Uttarakhand High Court
M/S Instapower Limited vs Gujrat State Electricity Corporation ... on 17 March, 2026
2026:UHC:1780-DB
RESERVED JUDGMENT
IN THE HIGH COURT OF UTTARAKHAND
AT NAINITAL
HON'BLE THE CHIEF JUSTICE SHRI MANOJ KUMAR GUPTA
AND
HON'BLE SHRI JUSTICE SUBHASH UPADHYAY
APPEAL FROM ORDER No. 354 OF 2019
M/s Instapower Limited.
...Appellant
Versus
Gujrat State Electricity Corporation Limited and another.
...Respondents
Counsel for the appellant. : Mr. Karthik Jayashankar, learned counsel.
Counsel for respondent no. 1. : Mr. V.K. Kohli, learned Senior Counsel
assisted by Mr. I.P. Kohli, learned counsel.
JUDGMENT RESERVED : 24TH FEBRUARY, 2026
JUDGMENT DELIVERED : 17TH MARCH, 2026
JUDGMENT :(per Hon'ble The Chief Justice Shri Manoj Kumar Gupta)
1. This Appeal, under Section 37 of the Arbitration and Conciliation Act, 1996 is directed against the judgment and order dated 10.07.2019 passed by the Additional District Judge (Commercial), Dehradun, in Arbitration Case No. 160/2016, whereby the petition filed by respondent no. 1 (hereinafter, referred to as the 'respondent-company'), under Section 34 of the Arbitration and Conciliation Act, 1996 (for short, hereinafter referred to as the 'Act') was allowed, and the Arbitral Award dated 29.07.2016, rendered by the respondent no. 2-Uttarakhand State Micro and Small 1 2026:UHC:1780-DB Enterprises Facilitation Council, Dehradun (for short 'the Facilitation Council'), was set-aside.
2. The facts, giving rise to the present proceedings, in brief, are that the respondent-company invited tender for supply of 5350 numbers of 28 watt Retrofit Type Energy Efficient Tubelights (T5) for use at its Thermal Power Stations. Pursuant thereto, the bid of the appellant came to be accepted, and a Purchase Order was issued on 10.06.2008, which stipulated that the goods would be supplied within four months of the order. Clause 11 provided that delivery of goods would be made, after getting the sample approved from the respondent-company.
3. Clause 8 of the Purchase Order provides for imposition of penalty for late delivery. Clause 8 is as follows:-
"8. Penalty for Late Delivery:
In case, the materials are not delivered within the period stipulated in the order, penalty shall be levied at ½% per week on the prices (End cost) subject to maximum 10% reckoned on the value of undelivered supplies.
Due consideration will be given for waival / levy of penalty only for the reasons absolutely beyond your control (Viz.Force Majeure conditions) for which documentary evidence will have to be provided. The request for extension in delivery giving reasons and supporting documents shall have to be made within one month on completion of the supply."
4. Clause 9 relates to extension in the contractual delivery date and power of the respondent-company to 2 2026:UHC:1780-DB consider extension of delivery period with or without penalty, if the appellant were able to prove by documentary evidence that the delivery got delayed on account of reasons beyond its control. Relevant part of Clause 9 is as follows :-
"9. Extension in the Contractual Delivery Date:
It will be supplier's responsibility to ensure that goods are delivered within the stipulated delivery period. However, if on account of reasons beyond ones control as laid down in the DGS & D Force Majeure Conditions the Company may consider extension of delivery period with or without penalty & with or without statutory variations. However, delivery extensions will be considered only after execution of the order fully and upon submission of documentary evidence for the reasons of delay.
However, such extension will be subject to the following conditions shown hereunder.
a) ......
b) ......
c) ......"
