Court Restores Claim for Non-Supply of Packaging Materials; Sets Aside Other Claims Due to Evidentiary Concerns and Fundamental Policy Breach
The Bombay High Court delivered a significant judgment in the case of Arenel (Private) Limited versus M/s. Aakash Packaging, wherein it partially upheld an arbitral award favoring Arenel, a Zimbabwe-based company. The court restored the claim for a refund of USD 43,500.25 due to non-supply of packaging materials, but set aside other parts of the award based on evidentiary and procedural discrepancies.
The judgment, delivered by Chief Justice Shree Chandrashekhar and Justice Gautam A. Ankhad, highlighted issues of fundamental justice and public policy under Section 34 of the Arbitration and Conciliation Act, 1996. Arenel, a manufacturer of biscuits and sweets, had engaged M/s. Aakash Packaging for the supply of packaging materials. The dispute arose over claims of defective materials and non-supply, leading to arbitration proceedings.
The arbitral tribunal initially ruled in favor of Arenel, awarding claims for defective materials and non-supply. However, M/s. Aakash Packaging challenged this award under Section 34, arguing that the tribunal had improperly assessed evidence and failed to adhere to fundamental procedural norms.
The High Court scrutinized the arbitral award, noting that the tribunal had erred by dismissing the evidentiary value of SGS India reports, which were contemporaneously obtained and critical in determining the quality of packaging materials. The court found that the tribunal's reliance on hearsay evidence from Arenel’s witnesses breached fundamental principles of justice and shocked the court's conscience.
The judgment emphasized that arbitration awards conflicting with public policy, including breaches of fundamental legal principles, are liable to be set aside. However, the court exercised its power to sever and uphold the valid portion of the award, restoring Arenel's claim for the non-supply of materials under the fifth invoice.
This ruling underscores the judiciary's role in balancing the enforcement of arbitral awards with adherence to fundamental legal standards, ensuring that justice is served without undermining the arbitration process.
Bottom Line:
International Commercial Arbitration - An arbitral award can be set aside if it shocks the conscience of the Court and is in conflict with the public policy of India, including breach of fundamental principles of justice.
Statutory provision(s):
Arbitration and Conciliation Act, 1996 - Section 34
Arenel (Private) Limited v. M/s. Aakash Packaging, (Bombay)(DB) : Law Finder Doc id # 2863885
