbhai M. Patel (supra) , however suspicious may be the circumstances
and strange the coincidences and however grave the doubt, suspicion alone
can never take the place of proof.
107. To arrive at a finding of fraud/corruption, the court must be free of all
doubts whatsoever as to such fact being established.
108. In any event, whoever actually authored the majority award, fact remains
that the Presiding Arbitrator put his signature to the same. An insinuation
has been made by the petitioner on such count as well, contending that the
signatures of the Presiding Arbitrator in the award and the covering letter
thereto are different. However, from a plain visual glance, it cannot be said
beyond doubt that the two are of different persons.
109. Balancing the above factors, thus, this Court comes to the conclusion that
although there is slight discrepancy in the majority award, it might as well
be attributable to grammatical error in transcription and it cannot be said
beyond reasonable doubt that the Arbitrator merely signed a dotted-line
4
Union of India v. Chaturbhai M. Patel and Co., reported at (1976) 1 SCC 747
34
award and had not gone through/prepared the same himself. Thus, this
issue is decided against the petitioner, by observing that the impugned
award cannot be said to be tainted by fraud and/or corruption.
(ii) Whether the majority award, being violative of Section 31(2) of
the 1996 Act, ought to be set aside
110. To decide this issue, sub-sections (1) and (2) of Section 31 of the 1996 Act
are to be considered, which are set out below:
Section 31. Form and contents of arbitral award.
(1) An arbitral award shall be made in writing and shall be signed by the
members of the arbitral tribunal.
(2) For the purposes of sub-section (1), in arbitral proceedings with more than
one arbitrator, the signatures of the majority of all the members of the arbitral
tribunal shall be sufficient so long as the reason for any omitted signature is
stated.
111. Sub-section (1) makes it clear, by use of the mandatory language ―shall be‖,
that an arbitral award has to be signed by all the members of the Arbitral
Tribunal. An exception to the said proposition is, however, carved out in
sub-section (2) which relaxes such mandatory condition only if the reason
for any omitted signature is stated.
112. The language in which sub-section (2) is framed leaves no manner of doubt
that the reason has to be for the omission of the signature.
5
113. In Dakshin Haryana (supra) , the Hon‘ble Supreme Court observed that
Section 31(1) is couched in mandatory terms. If the Arbitral Tribunal
5
Dakshin Haryana Bijli Vitran Nigam Limited v. Navigant Technologie s, reported at
(2021) 7 SCC 657
35
comprises of more than one Arbitrator, the award is made when the
Arbitrators acting together finally express their decision in writing and is
authenticated by their signatures. An award takes legal effect only after it is
signed by the Arbitrators, which gives it authentication, and that there can
be no finality of the award except after it is signed, since signing of the
award gives legal effect and validity to it.
114. The Hon‘ble Supreme Court held that the statute makes it obligatory for
each of the members of the Tribunal to sign the award to make it a valid
award and that the usage of the term ―shall‖ makes it a mandatory
requirement and not merely a ministerial act or an empty formality which
can be dispensed with.
115. It was further held that sub-section (1) of Section 31, read with sub-section
(4), make it clear that the Act contemplates a single date on which the
arbitral award is passed, that is, the date on which the signed copy of the
award is delivered to the parties.
116.
It is relevant to quote Paragraph Nos.32, 33 and 34 of the said judgment in
this context:
“ 32. In an Arbitral Tribunal comprising of a panel of three members, if one of the
members gives a dissenting opinion, it must be delivered contemporaneously on the
same date as the final award, and not on a subsequent date, as the Tribunal
becomes functus officio upon the passing of the final award. The period for rendering
the award and dissenting opinion must be within the period prescribed by Section
29-A of the Act.
36
33. In the treatise on International Commercial Arbitration authored by Fouchard,
Gaillard and Goldman, it has been opined that:
“1403. A dissenting opinion can only be issued when the majority has already made
the decision which constitutes the award. Until then, any document issued by the
minority arbitrator can only be treated as part of the deliberations. However, once the
majority decision has been reached, it is preferable for the author of the dissenting
opinion to communicate a draft to the other arbitrators so as to enable them to
discuss the arguments put forward in it. The award made by the majority could then
be issued after the dissenting opinion, or at least, after the draft of the dissenting
opinion…” [ Fouchard, Gaillard, Goldman, International Commercial Arbitration, Eds.
Emmannuel Gaillard, John Savage, p. 786 (Kluwer Law International).]
34. There is only one date recognised by law i.e. the date on which a signed copy of
the final award is received by the parties, from which the period of limitation for filing
objections would start ticking. There can be no finality in the award, except after it is
signed, because signing of the award gives legal effect and finality to the award.”