5. The appellant, for the first time, submitted sample for approval on 08.07.2008, but which was not approved, and was rejected. On 25.08.2008, the appellant was asked to submit a new sample. The second sample was submitted on 06.10.2008, which was again not found to be suitable, and hence was rejected. On 10.10.2008, the appellant was informed about the rejection of the sample and also that it had not deposited Security Deposit, as per Clause 48. On 21.11.2008, the respondent-company issued a show-cause notice to the appellant, whereby it was required to show cause, as to why the Purchase Order should not be cancelled.3
2026:UHC:1780-DB On 02.12.2008, the appellant submitted a request to permit it to submit fresh sample. In this regard, a letter dated 18.12.2008 was issued to the appellant. The appellant submitted another sample, and it was approved on 23.12.2008. According to the respondent-company, the appellant failed to submit Test Certificate, as was required under Clause 29. The said fact was intimated to the appellant, vide letter dated 17.01.2009. The appellant was issued reminders dated 20.02.2009 and 03.03.2009 for furnishing Test Certificate, and, ultimately, it was submitted on 12.03.2009.
6. As per Clause 11, all supplies were subject to inspection of the respondent-company, and the Joint Inspection was carried at Gurgaon, Haryana on 04.06.2009. Ultimately, the goods were supplied in the month of July/ August, 2009, i.e. more than after one year.
7. According to the respondent-company, since the appellant supplied the goods after the stipulated period of four months, hence, as per agreed terms and conditions, a total penalty of Rs. 2,48,715/- was imposed upon the appellant. The appellant requested for waiver of the penalty, and the said request was rejected by the respondent-company by its letter dated 18.08.2010.
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8. Further, according to the respondent-company, some of the goods supplied were defective. The appellant company failed to replace the same and, therefore, in terms of Clause 53 (Guarantee Clause), adjustment of value of goods to the extent of Rs. 2,16,140/- was made from the bank guarantee.
9. The appellant, being aggrieved, by the imposition of penalty and deductions made by the respondents, initiated proceedings before the Facilitation Council, contending that the delay in supplies was not attributable to it. Its case was that it could not have commenced supplies, unless the samples were approved by the respondent-company; that the respondent-company did not approve the samples within the original period of four months, and, that once approval was granted and inspection completed, the supplies were made soon thereafter. The appellant, thus, asserted that the delay was occasioned by the acts attributable to the respondent- company, and, therefore, no penalty could lawfully be imposed upon it. It further claimed that certain amounts have been wrongly withheld by the respondent-company, and that the encashment/ adjustment of bank guarantee was unjustified. 5
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10. The appellant, consequently, claimed the benefits of the provisions of the Micro, Small and Medium Enterprises Development Act, 2006 (for short, hereinafter referred to as 'MSMED Act'). The Claim Petition was instituted before the Council, whereupon notice was issued to the respondent- company, and the matter initially underwent the stage of conciliation, as contemplated under Section 18 of the MSMED Act. As the dispute was not resolved in conciliation, the Council proceeded to take up the matter as arbitration, under Section 18(3) of the MSMED Act. Before the Facilitation Council, both sides filed their pleadings and documents. The appellant asserted that a sum remained outstanding towards the price of goods, and that it was also entitled to statutory interest under the MSMED Act, on account of delayed payment. The respondent-company filed its response, disputing the claim, and, consequently, defending the deductions, on the basis of the terms of the Purchase Order, and the admitted delay in supply. Ultimately, the Facilitation Council, allowed the claim of the appellant by award dated 29.07.2016, and directed the respondent-company to pay interest in accordance with the provisions of MSMED Act.
11. Aggrieved by the award, the respondent-company filed objections, under Section 34 of the Act, before the 6 2026:UHC:1780-DB Commercial Court, Dehradun. The principal ground for challenging the award was that the Facilitation Council did not consider the contractual clauses, governing delay and penalty. Consequently, the award had proceeded without adjudication of the defence of the respondent-company, and also that the award was virtually a non-speaking and unreasoned award.
12. The Commercial Court, upon consideration of the material on record, allowed the objections under Section 34 of the Act, and set aside the Arbitral Award. It is this order, which is under challenge in the present Appeal filed under Section 37 of the Act.
