M/s. Forech India Limited vs JSW Jaigarh Port Limited

Heard learned counsel appearing for the parties and perused the records.

By the present Petition under Section 34 of the Arbitration and Conciliation Act, 1996 (“the Act”), the Petitioner challenges the Arbitral Award dated 12^th August, 2015 passed by the Arbitral Tribunal in a reference made by this Court in Arbitration Application No. 132 of 2013, whereby the Arbitral Tribunal has directed the Petitioner to pay the Respondent/Claimant a sum of Rs. 2,16,44,423/- (Rupees Two Crores, Sixteen Lakhs, Forty-four Thousand, Four Hundred and Twenty-three) together with the interest at the rate of 12% per annum (from the date of claim till payment of the entire contract value (minus) the value of performance Bank Guarantee), which was encashed by the Respondent/Claimant.

Learned Arbitral Tribunal by the impugned Award has also rejected the Petitioner’s counter-claim of Rs. 20,40,180/-, the claim towards encashment of the performance Bank Guarantee furnished by the Petitioner to the Respondent/Claimant and the damages.

The brief facts giving rise to the Petition are that, in the year 2011, the Respondent/Claimant issued an enquiry letter with respect to supply of EP Belts for its coal handling system at Jaigarh Port, along with the technical specifications.

The Petitioner engaged in the business of EP Belt manufacturing, submitted its offer for supply of EP Belts to the Respondent/Claimant.

Pursuant to further negotiations between the parties, the Respondent/Claimant issued a Letter of Intent dated 19^th July, 2011 to the Petitioner for manufacture and supply of EP conveyor Belts (EP Belts), in accordance with the technical specifications and scope set out in Annexure-I to the Letter of Intent.

Pursuant to the Letter of Intent, the said two Purchase Orders were placed by the Respondent/Claimant with the Petitioner. In terms of the contract between the parties, EP Belts were supplied under two Purchase Orders; first Purchase Order dated 21^st July, 2011 and second Purchase Order dated 19^th August, 2011.

The details of Purchase Orders are set out herein below :-

The Petitioner also furnished performance Bank Guarantee dated 29^th September, 2011 for Rs. 12,00,180/-, valid upto 14^th April, 2013 qua the first Purchase Order and a performance Bank Guarantee dated 9^th December, 2011 for Rs. 8,40,000/- valid upto 30^th May, 2013 for the second Purchase Order.

Prior to dispatch of EP Belts on 21^st September, 2011 and 22^nd September, 2011, joint inspection of EP Belts was conducted by the representatives of Petitioner and Respondent/Claimant at the site of Petitioner. Thereafter, the items under Purchase Orders were dispatched.

On 17^th October, 2011, certain objections were raised vide letter by the Respondent/Claimant, which are noted below :-

On 21^st October, 2011, Mr. I. P. Singh, Manager (Technical) of the Petitioner, visited the site of Respondent/Claimant at Jaigarh Port and observed that the alleged defects were superficial, noting that they generally occurred with higher width belts and would not adversely affects the performance of the belt during operation. Thereafter, the Respondent/Claimant proceeded with installation of the said belts on their Conveyor System.

On 2^nd November, 2011, a meeting took place between Mr. I. P. Singh, representing the Petitioner’s side and Mr. Jigshu Shah, Assistant General Manager of the Respondent/Claimant, wherein the Petitioner provided clarifications regarding the waviness and use of 3 plies instead of 4 plies on the edge.

On 11^th April, 2012, a portion of EP Belt of apprximately 260 metres installed on R2A conveyor, was replaced by the Claimant, as it had developed air pockets stretching across 260 metres length and spanning width of about 100 mm along the bottom side of the belt.

On 15^th May, 2012, the Respondent/Claimant sent an e-mail to the Petitioner stating that they have not received any replacement belt. The Petitioner was called upon to replace 800 metres of the belts, which they alleged to be defective.

