Case Note & Summary
The judgment concerns cross arbitration petitions under Section 34 of the Arbitration and Conciliation Act, 1996, challenging an arbitral award arising from a dealership agreement between NOD Bearings Pvt. Ltd. (petitioner in one petition) and M/s Bhairav Bearing Corporation (respondent in the other). The dealership agreement dated 26 July 2011 appointed Bhairav as a non-exclusive authorized dealer of Koyo bearings. Bhairav secured a purchase order from Central Railways for supply of bearings, but NOD allegedly failed to supply in time, leading to cancellation and forfeiture of Bhairav's deposit of Rs.1,53,972. Separately, Bhairav supplied bearings to South Central Railways, which were found to be spurious, leading to KBIL withdrawing its authorization and NOD terminating the dealership. Bhairav claimed damages for breach of contract and wrongful termination. The arbitrator awarded Bhairav damages of Rs.1,53,972 for the forfeited deposit and Rs.1,00,000 for loss of reputation, and held the termination invalid. NOD challenged the award on grounds of patent illegality and public policy. The court held that the arbitrator's finding on termination was patently illegal because the supply of spurious goods breached an implied warranty of genuineness, justifying termination. However, the award of damages for non-delivery was not perverse. The court set aside the award on the issue of termination and remitted the matter to the arbitrator for reconsideration of NOD's counterclaim for loss of reputation and adjustment of damages. The petitions were disposed of accordingly.
Headnote
A) Arbitration - Section 34 Petition - Public Policy - Patent Illegality - Arbitration and Conciliation Act, 1996, Section 34 - The court examined whether the arbitral award was vitiated by patent illegality or contrary to public policy. Held that the award's finding on termination being invalid was patently illegal as it ignored the implied warranty of genuineness in the dealership agreement, but the finding on damages for non-delivery was not perverse and required no interference (Paras 5-12). B) Contract Law - Implied Warranty - Breach of Contract - Termination - Dealership Agreement - The court held that in a dealership agreement for supply of branded goods, there is an implied warranty that the goods supplied are genuine. Supply of spurious goods constitutes a fundamental breach entitling termination. The arbitrator's finding that termination was invalid was patently illegal (Paras 7-9). C) Damages - Non-Delivery - Remission - Arbitration and Conciliation Act, 1996, Section 34 - The court found that the arbitrator's award of damages for non-delivery of bearings was based on evidence and not perverse. However, the award did not consider the petitioner's counterclaim for loss of reputation due to supply of spurious goods. The matter was remitted to the arbitrator for reconsideration of the counterclaim and adjustment of damages (Paras 10-12).
Issue of Consideration
Whether the arbitral award granting damages for breach of dealership agreement and holding termination invalid is contrary to public policy or suffers from patent illegality under Section 34 of the Arbitration and Conciliation Act, 1996.
Final Decision
The court partially set aside the arbitral award. The finding that termination was invalid was set aside as patently illegal. The matter was remitted to the sole arbitrator for reconsideration of the petitioner's counterclaim for loss of reputation and adjustment of damages awarded. The award on damages for non-delivery was upheld. Both petitions were disposed of accordingly.
Law Points
- Arbitration Act
- 1996
- Section 34
- Public Policy
- Patent Illegality
- Implied Warranty
- Breach of Contract
- Termination
- Damages
- Remission