6
117. Again, in ISC Projects Private Ltd. (supra) a learned Single Judge of the
Delhi High Court reiterated the proposition laid down in Dakshin Haryana
7
Bijli Vitran Nigam Limited (supra) . It was further observed, by quoting from
different authorities, that the right to provide a dissenting or separate
opinion is an essential concomitant of the arbitrator‘s adjudicative function
and the Tribunal‘s related obligation to make a reasoned order. Indeed, the
6
ISC Projects Private Ltd. v. Steel Authority of India Limited, reported at 2025 SCC
OnLine Del 1133 C Projects Private Ltd. v. Steel Authority of India Limit po 1133
7
Dakshin Haryana Bijli Vitran Nigam Limited v. Navigant Technologies, reported at
(2021) 7 SCC 657
37
right of an arbitrator to deliver a dissenting opinion is properly considered
as an element of his/her adjudicative mandate, particularly in
circumstances where a reasoned award is required. A dissenting opinion, it
was held, serves an important role in the deliberative process, and can
provide a valuable check on arbitrary or indefensible decision making. The
very concept of a reasoned award by a multi-member Tribunal permits a
statement of different reasons, which was held to be an essential aspect of
the process by which the parties have an opportunity to both present their
case and hear the reasons for the Tribunal‘s decision. The Delhi High Court
highlighted the necessity of relevant, germane or adequate reasons for the
missing signature, if the Third Arbitrator did not sign the majority award. If
the reasons show that all the three Arbitrators have not had the opportunity
to participate in the decision-making process fully and equally, such
reasons would not be acceptable to justify the missing signature.
118. It was rightly held that a minority view can be formulated only after the
majority view is known and the reasons for the missing signature have to be
found to be satisfactory and that party autonomy and adjudication by a
consensually appointed Tribunal, are intertwined.
8
119. In Abu Hamid Zahiea Ala (supra) , it was reiterated by this Court that the
majority may pass an award but it must be after discussion with the other
Arbitrators. Conference between the Arbitrators at each stage and mutual
assistance between each other was held to be essential, as was unanimous
8
Abu Hamid Zahiea Ala v. Golam Sarwar , reported at 1916 SCC OnLine Cal 183
38
participation by the Arbitrators in consulting and deliberating upon the
award to be made.
120. In the present case, the dissenting Arbitrator categorically mentioned in his
award that he was only informed on the date when the majority award was
passed that the other two Arbitrators had allowed the claims of the
claimant. He observed that, not being able to agree to such conclusion, he
decided to write his separate award.
121. In the immediately preceding sentence, the dissenting Arbitrator also
pointed out that he took up the matter for consideration only upon receipt of
the notes of arguments filed by the parties.
122. Thus, since the claimant/respondent contends that there was nothing to
assume that the Presiding Arbitrator only started to write his award after
receiving the written notes or arguments by the claimant/respondent on
June 10, 2020, almost immediately prior to his second bout of his
hospitalization, within two days after discharge from which the award was
published, it is also evident that if the dissenting Arbitrator started
preparing his award after the date on which the respondent filed its written
submissions, that is, June 10, 2020, there was no overlap between the
periods when the Presiding Arbitrator and the dissenting Arbitrator started
preparing their respective awards. Hence, the scope of any deliberation or
discussion regarding the then-proposed award between the Presiding
Arbitrator and other concurring co-arbitrator on the one hand. and the
dissenting Arbitrator on the other, can be ruled out.
39
123. Deliberation between the co-arbitrators in a multi-member Arbitral Tribunal
is an essential ingredient of party autonomy, since the parties agree upon
and submit to adjudication by all the members and not by any one or some
of them. Such basic tenet goes for a toss if one of the Arbitrators is kept out
of the loop by the others while preparing the award.
124. Although a dissenting Arbitrator has a right to dissent, such dissent has to
be an informed decision and not a post facto adjudication after the majority
award is finalized, delivered and only then handed over to him, without prior
consultation.
125. If the dissenting Arbitrator was taken in the loop and was a part of the
discussion and deliberation for the purpose of preparing the award, he
might as well have convinced the other two Arbitrators or at least one of
them to see things his way, thus changing the entire outcome of the
adjudication.
126. Hence, a post facto handing out of the majority award to the Dissenting
Arbitrator hits at the very root of the validity of the award and is squarely
violative of Section 31(1) of the 1996 Act.
127. The respondent argues that the post facto dissent of the third Arbitrator
ratifies in a sense the lack of specific reason for omission of his signature in
the majority award. However, such argument is absurd, since Section 31(2)
categorically stipulates that the reason for the omission has to be recorded
in the majority award, in which the omission occurs.
128. As discussed above, it has been consistently held by the Hon‘ble Supreme
Court and different High Courts that the date of the award, even in case
40
dissenting awards are passed by a multi-member Arbitral Tribunal, is a
single date and the Arbitrators become functus officio thereafter. In the
present case, the majority award was passed more than a week prior to the
minority award. Thus, the post facto dissent of the third Arbitrator could
not be read as a reason of omission of his signature in the majority award.
On the date when the majority award was delivered, which is ―The‖ award
for all practical purposes, all the three Arbitrators became functus officio.
As on the said date, not a single line of reason, let alone sufficient, was given
in the majority award for the omission of the signature of the dissenting
Arbitrator. As per the dissenting Arbitrator, not even a copy of the draft
award was given to him before the majority award was delivered.
129. Hence, the impugned award is not only squarely violative of Section 31, sub-
sections (1) and (2) of the 1996 Act but also contravenes the fundamental
principle of party autonomy and hits at the root of the award itself.
