The High Court of Delhi has set aside an arbitral award of approximately ₹8.15 crore granted in favour of M/S Skipper Limited against Flowmore Limited , concluding that the arbitrator’s findings regarding prototype inspection and manufacturing clearance were fundamentally unsupported by the evidence on record . A Division Bench comprising Justice Avneesh Jhingan and Justice Shail Jain observed that the arbitral tribunal had arrived at conclusions—specifically regarding an alleged waiver of prototype inspection for tower structures—that ignored vital evidence and lacked any evidentiary basis , thus amounting to patent illegality under the Arbitration and Conciliation Act, 1996 .

The dispute stemmed from a purchase order issued by Flowmore Limited to Skipper Limited for the manufacture and supply of structural material intended for a project undertaken by the Jharkhand Urja Sancharan Nigam Limited (JUSNL) . The project encompassed a wide range of fabricated and hot-dip galvanised tower parts, stubs, and templates. Following the issuance of the purchase order in March 2019 , operational difficulties arose concerning the timely submission and approval of technical drawings, leading to a breakdown in the contractual relationship.

The central point of contention in the proceedings revolved around whether Flowmore Limited had provided the necessary manufacturing clearances and whether it had waived the mandatory requirement for prototype inspection for the transmission towers. The arbitrator had initially found that the appellant, Flowmore Limited , had granted a waiver for prototype inspection through its email correspondence, which in turn permitted mass production and established a liability for the advance payments.

In its appeal before the High Court, the Division Bench conducted a meticulous examination of the communication trail between the parties. The Court noted that while Flowmore Limited had indeed granted a "go-ahead" for the mass production of stubs and templates for five specific transmission line locations, this authorisation did not extend to the tower structures themselves. The judges emphasised that the arbitrator’s conclusion was not merely a matter of evidence appreciation but a significant misconstruction of the correspondence provided in the records.

"The language of the email dated 19.06.2019 is clear that a ‘go-ahead’ for mass production of stubs and templates for five locations was given and stamps and signatures were provided to start mass production of stubs and templates only and not of towers," the Court recorded in its judgment.

The Bench further highlighted that the arbitrator’s findings contained internal contradictions. The tribunal had correctly identified that mass production could not logically commence without a manufacturing clearance , which in turn was predicated upon a successful prototype inspection and the receipt of an advance payment. However, by concluding that the prototype inspection for towers was waived despite evidence to the contrary—including emails from Skipper Limited indicating that the prototypes were still under production—the arbitrator adopted a view that the High Court deemed "irrational."

Examining The Limits Of Appellate Intervention

The respondent, Skipper Limited, had argued that the High Court, in its capacity as an appellate body under Section 37 of the Arbitration Act , should refrain from re-appreciating evidence . Counsel for the respondent leaned on established precedents to suggest that a " plausible view " taken by an arbitrator, even if erroneous in its application of law, does not meet the threshold for patent illegality . However, the Division Bench clarified that the scope of judicial review under the Arbitration Act , while limited, specifically permits interference when an award is found to be perverse or based on " no evidence ."

The High Court drew support from the legal principle established by the Supreme Court , which dictates that an award becomes susceptible to being set aside if it ignores vital evidence or if no reasonable person would have arrived at the same conclusion based on the same facts. The Court noted: “A ‘finding’ based on no evidence at all or an award which ignores vital evidence in arriving at its decision would be perverse and liable to be set aside under the head of ‘ patent illegality ’.”

The Bench pointed out that the arbitrator’s reliance on proforma invoices as proof that the goods were fully manufactured and ready for delivery was problematic. Specifically, the Court noted that the arbitrator failed to reconcile the respondent’s contradictory stances: in one instance, claiming the goods were custom-manufactured for Flowmore Limited and therefore required mitigation by selling as scrap, and in another, claiming the goods were interchangeable with other projects and thus required no further prototype inspection .

Procedural Context And Final Order

The legal battle had undergone an extensive procedural history, including a previous remand by a Division Bench and a subsequent intervention by the Supreme Court , which directed the Delhi High Court to adjudicate the appeal on its own merits rather than remanding the matter back to the Single Judge. This restoration ensured that the Division Bench focused squarely on the sustainability of the arbitral award based on the material available at the time of the dispute.

Throughout the arbitration, the respondent had claimed a total of over ₹11.68 crore, covering the principal value of manufactured goods, interest, and losses stemming from the cancellation of the purchase order. The appellant, Flowmore Limited , had filed a substantial counter-claim of over ₹26.45 crore, citing losses due to penalties charged by the JUSNL project owners and other operational damages caused by the failure to perform contractual obligations . The arbitrator had dismissed the counter-claim while partially allowing the respondent's claim.

By setting aside the award, the High Court has effectively nullified the financial liability imposed upon Flowmore Limited . The Court’s decision underscores the necessity for arbitral tribunals to ensure that their findings are firmly rooted in the evidence presented during the proceedings, particularly when interpreting contractual waivers or "go-aheads" in complex industrial manufacturing agreements. The ruling serves as a reminder that while the judiciary is cautious about disturbing arbitral awards, it will not remain a silent spectator when the underlying logic of a decision contradicts the foundational facts of the agreement between the parties. The appeal filed by Flowmore Limited was thus allowed, with all pending applications disposed of accordingly.