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2025 Supreme(Guj) 1644
IN THE HIGH COURT OF GUJARAT AT AHMEDABAD
SUNITA AGARWAL, CJ., D.N.RAY, J.
Shri Narmada Khand Udyog Sahakari Mandali Limited - Appellant
Versus
M/s Sumac International Limited - Respondent
First Appeal No. 2775 of 2024 With Civil Application (For Stay) No. 1 of 2024 In First Appeal No. 2775 Of 2024
Decided On : 11-06-2025
Advocate Appeared:
For the Appellant :Mr. Mihir Joshi, Sr. Advocate With Mr. Nisarg Desai, Advocate With Mr. Yash Dadhich, Advocate With Ms.Nitya Joshi, Advocate For Gandhi Law Associates
For the Respondent:Mr. R.K.Sinha, Advocate For Mr. Shreyang S. Vayeda And Mr Dhruv K.Dave
An arbitral award lacking intelligible reasoning and coherent logic violates standards of legality, rendering it subject to judicial setting aside.
Headnote:(A) Arbitration and Conciliation Act, 1996 - Section 34 - The court challenged an arbitral award claiming patent illegality and lack of evidentiary basis - The tribunal awarded various claims to the claimant despite findings against them. (Paras 1-10)
(B) Relevant contracts and claims - The parties entered a supplier agreement mandating timely delivery, which was breached by the opponent, prompting the invocation of bank guarantees. (Paras 2.1-2.6)
Facts of the case:
The appellant, a cooperative society, accused the respondent of failing to deliver machinery as per a supplier agreement. The arbitration tribunal awarded monetary reliefs to the respondent, leading the appellant to appeal.
Findings of Court:
The court determined the arbitral award was unintelligible and lacked coherent reasoning, leading to its set aside.
Issues: The main issues addressed revolved around breach of contract, the legitimacy of the arbitral award, and the competency of the tribunal's reasoning.
Ratio Decidendi: The court held that the arbitral award lacked proper reasoning and was thus invalid per the legal standards established, affirming that both parties shared responsibility.
Result: The award dated 17.12.2020 is hereby set aside.
ORDER :
(PER : HONOURABLE MR.JUSTICE D.N.RAY)
1. The Appellant, feeling aggrieved and dissatisfied with the judgment dated 01.03.2024 rendered by the Learned Additional District Judge, Narmada at Rajpipla in Civil Miscellaneous Applications Nos.10, 11, and 12 of 2021 (collectively referred to as the "impugned judgment"), whereby Civil Misc. Application No.11 of 2021, filed to challenge the arbitral award dated 17.12.2020, came to be dismissed, hereby prefers the present Appeal. The arbitral award in question, passed by the Learned Sole Arbitrator, had disallowed the counter claims advanced by the Appellant.
2. For the sake of convenience, Civil Miscellaneous Application No. 11 of 2021 is taken up as a lead application and thus the brief facts of the same are as follows:
2.1 The Applicant is a Cooperative Society engaged in the establishment of a sugar manufacturing unit at Dharikheda. The Opponent, M/s. Sumac International Ltd., is a company involved in the manufacturing and supply of machinery for sugar factories. In pursuance of setting up its first sugar plant, the Applicant issued a tender on 16.10.1990 for the supply and commissioning of the requisite machinery. The Opponent responded to the tender on 13.11.1990, and its offer was accepted by the Applicant. A formal contract titled the Supplier Agreement was executed on 29.12.1990, valuing the transaction at Rs. 16.60 crore. The Opponent undertook to supply, install, and commission the machinery within 18 months from the date of execution, i.e., by 28.06.1992. Time was expressly stipulated as being of the essence of the contract.
2.2 The Applicant disbursed an advance of Rs. 3.46 crore in four installments, against which the Opponent furnished four Bank Guarantees. As per Clause 15.1.3 of the Supplier Agreement, the advance was to be strictly utilized for procurement of equipment and fulfilment of contractual obligations. However, the Opponent failed to adhere to key terms of the Agreement, including timely delivery, erection, submission of progress reports, commissioning of diesel generators, and performance trials.
2.3 Due to the Opponent’s non-performance, the Applicant invoked the Bank Guarantees on 30.12.1991. The Opponent challenged this invocation before a civil court at Lucknow, but later withdrew the suit on 31.01.1992. Following this, the parties convened a meeting on 12.05.1992 and entered into a Supplementary Agreement on 15.10.1992, executed by a duly authorized representative of the Opponent and ratified by its Board. Despite agreeing to new terms, the Opponent failed to provide fresh Bank Guarantees and did not comply with revised obligations. Subsequently, on 29.03.1993, the Opponent informed the Applicant that failure to depute an authorized signatory by 31.03.1993 would result in automatic cancellation of the agreement. No representative appeared, and on the same day, the Applicant issued a notice of cancellation in accordance with Clause 7 of the Supplementary Agreement.
2.4 Thereafter, the Opponent initiated arbitration proceedings by filing an application under Section 20 of the ARBITRATION ACT , 1940, and also sought an injunction under Section 41 to restrain the encashment of Bank Guarantees. The application for interim relief was rejected by the Civil Court at Bharuch and the rejection was upheld successively by this Court and the Hon’ble Supreme Court. Consequently, the Applicant recovered Rs. 4.23 crore through encashment of the Bank Guarantees. The said arbitration matter was later transferred and renumbered, ultimately leading to the appointment of Justice (Retd.) C.K. Thakker as Sole Arbitrator by the Hon’ble Supreme Court. Parallelly, the Applicant filed a suit seeking damages for breach of contract. That suit, too, went through various transfers and was finally referred to the same Arbitral Tribunal by this Court under Section 8 of the Arbitration and Conciliation Act, 1996.
2.5 The Opponent filed its Statement of Claim, which was denied by the Ap