130. Thus, the impugned award is liable to be set aside on such ground alone
within the contemplation of Section 34(2-A) of the 1996 Act, being patently
illegal.
131. Although the award could be set aside on such ground alone, we choose not
to do so because of the following reason:
Although Section 19 of the 1996 Act sets the arbitrator free from the
procedural formalities of the Code of Civil Procedure, it does not preclude
even the arbitrator from following the cardinal principles embodied in the
Code; less so in case of a Section 34 proceeding, to which Section 19 is
directly not applicable. Thus, this Court chooses to adopt the underlying
41
principle of Order XIV Rule 2 of the Code and adjudicate on all the other
issues as well for the sake of completion.
M ERITS :
(i) Whether the award is contrary to the express terms of the
contract, entailing interference under Section 34 of the 1996 Act
132. Clause 14.0 of the agreement between the parties is captioned
―GUARANTEE‖. Clause 14.1 stipulates that the guarantee shall be for ―a
period of Eighteen (18) months from the date of successful commissioning or
Twenty Four (24) months the from date of last dispatch of machinery,
whichever is early‖.
133. It is borne out by the records that the Bleed cum Condensing Steam Turbine
Generator Set (TG Set) was delivered by the respondent/petitioner to the
claimant/respondent on December 28, 2006 and the claimant/respondent,
Neo Metaliks, commenced trial run on the self-same date.
134. The claimant/respondent, by a written communication dated July 27, 2009,
rejected the TG Set on the ground that by reason of its defects, parts of the
TG Set had to be repeatedly sent for repairs, which did not allow due
commissioning of the TG Set or stabilized operation of CPP, that the turbine
suffers from inherent defects and that the supply, erection and
commissioning of a TG Set and its turbine capable of stable and continuous
operation was the essential condition of the contract which has been
breached in the circumstances as stated therein. It was further stated that
42
inasmuch as the turbine was incapable of suitable repairs and must
therefore be replaced, the claimant/respondent was obliged to treat the
petitioner‘s breach of the fundamental condition of the contract as a breach
of warrantee of at least a turbine. The claimant/respondent accordingly
sought refund of the value of the turbine and put the petitioner on notice
that it will also be claiming the defence of the new turbine, which the
claimant/respondent must essentially purchase to salvage the rest of the TG
Set.
135. The petitioner takes the plea that such rejection came much after the expiry
of the guarantee period. In terms of Clause 14.1, it is argued, the guarantee
would be for a period of 18 months from the date of successful
commissioning or 24 months from the date of last dispatch of machinery,
whichever is early. Even going by the said Clause, 24 months from the last
dispatch, that is from December 28, 2006, expired on December 28, 2008,
whereas the rejection came on July 27, 2009.
136.
The petitioner contends that the Tribunal failed to take into consideration
the second limb of the Guarantee Clause and proceeded only on the premise
of the first limb, stipulating the guarantee period to be 18 months from the
date of successful commissioning. Hence, in any event, since the date of
delivery of the turbine is admitted, the guarantee expired on December 28,
2008 even if the second limb is taken into account and thereafter there
could not be any claim on account of breach of the same.
137. On the other hand, the claimant/respondent stresses upon the expression
―successful commissioning‖ and argues that for successful commissioning,
43
the TG Set had to run at the guaranteed rated capacity at least for a
continuous period of 18 months, which contention was accepted by the
Tribunal in the majority award.
138. The term ―successful commissioning‖ has not been defined separately in the
contract and has to be gathered from the other provisions thereof than
Clause 14.1. Clause 1.4 of Schedule-I of the contract defines scope of
commissioning as flushing, calibration of instrument, testing and calibration
of protection relays, meters, trial run, reliability run, safe handover for
commercial operation and performance testing of the equipment supplied.
As per the materials on record, the floor test was done and the machine was
put into operation upon its delivery. Even as per the claimant/respondent,
the machine operated during several intermittent periods at a stretch before
it was rejected. Hence, there cannot not be any doubt that the machine had
been commissioned upon being delivered on December 28, 2006, upon
which the claimant/respondent had commenced operation of the same.
139.
The question which arises is whether the interpretation lent to Clause 14.1
by the Tribunal, in particular the term ―successful commissioning‖, is in
consonance with the view of a prudent person or is absurd.
9
140. In Ssaynong Engg. (supra) , the Hon‘ble Supreme Court observed that in the
guise of misinterpretation of the contract and consequent errors of
jurisdiction, it is not possible to state that the arbitral award would be
beyond the scope of submission to arbitration if otherwise the said
misinterpretation ―which would include going beyond the terms of the
9
Ssaynong Engg. & Construction Co. Ltd. v. NHAI, reported at (2019) 15 SCC 131
44
contract‖ could be said to have been fairly comprehended as ―disputes
within the arbitration agreement or which were referred to the decision of
the arbitrators as understood by the authorities.‖ If an arbitrator is alleged
to have wondered outside the contract and dealt with the matters not
allotted to him, this would be a jurisdictional error which could be corrected
on the ground of patent illegality. It was further cautioned that to bring in
by the backdoor grounds relatable to Section 28(3) of the 1996 Act to be
matters beyond the scope of submission to arbitration under Section
34(2)(a)(iv) would not be permissible as this ground must be construed
narrowly and must refer only to matters which are beyond the arbitration
agreement or the reference.
