### Averments based on hearsay and rejection of contemporaneous evidence constitute a breach of fundamental policy. Case Summary: Factum: The Appellant, a Zimbabwean company, sought a refund from the Respondent for allegedly supplying defective, foul-smelling packaging materials. An Arbitrator awarded the refund based on the testimony of an expert (CW-2) and the Appellant's MD (CW-1), while disregarding two SGS India lab reports that found the materials compliant with safety and odour standards. The Respondent challenged this under Section 34, and the Single Judge set aside the Award. Issue: Whether an arbitral award in an international commercial arbitration can be set aside for shifting the burden of proof and relying on hearsay evidence while disregarding contemporaneous documentary evidence. Ruling: The High Court partly allowed the appeal. It upheld the setting aside of the Award regarding the "defective goods" claim, holding that the Arbitrator committed a "patent illegality" by reversing the burden of proof and relying on hearsay (CW-2) while ignoring objective contemporaneous evidence (SGS reports). Such findings shock the conscience of the court and contravene the "fundamental policy of Indian law." However, using the power of severability, the Court restored the award for USD 43,500.25 pertaining to a separate, undisputed claim for non-delivery of a fifth consignment.

The Appellant, a Zimbabwean company, contracted the Respondent, a Mumbai-based partnership, for the supply of biscuit packaging materials across five invoices.

The Appellant alleged that the 3rd and 4th consignments were defective due to a pungent chemical odour, and the 5th consignment (for which USD 43,500.25 was paid) was never supplied.

An Arbitral Award dated December 2, 2019, ruled in favor of the Appellant, ordering a refund of USD 165,102.10 plus costs.

The Respondent challenged this under Section 34 of the Arbitration and Conciliation Act, and a Single Judge set aside the Award, citing perverse findings and reliance on hearsay evidence.

The Appellant now appeals that setting aside.

Whether the Arbitrator breached the fundamental policy of Indian law by reversing the burden of proof and relying on hearsay evidence regarding the defective nature of the goods.

Whether the findings of the Arbitrator regarding the exclusion of contemporaneous SGS India laboratory reports were patently illegal.

Whether the claim for refund of USD 43,500.25 for non-supply of the 5th consignment is severable from the dispute over the quality of the other consignments.

The court applied Section 34 of the Arbitration and Conciliation Act, 1996, specifically the grounds of "public policy of India" and "patent illegality" for International Commercial Arbitrations as interpreted in *Ssangyong Engineering and Construction Co. Ltd. v. NHAI*.

It relied on Section 102 of the Indian Evidence Act regarding the burden of proof.

The principle that while strict rules of evidence do not apply to arbitration, fundamental principles of justice must be upheld.

It further applied the "Doctrine of Severability" as established in *Gayatri Balasamy v. ISG Novasoft Technologies Limited*, allowing courts to set aside only the invalid portions of an award if they are not interdependent.

The High Court found that the Arbitrator committed a "patent illegality" by ignoring the most objective and contemporaneous evidence—the SGS India reports (Exhibits C16 and C17)—which showed the samples met safety limits.

The Arbitrator erred by treating these reports as having no evidentiary value simply because the authors weren't examined, despite the reports being admitted documents.

Furthermore, the Arbitrator relied on the testimony of CW-2 (expert) which was deemed hearsay as he had no personal knowledge of the smell in 2013 and admitted to making incorrect statements.

By holding the Respondent liable because it "failed to prove" the absence of defects, the Arbitrator illegally reversed the burden of proof which rests on the claimant.

However, the court noted that the claim for USD 43,500.25 was based on admitted non-supply of the 5th order and was entirely distinct from the "odour" dispute.

It upheld the Single Judge’s decision to set aside the majority of the Award because the findings on product defects were based on a perverse appreciation of evidence and hearsay, violating the fundamental policy of Indian law.

However, applying the doctrine of severability, the Court restored the portion of the Award granting USD 43,500.25 to the Appellant for the non-supplied 5th consignment, as this claim was undisputed and severable.

The rest of the Arbitral Award stands quashed.