On 30^th September, 2012 and 1^st October, 2012, the belting installed on R2A conveyor developed similar defects and resulted in the replacement of 150 metres length within the warranty period.

On 4^th October, 2012, the Respondent/Claimant sent an e-mail to the Petitioner stating that the problem had developed on the entire length of 800/4 rating belting and that the alleged defects had extended to the R2A Conveyor System, on which the said rating belt had been installed by the Petitioner. On 23^rd October, 2012, both the performance Bank Guarantees furnished by the Petitioner were encashed by the Respondent/Claimant. Thereafter on 24^th December, 2012, the Respondent/Claimant issued an arbitration notice to the Petitioner in connection with the disputes that had arisen between the parties. Thereafter an arbitral application was filed, this Court appointed an Arbitrator and the Arbitrator passed an Arbitral Award on 12^th August, 2015.

Challenging the Arbitral Award, Mr. Sharan Jagtiani, learned senior counsel for the Petitioner submits that the Arbitral Award is patently contrary to the contract between the parties, which form the basis of incorrect finding of manufacturing defects.

Learned senior counsel for the Petitioner submits that the Petitioner was required to supply the conveyor belt of IS 1891 to be used on conveyor system of technical parameters and specifications of Indian Standard (IS) 11592. The contract required the Petitioner to manufacture and supply belting, which would adhered to standards provided in IS 1891 for the use and operation on a Conveyor System that would be operated in accordance with IS 11592.

Learned senior counsel for the Petitioner submits that the Arbitrator has awarded the cost of entire conveyor belt, even though only 150 metres of 800/4 rating belting and 710 metres of 1250/4 rating belting were replaced. The cost paid was awarded on the entire belting although there was no evidence that the entire belt was replaced or that another belting system was purchased by the Respondent/Claimant. There is no evidence for finding that the Respondent/Claimant replaced the belts by placing orders with other suppliers.

Learned senior counsel for the Petitioner submits that the Arbitral Award ignores vital evidence in arriving at the finding that the belting did not conform to technical specifications of the Conveyor System. The contract between the parties required the Petitioner to manufacture conveyor belts as per the technical specifications provided by the Respondent, i.e. for a Conveyor System that would operate as per the provisions of IS 11592, and not as would function on the actual Conveyor System of the Respondent, the details of which were not known to the Petitioner until 2^nd May, 2012. The Arbitral Tribunal has arrived at a finding in para 29 of the Arbitral Award that the Petitioner has not led any evidence to show that the belting supplied by it meets the technical specifications specified by the Respondent/Claimant. The Arbitral Tribunal has observed that there was no satisfactory evidence that the belts supplied by the Petitioner meet the technical specifications specified by the Respondent, the following vital, admitted documents were ignored :

Learned senior counsel for the Petitioner submits the Arbitral Award has applied different and unequal standards in considering the evidence led by witnesses of the Petitioner. In para 25 of the Arbitral Award, the Arbitral Tribunal has disregarded the evidence of the Petitioner’s witnesses on maximum speed of belting under IS 11592 on the criteria that both witnesses are in-house witnesses. On the contrary, in para 21 of the Arbitral Award, the Arbitral Tribunal has placed reliance on oral evidence of the Respondent’s witness Mr. Yeshwant Vaman Dhond, also an in-house witness, to conclude that the Respondent’s Conveyor System did not transgressed any of the parameters prescribed by IS 11592. The Learned Arbitral Tribunal has on the one hand disregarded the oral evidence of the Petitioner’s witnesses on account of being in-house witnesses while on the other hand it has heavily relied upon the oral evidence of the Respondent’s witnesses, who were also in-house witnesses (CW-1 Mr. Vaman Yeshwant Dhond was DGM Operation & Maintenance of the Respondent organisation and CW-2 Mr. Babu Reddy was General Manager (Commercial) of the Respondent organisation).