10
141. In Associate Builders (supra) , the Hon‘ble Supreme Court, relying on MSK
Projects (I) (JV) Ltd. v. State of Rajasthan , reported at (2011) 10 SCC 573 ,
observed that if the arbitrator commits an error in the construction of the
contract, that is an error within his jurisdiction but if he wonders outside
the contract and deals with matters not allotted to him, he commits a
jurisdictional error. It was further held that extrinsic evidence is admissible
in such cases because the dispute is not something which arises under or in
relation to the contract or dependent on the construction of the contract or
to be determined within the award.
142. However, in State of Chhattisgarh v. SAL Udyog (P) Ltd., reported at (2022) 2
11
SCC 275 , while considering Ssaynong Engg. (supra) and Associate Builders
10
Associate Builders v. DDA , reported at (2015) 3 SCC 49
11
Ssaynong Engg. & Construction Co. Ltd. v. NHAI, reported at (2019) 15 SCC 131
45
12
(supra) , the Hon‘ble Supreme Court also took into consideration Delhi
Airport Metro Express (P) Ltd. v. DMRC, reported at (2022) 1 SCC 131, where
it was held that patent illegality should be illegality which goes to the root of
the matter. In such context, it was further elaborated that the permissible
ground for interference with a domestic award under Section 34(2-A) on the
ground of patent illegality is when the arbitrator takes a view which is not
even a possible one, or interprets a clause in the contract in such a manner
which no fair-minded or reasonable person would, or if the arbitrator
commits an error of jurisdiction by wondering outside the contract and
dealing with matters not allotted to them.
13
143. In SAL Udyog (supra) , it was further observed that if the express terms and
conditions of the agreement governing the parties were given a complete go-
by, it would amount to patent illegality that is manifest on the face of the
arbitral award. Failure on the part of the arbitrator to decide in accordance
with the terms of the contract governing the parties, it was held, would
certainly attract the ―patent illegality‖ ground, as the said oversight amounts
to gross contravention of Section 28(3) of the 1996 Act that enjoins the
Arbitral Tribunal to take into account the terms of the contract while
making an award. The said patent illegality, it was observed, is not only
apparent on the face of the award, but goes to the very root of the matter
and deserves interference.
12
Associate Builders v. DDA , reported at (2015) 3 SCC 49
13
State of Chhattisgarh v. SAL Udyog (P) Ltd., reported at (2022) 2 SCC 275
46
144. In the subsequent judgment of Indian Railways Catering & Tourism Corpn.
Ltd. v. Brandavan Food Products , reported at 2025 SCC OnLine SC 2369 , the
Hon‘ble Supreme Court was pleased to hold that the arbitrator erred in
assuming that he was only interpreting the terms and conditions of the
contract and was, therefore, at liberty to place a contrary construction on
the express language used therein. It was found that the arbitrator
practically rewrote the contract between the parties which was held to be
not only against the public policy of India but also made it patently illegal,
being in contravention of Section 28(3) of the 1996 Act which mandatorily
required the arbitrator, while deciding and making the award, to take into
account the terms of the contract and the trade usages applicable to the
transaction.
145. This Court, in AB Enterprises v. Union of India , reported at 2024 SCC OnLine
Cal 9268 , observed that taking resort to external aids where there was no
ambiguity in the clause of the contract is itself patently illegal, which vitiates
the impugned award and that it is an entrenched principle of Indian law
that the Courts cannot rewrite the contract between the parties. The said
concept was held to be an integral part of the fundamental policy of Indian
law and that violating the same tantamounts to contravention of the policy
of Indian law, being in conflict with the most basic notions of justice,
bringing such contravention within the fold of Section 34(2)(b)(ii), including
its Explanations. Taking resort to Section 28(3) of the 1996 Act, it was held
that since the terms of the contract between the parties in the said case
were unambiguous, contravention of the same by the Arbitral Tribunal
47
tantamounted to a patent illegality within the contemplation of Section
14
34(2)(b) of the 1996 Act, as reiterated in SAL Udyog (supra) .
146. Again, in Union of India, Acting through the General Manager v. Jay Bharat
Construction , reported at 2024 SCC OnLine Cal 8389 , it was reiterated by
this Court that since comity and consensus between the parties is at the
very source of the authority of the arbitrator, the Tribunal was bound by
the terms of the contract between the parties and, having acted contrary to
the specific terms of the agreement, the learned Tribunal acted with patent
illegality which was found in the said case to be shocking to the conscience
of the Court and in conflict with the public policy of India. The Court
observed that primacy of the terms of the contract is a cardinal part of the
policy of India, as also embodied in Section 28(3) of the 1996 Act and that,
pitted against each other, the policies of primacy of contract and least
judicial intervention have to play out in respect of each other in the factual
context and circumstances of each case.
147.
This Court, in the unreported judgment of Mintech Global Private Limited v.
