When Logic Fails: Bombay High Court Removes "Consolation Prize" from Arbitral Award

In a significant ruling regarding the limits of arbitral discretion, the Bombay High Court has reaffirmed that judicial intervention under Section 34 of the Arbitration and Conciliation Act, 1996, permits the excision of "perverse" components of an award. Justice Somasekhar Sundaresan clarified that clear, well-reasoned findings in an award need not be invalidated simply because a tribunal adds an irrational, non-contested financial component.

The Background: A Contention of Renewal

The dispute arose between Hersheys India Pvt. Ltd. and Kanti Beverages Pvt. Ltd. following the expiry of a contract manufacturing agreement in 2007. Kanti Beverages, alleging that it was a pioneer in PET hot-filling technology, contended that the contract had been extended by conduct until 2011. They sought compensation for alleged technology theft and breach of contract.

Hersheys maintained that the agreement was a standard "take or pay" arrangement that concluded naturally upon the expiry of its term, with no evidence of renewal or the existence of unique technology that required compensation.

Judicial Analysis: The Perversity of "Hope"

The arbitral tribunal initially performed a thorough analysis, explicitly rejecting Kanti’s claims, finding that there was no extension, no breach by Hersheys, and that the financial assistance provided was merely a "friendly loan." However, in a startling about-turn, the tribunal granted Kanti Rs. 75 lakhs as compensation for the "inconvenience" and the "implied expectation" of renewal generated by Hersheys' silence to emails.

The High Court found this addition inexplicable. Justice Sundaresan noted that if the tribunal had truly found a basis for an expectation of renewal, it would have legally followed that the contract was extended—a claim the tribunal itself had already rejected.

Key Observations

The High Court’s frustration with the tribunal's sudden inconsistency was palpable. Key excerpts include:

• "The component of the Impugned Award directing that an amount of Rs.75 lakhs be paid like a consolation prize or an ex gratia payment, flies in the teeth of the rest of the eminently plausible findings."
• "This component of the award is entirely unacceptable and shocks the conscience of the Court as to how the Learned Arbitral Tribunal could make a complete about-turn."
• "...if any offending portion of an arbitral award is capable of excision to remove the vulnerability of the award... the Section 34 Court could do so."

The Verdict: Partial Severability and Finality

Citing the Supreme Court’s recent decision in Gayatri Balasamy vs. M/s ISG Novasoft Technologies Limited (2025), the Bombay High Court confirmed that the offending Rs. 75 lakh grant could be excised without destroying the validity of the rest of the award.

By simply deleting this "consolation prize"—which lacked evidentiary basis or legal justification—the Court upheld the rest of the tribunal's findings. This ruling provides a clear precedent: arbitral tribunals must ensure their awards are consistent throughout. When they are not, the judiciary possesses the remedial power to excise the irrational "extra" without the need to scrap the entire proceeding, thereby ensuring the sanctity of the adversarial process remains intact.

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Court's Final Order: > "For the aforesaid reasons, with the modification of deleting the direction to pay Rs.75 lakhs to Kanti as “compensation” for having harboured hope for an implied commitment, the Impugned Award is not interfered with."