13. The submission of learned counsel for the appellant is that the Commercial Court has transgressed limits of jurisdiction, available under Section 34 of the Act. It is contended that the scope of interference with an Arbitral Award is extremely limited, and does not permit the Court to act as an appellate forum, over the findings recorded by the Arbitral Tribunal. It is submitted that the Commercial Court misdirected itself in holding that the award is in contravention of the fundamental policy of Indian law and against public policy. It is urged that the Facilitation Council had correctly appreciated the facts, and it was not open to the Commercial Court to go into the questions of facts for setting aside the 7 2026:UHC:1780-DB award. In support of the submission, reliance has been placed on the judgment of the Supreme Court in OPG Power Generation Private Limited v. Enexio Power Cooling Solutions (India) Private Limited & Anr.1, particularly paragraph no. 37 thereof, which reads as follows:-
"37. What is clear from above is that for an award to be against public policy of India a mere infraction of the municipal laws of India is not enough. There must be, inter alia, infraction of fundamental policy of Indian law including a law meant to serve public interest or public good."
14. It is also the contention of learned counsel for the appellant that, though the arbitration proceedings commenced prior to the amendment to Section 34 of the Act, the award was passed on 29.08.2016, i.e. after Section 34 came to be amended, w.e.f. 23.10.2015. Thus, the submission is that amended Section 34 would apply to the present matter, where under scope of interference with an arbitral award got further reduced. The Commercial Court grossly erred in interfering with the Arbitral Award. In support of the said contention, reliance has been placed on the judgment of the Supreme Court in Associate Builders v Delhi Development Authority 2 (para 56), which is as follows :
"56. Here again, the Division Bench has interfered wrongly with the arbitral award on several counts. It had no business to enter into a pure question of fact to set aside the Arbitrator for having applied a formula of 20 months instead of 25 months. Though this would inure in favour of the 1 (2025) 2 SCC 417 2 (2015) 3 SCC 49 8 2026:UHC:1780-DB appellant, it is clear that the appellant did not file any cross objection on this score. Also, it is extremely curious that the Division Bench found that an adjustment would have to be made with claims awarded under claims 2, 3 and 4 which are entirely separate and independent claims and have nothing to do with claims 12 and 13. The formula then applied by the Division Bench was that it would itself do "rough and ready justice". We are at a complete loss to understand how this can be done by any court under the jurisdiction exercised under Section 34 of the Arbitration Act. As has been held above, the expression "justice" when it comes to setting aside an award under the public policy ground can only mean that an award shocks the conscience of the court. It cannot possibly include what the court thinks is unjust on the facts of a case for which it then seeks to substitute its view for the Arbitrator's view and does what it considers to be "justice".
With great respect to the Division Bench, the whole approach to setting aside arbitral awards is incorrect. The Division Bench has lost sight of the fact that it is not a first appellate court and cannot interfere with errors of fact."
15. Learned counsel for the appellant further submits that the respondent-company had accepted the goods supplied by the appellant. It is, thus, urged that, once goods were accepted, the respondent-company could not have imposed penalty or withheld the amounts, or detained the bank guarantee. The Facilitation Council was justified in treating the withheld amount as delayed payment, and in granting statutory interest thereon.
16. It is also submitted by learned counsel for the appellant that the delay in supply of goods was not attributable to the appellant. The appellant could not be expected to effect supplies, unless and until the samples were approved and inspection formalities were completed. Since the sample came to be approved only on 23.12.2008, and 9 2026:UHC:1780-DB Joint Inspection took place on 04.06.2009, it is contended that the period prior thereto could not have been counted against the appellant for the purpose of imposing penalty.
17. Per contra, learned counsel for the respondent- company supports the judgment and order of the Commercial Court, and submits that no interference is required in the present Appeal. It is contended that the contract between the parties was governed entirely by the Purchase Order dated 10.06.2008, which prescribed the delivery period, procedural obligations of the supplier, and the consequences of delay. It is submitted that the appellant failed to comply with the essential contractual requirements within time. It is further submitted that the samples submitted by the appellant were not approved at the first instance; that the requisite Test Certificates and related technical requirements were not timely fulfilled, and that ultimately the supplies were made only after an inordinate delay, i.e. in July/ August, 2009, although the Purchase Order was issued in June, 2008, and where under the goods were to be supplied within four months.
