Bombay HC Sets Aside ₹2.16-Crore Belt Refund Award After Buyer Replaced Only 860 Of 3,490 Metres And Tribunal Ignored Supplier Evidence

JSW Jaigarh Port Limited (the Claimant before the Tribunal) placed two purchase orders in 2011 for EP conveyor belts manufactured by Forech India Limited.

The orders required compliance with specified technical standards and provided a warranty for free repair or replacement of defective or unserviceable parts.

After installation, waviness and air pockets were reported, and portions of the supplied belts were replaced.

The Claimant sought, among other relief, a refund of the purchase price; the Tribunal awarded Rs. 2,16,44,423 with interest, after accounting for the encashed bank guarantees, and rejected Forech’s counter-claim.

Forech challenged the award under Section 34 of the Arbitration and Conciliation Act, 1996.

Whether the Tribunal’s finding that the supplied belts were defective was reached after considering both parties’ evidence, or by disregarding Forech’s evidence.

Whether the Tribunal exceeded the contract’s warranty terms by awarding the price of the entire belting system, and whether the award thereby contravened the Sale of Goods Act, 1930 or Section 73 of the Indian Contract Act, 1872.

Whether the Tribunal treated the parties unequally in assessing their witnesses’ evidence, contrary to Section 18 of the Arbitration and Conciliation Act, 1996.

Whether the award suffered from patent illegality warranting interference under Section 34.

Under Section 34, a court does not sit in appeal over an arbitral award or reappreciate evidence; interference is available on the statutory grounds, including patent illegality appearing on the face of a domestic award under Section 34(2A).

Patent illegality must go to the root of the matter; it may arise where the Tribunal ignores vital evidence, contravenes substantive law or the Arbitration Act, or departs from the contract, but a reasonable contractual interpretation or a merely erroneous application of law is not enough (Associate Builders v. DDA; Ssangyong Engineering and Construction Co. Ltd. v. NHAI; MMTC Ltd. v. Vedanta Ltd.).

Section 18 requires equal treatment of the parties.

Under Sections 12 and 13 of the Sale of Goods Act, 1930, acceptance of goods may preclude rejection for breach of condition, leaving a claim for breach of warranty; Section 59 provides remedies for breach of warranty.

Section 73 of the Indian Contract Act, 1872 limits compensation to loss caused by the breach.

The contract’s warranty provided for free repair or replacement of defective or unserviceable parts.

The Court found that the Tribunal rejected Forech’s evidence concerning conveyor speed and operating parameters because its witnesses were in-house witnesses and not experts, while relying on evidence from the Claimant’s similarly situated in-house witnesses.

The Tribunal’s failure to engage with Forech’s relevant evidence amounted to one-sided assessment and contravened the requirement of equal treatment.

The Court also noted that only 860 metres of the 3,490 metres supplied were shown to have been replaced; there was no evidence that the remaining 2,630 metres, or the entire supply, had been replaced.

As the Claimant had accepted and continued to use the belts, with replacement of defective portions, the case was one of breach of warranty.

The award of the entire purchase price was inconsistent with the warranty’s provision for repair or replacement of defective parts and was unsupported by proof that the entire belting had been replaced.

The Court held that these defects went to the root of the award and constituted patent illegality.

The petition was disposed of, with the parties left to pursue remedies available in law; if a further arbitration is sought, the evidence from the existing proceedings may be used along with such additional evidence as the Tribunal permits.