Learned senior counsel for the Petitioner submits the Arbitral Tribunal has on the one hand, disregarded the oral evidence of the Petitioner’s witness Mr. Bhattacharya (RW-2), on account of him not being an expert in Conveyor Systems, while on the other hand, the Arbitral Tribunal has relied upon the oral evidence of the Respondent’s witness (CW-1) Mr. Dhond in relation to the Respondent’s Conveyor System allegedly operating in accordance with IS 11592, despite the said witness also not being an expert in Conveyor Systems. The Arbitral Tribunal has disregarded the evidence of the Petitioner’s witness Mr. Bhattacharya (RW-2), merely on the ground that he is engaged in the manufacture of conveyor belts and is not an expert in Conveyor Systems, while entirely ignoring the crucial fact that it goes to the root of the matter that his dealing with the manufacture of conveyor belts is intended for the use in Conveyor System. Although the Arbitral Tribunal noted in paragraph 18 of the Arbitral Award that the Petitioner has also led the oral evidence of Mr. Krishan Agarwal, Director of the Petitioner (RW-1), the Arbitral Tribunal has entirely disregarded the evidence of the said witness of the Petitioner, despite he being an Industrial Engineer by qualification having ample experience in the field of conveyor belt manufacturing.

Learned senior counsel for the Petitioner submits that there is no evidence on finding that the Respondent replaced the belts by placing orders with other suppliers or that any loss was caused to the Respondent. In para 30 of the Arbitral Award, the Arbitral Tribunal has recorded a finding that : “The Claimant had to replace the belts supplied by the Respondent by placing orders with other suppliers.”

The said finding is contrary to the Respondent’s own case. In respect of the 150 metres of 800/4 rating belting replaced between 30^th September, 2012 and 1^st October, 2012, the Respondent’s witness has stated in his oral evidence that the said length of 150 metres was replaced by removing belting from a different installation/conveyor of the Respondent. In respect of a length of 710 metres of 1250/4 rating belting that was replaced by the Respondent, it is nowhere the case or claim of the Respondent that this length of belting was replaced by procuring belting from other suppliers. Furthermore, the Respondent has produced no evidence whatsoever (documentary or oral) in support of a case that it has sourced belting from other suppliers for replacing belting supplied by the Petitioner. No evidence has been led in support of the finding in the impugned Arbitral Award that the Respondent had replaced the belting by placing orders with other suppliers.

It is submitted that the total value on the purchase, (minus) the value of encashed Bank Guarantee was directed to be paid to the claimant along with the interest. It is submitted that even assuming that the belts supplied by the Petitioner developed manufacturing defects, compensation should have been limited only to the specific portion that developed defects and required replacement, rather than of entire belt.

The chart provided hereinbelow for reference as to the length of belts replaced :-Sr. Quantity Particulars No. (Length) 1. Length of 800/4 rating belting supplied 690 metres 2. Length of 1250/4 rating belting supplied 2800 metres (A) TOTAL LENGTH OF BELTING SUPPLIED 3490 metres 3. Length of 800/4 rating belting replaced by the Respondent 150 metres 4. Length of 1250/4 rating belting replaced by the Respondent 710 metres TOTAL LENGTH OF BELTING ALLEGEDLY REPLACED BY (B) 860 metres THE RESPONDENT LENGTH OF BELTING SUPPLIED BY THE PETITIONER (C) WHICH THE RESPONDENT HAS NOT REPLACED ON 2630 metres ACCOUNT OF ALLEGED DEFECTS 3490 − 860 = Calculation : (A) − (B) = (C) 2630 metres

It was an admitted position before the Arbitrator that the selective portion/length of the belting can be cut out and replaced if the defects are found and that the entire length of the belting supplied does not need to be replaced.

It is also submitted that the Petitioner had supplied belts of different lengths. It is further submitted that although the Respondent/Claimant made a claim for the replacement of entire belting, the warranty obligation of the Petitioner in respect of the belting supplied was limited to the free replacement/free repair of portion, which could be defective or unserviceable.

