In a significant ruling, the Bombay High Court has dismissed a petition filed by Shriram EPC Ltd. challenging an arbitral award passed in favour of Parker-Hannifin India Pvt. Ltd. The court upheld the validity of the arbitral award and rejected claims that the arbitral tribunal had misinterpreted the contractual terms or violated legal provisions.
The dispute arose from a Supply Agreement dated 26th March 2012 between Shriram EPC Ltd. (the petitioner) and Parker-Hannifin (the respondent), under which the respondent agreed to manufacture and supply 480 hydraulic drives and 960 hydraulic cylinders for ₹6.81 crore. The agreement mandated a 10% advance payment from Shriram and a Letter of Credit (LC) for the remaining 90%, to be arranged through Corporate Ispat Alloys Ltd. (CIAL).
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Despite the contractual obligation, Shriram failed to ensure issuance of the LC for the second lot, resulting in the respondent delivering only the first lot. After repeated reminders and failed commitments, Parker-Hannifin terminated the agreement in December 2014 and initiated arbitration in June 2015. The arbitrator rejected Shriram's Section 16 jurisdiction challenge and eventually passed an award in 2019 partly allowing Parker-Hannifin’s claims for payment of manufactured goods, raw materials, and spare parts.
Shriram challenged the award under Section 34 of the Arbitration Act, arguing that the obligation to open the LC rested with CIAL, not the petitioner, and hence liability for payment of the remaining 90% could not be transferred to them. It was further submitted that the tribunal mischaracterized the nature of the claim—from price recovery to damages—and had in effect rewritten the contract by holding Shriram responsible.
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However, Justice R.I. Chagla held that the Supply Agreement clearly mandated Shriram to "procure" the LC from CIAL, making the failure to do so a contractual default. The court also upheld the arbitrator’s interpretation that the agreement was not novated or altered by the later Multi-Party Agreement (MPA), which was not even signed by CIAL or APL (Abhijeet Projects Ltd.).
“Clause 5.4.2 clearly states that the purchaser shall procure a Letter of Credit from CIAL, and this obligation remained intact throughout,” the court noted, emphasizing that non-signature by CIAL and APL to the MPA nullified Shriram’s claim that they were necessary parties to the arbitration.
On the issue of damages, the court supported the arbitrator’s reasoning that the goods manufactured were custom-made and non-standard, hence the respondent suffered actual losses. The arbitrator had carefully assessed the claim as one for compensation, not just price recovery, and awarded costs accordingly.
The court further dismissed the objection regarding inadequate stamping of the Supply Agreement, citing previous admissions by Shriram and the Section 11 appointment of the arbitrator which had recognized the arbitration clause.
“Once the document was admitted without objection, it cannot be later challenged for stamp duty insufficiency,” the court observed, citing settled legal principles.
Conclusively, the Bombay High Court found no perversity or patent illegality in the award and affirmed the arbitrator’s findings.
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Case Title: Shri Rajendra Vasant Pawar vs. Smt. Ashwini Rajendra Pawar
Case Number: Transfer Petition No. 9126 of 2024