1. Court’s decision
The Bombay High Court dismissed both cross-petitions filed under Section 34—one by a major IT corporation challenging the arbitral award in its entirety, and the other by its vendor challenging only a deduction component. The Court upheld the award directing payment of ₹96,20,515 plus 9% interest from 1 March 2016, along with ₹26,29,967 in costs, to the vendor. It held that the arbitrator’s findings were grounded in contractual terms, supported by extensive correspondence, and free from perversity or patent illegality. The Court emphasized that Section 34 does not permit reassessment of evidence or re-interpretation of commercial contracts merely because another view is possible.
2. Facts
The dispute arose from a Purchase Order dated 24 June 2013, under which the vendor was to supply 207 HP Proliant servers and 207 monitors worth ₹4.08 crore for a technology project undertaken by the IT corporation for the Department of Posts. Delivery was contractually due by 20 July 2013, but the corporation did not communicate delivery locations until four months later—and even then only for 8 of 207 units. The vendor objected to piecemeal billing, not delivery. Attempts by the vendor to reverse the servers to HP were repeatedly stalled because the corporation instructed it to wait for further delivery timelines. HP later refused to take the servers back, forcing the vendor to sell them to a third party at a discounted price.
3. Issues
The Court examined:
• Whether the arbitrator wrongly imported terms from an unrelated purchase order, thereby rewriting the contract;
• Whether the contract ended by efflux of time on 20 July 2013 due to non-delivery;
• Whether the vendor had actually procured the servers and was ready and willing to perform;
• Whether the vendor failed to mitigate loss or violated the Sale of Goods Act by not giving notice before sale;
• Whether deduction of ₹75,60,785 for support services was correct;
• Whether any part of the arbitral award suffered from patent illegality, perversity, or non-judicial approach under Section 34.
4. Petitioner’s arguments (IT corporation)
The corporation argued that the arbitrator committed patent illegality by relying on delivery terms from a different PO relating to a data-centre purchase, thus misinterpreting the parties’ bargain. It asserted that the subject PO expired with efflux of time, requiring no formal termination. It further contended that the vendor never procured the servers, relying on alleged inconsistencies in invoices, absence of warehousing proof, and failure to deliver eight units in 2013. The corporation also attacked the vendor’s mitigation efforts, calling the sale undervalued and in violation of Section 54(2) of the Sale of Goods Act for lack of notice. It argued that the award ignored material evidence and lacked judicial approach.
5. Respondent’s arguments (vendor)
The vendor defended the award, asserting that all of the corporation’s arguments were factual re-evaluations barred by Section 34. It emphasized that the contract expressly allowed delivery locations to be specified later, and that its objection was only to piecemeal billing. It highlighted the corporation’s repeated conduct—through months of emails—showing continued willingness to accept servers long after July 2013. The vendor argued that it procured user-specific servers, stored them, and later sold them only after HP refused reversal and the corporation stopped responding. It contended that deduction for support services was unwarranted because failure to deliver resulted solely from the corporation’s own defaults.
6. Analysis of the law
The Court reiterated that Section 34 review is confined to identifying perversity, patent illegality, or jurisdictional error. Interpretation of commercial contracts, assessment of evidence, and drawing factual inferences rest squarely within an arbitrator’s domain. The Court examined the purchase order terms and found no rewriting of the contract: the arbitrator merely relied on correspondence showing that delivery locations were never fully provided and that the corporation repeatedly delayed acceptance. Even though the arbitrator erred in assuming delivery was restricted to Navi Mumbai, the Court held this mistake to be inconsequential: it did not affect the central finding that the corporation never treated the contract as terminated and continued expressing willingness to accept delivery beyond the agreed date.
7. Precedent analysis
The judgment discusses several Supreme Court authorities:
• State of Chhattisgarh v. SAL Udyog — applied to underline when misinterpretation amounts to patent illegality, but distinguished because the arbitrator here did not rewrite the contract.