Even if assuming that the belts have developed defects, the best case scenario of Respondent’s claim for replacement of the belting is the cost of the specific portion of belting supplied by the Petitioner, which the Respondent claims to have replaced.

Learned senior counsel for the Petitioner has relied upon judgments, which are noted below :-

Per contra, Mr. Karl Tamboly, learned counsel for the Respondent/Claimant submits that the Arbitrator is the final authority to decide the matter on facts and based on the documentary and oral evidence placed on record. The Arbitral Tribunal concluded that the belts supplied by the Petitioner were defective and has awarded the entire cost of the belts and has refused the claim of loss and profits, as no evidence was provided for the same. Learned counsel submits that the Arbitral Award does not suffer from any patent illegalities, nor is it in conflict with the Public Policy of India, as per provisions of the Arbitration and Conciliation Act, 1996.

Learned counsel for the Respondent/Claimant submits that the Petitioner seeks to review and revisit the merits of dispute, which has clearly been arbitrated and adjudicated and that the Petition is, therefore, liable to be dismissed at the very threshold. The defects pointed out, were inherent defects in the belts and existed even prior to the installation of the belting. The Petitioner has admitted that the defects were observed even prior to the installation of the belting and the belting was only installed subject to the warranties, without any conditions or restrictions, embodied in the Purchase Order and Letter of Intent. Under the said warranty, the Petitioner was legally bound to replace the entire defective belting and/or refund the purchase price, especially since the entire belting was replaced due to the frequent defects and stoppage within the warranty period, as averred in the statement of claim and duly considered by the Arbitrator in granting the refund of the entire purchase price.

Learned counsel for the Respondent/Claimant submits that the Respondent/Claimant had invited tenders for the design, installation and supply of the belting subject to the specifications of the system and the Petitioner had done so without any reservations or restrictions at the time of supply and installation of the belting for the Respondent/Claimant, as per the design of its conveyor belting system. The Respondent/Claimant submits that the Claimant is well within its right under the contract to seek a refund of the entire purchase price of the defective belting and that the Arbitrator rightly granted such relief under the Arbitral Award. On merits of the claim, even Letter of Intent clearly provides in clause @ 8 (Limit of liability) that the liability shall be a maximum of 100% of the contract price. Further clause 16 of the Purchase Order also provides that the liability shall be limited to 100% of the total contract price. Thus, Arbitrator has not erred in holding that the Petitioner would be liable for the aggregate value of the belting, in view of the facts stated above, after deducting the value under the Bank Guarantees encashed by the Respondent/Claimant.

It is submitted that on 21^st October, 2011, Mr. I. P. Singh, Petitioner’s Representative visited the site at Jaigarh Port, where he noticed that the belts had defects and had developed waviness. However, he alleged that the defects were merely superficial and assured Respondent/Claimant that the defect would have no effect on the belts performance during the operation. He further assured the Respondent/Claimant that the belts would perform satisfactorily with full guarantee for agreed life of the belting, as stipulated in the Purchase Order. It was admitted by the Petitioner that only 3 plies were visible over the length of 70 mm at the end of 800/4 rating belting roll. In any event, the Respondent/Claimant was covered by the warranty, without any specific exclusions, for the entire life of the belt. Further the technical specifications given by the Respondent/Claimant, set out the defects, which are noted below :-

It is submitted that the total belt length of 1200 metres was installed on the conveyor R2A in the month of October 2011. In April 2012, the Respondent/Claimant noticed that in total length of 260 metres, there were air pockets, each measuring of the width of 100 mm of length on the bottom side of the belt. This length of 260 metres of air pockets were cut and replaced by the Respondent/Claimant. The Respondent/Claimant by its e-mail of 11^th April, 2012 informed the Petitioner about the defect in the belt supplied by it. Photographs of defective belts were also attached to the e-mail. The Respondent/Claimant further also requested the Petitioner to replace the defective belt, which was covered under the warranty and also depute the representative to study the problem. The Petitioner had sent Mr. I.P. Singh on two occasions for inspection of the belting and he has not disputed the fact of waviness and air pockets. The Petitioner sought to explain away this defect of waviness saying that it does not affect the performance and by wrongly putting the blame on the Respondent/Claimant that it is operating the Conveyor System at a speed of over 3 metres per second (“m/s”) and having troughing angle of 45 degrees on the belting.

