Bombay High Court Sets Aside Arbitral Award for Patent Illegality and Departure from Contractual Warranty

Forech India challenged a 2015 arbitral award directing it to pay JSW Jaigarh Port ₹2,16,44,423 with 12% interest for defective conveyor belts and rejecting its counter-claims. The High Court examined the narrow scope of Section 34 review but found patent illegality where the tribunal treated similarly situated evidence unequally, departed from the contractual warranty framework and awarded the entire value of the belting without evidence of complete replacement. The Court also found conflict with Sections 12, 13 and 59(2) of the Sale of Goods Act, 1930. Holding that these defects went beyond a mere alternative view of the merits, the Court set aside the arbitral award and the award on the counter-claim (Paras 41–70).

Key Proposition: An arbitral award may be set aside under Section 34 for patent illegality where the tribunal ignores vital evidence, violates equal treatment, travels beyond the contractual warranty and contravenes substantive statutory law; Section 34 does not permit routine merits review, but it does permit correction of such root-level illegality.

• Arbitration and Conciliation Act, 1996 – Section 34(2A) – patent illegality – Held, an award infected by root-level illegality may be set aside (Paras 41–70).
• Arbitration and Conciliation Act, 1996 – Section 18 – equal treatment – Held, unequal treatment of materially similar evidence contributed to patent illegality (Para 69).
• Sale of Goods Act, 1930 – Sections 12, 13 and 59(2) – Held, the award conflicted with substantive law and contractual warranty (Para 69).

Background / Synopsis :

• JSW Jaigarh Port sought EP conveyor belts for its coal-handling system in 2011.
• Forech India supplied the belts under a Letter of Intent dated 19 July 2011 and Purchase Orders dated 21 July and 19 August 2011.
• Defects including air pockets and waviness were later noticed and portions were replaced.
• The tribunal awarded JSW ₹2,16,44,423 with 12% interest and rejected Forech’s counter-claim of ₹20,40,180 and other claims.
• Forech challenged the award under Section 34.

Issues For Consideration :

• Whether the tribunal exceeded the contractual warranty.
• Whether Section 18 equal treatment was violated.
• Whether the award suffered patent illegality under Section 34.
• Whether the challenge improperly sought re-appreciation of merits.

Submissions Of Parties :

Petitioner / Forech India:

• The tribunal allegedly granted relief beyond the warranty for defective parts.
• There was insufficient evidence that the entire belt was purchased/replaced from other sources.
• Forech argued that its evidence was rejected while comparable claimant evidence was accepted.
• It relied on the Sale of Goods Act and patent illegality under Section 34.

Respondent / JSW Jaigarh Port:

• JSW said the defects were inherent and within the warranty period.
• It argued Forech was bound to replace defective belting or refund the purchase price.
• It relied on the 100% contractual liability cap
• It argued that Forech was attempting an impermissible merits review.

Court's Observations & Analysis :

Re: Scope of Section 34

• The Court does not sit as an appellate court over an arbitral award.
• Patent illegality permits intervention where the defect goes to the root; ordinary alternative views do not.
• Held: Section 34 permits limited intervention for root-level patent illegality.

Re: Equal treatment of evidence

• The tribunal rejected Forech’s in-house witnesses as non-experts while accepting comparable claimant evidence.
• The Court found the evidentiary treatment insufficiently consistent.
• Held: The evidentiary approach contributed to patent illegality under Section 18.

Re: Contractual warranty

• The contractual documents contained a warranty framework and liability limitation.
• The tribunal effectively awarded the entire belting value without sufficient evidence of complete replacement.
• An arbitrator must remain within the contract.
• Held: The award departed from the contractual warranty framework.

Re: Sale of Goods Act

• The Court considered Sections 12, 13 and 59(2).
• The statutory conflict was treated as substantive patent illegality, not merely an alternative interpretation.
• Held: The award suffered patent illegality on the face of the record.

Notable Observations: The Court distinguished ordinary inadequacy of reasons from an unintelligible or perverse award warranting Section 34 intervention.

Decision & Directions :

• The arbitral award directing payment of ₹2,16,44,423 with interest was set aside.
• The award on the counter-claim was also set aside.
• The Arbitration Petition was disposed of with remedy available in law.
• If the parties seek appointment of another arbitrator, evidence from the present proceedings may also be used, subject to further evidence permitted by the arbitrator.
• Legal Provisions Discussed & Precedents Cited :
• Arbitration and Conciliation Act, 1996 – Section 18 – equal treatment.
• Arbitration and Conciliation Act, 1996 – Section 28(3) – decision according to contract.
• Arbitration and Conciliation Act, 1996 – Section 31(3) – reasons in award.
• Arbitration and Conciliation Act, 1996 – Section 34 – challenge to award.
• Arbitration and Conciliation Act, 1996 – Section 34(2)(b)(ii) – public policy.
• Arbitration and Conciliation Act, 1996 – Section 34(2A) – patent illegality.
• Sale of Goods Act, 1930 – Sections 12, 13 and 59(2).
• Associate Builders v. Delhi Development Authority, (2015) 3 SCC 49 – relied on.
• Ssangyong Engineering and Construction Co. Ltd. v. NHAI – relied on.
• Dyna Technologies Pvt. Ltd. v. Crompton Greaves Ltd. – relied on.
• MMTC Ltd. v. Vedanta Ltd. – relied on.
• Associated Engineering Co. v. Government of Andhra Pradesh, (1991) 4 SCC 93 – referred to