Kesoram Industris Limited – Cement Division [EC 335 of 2023] , this Court
15
relied on Ssaynong Engg. (supra) and held that the Arbitral Tribunal
cannot deviate from the terms of the contract, which proposition is premised
on Section 28(3) of the 1996 Act.
148. A Division Bench of the Delhi High Court, in the unreported judgment of
Union of India v. Reliance Industries Limited & Ors. [FAO(OS)(COMM)
14
State of Chhattisgarh v. SAL Udyog (P) Ltd., reported at (2022) 2 SCC 275
15
Ssaynong Engg. & Construction Co. Ltd. v. NHAI, reported at (2019) 15 SCC 131
48
16
201/2023] , placed reliance on SAL Udyog (supra) and reiterated that an
Arbitral Tribunal must decide in accordance with the terms of the contract,
but if an arbitrator construed the 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 the contract, it was held, 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.
17
149. In DMRC Ltd. (supra) , the Hon‘ble Supreme Court, sitting in a 3-Judge
18
Bench, while taking into consideration Ssaynong Engg. (supra) and
19
Associate Builders (supra) , was pleased to hold that the interpretation of
contract cannot be unreasonable, such that no person of ordinary prudence
would make it. The contract, it was held, which is a culmination of the
party‘s agency, should be given free effect and if the interpretation of the
terms of the contract as adopted by the Tribunal was not even a possible
view, the award is perverse.
150. Thus, the law, as laid down by the Hon‘ble Supreme Court and different
High Courts of the country, boils down to the test of a reasonable and fair-
minded person of ordinary prudence, which is the touchstone on which the
interpretation by the Arbitral Tribunal of the terms of the contract between
16
State of Chhattisgarh v. SAL Udyog (P) Ltd., reported at (2022) 2 SCC 275
17
DMRC Ltd. v. Delhi Airport Metro Express (P) Ltd., reported at 2024 SCC OnLine SC
522
18
Ssaynong Engg. & Construction Co. Ltd. v. NHAI, reported at (2019) 15 SCC 131
19
Associate Builders v. DDA , reported at (2015) 3 SCC 49
49
the parties is to be examined. The court is also to look into whether the
interpretation lent to the clauses of the contract is one of the possible views.
151. Going by the above tests, Clause 14.1, in its first part, clearly fixes the
starting point of the guarantee to be the successful commissioning of the TG
Set.
152. The interpretation sought to be given to the said term by the
claimant/respondent is that the machine has to perform continuously at the
rated capacity for a continuous period of at least 18 months for the
commissioning to qualify as ―successful‖.
153. However, such interpretation is, to say the least, absurd. The term
―commissioning‖, seen in the light of Clause 1.4 of Schedule-1 of the
contract, is a one-time affair. Once the equipment is put into active service,
even if for a brief period, it has to be construed that it has been successfully
commissioned. ―Commissioning‖, contrary to the interpretation of the
Tribunal, cannot be a continuous act. Even otherwise, if successful
commissioning is to mean the continuous trouble-free functioning of the
machine for 18 months, the Guarantee Clause itself would be rendered
nugatory, as it would be perpetually stillborn. In such a case, the act of
commissioning, which is meant to be the starting point of the guarantee
period, would be co-extensive with the guarantee period itself. Clause 14.1
stipulates that the guarantee period itself, and not the act of successful
commissioning, would be for 18 months. Successful commissioning is only
the starting point of the guarantee and the tenure of the guarantee period
itself would be 18 months therefrom. Once commissioned, the guarantee
50
period starts running and cannot be arrested subsequently, even if the
machine undergoes malfunction or requires repair. In fact, the concept of
guarantee period is precisely that if during such period the equipment in
question malfunctions due to some manufacturing or inherent defect, the
consumer can invoke the guarantee.
154. If the interpretation sought to be lent by the Tribunal or the
claimant/respondent is to be accepted, the guarantee period would forever
be a non-starter, since on every occasion when the machine malfunctions or
undergoes repair during a continuous period running period of 18 months,
the guarantee period would start afresh and it would give rise to a new
guarantee together. Such an interpretation would be against the very grain
of the concept of guarantee, particularly as embodied in Clause 14.1 of the
contract between the present parties.
155. The Tribunal, thus, got confused between the starting point of guarantee,
which is the date of successful commissioning of the TG Set, with the
guarantee period itself, which would be 18 months from such starting point.
Hence, the interpretation given to the Guarantee Clause by the Tribunal is
absurd and shocking to the conscience, not befitting a reasonable person of
ordinary prudence and/or a fair-minded person. The said interpretation is
not even one of the possible interpretations which could be given to the
Guarantee Clause, hence taking such interpretation beyond the purview of
the contract itself. Such interpretation being contrary to the contract, the
terms of which are unambiguous, the error comes within the contemplation
of Section 28(3) of the 1996 Act which stipulates that while deciding and
51
making an award, arbitral tribunal shall, in all cases, take into account the
terms of the contract and the trade usages applicable to the transaction.