It is further submitted that the Petitioner vide e-mail dated 15^th May,2012 has clearly admitted that there was defect in the belting (development of air pocket in 1250/4 rating belting though it wrongly sought to blame the speed of the Respondent/Claimant’s Conveyor System and its troughing angle of 45 degrees).The Petitioner attempted to misguide the Respondent by recommending the steel cord belting for speeds of conveyor higher than 3.5 m/s. The Petitioner has made an attempt to shift the entire blame on the Respondent/Claimant for the reasons that have resulted in defects in belting. The Petitioner admittedly refused to replace its defective belting. The Claimant has denied that 150 metres 800/4 rating belting referred to by the Claimant by its e-mail of October 2011 formed part of 220 metres 800/4 rating belting referred to by the Claimant’s e-mail dated 4^th October, 2012.

It is also submitted that the Arbitral Tribunal considered the contents of IS 1891 (Part-I) and IS 11592 in comprehensive detail, assessed evidence given by the parties and rightly concluded in paragraph 25 of the Award that Conveyor System was being operated in accordance with the specifications prescribed under IS 11592 (providing for speed of 4.5 m/s and troughing angle of 45 degrees considering the material used by the Respondent/Claimant). It is submitted that the Arbitral Tribunal also saw through the Petitioner’s feeble attempts to “cherry pick” data from the standards in question to suit its own ends and has considered the standards holistically. It is submitted that this clearly shows that the Petitioner is blowing hot and cold on the issue of selection of conveyor belting in accordance with IS 11592, merely to absolve itself of its warranty obligation under the warranty for supply of defective belting. It is submitted that the Arbitral Tribunal duly considered IS 1891, IS 11592 and also the Purchase Orders and the warranty clause therein, as the foundation for grant of the Arbitral Award.

Learned counsel for the Respondent/Claimant has relied upon various judgments, which are noted below :-

Upon considering the rival submissions and perusal of the records in detail, the following questions arise for consideration before this Court :-

The relevant law on interference of Arbitral Award under Section 34 of the Arbitration and Conciliation Act, 1996 is noticed below :-

On perusal of the Arbitral Award, it is seen that the Arbitrator has formulated the following questions for determination in the claim and counter-claim, which are noted below :-

The claimant has led oral evidence of Mr. Babu Reddy, General Manager-Commercial of the Claimant (CW-1) and of Mr. Vaman Yeshwant Dhond, Deputy General Manager-Operation and Maintenance (CW-2).

The Respondent/Claimant has led oral evidence of Mr. Krishan Aggarwal, Director of the Respondent (RW-1) and Dr. Timir Baran Bhattacharya, Vice President-Works of the Respondent/Claimant (RW-2).

The Arbitral Tribunal at paragraphs 19 and 20 of its Arbitral Award has noted the undisputed factual aspects and thereafter at paragraph 21 discussed the evidence of Mr. Dhond (CW-2) and at paragraph 22, the contentions of present Petitioner (Respondent before the Arbitrator) are noted. At paragraph 23, the Arbitrator has discussed about IS 11592 of Conveyor Systems and at paragraph 24, the Arbitrator has discussed about the standard treaties on material handling by Ishwar and Mulani, where the recommended maximum belt speed for belts of width 1800 and above is upto 5 m/s. At paragraph 25, the Arbitral Tribunal holds that from a mere perusal of IS 11592, it is not possible to come to the conclusion that the claimant’s conveyor belt system was wrongly designed for the speed of 4.5 m/s without any evidence to this effect of an expert in designing of conveyors or Conveyor Systems and the necessary inputs required under IS 11592 to arrive at the speed limit and the same is the case with troughing angle of 45 degrees. IS 11592 does not say that in no case should the speed exceed 3 or 3.5 m/s or the troughing angle cannot be 45 degrees.

