An award granting a full refund must account for retained defective goods and depreciation.

The appellant supplied and commissioned a 500 KW Caterpillar gas genset for the respondent. The respondent alleged that the genset had inherent manufacturing defects and commenced arbitration, advancing nine claims.

The tribunal awarded Rs.1,08,54,024 with interest on Claims 1 and 2 and rejected Claims 3 to 9. Both parties challenged the award under Section 34 of the Arbitration and Conciliation Act, 1996; the learned Single Judge dismissed both petitions.

The appellant appealed under Section 37, challenging the tribunal’s jurisdiction, the limitation finding and the award of the full purchase price without accounting for the respondent’s retention and use of the genset.

Whether the arbitral tribunal had jurisdiction to entertain the dispute under a valid arbitration agreement.

Whether the respondent’s claim was barred by limitation.

Whether the award of a full refund of the genset’s cost was legally sustainable despite the respondent retaining the goods.

Section 7(4)(b) of the Arbitration and Conciliation Act, 1996 recognises an arbitration agreement recorded through an exchange of communications.

Sections 34 and 37 constrain judicial interference with arbitral awards; under Section 37, the appellate court does not substitute its view for a sustainable arbitral finding merely because another view is possible.

Limitation may involve mixed questions of law and fact, and an arbitral finding is not ordinarily disturbed absent patent illegality or conflict with the fundamental policy of Indian law.

Section 73 of the Indian Contract Act, 1872, including its Explanation, requires a claimant to take reasonable steps to mitigate loss; Murlidhar Chiranjilal v. Harishchandra Dwarkadas states that a claimant cannot recover loss attributable to failure to mitigate.

Where an award is severable, the court may set aside the affected portion; where it cannot itself determine the claim, it may remit that issue to the tribunal rather than make a substitute award.

The Court upheld the jurisdictional finding because the tribunal had considered the parties’ communications and found that the technical and commercial terms, including the arbitration clause in the appellant’s proposal, remained operative despite negotiations on price; the Court found no perversity warranting interference under Section 37.

It also declined to disturb the limitation finding: the respondent’s notice recorded that defects had been observed on 6 September 2011, and arbitration was invoked on 3 February 2014, within three years of that date.

However, the tribunal had awarded the entire purchase price without addressing the respondent’s retention of the genset, its use, its residual value or mitigation.

Applying Section 73 and the cited principles on mitigation, the Court held that this omission made the full-refund award perverse and patently illegal; the tribunal had to reconsider the refund claim after hearing both parties and addressing those matters.

It set aside only the portion of the award directing refund of the entire genset cost and remitted that issue to the arbitral tribunal for fresh determination, after giving both parties an opportunity to be heard and in accordance with law.

The appeal was partly allowed, with no order as to costs.

The respondent’s request for payment from the amount in fixed deposit was not granted at that stage, with liberty to renew it after the tribunal’s decision.