Court finds arbitral tribunal's unequal evidence appraisal and grant of full refund beyond contract terms violates Sale of Goods Act and contract warranty provisions.
In a significant judgment dated October 19, 2026, the Bombay High Court, presided over by Mr. Arun R. Pedneker, J., set aside the arbitral award in the dispute between M/s. Forech India Limited (Petitioner) and JSW Jaigarh Port Limited (Respondent) relating to the supply of EP conveyor belts. The arbitration had originally directed the supplier to pay a refund of the entire purchase price of the belts, minus bank guarantees encashed by the buyer, along with interest. However, upon challenge under Section 34 of the Arbitration and Conciliation Act, 1996, the Court found the award to suffer from patent illegality and contrary to statutory law.
The dispute arose from two purchase orders in 2011 for supply of EP conveyor belts by Forech India to JSW Jaigarh Port. The belts, supplied after joint inspection, were installed but defects such as waviness and air pockets appeared on portions of the belts within the warranty period. The buyer replaced some portions of the belts and encashed performance bank guarantees due to the alleged defects. The arbitrator found the belts defective and awarded a refund of the entire purchase price, rejecting the supplier's counter-claims.
The Court's detailed analysis revealed several critical errors in the arbitral award. Firstly, the tribunal had unequally appreciated the evidence by discarding all technical evidence from the supplier's witnesses solely because they were in-house personnel, while accepting the buyer's in-house witnesses' evidence. This wholesale rejection of one party's evidence without composite scrutiny violated the equal treatment mandate under Sections 18 and 34(2A) of the Arbitration Act and amounted to patent illegality.
Secondly, the tribunal traveled beyond the contract terms by granting refund of the entire belt value. The warranty clause in the contract limited the supplier's liability to free replacement or repair of defective parts within the warranty period, not an outright refund of the entire purchase price. The Court noted that only 860 meters of the total 3490 meters supplied were replaced, with 2630 meters of belts continuing in use. There was no evidence that the buyer replaced the entire belts by procuring from other suppliers. Once goods are accepted and used after inspection, any breach becomes one of warranty under Sections 12, 13, and 59(2) of the Sale of Goods Act, 1930, and the remedy lies in damages as per Section 73 of the Indian Contract Act, not repudiation or full refund.
Thirdly, the Court observed that the arbitrator ignored material evidence such as joint inspection reports and test certificates proving conformity of the belts to the prescribed technical standards (IS 1891 and IS 11592). The tribunal's failure to engage with this evidence and its contradictory findings amounted to perversity and patent illegality.
The Court also addressed technical aspects regarding the conveyor system's operating speed and troughing angle, which the supplier argued caused the defects. The arbitrator correctly found no satisfactory evidence that the system parameters alone caused the defects. Further, the supplier's technical witnesses were competent to testify on these matters despite being in-house and not specialized conveyor experts.
In conclusion, the Bombay High Court set aside the arbitral award on grounds of patent illegality for ignoring vital evidence, unequal treatment of parties in evidence appreciation, and exceeding contractual warranty limits. The Court remitted the matter for fresh arbitration, allowing the parties to rely on the existing evidence and any additional material.
This judgment underscores the limited scope of judicial interference under Section 34 of the Arbitration Act, permitting setting aside awards only when there is a contravention of substantive law, contract terms, or patent illegality that shocks the conscience of the Court. It also clarifies that where goods are accepted and partially used, the buyer's remedy is restricted to breach of warranty claims rather than repudiation or full refund.
Bottom Line:
Arbitration, Section 34 - Arbitral award set aside for patent illegality where tribunal unequally appreciated evidence, ignored material evidence regarding operation of conveyor system, granted refund of entire purchase price without proof of replacement of entire goods, and travelled beyond warranty clause - After acceptance and use of goods, dispute amounted to breach of warranty under Sections 12, 13 and 59(2) of Sale of Goods Act, 1930 and damages had to be assessed under Section 73 of Contract Act.
Statutory provision(s): Arbitration and Conciliation Act, 1996 Section 34, 18, 34(2A); Sale of Goods Act, 1930 Sections 12, 13, 59(2); Indian Contract Act, 1872 Section 73
M/s. Forech India Limited v. JSW Jaigarh Port Limited, (Bombay) : Law Finder Doc Id # 3000518
