Failure to adjudicate core contractual disputes or provide intelligible reasons constitutes patent illegality under Section 34.

The Respondent-company issued a Purchase Order (PO) to the Appellant on 10.06.2008 for energy-efficient tubelights, stipulating a four-month delivery period

The PO included Clause 8 (penalty for late delivery) and Clause 11 (requirement of sample approval before supply)

Due to repeated sample rejections and delays in technical certifications, the goods were supplied in July/August 2009, over a year later

The Respondent deducted a penalty of Rs. 2,48,715 and adjusted Rs. 2,16,140 from the bank guarantee for defects

The Appellant initiated proceedings before the MSME Facilitation Council (Respondent No. 2), claiming the delay was attributable to the Respondent's late approval of samples

The Council, acting as an Arbitral Tribunal under Section 18(3) of the MSMED Act, awarded interest to the Appellant on 29.07.2016

The Commercial Court set aside this award under Section 34 of the Arbitration and Conciliation Act, 1996 ("the Act") on 10.07.2019, holding it to be unreasoned

The Appellant challenged this order under Section 37 of the Act.

Whether the Arbitral Award was vitiated by "patent illegality" for failing to adjudicate upon the contractual penalty clauses and for being a non-speaking award

Whether the Commercial Court exceeded its jurisdiction under Section 34 of the Act by interfering with the findings of the Arbitral Tribunal

Whether a dispute initiated under the MSMED Act survives after an award is set aside, allowing for a remand to the Facilitation Council

The court primarily applied Section 34(2A) of the Arbitration and Conciliation Act, 1996 (as amended in 2015), which permits setting aside a domestic award on the ground of "patent illegality appearing on the face of the record"

It relied on Ssangyong Engineering & Construction Co. Ltd. v. NHAI, which clarified that an award ignoring vital evidence or contract terms is patently illegal

Under Section 31(3) of the Act, an award must state the reasons upon which it is based unless otherwise agreed by the parties

The court further referenced Dyna Technologies Pvt Ltd v. Crompton Greaves Ltd. regarding the requirement for intelligible and reasoned awards

The court referenced Gujarat State Civil Supplies Corporation Ltd. v. Mahakali Foods Pvt. Ltd. regarding the statutory nature of MSMED arbitrations

The High Court observed that the core dispute was not merely a claim for unpaid dues but the legality of the penalty deductions made under Clause 8 of the PO

The Arbitral Tribunal failed to determine whether the delay was attributable to the Appellant or the Respondent and failed to analyze the effect of the sample approval process on delivery obligations

The court found the award to be "non-speaking" as it jumped from a recitation of facts to a conclusion without a reasoned analysis of the contract or the Respondent’s defense

Such an omission constitutes "patent illegality" under Section 34(2A) because it ignores the fundamental terms of the contract

The court rejected the Appellant's argument that the Commercial Court acted as an appellate forum, noting that the set-aside was based on the failure to adjudicate the core issue rather than a re-appreciation of evidence

Recognizing that the dispute arose from a statutory framework (MSMED Act), the court held that the underlying claim did not extinguish upon the award being set aside

The court remitted the dispute back to the Uttarakhand Micro and Small Enterprises Facilitation Council for fresh adjudication

The Council was directed to specifically examine the contractual provisions on delayed delivery and the justification of the penalty within three months

No order was made as to costs