156. The Arbitral Tribunal, in the instant case, merely paid lip-service to the
contract, in the process interpreting the unambiguous Guarantee Clause,
being Clause 14.1, beyond recognition by construing it in such a manner
that is palpably contrary to the clause itself.
157. Another patent illegality committed by the Tribunal was in overlooking the
second limb of the Guarantee Clause altogether. The period of guarantee as
contemplated in Clause 14.1 is not restricted to the period of 18 months
from the date of the successful commissioning but additionally, takes within
its fold the period of 24 months from the date of last dispatch of machinery,
which is categorically borne out by the records to be December 28, 2006.
Notably, Clause 14.1 stipulates that the guarantee period would be 18
months from date of successful commissioning or 24 months from date of
last dispatch ―whichever is early‖. Even if it were to be assumed that the
machine was not successfully commissioned (which is not the case here),
going by the second limb, the guarantee period would, in any event,
terminate with the expiry of 24 months from December 28, 2006 (the date of
last dispatch/delivery of the equipment), that is, on December 28, 2006. The
guarantee was invoked, however, by a communication dated July 27, 2009,
which is beyond the guarantee period. This aspect of the matter was not
considered by the learned Tribunal at all, thereby committing patent
perversity.
52
158. Hence, the impugned award is tainted by perversity and patent illegality,
bringing it within the ambit of Section 34(2-A) of the 1996 Act, since such
patent illegality tantamounts to perversity which is not restricted to mere
erroneous application of law and does not involve the reappreciation of
evidence.
159. Interpretation of the contract in a manner contrary to its plain meaning is
violative of Section 28(3) of the 1996 Act, on which premise the ground of
patent illegality is further bolstered.
160. Accordingly, this issue is decided in favour of the petitioner. The award is,
thus, also liable to be set aside on the ground of patent illegality and
perversity due to Tribunal having interpreted the Guarantee Clause in the
agreement between the parties, which is the plinth of the claimant‘s claims,
in such a fashion which is patently contrary to the clause itself and beyond
the threshold of the prudence of a reasonable person.
161. Another facet of the matter is also to be considered. As held in Nabha Power
Limited (NPL) v. Punjab State Power Corporation Limited (PSPCL) and Another,
reported at (2018) 11 SCC 508 as well as Bharat Aluminium Co. v. Kaiser
Aluminium Technical Services Inc. , reported at (2016) 4 SCC 126 , the test of
‗business efficacy‘ and commercial prudence has to be applied to gather the
context and circumstances of the intention of the parties while entering into
the contract.
162. It is obvious that when a guarantee is given by a vendor, it is supposed to
start from a particular date which is specific and not infinitely elastic. The
starting point has to be a fixed date and not a continuous period, constantly
53
in a state of flux. The Tribunal evidently confused between the tenure of the
guarantee, that is 18 months from the date of successful commissioning,
and the starting point thereof, that is, the date of successful commissioning
itself. Such commencement date was erroneously stretched by the Tribunal
to extend over the guarantee period itself, by coming to the conclusion that
unless the machine worked trouble free and at the rated capacity for a
continuous period of 18 months, it would not be construed to be
successfully commissioned.
163. During arguments, learned senior counsel for the claimant/respondent also
insinuates and that there was an implied condition that the goods are of
merchantable quality.
164. Section 16(2) of the 1930 Act provides an exception to the general
proposition that there is no implied warranty or condition as to the quality
of fitness for any particular purpose of goods supplied under a contract of
sale. The said exception is where goods are bought by description for a seller
who deals in goods of that description, in which case there is an implied
condition that the good shall be of a merchantable quality. However, the
proviso to Clause (2) of Section 16 stipulates that if the buyer has examined
the goods, there shall be no implied condition as regards defects which such
examination ought to have revealed. Hence, as the TG Set in the instant
case was installed, floor tested and pressed into operation and admittedly
functioned for several intermittent periods in the hands of the
claimant/respondent, it cannot be said with the buyer did not examine the
goods.
54
165. As per Clause (4) of Section 16 of the 1930 Act, an express warranty or
condition does not negative a warranty or condition implied by the Act
unless inconsistent therewith.
166. The implied condition sought to be invoked by the claimant/respondent
herein, to the effect that the machine had to run continuously at the rated
capacity for 18 months for successful commissioning to happen, is patently
inconsistent with and contrary to the express warrantee/condition as
embodied in Clause 14.1 of the agreement between the parties. Thus, the
express warranty overrides such so-called implied warranty sought to be
pressed into service by the claimant/respondent.
167. Hence, this issue is also decided in favour of the petitioner by holding that
the impugned award is patently illegal and ought to be set aside under
Section 34(2-A) of the 1996 Act.
(ii) Whether the award of claims on extinction of price and extra
expenditure on electricity and high-speed diesel are contrary to
law and evidence
163. The learned Tribunal proceeded to award the claim on extinction of price of
the TG Set-in-question as well as grant damages on account of extra
expenditure on electricity and high-speed diesel.
164. Section 59(1) of the 1930 Act provides that where there is a breach of
warranty by the 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
55
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.
165. Sub-section (2) of Section 59 carves out an exception to the effect that 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.
