Delhi HC Sets Aside ₹8.15-Crore Award To Tower Supplier Over Unwaived Prototype Inspection And Contradictory Scrap-Sale Evidence

Flowmore placed a purchase order dated 2 March 2019 on Skipper for manufacture and supply of structural material for a JUSNL project.

The order required written manufacturing clearance and provided for prototype inspection; it also provided for a 10% advance against an advance bank guarantee and pro forma invoice during manufacturing clearance.

After a dispute over drawings, prototype inspection, manufacturing clearance and payment of the advance, Flowmore cancelled the purchase order on 25 July 2019.

The arbitrator awarded Skipper ₹8,15,05,674 with interest and dismissed Flowmore’s counterclaims; the Section 34 challenge was dismissed.

The Supreme Court restored Flowmore’s Section 37 appeal, leaving all questions open.

Under Sections 34 and 37 of the Arbitration and Conciliation Act, 1996, judicial review of an arbitral award—and particularly an appeal under Section 37—is limited; courts cannot reassess the merits or reweigh evidence merely because another view is possible.

However, a domestic award may be set aside for patent illegality where, among other things, a finding is based on no evidence, ignores vital evidence, is perverse or irrational, or adopts a contract construction no reasonable person could take.

Contradictory findings in an award may also make it unsustainable.

The “no evidence” and ignored-vital-evidence grounds must be applied cautiously; scant or weak evidence is not equivalent to no relevant evidence.

The Court found that Flowmore’s 19 June 2019 email authorised mass production only of stubs and templates for five locations; it did not authorise tower production or waive tower prototype inspection.

The respondent’s 1 July email, stating that tower prototypes would be released for production that day and the next, further contradicted the finding that inspection had already been waived.

The arbitrator’s contrary finding therefore lacked evidentiary support, and the resulting conclusion that manufacturing clearance—and the stage for payment of the advance—had arisen was also unsustainable.

Separately, although the Court declined to reappraise the evidence supporting the finding that material had been manufactured, it held that the arbitrator had failed to consider Skipper’s assertion that the goods were similar to those for another JUSNL project when accepting that the goods were customised and had to be sold as scrap.

That omission concerned vital evidence and vitiated the scrap-based loss finding.

It allowed the appeal, set aside the arbitral award, and disposed of the pending applications.