### HEARSAY EXPERT TESTIMONY CANNOT OVERRIDE CONTEMPORANEOUS LABORATORY REPORTS IN INTERNATIONAL COMMERCIAL ARBITRATION AWARDS Facts: The Appellant (a Zimbabwean company) sought a refund from the Respondent (an Indian firm) for allegedly defective food packaging materials that emitted a foul odour. An Arbitrator awarded the refund, relying heavily on the testimony of an expert witness (CW-2) who visited the site years later and reported what staff told him, while dismissing contemporaneous SGS India laboratory reports that found the samples within safety limits. The Respondent challenged this under Section 34 of the Arbitration and Conciliation Act, 1996. A Single Judge set aside the award as "shocking the conscience of the court." Issues: 1. Whether an award in an International Commercial Arbitration can be set aside for relying on hearsay evidence while ignoring objective contemporaneous documents. 2. Whether the "patent illegality" ground is available to challenge such awards post-2015 amendment. 3. Whether a claim for non-supply of goods (advance payment) can be severed from a dispute over defective quality. Ruling: The High Court partially allowed the appeal. It upheld the setting aside of the award regarding the "defective goods" claim, finding that the Arbitrator's reliance on hearsay evidence from an expert witness, while rejecting admitted laboratory reports (SGS India) without examining their authors, violated fundamental principles of justice and "shocked the conscience" of the Court. Such a breach qualifies as a violation of the "Public Policy of India" under Section 34(2)(b)(ii), which remains a valid ground for International Commercial Arbitrations. However, applying the Doctrine of Severability, the Court restored the award for USD 43,500.25—the amount paid for a fifth consignment that was never supplied. Since this claim was distinct, admitted, and unrelated to the quality dispute, it was legally separable from the tainted portions of the award. Key Takeaway: An arbitral award that ignores objective contemporaneous evidence in favor of hearsay expert testimony is perverse and violates the basic notions of justice; however, valid portions of an award remains enforceable if they are factually and legally severable.

The Appellant (a Zimbabwean company) contracted the Respondent (an Indian firm) for packaging materials.

While the first two consignments were satisfactory, the Appellant alleged that materials from the third and fourth invoices emitted a foul odour, rendering them unfit for food packaging.

The Appellant also paid USD 43,500.25 for a fifth invoice for which no goods were supplied.

Conflicting laboratory reports from SGS India (showing compliance) and SGS Germany (showing significant deviations/odour) were produced.

A Sole Arbitrator awarded the Appellant refund of payments, interest, and costs, rejecting the Respondent's counter-claims.

A Single Judge of the High Court set aside the entire Award under Section 34, holding that the Arbitrator relied on hearsay evidence (CW-2) and ignored contemporaneous evidence (SGS India reports).

The Appellant challenged this vacatur.

The Appellant (a Zimbabwean company) sought a refund from the Respondent (an Indian firm) for allegedly defective food packaging materials that emitted a foul odour.

An Arbitrator awarded the refund, relying heavily on the testimony of an expert witness (CW-2) who visited the site years later and reported what staff told him, while dismissing contemporaneous SGS India laboratory reports that found the samples within safety limits.

The Respondent challenged this under Section 34 of the Arbitration and Conciliation Act, 1996.

A Single Judge set aside the award as "shocking the conscience of the court."

1. Whether the Arbitral Award was liable to be set aside on the grounds of patent illegality and being in conflict with the public policy of India.

2. Whether the findings regarding the defective nature of the goods were based on inadmissible hearsay evidence and a reversal of the burden of proof.

3. Whether the claim for USD 43,500.25 (non-supply of goods) was severable from the dispute over defective quality.

1. Whether an award in an International Commercial Arbitration can be set aside for relying on hearsay evidence while ignoring objective contemporaneous documents.

2. Whether the "patent illegality" ground is available to challenge such awards post-2015 amendment.

3. Whether a claim for non-supply of goods (advance payment) can be severed from a dispute over defective quality.

The Court applied Section 34 of the Arbitration and Conciliation Act, 1996, specifically the grounds of "public policy" and "patent illegality" as interpreted in *Ssangyong Engineering & Construction Co. Ltd. v. NHAI*, which permits interference if an award shocks the conscience of the court or breaches fundamental principles of justice.

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

Furthermore, the court applied the doctrine of severability under the proviso to Section 34(2)(a)(iv), as recently expanded in *Gayatri Balasamy v. ISG Novasoft Technologies Ltd.*, allowing the court to preserve valid portions of an award while setting aside invalid ones.

Such a breach qualifies as a violation of the "Public Policy of India" under Section 34(2)(b)(ii), which remains a valid ground for International Commercial Arbitrations.

Applying the Doctrine of Severability, the Court restored the award for USD 43,500.25—the amount paid for a fifth consignment that was never supplied.

The Court found that the Arbitrator committed a "patent illegality" by reversing the burden of proof, requiring the Respondent to prove the goods were *not* defective rather than requiring the Claimant to prove they were.

The Arbitrator’s reliance on CW-2 was deemed flawed because CW-2’s testimony regarding the odour in 2013 was hearsay (based on staff statements made years later) and his expert reports were not authored by him.

Conversely, the SGS India reports (contemporaneous evidence) were wrongly discarded by the Arbitrator.

However, the Court noted that the claim for USD 43,500.25 pertained to a total failure of consideration (non-supply), which was undisputed and entirely distinct from the "odour" dispute.

Applying the principle of *omne majus continet in se minus*, the Court determined that this specific portion of the Award was valid and severable.

The High Court partially allowed the appeal.

It upheld the setting aside of the award regarding the "defective goods" claim, finding that the Arbitrator's reliance on hearsay evidence from an expert witness, while rejecting admitted laboratory reports (SGS India) without examining their authors, violated fundamental principles of justice and "shocked the conscience" of the Court.

Since this claim was distinct, admitted, and unrelated to the quality dispute, it was legally separable from the tainted portions of the award.

It upheld the Single Judge’s decision to set aside the findings regarding defective goods, as they contravened the fundamental policy of Indian law and suffered from patent illegality.

However, it modified the judgment to restore the Award in favor of the Appellant for the refund of USD 43,500.25 (relating to the non-supplied 5th invoice), holding this portion to be legally and practically separable from the tainted findings.

The rest of the Arbitral Award remains quashed.

The High Court partially allowed the appeal.

It upheld the setting aside of the award regarding the "defective goods" claim, finding that the Arbitrator's reliance on hearsay evidence from an expert witness, while rejecting admitted laboratory reports (SGS India) without examining their authors, violated fundamental principles of justice and "shocked the conscience" of the Court.

However, applying the Doctrine of Severability, the Court restored the award for USD 43,500.25—the amount paid for a fifth consignment that was never supplied.

An arbitral award that ignores objective contemporaneous evidence in favor of hearsay expert testimony is perverse and violates the basic notions of justice; however, valid portions of an award remains enforceable if they are factually and legally severable.