The Delhi High Court on 28 October set aside an arbitral award of Rs. 8.15 crore in favour of Skipper Limited against Flowmore Limited, finding that the arbitrator's conclusions on prototype inspection and manufacturing clearance were unsupported by the evidence on record.
A Division Bench comprising Justices Avneesh Jhingan and Shail Jain held that an arbitral award can be set aside where the arbitrator's findings suffer from patent illegality, even though the scope of appellate interference under Section 37 of the Arbitration and Conciliation Act, 1996, is limited. The judges held:
“The conclusion is on the basis that the appellant had granted mass production clearance for stubs, templates and towers and waived proto inspection. As discussed earlier there was neither a 'go-ahead' for mass production of towers nor the proto inspection of towers was waived.”
The dispute arose from a purchase order issued by Flowmore for fabricated and hot-dip galvanised tower parts and related items for a project of Jharkhand Urja Sancharan Nigam Limited (JUSNL).
Flowmore cancelled the purchase order following a dispute over prototype inspection and advance payment. The arbitrator subsequently awarded Rs. 8,15,05,674, along with interest, to Skipper while dismissing Flowmore's counterclaim.
The arbitrator held that mass production could not begin without manufacturing clearance, which was to be preceded by prototype inspection and payment of a 10% advance. Flowmore challenged the award before a single judge of the Delhi High Court, but the challenge was dismissed. It then appealed to the Division Bench.
The Court had to decide whether Flowmore had authorised mass production of the tower components or waived the requirement of prototype inspection for the towers.
Skipper argued that prototype inspection was to take place only after receipt of the advance payment. Since Flowmore had not paid the advance, there was no occasion to waive the prototype inspection requirement.
The Court examined the email correspondence between the parties and found that Flowmore's authorisation for mass production was limited to stubs and templates for five transmission line locations. It did not extend to the towers themselves.
The judges also considered an email dated 14 June 2019 in which Flowmore specifically sought inspection of the tower types, stubs and templates. Skipper's email correspondence indicated that the tower prototypes were yet to be produced. Therefore, they found no evidentiary basis for the arbitrator's conclusion that Flowmore had waived prototype inspection for the towers.
Lastly, the Bench reiterated that although the scope of interference under Section 37 of the Arbitration Act, is limited, an award may be set aside for patent illegality where the arbitrator's findings are based on no evidence or ignore vital evidence.
Relying on the Supreme Court's judgment in Delhi Metro Rail Corporation Ltd. v. Delhi Airport Metro Express Pvt. Ltd. (2024 INSC 292), it found that the arbitrator's conclusion that Flowmore had waived prototype inspection for the towers was unsupported by the record, as the correspondence showed that the tower prototypes were still under production.
Accordingly, the High Court set aside the arbitral award in favour of Skipper Limited.
For Appellant: Mr. Jayant Mehta, Sr. Adv. Mr. Arvind Nigam, Sr. Adv. With Ms. Pratishtha Vij, Adv.
For Respondent: Mr. Nikhil Nayyar, Sr. Adv. with Mr. Saurav Gupta and Ms. Sugandha Batra, Advs