166. The case made out herein by the claimant/respondent is on the premise of
breach of warranty. Thus, the learned Arbitral Tribunal committed a patent
illegality in contravening in Section 59(1) of the 1930 Act by awarding the
claims both under the head of damages, by way of electricity and diesel
charges, as well as extinction of price. Grant of the one ought to have
excluded the other, since it is not further damage but the same claim of
damages which was made by the claimant/respondent in conjunction with
extinction of price. The two cannot run together as per law.
167. Even otherwise, in view of the finding arrived at by this Court under the
previous issue, the very premise of the award of damages goes. Since the
guarantee was not invoked within its tenure as per Clause 14.1, the
claimant/respondent-Neo Metaliks is debarred from claiming damages
and/or extinction of price at all on the strength of such warranty clause.
168. Even otherwise, there are several glaring errors committed by the Tribunal.
For instance, CW1, the claimant‘s witness, when confronted in his cross-
56
examination with the claimant‘s documents to substantiate the claims of
damages, consistently and repeatedly denied having any knowledge of such
documents since, according to him, the same related to commercial matters
on which he could not comment. CW1 Mr. Kesharvanee maintained such
consistent stand throughout his cross-examination.
169. There was also a gross discrepancy between the invoice price of the turbine
and the breakup on the basis of which the extinction of price was claimed by
the claimant. The invoice-mentioned price of the turbine was much less
than the amount awarded in lieu of extinction of price.
170. The Tribunal proceeded on the perverse premise that there was no cross-
examination of the CW1 on the relevant points. Contrary thereto, there were
a string of counter suggestions put to him on such count, as evident from
the minutes of the Tribunal‘s proceedings.
171. Even otherwise, the claimant/respondent largely depended on its internal
documents to try and substantiate its claims. The reliance of the Tribunal
on the same was perverse, since the claims were awarded without any
evidence worth the name.
172. However, even without entering into such question at length, since it might
border on reappreciation of evidence which this Court, sitting under Section
34 of the 1996 Act, cannot undertake as in a regular first appeal, the earlier
ground of contravention of Section 59 of the 1930 Act would suffice to turn
down such claims of the claimant/respondent. Also, it is reiterated that
since the guarantee clause was not invoked within time, the claimants are
not entitled to damages, due to foundational lacunae.
57
173. In State of West Bengal v. Bijon [AP-COM 224 of 2009] , it was held that if the
award was passed without cogent material, the same is perverse, which
20
violates the fundamental policy of Indian Law. Even in DMRC Ltd. (supra) ,
it was held that if vital evidence is ignored, the award is tainted by patent
illegality, being perverse.
174. Another facet of the matter is that the claimant/respondent did not
specifically prove that it had made any effort during the relevant period to
resort to the means which existed to remedy the inconvenience allegedly
caused by the non-performance of the contract by the petitioner, thus,
coming within the mischief of the Explanation to Section 73 of the Contract
Act, 1872. It has been repeatedly held by Courts, including in Mintech
Global (supra) , that the burden of proof is on the claimant to show that there
was an effort on its part with regard to mitigation of loss.
175. In the present case, no such proof came before the Tribunal from the end of
the claimant/respondent; rather, the claimant/respondent also did not
prove by cogent evidence that the electricity used by it by consumption from
the DVC (Damodar Valley Corporation) during the period of operation of the
concerned TG Set was more than that consumed after the installation of a
new turbine from a different manufacturer. In the absence of such
comparative proof, the Arbitral Tribunal had no means to assess the
damages as claimed. Moreover, the purpose for which the high-speed diesel
purchased by the claimant/respondent was utilised was not brought before
20
DMRC Ltd. v. Delhi Airport Metro Express (P) Ltd., reported at 2024 SCC OnLine SC
522
58
the Arbitral Tribunal as well. The Tribunal proceeded merely on the basis of
the electricity bills and the bills for purchase of diesel, without anything
more to establish a connection between the same and the damages, if at all,
actually suffered by the respondent.
176. High-speed diesel would be required in normal course of operation of the TG
Set even if it never malfunctioned. Thus, the grant of claim on such count is
not acceptable without any cogent proof as to how the said expenditure was
relatable to breach of warranty.
177. Thus, the award is tainted by perversity and patent illegality on such count
as well.
(iii) Whether the claimant/respondent (Neo Metaliks) was barred by
estoppel from making its claims
178. There are several admitted facts which clinch this issue in favour of the
petitioner.
179. First, on several occasions during the subsistence of the guarantee period,
the claimant/respondent availed of the services of the petitioner‘s personnel
for effecting repairs to the concerned TG Set upon making payments of
repair charges. Such act on the part of the claimant/respondent
tantamounts to waiver in respect of the plea that a defective TG Set was
provided to the claimant. Since Neo Metaliks, the claimant, was entitled to
free repair during the guarantee period but chose to pay the repair charges
on every occasion when they availed of such services from the petitioner,
that too without raising any demur throughout the guarantee period as to
59
there being any inherent or manufacturing defect in the TG Set, the
respondent is estopped from seeking damages or claiming extinction price
on such ground.