• Associate Builders v. DDA — cited for limits of Section 34 review; the Court held that no perversity existed in the award.
• Ssangyong Engineering, OPG Power, McDermott International — relied upon to reaffirm that arbitrators have exclusive authority on contractual construction and factual evaluation.
• Kanchan Udyog, PSA SICAL — cited by parties on mitigation and material evidence, but the Court found the arbitrator’s findings consistent with these principles.
Ultimately, the award was upheld because the arbitrator applied settled doctrine and the reasoning was plausible.
8. Court’s reasoning
The Court relied heavily on documentary correspondence: emails from October 2013 to June 2014 showed the corporation repeatedly requesting the vendor to hold the servers and promising fresh delivery dates after internal discussions and UAT testing. These communications conclusively refuted the claim that the contract expired in July 2013; the corporation acknowledged ongoing obligations and even urged HP to absorb the stock “to give us some relief,” implicitly admitting liability for the servers.
On breach, the Court held that the vendor had indeed procured the servers—HP itself confirmed dispatch pursuant to a firm PO. The corporation’s plea denying procurement was termed a volte-face contradicted by its own communications.
On mitigation, the Court held that the vendor acted reasonably: it sought reversal to HP, waited upon the corporation’s repeated assurances, and finally sold the servers after HP refused. Since the servers were customised and unsellable on the open market, the discounted sale price was not suspicious. Notice under Section 54(2) was unnecessary in these circumstances.
9. Conclusion
The Court concluded that the arbitral award reflected a balanced, judicial approach. The arbitrator properly found the corporation liable to compensate the vendor for the difference between the purchase-order value and sale proceeds, after deducting amounts recovered through monitor reversal. No aspect of the award was irrational or illegal. On the vendor’s cross-petition, the Court held that the arbitrator correctly deducted ₹75,60,785 because support services were never rendered, as delivery never occurred; the vendor could not claim payment for services it was never required to perform.
Accordingly, both petitions were dismissed, and the arbitral award was affirmed in full.
10. Implications
The ruling reinforces several commercial arbitration principles:
• A party cannot claim expiration of a contract when its own conduct prolongs and affirms contractual obligations.
• Section 34 cannot be used to re-argue facts, undermine reasonable inferences, or push afterthought defences.
• Emails and contemporaneous correspondence carry decisive evidentiary weight in large IT-procurement disputes.
• Vendors forced into distress sale of user-specific equipment may recover differential value if the buyer’s breach causes non-delivery.
• Cross-claims on support services must reflect actual performance; payment cannot be claimed for unrendered services.
This decision strengthens the pro-arbitration posture of commercial courts and signals that sophisticated IT procurement disputes will be adjudicated with strict deference to arbitral findings.
CASE LAW REFERENCES
• State of Chhattisgarh v. SAL Udyog — applied but distinguished; no contractual rewriting occurred.
• Indian Oil v. Shree Ganesh Petroleum — cited on contractual interpretation; found inapplicable here.
• Associate Builders v. DDA — limits of Section 34 confirmed.
• Ssangyong Engineering, OPG Power — reaffirming restraint in arbitral review.
• McDermott International — correspondence relevant for contractual construction; relied upon by the Court.
FAQ SECTION
1. Can an arbitral award be set aside if the arbitrator misinterprets contract terms?
Only if the misinterpretation amounts to patent illegality or rewriting of the contract. Here, even though the arbitrator referenced another PO, the High Court held the mistake was minor and did not affect core findings.
2. Does a purchase order expire automatically if goods are not delivered by the deadline?
Not when parties’ subsequent conduct shows continued willingness to perform. Emails demonstrated that the buyer repeatedly sought delivery after the deadline, preventing any claim of expiry by efflux of time.
3. Must a seller issue notice before selling goods to mitigate loss under the Sale of Goods Act?
Not in circumstances where the buyer’s own conduct makes notice unnecessary or futile. The Court held that the vendor’s sale was reasonable mitigation and that the buyer had no valid objection.