18. Learned counsel for respondent-company submitted that in the aforesaid circumstances, the respondent-company was fully justified in invoking the penalty clause under the 10 2026:UHC:1780-DB contract. The consistent case of the respondent-company is that mere acceptance of the goods, did not preclude it from imposing penalty and that the deduction was as per the stipulations in the contract, and was a result of delay and defaults attributable to the appellant alone. It is contended that the arbitral award suffers from a fundamental defect, inasmuch as, the Facilitation Council failed to decide the core issue, as to whether the deduction made by the respondent- company was justified under the terms of the Purchase Order.
19. Learned counsel for the respondent-company, thus, submits that the award does not analyze the relevant clauses of the contract, nor return any finding on the legality of the action of the respondent-company, in invoking the penalty clause. It merely reproduces the proceedings and the pleadings, and then jumps to conclusion. In substance, the contention is that the Arbitral Award is a non-speaking award and was, thus, rightly set aside.
20. The arbitration conducted by the Facilitation Council, under Section 18(3) of the MSMED Act, in terms of the said provision, is governed by the provisions of the Arbitration and Conciliation Act, 1996. The Supreme Court in Gujarat State Civil Supplies Corporation Ltd. v. Mahakali Foods Pvt. 11
2026:UHC:1780-DB Ltd. (Unit 2) & Anr. 3 has clarified that the proceedings before the Facilitation Council, after failure of conciliation, partake the character of statutory arbitration, and the resultant award is amenable to challenge under Section 34 of the Act. Therefore, the award in the present case was required to satisfy the parameters laid down in the Act including adherence to Section 31(3) and proper adjudication of the dispute arising from the contract.
21. On examining the pleadings and the nature of controversy, it becomes clear that the real dispute between the parties was not merely, whether some amount stood not paid, but whether the respondent-company had lawfully deducted amounts by way of penalty and by invoking/ adjusting the bank guarantee, under the terms of the Purchase Order. If the deduction was justified under the contract, then the amount retained by the respondent- company could not straightway be characterized as delayed payment for the purpose of statutory interest. On the other hand, if the deduction was unjustified, then the appellant's claim would stand on a different footing. Either way, the Arbitral Tribunal could not bypass this issue, and was required 3 (2023) 6 SCC 401 12 2026:UHC:1780-DB to adjudicate and return a finding on the same, based on the terms and conditions of the contract.
22. In other words, the Arbitral Tribunal was required to determine, whether the appellant had, in fact, delayed the supplies beyond the contractual period, whether such delay was attributable to the appellant, or the respondent- company's own acts, including delay in approval of samples; what was the effect of sample approval and subsequent inspection on the delivery obligation; and whether in the facts of the case, the respondent-company was contractually entitled to impose the penalty.
23. A perusal of the Arbitral Award shows that the Facilitation Council has largely set out the background facts; recorded the dates and meetings, and noticed the rival stand of the parties. It also refers to the sequence concerning the contract, approval of samples, inspection of subsequent supply. However, after setting out these matters, the award does not proceed to undertake a reasoned analysis of the contractual clauses, or the defence of the respondent- company. There is no discussion in the award, as to the exact contractual stipulations relating to delay and penalty. There is no reasoned finding, as to whether time was essence of the 13 2026:UHC:1780-DB contract, and whether the delay was attributable to the appellant, or the respondent-company. There is no clear adjudication of the respondent-company's plea that the appellant was in breach of other pre-supply obligations, such as submission of Test Certificate and furnishing of security/ bank guarantee. There is no express finding that the penalty imposed by the respondent-company was contrary to the contract. Instead, the award moves from a recitation of the history of the dispute to the conclusion that payment had been delayed, and, therefore, interest under MSMED Act was payable.
24. It is true that, under Sections 15 & 16 of the MSMED Act, a supplier is entitled to claim interest, where payment for goods supplied is delayed beyond a prescribed period. However, the liability, under these provisions, would arise only when the liability is admitted, or the amount is held to be due after due adjudication. Where the purchaser disputes the liability on the grounds that deductions have been made strictly in accordance with the contractual terms governing the transaction, the Arbitral Tribunal is required first to determine, whether such deductions were justified under the terms and conditions of the contract.
