Safiya Malik

The High Court of Bombay Single Bench of Justice R.I. Chagla has set aside an arbitral award in a commercial dispute concerning shipments of packaging material supplied to Zimbabwe. Deciding a petition under Section 34 of the Arbitration and Conciliation Act, 1996, the Court held that the arbitral tribunal committed errors that “shocked the conscience of the Court” and rendered the award in conflict with the public policy of India. The tribunal had disregarded contemporaneous laboratory reports confirming compliance with international standards and instead relied on hearsay expert testimony to declare the consignments defective. Declaring such reliance unsustainable, the Court quashed the award and permitted the supplier to withdraw amounts deposited in court after a period of four weeks.

The dispute arose from a series of transactions between the petitioner and the respondent concerning the supply of packaging materials. The petitioner raised Invoice No. 35 dated 18th October 2012 on the respondent for USD 78,101.85 for 18,555.450 kilograms of goods. Subsequently, on 20th December 2012, the petitioner issued Proforma Invoice No. AP/A004/2012-23 for USD 87,000.50, though the goods under this proforma invoice were never dispatched.

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On 21st January 2013, the respondent received materials under Invoice No. 35 in Zimbabwe (First Shipment). Thereafter, on 1st February 2013, the petitioner raised Invoice No. 53 for USD 70,996.88 concerning 17,307.762 kilograms of goods. On 11th February 2013, the respondent’s managing director informed the petitioner’s representative via Skype that the first shipment was defective. Correspondence followed, during which the respondent invited the petitioner’s representative to Zimbabwe to examine the material. The petitioner’s manager, however, could not travel due to passport revalidation requirements.

On 25th March 2013, at the respondent’s request, the petitioner obtained a report from SGS India, an international laboratory, which concluded that the samples tested complied with German codes and EU regulations for food-contact materials. The respondent also obtained a separate SGS India report, which confirmed similar compliance. The arbitral award incorrectly recorded that this report was obtained by the petitioner. The respondent later procured a report from SGS Germany on 18th June 2013, which noted odour issues, though it included observations about packaging components not supplied by the petitioner.

The respondent issued a legal notice dated 11th July 2013 seeking a refund of USD 165,102.10 and additional costs of USD 13,045.70. The petitioner responded on 25th July 2013, denying liability and seeking payment of the balance amounts under Invoice No. 53 and the proforma invoice.

Following the appointment of an arbitrator on 10th November 2014 under Section 11 of the Arbitration Act, pleadings were completed between February 2015 and June 2018. The respondent sought refund, reimbursement of charges, and costs, while the petitioner filed a counterclaim seeking dismissal of the respondent’s claim and recovery of USD 27,996 and USD 41,079 respectively.

During arbitration, both parties led evidence from two witnesses each. The respondent’s expert witness (CW-2) submitted a report in 2016 attributing the odour to Dichloroanisole, allegedly absorbed by plastic. The arbitrator issued the award on 2nd December 2019, allowing the respondent’s claims (except for reimbursement of expenses) and rejecting the petitioner’s counterclaim. The arbitrator found the packaging defective and held the petitioner in breach of contract.

The petitioner challenged the award under Section 34, contending that the arbitrator erroneously disregarded the SGS India reports, relied upon hearsay evidence from CW-2, and misallocated the burden of proof. The petitioner argued that such errors violated natural justice and shocked the conscience of the Court. Reliance was placed on precedents including Associate Builders v. DDA, Ssangyong Engineering & Construction v. NHAI, Dyna Technology Pvt. Ltd. v. Crompton Greaves Ltd., and Delhi Airport Metro Express Pvt. Ltd. v. DMRC.

The respondent opposed the petition, arguing that the grounds raised were not maintainable as they fell under patent illegality, which is not available for challenge to a domestic award in international commercial arbitration under Section 34(2A). The respondent also argued that the SGS India reports had not been admitted by them, and that evidence of document contents without examining the author constituted hearsay.

Justice R.I. Chagla observed that the arbitral tribunal had erred in rejecting the SGS India reports and relying on hearsay evidence. The Court recorded: “The learned Arbitrator has by placing reliance upon the Report of Respondent’s Expert Witness (CW-2), relied upon hearsay evidence as the deposition of CW-2 is ex-facie based upon hearsay evidence.” The Court noted that CW-2’s deposition was based on what he was told by staff members in 2016 about goods received in 2013, without corroborating staff testimony.

The Court further observed: “The learned Arbitrator has himself found in Paragraph 9 of the impugned Award that both the SGS India Reports were produced by the Respondent in its compilation of documents. In fact, during the admission and denial of documents, the Petitioner had admitted both the SGS India Reports as to their existence as well as contents.” Despite this, the tribunal rejected the reports and held there was no documentary evidence to decide the core issue.

On the SGS Germany report, the Court stated: “The report noted that ‘possibly benzaldehyde from the inner white plastic tray (odour) or a contamination of the food during the production process (off-flavour appears to be stronger than the smell).’ This finding is in relation to the inner white plastic tray which had not been supplied by the Petitioner but was procured directly by the Respondent.”

The Court further recorded: “The learned Arbitrator by rejecting the most objective and contemporaneous evidence produced by the parties i.e. the SGS India Reports, and relying on the expert evidence (CW-2) produced by the Respondent which was evidently not within the knowledge of CW-2 and thereafter faulting the Petitioner for not cross-examining the CW-2 on hearsay evidence, shocks the conscience of this Court.”

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The Court concluded that the arbitral award conflicted with the public policy of India, stating: “In view of these findings, the impugned Award has shocked the conscience of Court and accordingly is in conflict with public policy of India and is required to be set aside under Section 34(2)(b)(ii) of the Arbitration Act.”

Justice Chagla directed: “The Commercial Arbitration Petition is allowed by setting aside the impugned Award dated 2nd December, 2019 passed by the learned Arbitrator.” The petition was disposed of with no order as to costs.

“The learned Counsel for the Respondent has accordingly applied for stay on the withdrawal of the deposit by the Petitioner in view of the impugned Award being set aside. Having considered the application for stay, the Petitioner is permitted to withdraw the deposited amount after a period of four weeks from today.”

Advocates Representing the Parties

For the Petitioners: Mr. Mustafa Doctor, Senior Advocate a/w Ms. Spenta Havewala, Mr. Aashdin Chivalwala, Ms. Aditi Prabhu and Mr. Pratik Dave i/b Desai Desai Carrimjee and Mulla

For the Respondents: Mr. Shrinivas Deshmukh a/w Mr. Sunilkumar Neelambaran, Mr. Jeyhaan Carnac and Mr. Aaron Kevin Fernandes i/b Mulla & Mulla & Craigie Blunt & Caroe

Case Title: Aakash Packaging v. Arenel (Private) Limited

Neutral Citation: 2025: BHC-OS:14540

Case Number: Commercial Arbitration Petition No. 349 of 2020

Bench: Justice R.I. Chagla