The Arbitral Tribunal has observed that the evidence of Petitioner in this regard does not inspire confidence. Both the witnesses are in-house witnesses and that Dr. Bhattacharya (RW-2) has stated that under his supervision, the Respondent’s Technical Team studied minutely the design parameters of the claimant’s Conveyor System. However, RW-2 is not an expert in this area. He deals with manufacture of conveyor belts. The Respondent knew that it was supplying conveyor belts for the claimant’s conveyor belt system, which was already in operation. It is thought that the speed and troughing angle were important for the functioning of its belts, it should have so informed the claimant and taken care to ascertain the same before supplying the belts.

The Arbitral Tribunal has held that it has no satisfactory evidence before it to come to the conclusion that the speed of 4.5 m/s and/or troughing angle of 45 degree alone were responsible or were at all responsible for the air pockets which developed in the conveyor belts supplied by the Respondent and which resulted in failure of the belts and their replacement. In respect of waviness, the defect was seen at the time of installation itself and hence, cannot be attributed to the speed or the troughing angle of the conveyor belt system. Apart from the bare words of the Respondent, there is no evidence to show that this waviness as well as noticing only 3 plies at the edge at the time of installation were merely superficial defects and would not affect the functioning of the Conveyor belt. Anyway, the Conveyor belt in question also developed air pockets after some use. To the knowledge of the Respondent, the belts supplied by them had to be replaced by the Claimant with spare belts or other belts to keep the Conveyor System functioning.

The Arbitral Tribunal has observed that the defects in question were found within the warranty period. The defects must be attributed to inherent defects in the belts manufactured and supplied by the Respondent. The Respondent is bound and liable, under the terms of the Contract, to replace the belts. The Respondent has, however, refused to do so. It did offer partial replacement at a price set out by it which the Claimant declined. The Letter of Intent as well as the Purchase Orders pursuant to the Letter of Intent are clearly for supply of Conveyor belts for the claimant's Conveyor Belt System at Jaigarh Port. The claimant has given technical specifications required at the time of placing the order for the belts. The Respondent has not led any satisfactory evidence to show that the belts supplied by them meet the technical specifications specified by the claimant.

It is further observed that the claimant had to replace the belts supplied by the Petitioner by placing orders with other suppliers. In the premises, the claimant was justified in invoking the Bank Guarantees and therefore, entitled to recover from the Petitioner, the amount paid by it to the Petitioner for the belts.

On perusal of the records, it is seen that there is no evidence whatsoever, that the Respondent/Claimant has purchased new conveyor belts, for replacing the belts supplied by the Petitioner within the warrant period or even thereafter, rather the evidence indicates that the Respondent/Claimant used the belts supplied by the Petitioner by making replacement on portion of belts.

From perusal of IS 11592 specification document, it is apparent that the speed of the Conveyor System can be 4.5 m/s, if the other factors are supportive. In the instant case, considering the material used, the lump size abrasive factor and air bone factor as provided under IS 11592, the maximum speed works out to 3 m/s. The conveyor belt system being used at 4.5 m/s, which could also be partially responsible for the defects seen in the belts.