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25. The main submission of learned counsel for the appellant, as noted above, is that the Commercial Court exceeded the scope of Section 34 of the Act. In support of the said submission, the learned counsel for the appellant has placed reliance on the amended provisions of Section 34 of the Act.
26. Before adverting to the merits of the contention of learned counsel for the appellant, regarding wrongful interference with the Arbitral Award, it is necessary to notice the effect of the amendments introduced in Section 34 of the Arbitration and Conciliation Act, 1996, by the Arbitration and Conciliation (Amendment) Act, 2015, which came into force on 23.10.2025. By virtue of the said amendment, Section 34(2A) was inserted, providing that, in case of domestic arbitrations, and Arbitral Award may also be set aside if the Court finds that the award is vitiated by patent illegality appearing on the face of record. At the same time, the amended provision makes it clear that an award shall not be merely set aside on the ground of erroneous application of the law, or by re- appreciation of evidence. The legislative intent, underlying the amendment, was to limit excessive judicial interference with Arbitral Awards, and to permit interference only where the 15 2026:UHC:1780-DB award suffers from a fundamental defect, such as patent illegality.
27. The Supreme Court has explained the scope of the amended provision in Ssangyong Engineering & Construction Company Limited v. National Highways Authority of India (NHAI) 4, and the law laid down in Associate Builders (supra), prior to amendment, as follows:-
"40. The change made in Section 28(3) by the Amendment Act really follows what is stated in paragraphs 42.3 to 45 in Associate Builders (supra), namely, that the construction of the terms of a contract is primarily for an arbitrator to decide, unless the arbitrator construes the contract in a manner that no fair-minded or reasonable person would; in short, that the arbitrator's view is not even a possible view to take. Also, if the arbitrator wanders outside the contract and deals with matters not allotted to him, he commits an error of jurisdiction. This ground of challenge will now fall within the new ground added under Section 34(2A).
41. What is important to note is that a decision which is perverse, as understood in paragraphs 31 and 32 of Associate Builders (supra), while no longer being a ground for challenge under "public policy of India", would certainly amount to a patent illegality appearing on the face of the award. Thus, a finding based on no evidence at all or an award which ignores vital evidence in arriving at its decision would be perverse and liable to be set aside on the ground of patent illegality. Additionally, a finding based on documents taken behind the back of the parties by the arbitrator would also qualify as a decision based on no evidence inasmuch as such decision is not based on evidence led by the parties, and therefore, would also have to be characterised as perverse."
28. Thus an award, which ignores the vital terms of the contract, or fails to decide the core issue between the parties, 4 (2019) 15 SCC 131 16 2026:UHC:1780-DB would undoubtedly fall within the ambit of patent illegality and may be set aside under Section 34(2A) of the Act.
29. In the present case, as noted earlier, the principal dispute between the parties was, whether the penalty imposed by the respondent-company, for delayed supply, was justified under Clause 8 of the Purchase Order. The Arbitral Tribunal, however, did not examine the contractual provision governing delay in delivery, nor did it return any clear finding on the legality of the deductions made by the respondent-company. Therefore, the award fails to determine the core issue, arising between the parties, and does not disclose the reasoning process, leading to the conclusion reached. Such omission, in the considered view of this Court, brings the award squarely within the category of patent illegality appearing on the face of record, as contemplated under Section 34 (2A) of the Act.
30. Although, undoubtedly, the award was under the provisions of the MSMED Act, but as noted above, it partakes the character of statutory arbitration. Therefore, the award, in the present case, was required to satisfy the discipline of arbitral adjudication, including adherence to Section 31(3), mandating requiring of reasons, on which award is given. In the instant case, there was no agreement between the parties 17 2026:UHC:1780-DB that award could be rendered without requiring reasons, nor the award was on agreed terms under Section 30 of the Act, and, therefore, non-recordal of the reasons has resulted in a fundamental defect in the award.