180. Secondly, despite the petitioner having furnished a Performance Bank
Guarantee, the claimant/respondent did not invoke the same during its
tenure, thus waiving any right in that regard.
181. Thirdly, by not making the claim within the period stipulated in the
guarantee clause, that is Clause 14.1, the claimant/respondent is debarred
by the contract itself from making such claim post facto .
21
182. Under similar circumstances, in Mintech Global Private Limited (supra) , the
Court held that estoppel operated against the claimant.
183. Hence, this issue is decided in favour of the petitioner as well, holding that
the petitioner was barred by estoppel from making the claims and that the
impugned award is vitiated by perversity, having ignored positive evidence
and overlooked vital evidence on the one hand while awarding claims of
damages without any material basis.
(iv) Whether the counter claim of the petitioner ought to have been
allowed
184. The Arbitral Tribunal refused to allow the counter claim of balance
consideration amount claimed by the petitioner solely on the ground that in
21
Mintech Global Private Limited v. Kesoram Industris Limited – Cement Division [EC
335 of 2023]
60
view of the consideration money being refundable by way of extinction of
price, there was no question of payment of the same.
185. However, such ground of refusal becomes academic in view of the findings of
this Court on the above issues.
186. The petitioner proved its claim by evidence whereas the
claimant/respondent failed to establish by cogent evidence that the balance
amount of consideration to the tune of Rs. 38 lakh was ever paid by it to the
petitioner. Moreover, the equipment is still in the possession of the
respondent.
187. Hence, the Tribunal committed a patent illegality in refusing the petitioner‘s
counter claim.
188. It is well-settled that a Court, sitting in jurisdiction under Section 34 of the
1996 Act, cannot modify an award. However, it is an equally settled position
of law that if the claims can be segregated into separate and distinct
components, one being unconnected with the other, the Section 34 Court
can grant one while refuse the other. As the claim of the respondent is on a
distinct and different footing than the counter claim of the petitioner, the
Court‘s hands are not tied inasmuch as despite refusal of the
claimant/respondent‘s claims, the separate counter claim of the petitioner
for payment of the balance consideration amount for the disputed TG Set
can be directed to be paid.
189. Accordingly, this Court holds that the petitioner is entitled to an amount of
Rs. 38 lakh from the respondent on account of balance consideration money
for the TG Set in question, along with interest.
61
190. Although the dissenting Arbitrator‘s award cannot be considered to be an
independent award, since it is the majority award which counts as the
‗award‘ for all practical purposes, nevertheless, the decision of the dissenting
Arbitrator can definitely act as a guiding light in adjudicating the rate of
interest.
191. Thus, this Court comes to the conclusion that the petitioner is entitled to
interest on Rs. 38 lakh at the rate of 10% from the date on which the cause
of action arose, in terms of Section 31 (7) (a) of the 1996 Act, that is, from
July 27, 2009 till the date of the majority award. The award shall also carry
an interest at the rate of 2% higher than the current rate of interest
prevalent on the date of the award, from that date till payment, in
consonance with Section 31 (7) (b) of the 1996 Act.
CONCLUSION
22
192. Applying the tests laid down in Ssaynong Engg. (supra) , which culled out
23
and modified some of the tests laid down in Associate Builders (supra) , the
impugned award is vitiated by patent illegality and perversity and in certain
aspects, shocks the conscience of the court.
193. Even otherwise, the same is an invalid award, being in stark contravention
of Section 31, sub-sections (1) and (2), of the Arbitration and Conciliation
Act, 1996.
22
Ssaynong Engg. & Construction Co. Ltd. v. NHAI, reported at (2019) 15 SCC 131
23
Associate Builders v. DDA , reported at (2015) 3 SCC 49
62
194. In view of the above, the impugned award cannot be sustained insofar as the
claims of the claimant/respondent are concerned, whereas the counter
claim of the respondent/petitioner is to be allowed.
195. Hence, AP-COM/245/2024 is allowed on contest, thereby setting aside the
impugned award dated July 22, 2020, as amended on February 22, 2021,
insofar as the claims of the claimant/respondent are concerned. The
claimant/respondent is hereby directed to pay to the respondent/petitioner
an amount of Rs. 38 lakh by way of balance consideration amount, along
with interest at the rate of 10% per annum from July 27, 2009 till the date
of the amended award (that is, February 22, 2021), and further interest at
the rate of 2% higher than the current rate of interest prevalent on the date
of the amended award [as per Section 2(b) of the Interest Act, 1978] from the
date of the amended award till the date of payment. Such payments shall be
made by the claimant/respondent to the petitioner within 30 (thirty) days
from date.
196.
GA/1/2024 is consequentially disposed of.
197. In view of the award itself being set aside, EC/143/2021, which is an
application for enforcement of the same, is rendered infructuous and is also
disposed of accordingly.
198. However, the respondent/petitioner shall be at liberty to seek enforcement of
the monetary award granted hereinabove in its favour, if not satisfied in the
meantime, after 30 (thirty) days from date.
199. There will be no order as to costs.
63
200. Urgent certified copies of this order, if applied for, be supplied to the parties
upon compliance of all formalities.
(Sabyasachi Bhattacharyya, J.)