Delhi High Court Restores Arbitral Award In Warehouse Fire Case Involving CWC–Indo Arya Logistics

The Delhi High Court on 10 March restored an arbitral award of Rs. 91,62,992 in a warehouse fire dispute between Central Warehousing Corporation and Indo Arya Logistics, holding that the Commercial Court had exceeded its limited powers by substituting its own view on negligence.

A Division Bench of Justice V. Kameswar Rao and Justice Manmeet Pritam Singh Arora observed that the arbitrator's inference (that Indo Arya Logistics was negligent) was a plausible view arising from the circumstances of the fire.

The Court held that under Section 34 of the Arbitration and Conciliation Act, 1996, the District Court could not interfere with an award unless the arbitrator's conclusion was contrary to public policy or patently illegal. It also reiterated:

“The mere fact that the cause of the accident is unknown does not prevent the plaintiff from recovering the damages… sometimes the fact that the accident occurred may itself constitute evidence of negligence."

Central Warehousing Corporation and Indo Arya Logistics had executed a warehousing agreement on 20 December 2006 for three godowns at Dadri. The latter was granted operational use of the godowns for storage.

On 18 December 2008, a major fire destroyed one of the warehouses along with goods stored inside. This included stock belonging to Pantaloon Retail India Ltd.

Central Warehousing Corporation reconstructed the damaged godown through a tender process and raised a demand of Rs. 69.8 lakh towards reconstruction costs along with storage charges. The dispute was referred to arbitration.

On 17 September 2018, the Arbitral Tribunal partly allowed the claims and awarded Rs. 69,80,229 towards reconstruction costs and Rs. 21,82,763 towards storage charges.

Indo Arya Logistics challenged the award before the Commercial Court under Section 34 of the Arbitration and Conciliation Act, 1996, which set aside the award in February 2024.

Aggrieved by the decision, Central Warehousing Corporation filed an appeal before the Delhi High Court under Section 37 of the Act. It argued that the Commercial Court re-appreciated evidence and ignored the arbitrator's findings that Indo Arya Logistics exercised operational control over the warehouse.

On the other hand, Indo Arya Logistics contended that negligence was never proved and the cause of the fire remained unknown.

The High Court examined the contract and noted that the arbitrator had relied on multiple clauses indicating that Indo Arya Logistics was responsible for maintaining the premises and electrical fittings and had operational control of the godown.

Although the agreement contained a “joint locking” clause, the arbitrator interpreted the contract holistically and concluded that Indo Arya Logistics had exclusive operational control, while Central Warehousing Corporation retained only a limited inspection right.

The Court held that the arbitrator's interpretation was reasonable and supported by the contractual framework. It also criticised the Commercial Court for questioning whether safety measures were installed when that issue was never raised during arbitration. The Bench observed:

“It is not understood as to how the learned District Judge concluded that the appellant had failed to prove that it had installed all necessary safety measures… Even otherwise, it was not the case of Indo Arya Logistics before the Arbitrator that such measures were not provided.”

The Court emphasised that a court exercising jurisdiction under Section 34 does not sit as an appellate authority and cannot re-appreciate evidence merely because another view is possible. Further, it noted that the Commercial Court incorrectly applied principles of burden of proof while interfering with the award. It held:

“It is erroneous for the learned District Judge to rely upon Sections 101 and 3 of the Evidence Act… to conclude that the Arbitrator could not have decided the issue on the basis of res ipsa loquitur.”

Accordingly, the High Court held that the Arbitral Tribunal had taken a legally sustainable and plausible view of the evidence and allowed Central Warehousing Corporation's appeal.

Appearances for Central Warehousing Corporation: Advocates K. K. Tyagi, Iftekhar Ahmad and Garima Tyagi.

Appearances for Indo Arya Logistics: Senior Advocate Dayan Krishnan with Advocates Parminder Singh, Ankit Banati, Aryanshu Vaibhav Gautam, Sukrit Seth and Radhika Yadav.