Flowmore Limited vs. M/S Skipper Limited

Facts

The appellant, Flowmore Limited, is appealing an order dated 02.02.2023 passed by the learned Single Judge in OMP (COMM) No. 391/2022. The appellant contends that the Single Judge erred by not appreciating the factual issues raised in its Section 34 petition under the Arbitration and Conciliation Act, 1996. The Single Judge had upheld an Arbitral Award in favour of the respondent, M/s Skipper Limited, which found Flowmore Limited guilty of breaching a Purchase Order dated 02.03.2019 and awarded Rs. 8,15,05,674/- to Skipper Limited. Flowmore Limited argued that the Arbitrator's findings were based on no evidence, ignored vital admissions, and were therefore patently illegal and perverse. The Single Judge, however, concluded that Flowmore had failed to demonstrate how the Arbitrator's finding was contrary to the public policy of India, stating that the threshold for setting aside an award had not been met.

Held

The High Court held that while the scope of judicial review under Section 37 of the Arbitration and Conciliation Act, 1996, is narrow, it does not preclude examination of the award if it is based on no evidence or ignores vital evidence. The Court found that the Arbitrator's conclusion that raw material was procured specifically for Flowmore and that towers were manufactured was not supported by evidence. It noted that Skipper Limited itself admitted that no manufacturing order (MC) was given for the towers. Furthermore, the Court observed that the Arbitrator's reliance on a proforma invoice to award a substantial sum, including an unquantified GST amount, was not a plausible view. The Court concluded that the Arbitral Award, on the face of it, suffered from patent illegality or ignored vital evidence and admissions, rendering it perverse. The Single Judge's impugned order was found to have failed to address these vital issues. Therefore, the appeal was allowed, and the case was remanded to the learned Single Judge for fresh adjudication on the contentions raised by the appellant in the Section 34 petition.

Key Issues

1. Whether the learned Single Judge erred in not considering the factual submissions made by the appellant regarding the alleged patent illegality and perversity of the Arbitral Award, thereby failing to appreciate that the award was based on no evidence or the ignoring of vital evidence? (Mixed question of law and fact, concerning Section 34(2)(b)(ii) and Section 37 of the Arbitration and Conciliation Act, 1996). Petitioner's Arguments: The appellant argued that the Arbitral Award was patently illegal and perverse because it was based on no evidence and ignored crucial admissions. Specifically, it contended that the Arbitrator erred in concluding that raw material was procured and towers were manufactured for Flowmore without sufficient proof, and that a proforma invoice was treated as a final bill for a substantial amount, including GST, which was not quantified. The appellant relied on the Supreme Court's judgment in Delhi Airport Metro Express Private Limited vs. Delhi Metro Rail Corporation Limited, emphasizing that while the scope of review under Section 37 is narrow, it does not exclude examination of records or reasons for the decision if the award is based on no evidence or ignores vital evidence. Revenue's Arguments: The judgment does not record specific arguments made by the respondent (Revenue) in this appeal. However, the Single Judge's order, as quoted in the judgment, indicated that the respondent had argued that the appellant failed to corroborate with evidence how the Arbitrator's finding regarding the breach of the Purchase Order was contrary to the Public Policy of India, and that the threshold for setting aside an award had not been met.