The evidence, however given in this regard, has been rejected on two counts :-

The witnesses of Petitioner, who are the technical persons, involved in manufacturing and sale of conveyor belts. The belts supplied are to be used on Conveyor System. The Petitioner was called upon to supply conveyor belts meeting the specification of utilisation of the belt on a Conveyor System of IS 11592. The belts so produced were in terms of the Letter of Intent meeting the specification of IS 11592. If IS 11592 itself provides that the lump size abrasive factor, etc. determines the maximum speed at which the system is required to be operated and for the material conveyed on the claimants Conveyor System with the specified lump size and other factors as observed later in this judgment, the speed works out to be 3 m/s. Admittedly by the e-mail dated 2^nd May, 2012, the report submitted by the Respondent/Claimant also provides that they have been using the machine at 4.5 m/s and the lump size and the abrasive factors are also provided in the report.

IS 11592 Conveyor System provided various charts for input and corresponding speed and the same can be understood by a technical person, who operates the Conveyor Systems. In the instant case, an Industrial Engineer, who is in business of manufacturing and supplying of conveyor belts with sufficient knowledge of Conveyor Systems, has given evidence.

IS 11592 specifications for conveyor belt system provides as under :-Clause 7 provides for ‘Conveyor Design Procedure’. Clause 7.2 provides that the known maximum lump size of the material can be found from Table 3 taking into account the classification of material as given in Clause 7.3.1. Table 3 provides for ‘Maximum Lump Sizes in Relation to Belt Width (Clause 7.2)’. In the instant case, the width of belt is 1800. The lump size used is given in the e-mail and inspection report of the Respondent/Claimant dated 2^nd May, 2012. Clause 7.4 provides for speed, which is noted below :-

Table 4 provides for ‘Lump Size Factor’, Table 5 provides for ‘Abrasiveness Factor’ and Table 6 provides for ‘Maximum Recommended Belt Speeds (meter per second)’.

Considering the lump size, the abrasive factor of the material used and lump size as provided in the report including conveyor specifications, submitted by the Mr. Vaman Dhond, Respondent/Claimant by e-mail dated 2^nd May, 2012 (at page nos. 234 and 235 of the Compilation of Documents-Volume-2), the maximum permissible Conveyor System speed works out at 3 m/s.

In the instant case, it is an admitted position that the speed of Conveyor System was 4.5 m/s. The arguments canvassed by the Claimant is that if the Conveyor System operates at this speed, i.e. 4.5 m/s, it was a duty of the present Petitioner to make a belt compliable to the speed of Conveyor System. However, the Purchase Order was for the conveyor belt of IS 11592.

The Arbitral Tribunal has rejected the evidence of Petitioner on the ground that the witnesses are in-house witnesses and they are not expert witnesses for Conveyor Systems. The evidence required is not of an specialized expert in the instant case. Speed depends on input and the witnesses of Petitioner are technical persons/industrial engineers and the witnesses were competent to depose in this regard. Merely being the in-house witnesses, is not sufficient to discard the evidence of Petitioner’s witnesses.

The Arbitral Tribunal has also held that the Petitioner has failed to produce any evidence that the conveyor belts supplied by the Petitioner met the specifications of the Purchase Orders. The belts were accepted after inspection. Some defects were noticed at the stage of installation and some while usage. But, the Inspection Reports do not indicate that the entire conveyor belts supplied were defective and thus replaced.

The question before the Arbitral Tribunal was, ‘Whether the conveyor belt supplied by the Petitioner met the requirement of the Purchase Orders, which in turn specified the IS 11592?’ and secondly, the issue was ‘Whether the defects observed were on account of operation of Conveyor System or on account of the inherent defects in the conveyor belt or both ?’ The defect in conveyor belt was inherent defect or the speed of the Conveyor Sytem was contributory factor, could have only been ascertained after considering the evidence of claimant and also the Petitioner’s evidence. This wholesome rejection of the Petitioner’s evidence would fall foul as the law laid down in the judgment in the cases of Associate Builders (supra) and Ssangyong Engineering and Construction Company Limited (supra). The wholesome rejection of one party’s evidence, while accepting evidence the claimant, whose witnesses were also in-house, without composite scrutiny shows one sided appreciation. The Arbitral Tribunal has not engaged with the evidence of the Petitioner. This is also in violation of the provisions of the Arbitration and Conciliation Act, 1996 and the law laid in the case of Dyna Technologies Private Limited (supra).

