1. Dispute concerning a manufacturing contract for conveyor belts, where the buyer alleged manufacturing defects and the seller contended that the system operation parameters were outside standard technical specifications. (Para 4 , 5 , 6 , 7 , 8 , 9 , 10 , 11 , 14 , 15 , 16 , 17 )
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2026 Supreme(Online)(Bom) 5067
IN THE HIGH COURT OF JUDICATURE AT BOMBAY
Arun R. Pedneker, J
Forech India Limited – Appellant
Versus
Jsw Jaigarh Port Limited – Respondent
ARBITRATION PETITION NO. 1775 OF 2015
Important Points
An arbitral award is patently illegal if it ignores vital evidence, treats similarly placed witnesses unequally, or grants relief (full refund) exceeding the specific contractual warranty (partial replacement) without evidence of total replacement, thereby contravening the contract and substantive law.
Subject
Civil - Arbitration
Act Referred
Headnote
(A) Arbitration Law - Patent Illegality - Perversity - Wholesome rejection of one party's evidence on the ground of being in-house witnesses, while accepting similarly placed evidence of the other party, constitutes a one-sided appreciation of evidence and amounts to patent illegality. (Para 60)
(B) Contract Law - Warranty Clause - Scope of Liability - Where the contract specifically provides for free replacement or repair of defective parts, awarding the cost of the entire system without evidence of total replacement is beyond the terms of the contract and patently illegal. (Para 67, 69)
(C) Sale of Goods Act - Condition vs. Warranty - Acceptance of Goods - When goods are accepted and used by the buyer, a breach of condition is treated as a breach of warranty, limiting the remedy to damages for the defective portion rather than a full refund of the purchase price. (Para 63, 64)
Issues: Whether the Arbitral Award suffers from patent illegality by ignoring vital evidence, treating witnesses unequally, and granting relief exceeding the contractual warranty limits.
Result: Arbitral Award set aside.
(B) Contract Law - Warranty Clause - Scope of Liability - Where the contract specifically provides for free replacement or repair of defective parts, awarding the cost of the entire system without evidence of total replacement is beyond the terms of the contract and patently illegal. (Para 67, 69)
(C) Sale of Goods Act - Condition vs. Warranty - Acceptance of Goods - When goods are accepted and used by the buyer, a breach of condition is treated as a breach of warranty, limiting the remedy to damages for the defective portion rather than a full refund of the purchase price. (Para 63, 64)
Issues: Whether the Arbitral Award suffers from patent illegality by ignoring vital evidence, treating witnesses unequally, and granting relief exceeding the contractual warranty limits.
Result: Arbitral Award set aside.
Legal Category Hierarchy
Advocates:
For the Appellants/Petitioners: Sharan Jagtiani, Jyoti A. Singh, Sankalpita Mullick, Sakil Ansari, Ritwik Kulkarni
For the Respondents: Karl Tamboly, Arup Pereira, Huzefa Nasikwala, Freddy Daruwala, Idris Balasinorwala, Farzana Rine
For the Appellants/Petitioners: Sharan Jagtiani, Jyoti A. Singh, Sankalpita Mullick, Sakil Ansari, Ritwik Kulkarni
For the Respondents: Karl Tamboly, Arup Pereira, Huzefa Nasikwala, Freddy Daruwala, Idris Balasinorwala, Farzana Rine
Table of Contents
2. The petitioner challenged the arbitral award as contrary to the contract and evidence, while the respondent claimed the award was well-reasoned and based on the petitioner's delivery of defective goods. (Para 18 , 19 , 20 , 21 , 22 , 23 , 24 , 25 , 32 , 33 , 34 , 37 , 38 )
3. The Arbitral Tribunal committed patent illegality by wholesale rejection of the petitioner's technical evidence while accepting identical evidence from the respondent, failing to engage with the primary technical documentation. (Para 46 , 47 , 48 , 52 , 53 , 54 , 58 , 60 )
4. Wholesale rejection of a party's evidence, coupled with a finding contrary to specific contractual clauses such as warranty limitations, constitutes patent illegality under Section 34 of the Arbitration Act. (Para 65 , 67 , 68 , 69 )
5. The arbitral award and the counter-claim award are set aside due to patent illegality, with liberty to the parties to seek fresh arbitration per law. (Para 70 , 71 )