31. In M/s Som Datt Builders Ltd. v State Of Kerala5, the Supreme Court emphasized that the award must indicate the basis, on which conclusions have been reached. In Dyna Technologies Pvt Ltd v. Crompton Greaves Ltd. 6, and even in OPG Power Generation Private Limited (supra) cited by learned counsel for the appellant, the Supreme Court observed that, though reasons need not be elaborate like a judgment of a Court, they must at least be intelligible and reflect the thought process adopted by the Tribunal. Thus, while brevity or inadequacy of reasons is not, by itself, a ground to invalidate an award, failure to adjudicate the core dispute, or omission to disclose the basis of the conclusion, certainly renders the award vulnerable.
32. Examining from the aforesaid aspects, the award of the Arbitral Tribunal fails to consider the contractual terms, the defence of the respondent-company, and without adjudication of the core dispute, as to whether the penalty 5 (2009) 10 SCC 259 6 (2019) 20 SCC 1 18 2026:UHC:1780-DB was rightly imposed or not, and deductions were permissible under the contract, or not, virtually on assumptions that the amount was due, proceeds to award statutory interest, and this, in the considered opinion of the Court, amounts to a patent illegality. The Commercial Court has not replaced the award with its own view of facts, but has essentially held that the award is unsustainable due to non-consideration of essential issue, and absence of proper reasons. The order under Section 34 is, thus, consistent with the settled principles of arbitral review, and does not call for appellate correction.
33. At the same time, the dispute between the parties has not yet been adjudicated on the merits of the contractual controversy. Since the arbitration in the present case arises from proceedings initiated under Micro, Small and Medium Enterprises Development Act, 2006 Section 18, which contemplates statutory arbitration upon failure of conciliation, the underlying dispute does not stand extinguished merely because the award has been set aside. Therefore, in our opinion, remand of the claim to the Facilitation Council would sub-serve the ends of justice. While doing so, we would not be modifying or reviewing the award. The present course would not be inconsistent with the principle laid down by the Supreme Court in Gayatri Balasamy v. IS Novasoft 19 2026:UHC:1780-DB Technologies Ltd.7, which holds that courts exercising jurisdiction under Section 34 cannot modify arbitral awards.
34. Accordingly, the appeal is disposed of with the following directions:
1. The judgment dated 10.07.2019 passed by the learned Additional District Judge (Commercial), Dehradun in Arbitration Case No. 160 of 2016, whereby the arbitral award dated 29.07.2016 was set aside, is affirmed.
2. The dispute between the parties is remitted to the Uttarakhand Micro and Small Enterprises Facilitation Council for fresh adjudication in accordance with law.
3. The Facilitation Council shall reconsider the matter after affording opportunity of hearing to both parties and shall pass a reasoned award, specifically examining:
(i) the contractual provisions governing delayed delivery,
(ii) the justification of the penalty imposed under Clause 8 of the purchase order, and
(iii) the entitlement, if any, of the appellant to claim interest under the MSMED Act, 2006.7
2025 SCC OnLine SC 986 20 2026:UHC:1780-DB
35. The Facilitation Council may proceed on the basis of the pleadings, documents and evidence already on record. However, if the Council considers it necessary in the interest of justice, it shall be open to it to permit the parties to place limited additional material or evidence relating to the issues identified in this order.
36. The Facilitation Council shall endeavour to conclude the proceedings expeditiously, preferably within a period of three months from the date of receipt of a copy of this order.
37. All contentions of the parties are left open to be urged before the arbitral tribunal.
38. The appeal is accordingly disposed of. No order as to costs.
39. All pending applications also stand disposed of accordingly.
______________________ MANOJ KUMAR GUPTA, C.J.
___________________ SUBHASH UPADHYAY, J.
Dt: 17th March, 2026 Rahul Digitally signed by RAHUL PRAJAPATI RAHUL DN: c=IN, o=HIGH COURT OF UTTARAKHAND, ou=HIGH COURT OF UTTARAKHAND, 2.5.4.20=aa4fa3bee6691397758b14516ed3e6 6e61bf4c848741983ed8c39e4145cf1dab, PRAJAPATI postalCode=263001, st=UTTARAKHAND, serialNumber=303B55CC3063D34AC45BF8A 192FCAD15C390A1AAD7B39857D2540AE4C 28A4898, cn=RAHUL PRAJAPATI Date: 2026.03.20 10:53:13 +05'30' 21