In the instant case, the goods, i.e. the conveyor belt is accepted by the Respondent/Claimant after inspection. Further defect of waviness was noticed while installing on some portion of the belt. Certain defects were noticed while usage. The Respondent/Claimant has continued to use the conveyor belt with replacement of defective portion of the belt.

The total quantity of belts supplied of 800/4 rating is 690 metres and 1250/4 rating is of 2800 metres and total replaced quantity of belts is 860 metres from the total supplied belts of 3490 metres. There is no evidence that the remaining belts of 2630 metres were replaced.

The present case would fall in breach of warranty and not of condition of sale as contemplated under Sections 12 and 13 of the Sale of Goods Act, 1930. There is no rejection of the belt outright or even, later when the defects are noticed. There is absolutely no evidence that the belts were replaced. The conveyor belts are used for the entire warranty period with replacements of parts at certain portions. This becomes a claim for breach of warranty under Section 59(2) of the Sale of Goods Act, 1930 and the damage, to be ascertain as provided under Section 73 of the Indian Contract Act, 1872.

Sections 12, 13 and 59(2) of the Sale of Goods Act, 1930 and Section 73 of the Indian Contract Act, 1872 are quoted below for ready reference :-

The Petitioner cannot set up defence of extinction of the price without returning the goods. The usage of goods by the claimant and not returning the goods, would amount to waiving of contract condition under Section 13 of the Sale of Goods Act, 1930 and the breach can be claimed under the warranty. The warranty clause is provided in the Purchase Orders as Clause 15. The same is noted below for ready reference :-

In the instant case before accepting the belts, admittedly at the Petitioner’s site, a joint inspection was carried out of the belts and the Purchase Orders were accepted. Later on during installation, certain waviness was noticed on the portion of belts and on further usage of belts, defects were noticed in the portion of belts as observed above.

Warranty is of free replacement/free repair of any part(s), which could be defective or unseviceable within the stipulated period. There is no evidence of entire conveyor belts being defective of replaced in the warranty period and thus, it was necessary to restrict the claim to the warranty clause. In the instant case, there is no proof of loss of profit, for the losses suffered due to defective belts, as such the Arbitral Tribunal has not granted claim towards the loss of profits.

The Hon’ble Supreme Court in the case of Sepco Electric Power Construction Corporation v/s. GMR Kamalanga Energy Ltd.^{3232.(2026)2 Supreme Court Cases 542.}, has observed with regard to the power of Arbitrator with reference to the clauses of contract as such :-

In the instant case, the Arbitral Award suffers from “Patent Illegality” as it discards evidence of Petitioner as being in-house and not being of expert, while accepting similarly placed evidence of Claimant’s witness and thus violates Section 18 of the Arbitration and Conciliation Act, 1996. Its the specific case of the Claimant that they have purchased the entire belt from other sources and there is no evidence placed on record of purchase or replacement of entire belt thus, the Arbitral Award contravenes the contract i.e. the warranty clause. The award also contravenes the substantial law of India as it violates the provisions of Sections 12, 13 and 59(2) of the Sale of Goods Act, 1930 and thus suffers from patent illegality, in view of the law laid down in the case of MMTC Limited (supra), which is quoted below for reference :-

In view of the above, it is not possible for this Court to accept the submission of Respondent/Claimant that the Arbitral Award is a reasonable one and merely grants the cost price of the defective conveyor belts. For the reasons noted above, the Arbitral Award suffers from patent illegality, and is set aside. Accordingly, the Arbitral Award pased in the counter-claim is also set aside. The Arbitration Petition is disposed of with remedy as is available in law.

In the event, the parties apply again for appointment of Arbitrator, the evidence in the present proceedings may also be used in addition to any other evidence, the Arbitrator may permit.