6. What constitutes patent illegality in an arbitral award regarding evidence appreciation?
An award is patently illegal if it ignores vital evidence led by a party or adopts an irrational approach, such as blindly disregarding evidence of in-house technical witnesses while favoring similar evidence from the other party. (Para 41 , 60 , 69 )
7. Does a warranty clause for free replacement or repair automatically permit a claim for the total value of goods?
No, where the buyer continues to use the goods after discovering defects and there is no evidence of total replacement, the recovery is limited to the cost of repair or defective portions under the warranty, distinct from a full refund. (Para 63 , 65 , 67 )
8. Can an arbitral tribunal disregard technical evidence based solely on the witness's employment status?
No, it is perverse and contrary to a judicial approach to rely on the employment status (in-house) to exclude evidence, especially when the witnesses are technical experts competent to provide testimony on standard operational parameters. (Para 53 , 58 , 60 )
JUDGMENT :
1. Heard learned counsel appearing for the parties and perused the records.
2. By the present Petition under Section 34 of the Arbitration and Conciliation Act, 1996 (“the Act”), the Petitioner challenges the Arbitral Award dated 12th August, 2015 passed by the Arbitral Tribunal in a reference made by this Court in Arbitration Application No. 132 of 2013, whereby the Arbitral Tribunal has directed the Petitioner to pay the Respondent/Claimant a sum of Rs. 2,16,44,423/- (Rupees Two Crores, Sixteen Lakhs, Forty-four Thousand, Four Hundred and Twenty-three) together with the interest at the rate of 12% per annum (from the date of claim till payment of the entire contract value (minus) the value of performance Bank Guarantee), which was encashed by the Respondent/Claimant.
3. Learned Arbitral Tribunal by the impugned Award has also rejected the Petitioner’s counter-claim of Rs. 20,40,180/-, the claim towards encashment of the performance Bank Guarantee furnished by the Petitioner to the Respondent/Claimant and the damages.
4. The brief facts giving rise to the Petition are that, in the year 2011, the Respondent/Claimant issued an enquiry letter with respect to supply of EP Belts for its coal handling system at Jaigarh Port, along with the technical specifications.
5. The Petitioner engaged in the business of EP Belt manufacturing, submitted its offer for supply of EP Belts to the Respondent/Claimant.
6. Pursuant to further negotiations between the parties, the Respondent/Claimant issued a Letter of Intent dated 19th July, 2011 to the Petitioner for manufacture and supply of EP conveyor Belts (EP Belts), in accordance with the technical specifications and scope set out in Annexure-I to the Letter of Intent.
7. Pursuant to the Letter of Intent, the said two Purchase Orders were placed by the Respondent/Claimant with the Petitioner. In terms of the contract between the parties, EP Belts were supplied under two Purchase Orders; first Purchase Order dated 21st July, 2011 and second Purchase Order dated 19th August, 2011.
8. The details of Purchase Orders are set out herein below :-
9. The Petitioner also furnished performance Bank Guarantee dated 29th September, 2011 for Rs. 12,00,180/-, valid upto 14th April, 2013 qua the first Purchase Order and a performance Bank Guarantee dated 9th December, 2011 for Rs. 8,40,000/- valid upto30th May, 2013 for the second Purchase Order.
10. Prior to dispatch of EP Belts on 21st September, 2011 and 22nd September, 2011, joint inspection of EP Belts was conducted by the representatives of Petitioner and Respondent/Claimant at the site of Petitioner. Thereafter, the items under Purchase Orders were dispatched.
11. On 17th October, 2011, certain objections were raised vide letter by the Respondent/Claimant, which are noted below :-
i) During laying of 220 metres roll, waviness was noticed in ply in a width of about 400 mm and the wave form can be clearly seen on the belt surface. On other roll, these wave form is noticed at about 200 mm width
ii) On one of the roll at the edge of the belt for a width of about 70mm only three plies could be seen.Due to above facts, the Petitioner has to stop replacement of belting and only one belt having length of 220 metres has gone on installation.
12. On 21st October, 2011, Mr. I. P. Singh, Manager (Technical) of the Petitioner, visited the site of Respondent/Claimant at Jaigarh Port and observed that the alleged defects were superficial, noting that they generally occurred with higher width belts and would not adversely affects the performance of the belt during operation. Thereafter, the Respondent/Claimant proceeded with installation of the said belts on their Conveyor System.
13. On 2nd November, 2011, a meeting took place between Mr. I. P. Singh, representing the Petitioner’s side and Mr. Jigshu Shah, Assistant General Manager of the Respondent/Claimant, wherein the Petitioner provided clarifications regarding the waviness and use of 3 plies inst
