Bombay HC: Arbitrators Cannot Travel Beyond Contractual Warranty Clauses While Awarding Compensation

Aadrikaa Legal Services (ALS)- Law I Litigation I Arbitration

Date: 23.10.2026

Bombay HC: Arbitrators Cannot Travel Beyond Contractual Warranty Clauses While Awarding Compensation

The Bombay High Court has set aside an arbitral award requiring Forech India Limited to refund JSW Jaigarh Port Limited for conveyor belts, holding that the award disregarded material evidence, applied unequal standards to the parties’ witnesses, and went beyond the contractual warranty remedy.

The dispute at a glance

The dispute arose from two 2011 purchase orders under which Forech India Limited supplied EP conveyor belts for JSW Jaigarh Port Limited’s coal-handling system. The combined supply covered 3,490 metres of belting: 690 metres rated 800/4 and 2,800 metres rated 1250/4.

Before dispatch, the parties carried out a joint inspection. After installation, JSW reported waviness, visible three-ply material at one belt edge, and later air pockets in portions of the belts. JSW contended that the defects were inherent manufacturing defects and invoked two performance bank guarantees. It subsequently commenced arbitration.

In August 2015, the arbitral tribunal ordered Forech to pay Rs. 2,16,44,423, after accounting for the encashed bank guarantees, with 12% annual interest. The tribunal also rejected Forech’s counterclaim concerning the bank guarantees and damages.

Why the award was challenged

Forech challenged the award under Section 34 of the Arbitration and Conciliation Act, 1996. Its principal arguments were that:

• the tribunal ignored joint-inspection records and test certificates said to show compliance with the agreed technical specifications;
• the tribunal rejected Forech’s technical witnesses as in-house and non-expert, while relying on JSW’s own in-house witnesses;
• there was no evidence that JSW replaced the entire supply or purchased replacement belts from other suppliers; and
• the contractual warranty provided for free repair or replacement of defective parts, not a refund of the full contract price.

JSW maintained that the belts were defective within the warranty period, that Forech had failed to replace them, and that the tribunal’s factual findings should not be re-examined in a Section 34 challenge.

Court finds unequal treatment of evidence

The High Court emphasized that courts do not sit in appeal over arbitral awards. However, an award may be set aside where patent illegality is apparent, including where vital evidence is ignored, the decision is perverse, or the tribunal acts contrary to the contract or substantive law.

On the facts, the Court found that the tribunal had rejected Forech’s evidence about conveyor-system speed and operating parameters because its witnesses were in-house personnel and not specialist conveyor-system experts. Yet the tribunal accepted evidence from JSW’s similarly situated in-house witnesses.

The Court held that Forech’s witnesses were technical personnel involved in conveyor-belt manufacture and supply and were competent to address the applicable standards. It also noted that the technical material indicated the conveyor system’s operating speed of 4.5 m/s could have been a contributing factor, while the applicable parameters were said to indicate a maximum speed of 3 m/s for the material and conditions involved.

This one-sided treatment, the Court held, amounted to a failure to engage properly with Forech’s evidence and violated the equal-treatment requirement under Section 18 of the Arbitration and Conciliation Act.

Warranty remedy did not support a full refund

A key issue was the extent of belt replacement. Of the 3,490 metres supplied, the record showed that 860 metres had been replaced:

• 150 metres of the 800/4 belting; and
• 710 metres of the 1250/4 belting.

That left 2,630 metres that had not been shown to be replaced because of defects. The Court also found no evidence that JSW had purchased new belts from other suppliers to replace the entire supply, despite the tribunal’s finding to that effect.

The purchase orders contained a warranty for free repair or replacement of “any part(s)” found defective or unserviceable within the stipulated period. JSW had accepted and continued to use the belts, replacing certain portions rather than rejecting the goods outright.

The Court therefore held that the matter was one of breach of warranty, not a basis for treating the entire contract as repudiated. Under the Sale of Goods Act, 1930, acceptance and use of goods generally confine the buyer to a damages remedy for breach of warranty rather than a right to reject the goods and recover the entire purchase price.

Outcome and legal significance

The High Court concluded that the award suffered from patent illegality because it:

• selectively discounted Forech’s evidence while accepting comparable evidence from JSW;
• awarded relief inconsistent with the warranty clause; and
• lacked evidence that the whole supply had been replaced or that replacement belts had been bought from third parties.

The Court set aside both the arbitral award and the determination on Forech’s counterclaim. It left the parties to pursue remedies available in law and stated that, if a new arbitrator is appointed, the existing evidence may be used along with any additional evidence permitted.

Key takeaway for commercial contracts

The ruling underscores that an arbitral tribunal has wide latitude on facts, but it must evaluate comparable evidence even-handedly and remain within the parties’ contractual framework. Where a warranty is limited to repair or replacement of defective parts, a full-price refund requires clear contractual support and evidence of loss or replacement of the entire supply.

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Source: Bombay High Court

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